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Back to boom: Sydney house prices jump 14% in 2014 - APM; Sydney property market is in hyperdrive while the rest of the country is in second gear
Topic Started: 29 Jan 2015, 08:49 AM (5,617 Views)
Sydneyite
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John Frum
29 Jan 2015, 06:11 PM
My bet is that thanks to that boom sydneyite payed his 91 purchase off a lot quicker than 30 years, assuming he didn't refinance to lever up into property harder. Can you really say the same for the FOMO kids diving into cashflow neutral/negative IPs now?
I bought in '92. And as Peter F said, at the time I bought nearly everyone I know in my peer group thought I was mad - except for one mate who had done the same thing and we used to talk about property etc, so he kind of inspired me not to listen to the herd. My family (parents) thought it was a good idea of course. I was < 25 at the time. Paid it off by '97 - including having to deal with mortgage rates of between 9% and 12% pretty much the whole time. It helped that I turned it into a typical "share" house (I had 2 spare bedrooms plus a study), except I owned it so all the rent people paid went to help pay off my mortgage, but I still had the "fun" of living in a typical 20-something share house with all the partying, shenanigans etc that go on at that stage in your life. Once I was established and had the mortgage under control etc, I also took some time out to travel etc (back-packed Europe for 3 months one glorious European summer, ski trips to Canada and so on), and also by that time started to travel a fair bit for my work as well - so I didn't miss out on anything compared to my non property owning peers as far as I could see? There is nothing stopping the "FOMO kids" today from doing exactly the same thing, if they want to.

Then I sold that first place in '99 and "upgraded" to new place (although it was a 1910 semi, un-renovated, so actually very old, but < 5kms to the CBD vs out in the 'burbs where my first place was). Even un-renovated it cost 175% of what I sold my old place for. I renovated the new place (spent $100k+), and paid all that off by 2005. Sold/upgraded again in '08 to 3rd PPOR - my current house, which I bought with my wife, combining our assets in effect (she had property as well when we met) - this is the lower/mid north shore family home (4/3, DLUG, pool, all the mod-cons) - cost about 150% of what the previous place sold for. We paid the (relatively small) loan off for this one by 2011.

So not sure how all that fits in with your narrative? It's a pretty typical Sydney "property ladder" story among most of my current social and family circle, for people of a similar age, so while certainly I am more fortunate than many in a lot of ways, my situation and story is far from unique. I see no reason why the kids from similar socio-economic backgrounds to mine today starting out cannot end up in a similar position after a similar period of time? It's not easy - but then in Sydney at least, I don't think it ever has been?

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I think its per capita gdp we're interested in here:
I don't get your point here. You started out talking about the leverage/debt levels today compared to "the past", and now that I have pointed out that we have had 2 property downturns already with similar debt levels, and there was no crash, you are changing the subject to GDP/capita for some reason?

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and does it not concern you that financials make up over 40% of the ASX now?: https://twitter.com/David_Scutt/status/560689520585093121

... and of that 40%, the majority of the business is making money from mortgages? It's absurd to even compare the current situation to 20-30 years ago. The "we've been here before" argument is pure smoke and mirrors.
I lot of the finance sector earnings come from o/s - ie service exports, so it's not all "local mortgages". Sure, I would like to see more diversification on our local bourse, but you also have to remember that a huge number of smaller businesses in Australia are not listed - and it is usually these firms that represent the other more diversified sectors of the economy as well. The UK has been a very successful economy for a long time by being a financial hub - it's not necessarily a bad thing for Australia to be in this position in our region?

And we *have* been here before - a wise man once told me "there is nothing new under the sun". I think he was (mostly) right.


For Aussie property bears, "denial", is not just a long river in North Africa.....
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peter fraser
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Sydneyite
29 Jan 2015, 07:48 PM
I bought in '92. And as Peter F said, at the time I bought nearly everyone I know in my peer group thought I was mad
That's what I hear over and over again from successful people, other people tell them they are mad.

I have this image in my mind of the Google founders going to their bank manager and saying "we have this great idea about an internet search engine start up that might do OK" and their bank manager saying "piss off kids don't waste my time"
Any expressed market opinion is my own and is not to be taken as financial advice
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Ned Flanders
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peter fraser
29 Jan 2015, 09:11 PM
That's what I hear over and over again from successful people, other people tell them they are mad.
People tell me I am mad for not buying property. I wonder if the rule is all encompassing.
------------------------------
" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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Bardon
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John Frum
29 Jan 2015, 06:11 PM


My bet is that thanks to that boom sydneyite payed his 91 purchase off a lot quicker than 30 years, assuming he didn't refinance to lever up into property harder. Can you really say the same for the FOMO kids diving into cashflow neutral/negative IPs now?
Yep those diving in right now will be miles ahead of you in wealth terms in 30 years, same as it ever was.
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peter fraser
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Ned Flanders
29 Jan 2015, 09:17 PM
People tell me I am mad for not buying property. I wonder if the rule is all encompassing.
No, there is no rule, but I think common denominator is that you have to take a risk not avoid a risk.

In 1992 it wasn't accepted thinking that buying a house would make you wealthy, that came later with a number of self help wealth creation books, so Sydneyite was moving against the tide at that moment in time.

Personally I won't be putting all of my money into property although I certainly own some. I don't believe that the gains in the future will match the gains of the past. They will still be a solid hold, but not spectacular. I sat the nineties out by the way apart from my own home, I was way too busy in business at the time to invest in property.

When I was starting out the richest man in Qld was Charles Viertel - he only owned one house - the one he lived in at Apollo Rd Bulimba. He didn't waste money on houses - there are many roads to where you want to go, you just have to find the right one for you.
Any expressed market opinion is my own and is not to be taken as financial advice
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Ned Flanders
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peter fraser
29 Jan 2015, 09:34 PM
No, there is no rule, but I think common denominator is that you have to take a risk not avoid a risk.

I agree with this. Some hold the philosophy that opportunity cost is also a risk. That is, buy when it's booming because the cost of missing out/opportunity cost is a bigger 'risk' than the potential reward. There is probably some merit to that, although during half of the housing boom I personally focused on my career and my salary went up by, on average, 20% per year. There were some costs associated with that process that I could not have borne if I had been paying off a mortgage (at the time the mortgage repayment was more than double my rent for the same property, I know because I checked).

They say hindsight is 20/20, but I think in some ways I was much better off financially for that decision, but maybe I am just rationalising my choices.

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When I was starting out the richest man in Qld was Charles Viertel - he only owned one house - the one he lived in at Apollo Rd Bulimba. He didn't waste money on houses - there are many roads to where you want to go, you just have to find the right one for you.

Thanks for that Peter, much appreciated.
------------------------------
" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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John Frum
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Sydneyite
29 Jan 2015, 07:48 PM
I bought in '92. And as Peter F said, at the time I bought nearly everyone I know in my peer group thought I was mad - except for one mate who had done the same thing and we used to talk about property etc, so he kind of inspired me not to listen to the herd. My family (parents) thought it was a good idea of course. I was < 25 at the time. Paid it off by '97 - including having to deal with mortgage rates of between 9% and 12% pretty much the whole time. It helped that I turned it into a typical "share" house (I had 2 spare bedrooms plus a study), except I owned it so all the rent people paid went to help pay off my mortgage, but I still had the "fun" of living in a typical 20-something share house with all the partying, shenanigans etc that go on at that stage in your life. Once I was established and had the mortgage under control etc, I also took some time out to travel etc (back-packed Europe for 3 months one glorious European summer, ski trips to Canada and so on), and also by that time started to travel a fair bit for my work as well - so I didn't miss out on anything compared to my non property owning peers as far as I could see? There is nothing stopping the "FOMO kids" today from doing exactly the same thing, if they want to.
So you paid your mortgage off in 5 years with crippling interest rates and still had time to party and get drunk and forget to turn up to work? Sorry, but that just sounds far fetched. I have no doubt it may be possible, but in general it's extremely unlikely.

Although like most people you like to attribute your success to your chutzpah and smarts, It's much more likely that most of it is down to you being extremely fortuitous in your timing when you bought in '91, and it was this that allowed you to pay it off by '97:

Posted Image

You also had an inflation spike halfway through your mortgage to counter the high interest rates:

Posted Image

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Even un-renovated it cost 175% of what I sold my old place for.


that doesn't seem unreasonable - house prices were still tracking inflation, you had over half of that amount in existing equity, and you would have been starting to earn more money as your career was progressing.

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I renovated the new place (spent $100k+), and paid all that off by 2005. Sold/upgraded again in '08 to 3rd PPOR - my current house, which I bought with my wife, combining our assets in effect (she had property as well when we met) - this is the lower/mid north shore family home (4/3, DLUG, pool, all the mod-cons) - cost about 150% of what the previous place sold for. We paid the (relatively small) loan off for this one by 2011.


again, none of this is a surprise. Look at the graph - prices had soared by the time you got to 2005. You were 'in', not 'on' the ladder. What all this boils down to is that you (and presumably your wife) were lucky to purchase and pay off your first house while prices were still low relative to incomes. That part is crucial. Once you have existing equity it's pretty much plain sailing.

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I see no reason why the kids from similar socio-economic backgrounds to mine today starting out cannot end up in a similar position after a similar period of time?


wages stagnating, high debt with less inflation to eat away at it, weak Chinese growth, creeping unemployment. You need more?

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I don't get your point here. You started out talking about the leverage/debt levels today compared to "the past", and now that I have pointed out that we have had 2 property downturns already with similar debt levels, and there was no crash, you are changing the subject to GDP/capita for some reason?


Because you said previously:

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Also while aggregate leverage may be high nationally, it's been flat in GDP relative terms for over a decade now


...so i put the graph there to show that private debt has been rising in gdp per capita terms. The distinction is important as it shows the dilution of individual wealth due to population increase.

Before our debt levels were easily sustainable - China was paying big coin for our dirt, the favorable terms of trade that this provided made our imported consumables cheap, and as result the government's coffers were full so they could issue handouts and incentives to sustain high property prices. Not so easy to do that now.

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I lot of the finance sector earnings come from o/s - ie service exports, so it's not all "local mortgages".


so from here:

http://dfat.gov.au/publications/tgs/index.html#exports

we see that the total value of Iron Ore exported 2013-14 was 74.7 billion, our number one export

down in 21st place, we have Financial services, with 2.8 billion in exports - chicken shit.

The only use we have for overseas financial markets is to borrow cheaply. Or used to be able to borrow cheaply that is.

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Sure, I would like to see more diversification on our local bourse, but you also have to remember that a huge number of smaller businesses in Australia are not listed - and it is usually these firms that represent the other more diversified sectors of the economy as well.


you mean the ones that the banks won't lend to because of the heftier capital requirements on their loans; as opposed to mortgages, where they can lever away with abandon?

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The UK has been a very successful economy for a long time by being a financial hub - it's not necessarily a bad thing for Australia to be in this position in our region?


I spent nearly 10 years working in London - its financial system is a ginormous ponzi scheme that got a lifeline from the taxpayer 8 years ago to give it a second wind. As long as the pitchforks stay in the cupboard and rich people from Asia and the Middle East are permitted to continue to park their dirty money there it will survive.

Is that the sort of place you'd like Sydney to be? A place for all the dirty Asian money to get parked?

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And we *have* been here before - a wise man once told me "there is nothing new under the sun". I think he was (mostly) right.


Ireland, Spain, Japan, U.S, Dot Com, Tulips :z:
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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Ned Flanders
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John Frum
29 Jan 2015, 10:14 PM
I spent nearly 10 years working in London - its financial system is a ginormous ponzi scheme that got a lifeline from the taxpayer 8 years ago to give it a second wind. As long as the pitchforks stay in the cupboard and rich people from Asia and the Middle East are permitted to continue to park their dirty money there it will survive.

Is that the sort of place you'd like Sydney to be? A place for all the dirty Asian money to get parked?
http://www.dailymail.co.uk/debate/article-1128590/MAX-HASTINGS-Hanging-bankers-lamp-posts-good--bonus-gravy-train-just-insult-all.html

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Hanging bankers from lamp posts would do no one any good - but this bonus gravy train is just an insult to us all


It came pretty close to pitchforks in 09.
Edited by Ned Flanders, 29 Jan 2015, 10:24 PM.
------------------------------
" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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John Frum
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peter fraser
29 Jan 2015, 09:11 PM
That's what I hear over and over again from successful people, other people tell them they are mad.

Hilarious. Tell me Pete - for any one successful person, how many burnt out debt-ridden basket cases with a trail of broken friendships/relationships are there, who also threw it in the ring and gave it their all? You just chose to overlook it because you're not clever enough to realise you're getting a dose of survivor's bias when you talk to these people.

Quote:
 
I have this image in my mind of the Google founders going to their bank manager and saying "we have this great idea about an internet search engine start up that might do OK" and their bank manager saying "piss off kids don't waste my time"


That you could even equate the scale of what Sergey and Larry built to some boneheaded shmuck who sets out to enrich themselves via the roof they live under just shows how clueless you are.
Edited by John Frum, 29 Jan 2015, 10:29 PM.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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Clive
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John Frum
29 Jan 2015, 10:14 PM
Although like most people you like to attribute your success to your chutzpah and smarts, It's much more likely that most of it is down to you being extremely fortuitous in your timing when you bought in '91, and it was this that allowed you to pay it off by '97
Not just '91, honestly, anyone who bought Australian property any time over the last two or three hundred years has been very lucky indeed with almost constant nominal price appreciation, and much of the time real inflation adjusted appreciation too. Personally I think the last few hundred years was an anomaly and the luck has now run out. House prices will go back to doing what they did before that little run of luck. Bad luck for anyone buying today!
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