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The high cost of snake oil
Topic Started: 7 Jan 2017, 10:18 AM (10,277 Views)
Rufus
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Here's a story about housing and snake oil.
The Kouk
Link
Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.
Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Fast forward to the end of 2016.

The value of Couple 1’s house is now $882,000, which is a neat $299,000 tax free gain from the purchase price. Following average wages growth and a bit more seniority at work, Couple 1’s household income has risen to $125,000 a year. They have been able to negotiate a mortgage rate of 4.5% and based on constant repayments of $2,881 a month, their mortgage has dropped to around $375,000. This means that the $116,600 deposit in 2010 has turned into just over $500,000 of tax free wealth in their house which they have enjoyed living in.

Couple 2 are still renting. They have moved twice in the period to different properties at great cost and inconvenience. With rents being a little cheaper than mortgage repayments, they held off buying too many coffees and smashed avocado breakfasts and put $400 a month, every month for six years, into their savings account. Their income is now $125,000 a year, the same as Couple 1. They would liked to have saved more than the $400 a month, but rents have increased by 28 per cent since 2010 which has taken up most of the increase in income. Their strategy of having money in term deposits has seen an average interest return of about $5,000 a year, one third of which has to be paid in tax. The sum of their savings is now around $170,000. They are still looking to buy.

In six short years, Couple 1 have $330,000 more wealth than Couple 2.

And Steve Keen?

Well, he’s now a Professor of Economics in London and seemingly the go-to person when journalists want a headline grabbing, high click story to write.
Keen still thinks house prices are going to fall by a large amount it’s just the timing that is uncertain.
Edited by Rufus, 7 Jan 2017, 10:18 AM.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Foxy
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Zero is coming...

Rufus
7 Jan 2017, 10:18 AM
Here's a story about housing and snake oil.
The Kouk
Link
Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.
Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Fast forward to the end of 2016.

The value of Couple 1’s house is now $882,000, which is a neat $299,000 tax free gain from the purchase price. Following average wages growth and a bit more seniority at work, Couple 1’s household income has risen to $125,000 a year. They have been able to negotiate a mortgage rate of 4.5% and based on constant repayments of $2,881 a month, their mortgage has dropped to around $375,000. This means that the $116,600 deposit in 2010 has turned into just over $500,000 of tax free wealth in their house which they have enjoyed living in.

Couple 2 are still renting. They have moved twice in the period to different properties at great cost and inconvenience. With rents being a little cheaper than mortgage repayments, they held off buying too many coffees and smashed avocado breakfasts and put $400 a month, every month for six years, into their savings account. Their income is now $125,000 a year, the same as Couple 1. They would liked to have saved more than the $400 a month, but rents have increased by 28 per cent since 2010 which has taken up most of the increase in income. Their strategy of having money in term deposits has seen an average interest return of about $5,000 a year, one third of which has to be paid in tax. The sum of their savings is now around $170,000. They are still looking to buy.

In six short years, Couple 1 have $330,000 more wealth than Couple 2.

And Steve Keen?

Well, he’s now a Professor of Economics in London and seemingly the go-to person when journalists want a headline grabbing, high click story to write.
Keen still thinks house prices are going to fall by a large amount it’s just the timing that is uncertain.
Couple 2 moves to Perth, buys a house that has actually gone down in real terms over that time, pays a huge deposit and is a happy as Larry.

Peter


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Trollie
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The Kouk has nailed it.
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Terry
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Rufus
7 Jan 2017, 10:18 AM
Here's a story about housing and snake oil.
The Kouk
Link
Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.
Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Fast forward to the end of 2016.

The value of Couple 1’s house is now $882,000, which is a neat $299,000 tax free gain from the purchase price. Following average wages growth and a bit more seniority at work, Couple 1’s household income has risen to $125,000 a year. They have been able to negotiate a mortgage rate of 4.5% and based on constant repayments of $2,881 a month, their mortgage has dropped to around $375,000. This means that the $116,600 deposit in 2010 has turned into just over $500,000 of tax free wealth in their house which they have enjoyed living in.

Couple 2 are still renting. They have moved twice in the period to different properties at great cost and inconvenience. With rents being a little cheaper than mortgage repayments, they held off buying too many coffees and smashed avocado breakfasts and put $400 a month, every month for six years, into their savings account. Their income is now $125,000 a year, the same as Couple 1. They would liked to have saved more than the $400 a month, but rents have increased by 28 per cent since 2010 which has taken up most of the increase in income. Their strategy of having money in term deposits has seen an average interest return of about $5,000 a year, one third of which has to be paid in tax. The sum of their savings is now around $170,000. They are still looking to buy.

In six short years, Couple 1 have $330,000 more wealth than Couple 2.

And Steve Keen?

Well, he’s now a Professor of Economics in London and seemingly the go-to person when journalists want a headline grabbing, high click story to write.
Keen still thinks house prices are going to fall by a large amount it’s just the timing that is uncertain.
Good heavens.

Robert Shiller predicted a triple bubble burst. None of it happened like the timeline of some kind of prophecy and he was pilloried by the media and experts. In the 90s, everything was good and everyone was making a motza from the digital revolution. Shiller was having none of it and thought that the tech bubble would burst, then he clearly saw what was going on with housing and the financial industry. What happened next was like shooting suburbanites with a taser at the BBQ.

Renowned journalist George Will famously collared Shiller in an interview and accused him of leading the suburbanites down the garden path if they listened to him.

Similar nonsense here.

Shiller was later awarded a Noble Prize while the smarmy Will moved on to the next populist editorial.

Kook will never win a Nobel nor will he ever be recognized as an economic visionary.
Edited by Terry, 7 Jan 2017, 02:45 PM.
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skamy
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foxbat
7 Jan 2017, 11:12 AM
Couple 2 moves to Perth, buys a house that has actually gone down in real terms over that time, pays a huge deposit and is a happy as Larry.

Peter

Even if they moved to Perth to buy they are still ahead on the non buying couple as they are 6 years closer to home ownership- they have 6 years of rent free living (- this is over $100K on a $350 a week rental) locked into the future.

How do you keep missing the big picture Peter ? - you need to dump that loser Foxbat he is a negative whinger who has told you BS for years.
Terry
7 Jan 2017, 02:33 PM
Good heavens.

Robert Shiller predicted a triple bubble burst. None of it happened like the timeline of some kind of prophecy and he was pilloried by the media and experts. In the 90s, everything was good and everyone was making a motza from the digital revolution. Shiller was having none of it and thought that the tech bubble would burst, then he clearly saw what was going on with housing and the financial industry. What happened next was like shooting suburbanites with a taser at the BBQ.

Renowned journalist George Will famously collared Shiller in an interview and accused him of leading the suburbanites down the garden path if they listened to him.

Similar nonsense here.

Shiller was later awarded a Noble Prize while the smarmy Will moved on to the next populist editorial.

Kook will never win a Nobel nor will he ever be recognized as an economic visionary.
Shiller only got his predictions right in a few economies- he was wrong on Australia and the UK and many many other economies.

Are you still drooling over graphs on shonky internet blogs ? You gave a laugh with that one
Edited by skamy, 7 Jan 2017, 04:03 PM.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Trollie
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Terry
7 Jan 2017, 02:33 PM
Shiller was later awarded a Noble Prize
So what? He's gotten heaps of things wrong, a prize from a foundation setup out of guilt over blowing people up doesn't give him any additional insight.
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Terry
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Trollie
7 Jan 2017, 04:05 PM
So what? He's gotten heaps of things wrong, a prize from a foundation setup out of guilt over blowing people up doesn't give him any additional insight.
Not about Shiller Roddy. It's more about how the Kook massages the fears of the suburbanites with similar tactics used by populist journalists.
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Trollie
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Terry
7 Jan 2017, 04:24 PM
Not about Shiller Roddy. It's more about how the Kook massages the fears of the suburbanites with similar tactics used by populist journalists.
Roddy you just wrote a diatribe all about Shiller now you want us to believe you weren't talking about Shiller.

Were the latte's at the hipster cafe a bit strong today or something?
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Terry
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Trollie
7 Jan 2017, 08:42 PM
Roddy you just wrote a diatribe all about Shiller now you want us to believe you weren't talking about Shiller.

Were the latte's at the hipster cafe a bit strong today or something?
Not about me Roddy. It's about how Kooky massages the ego of his audience using the emotional hooks that the suburbanites crave and need. Of course, Kooky will never be recognized globally for his vision, unlike Shiller and increasingly Steve Keen. Kooky knows that and possibly feels envious.
Edited by Terry, 7 Jan 2017, 08:51 PM.
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Khaderbhai
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Wealthy Suburbanite

Terry
7 Jan 2017, 08:51 PM
Kooky will never be recognized globally for his vision, unlike Shiller and increasingly Steve Keen.
Steve Keen is most recognised for his imminent 40% crash prediction in 2008 when he sold his Sydney home. Sydney house prices have more than doubled since then.
Edited by Khaderbhai, 7 Jan 2017, 09:19 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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