I think this is an incredibly key point. You can do your spreadsheets based on other ways of saving/investing, but for many people the discipline of making a mortgage payment every month means they save more at the expense of a few lattes or a better car at some point. And their actual outcome is better than if they tried to follow the optimum strategy.
Translation: People are irresponsible and dumb, so it's better to funnel them into a compulsory savings scheme so they have something to show for 40 years of being irresponsible and dumb.
Quote:
Property may not be the best investment on paper (in fact I think it most certainly isn't) but it sure is harder to fuck up.
See above.
Quote:
But if you take the *average* property downturn as a guide, that will be mid-2014 and might be later, and if you get to there and haven't saved anything you'll be behind where you are now because you are two years older and no better off.
There were once towns in Europe where the same family had rented the same house for 15 generations. They are gone now of course because of the credit bubble at the end of the 20th Century. That's 15 generations of people renting and living and not getting all bent out of shape because their neighbour had a 15 property portfolio and was making money without doing anything.
Quote:
It all depends on your own level of self-discipline (and in many cases the self-discipline of your partner.)
So instead of self-discipline, you outsource fiscal discipline to a financial institution and the government. Fair enough, specialisation and all that.
Quote:
Or you could sit around waiting for the 40% sell-off in the hope that the world will hand you a living for free.
That's pretty rich. Isn't that exactly what the property bulls are claiming? That their growing equity in their property investments is making them rich for free?
Quote:
When you are 70 and cracking open another tin of Pal you will at least have the consolation that you consumed a lot of good lattes in your day.
Given that I will be collecting a SIS minimum of 6% of my Super at that age, are you saying that my Super will only cover Pal and not lattes?
On the other hand, instead of chasing down some pipe dream of being a property millionaire without any work on my part, I've spent time with my children and treated them well. Maybe they will repay that kindness when I am older, but I guess for those who abandoned their children to the state while they concentrated on their portfolio are not counting on it. Probably just as well.
That's pretty rich. Isn't that exactly what the property bulls are claiming? That their growing equity in their property investments is making them rich for free?
Given that I will be collecting a SIS minimum of 6% of my Super at that age, are you saying that my Super will only cover Pal and not lattes?
On the other hand, instead of chasing down some pipe dream of being a property millionaire without any work on my part, I've spent time with my children and treated them well. Maybe they will repay that kindness when I am older, but I guess for those who abandoned their children to the state while they concentrated on their portfolio are not counting on it. Probably just as well.
You seem to think property investors try to get rich for free - I don't see it that way. Its like share - people who invest in shares don't get rich for free either -they take a risk and it may or may not pay off.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
and our interest rate was lower because everyone I know gets 0.7% off the SVR.
This is a point worth highlighting - it seems the media, and anyone that hasn't actually walked into the banks / brokers and tried to negotiate a mortgage, don't know this. It's makes a big difference to the equation. These are not honeymoon rates either, but permanent ongoing discounts to the SVR.
For Aussie property bears, "denial", is not just a long river in North Africa.....
You seem to think property investors try to get rich for free - I don't see it that way.
No. I think property investors think that they will get rich just by taking out a loan and wait for the asset price to go up. I'm glad you don't see it that way though.
Quote:
Its like share - people who invest in shares don't get rich for free either -they take a risk and it may or may not pay off.
I was told that the price of property always went up. I didn't believe it, but that's what I was told. In other words, it is risk free.
As I said in my previous post, I put in a calculation for what the risk/liquidity premium property returned. I tried a lot of combinations of inputs, but the most realistic scenario I found was one where, for some properties, in some areas, that risk/liquidity premium was around 2.3%. If property is risk free, then it's only a liquidity premium.
Whether that premium is good or bad depends on how risky property actually is. It's difficult to accurately measure the volatility of illiquid assets. For me, having to live in certain regions of Sydney which I don't particularly like, and would fear for the safety of my family, just to receive a 2.3% risk/liquidity premium is NOT A COMPELLING PROPOSITION.
As to miw's claim that I would be eating dog food if I don't own a property in retirement, well, it could be true. I happen to like caravans, they are easy to look after, and they are close to the beach, and once the Boomer generation is finishing up, there will be an absolute glut of them. And who knows, with a little garlic and a little salt, Pal may just be the most nutritious thing around.
Good luck vacuming your 4 bedroom McMansion in your 70s though.
This is a point worth highlighting - it seems the media, and anyone that hasn't actually walked into the banks / brokers and tried to negotiate a mortgage, don't know this. It's makes a big difference to the equation. These are not honeymoon rates either, but permanent ongoing discounts to the SVR.
Yes the media does make a lot of noise around this and say people are silly for not switching to a smaller and cheaper lender. The fact it, people don't pay the SVR of the big 4. I cannot possibly imagine anyone being the Standard Variable loan without the 0.7% discount. If you can't get it, chances are you would be on the Basic variable loan. And the 0.7% is just the minimum discount. Westpac was openly advertising 0.8% last year. A bit of negotiation took our discount to 1.14%.
But I didn't want to seem like I was nitpicking genX's spreadsheet - just different assumptions of variables.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
Translation: People are irresponsible and dumb, so it's better to funnel them into a compulsory savings scheme so they have something to show for 40 years of being irresponsible and dumb.
See above.
There were once towns in Europe where the same family had rented the same house for 15 generations. They are gone now of course because of the credit bubble at the end of the 20th Century. That's 15 generations of people renting and living and not getting all bent out of shape because their neighbour had a 15 property portfolio and was making money without doing anything.
So instead of self-discipline, you outsource fiscal discipline to a financial institution and the government. Fair enough, specialisation and all that.
That's pretty rich. Isn't that exactly what the property bulls are claiming? That their growing equity in their property investments is making them rich for free?
Given that I will be collecting a SIS minimum of 6% of my Super at that age, are you saying that my Super will only cover Pal and not lattes?
On the other hand, instead of chasing down some pipe dream of being a property millionaire without any work on my part, I've spent time with my children and treated them well. Maybe they will repay that kindness when I am older, but I guess for those who abandoned their children to the state while they concentrated on their portfolio are not counting on it. Probably just as well.
Hey GenX - you bring up some interesting points here.
Compulsory savings is actually a pretty good for most people, I reckon, simply because so few people care genuinely save for long periods of time. Superannuation balances are finally growing because of compulsory super savings. It will be interesting to see how taxation in that area changes over the coming years and decades. This is one area where I agree with you that the baby boomers have a serious advantage over the rest of us.
Getting rich for free from property, another interesting issue. The point of any investment is to own an asset (or assets) that either increase in value, generate regular yield, or both. Property is just one of many assets that can be chosen. And yes, a well chosen investment will create value for the owner of the investment without that person working. One of the main problems with property is that many people seem to think it's easier to use property than other asset types. There are plenty of property investors who don't seem to make much money, for a variety of reasons.
No. I think property investors think that they will get rich just by taking out a loan and wait for the asset price to go up. I'm glad you don't see it that way though.
I was told that the price of property always went up. I didn't believe it, but that's what I was told. In other words, it is risk free.
As I said in my previous post, I put in a calculation for what the risk/liquidity premium property returned. I tried a lot of combinations of inputs, but the most realistic scenario I found was one where, for some properties, in some areas, that risk/liquidity premium was around 2.3%. If property is risk free, then it's only a liquidity premium.
Whether that premium is good or bad depends on how risky property actually is. It's difficult to accurately measure the volatility of illiquid assets. For me, having to live in certain regions of Sydney which I don't particularly like, and would fear for the safety of my family, just to receive a 2.3% risk/liquidity premium is NOT A COMPELLING PROPOSITION.
We are in agreement in that one - it is not risk free (and anyone who says it is risk free is a spruiker and should be ignored) I also agree there were areas we didn't want to buy in. My criteria was a suburb where my wife felt safe to walk home alone from the station at 6-7pm at night (coming home from work). And yes that ruled out many suburbs of Sydney. And the nicer houses in the good suburbs were too expensive for us to afford. So we purchased a older, more modest house in a decent suburb and that turned out to be within our budget. Despite all the gloom and doom predictions, in hindsight we are now financially better off (you can attribute it to luck or skill)
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
This is a point worth highlighting - it seems the media, and anyone that hasn't actually walked into the banks / brokers and tried to negotiate a mortgage, don't know this. It's makes a big difference to the equation. These are not honeymoon rates either, but permanent ongoing discounts to the SVR.
This is all the bulls have to cling to now, the hope of falling interest rates which have done nothing and will do nothing. Just like everywhere else in the world
The economy peaked here on the 1st November 2007 and has been falling ever since just like US and Europe.
That's what is known as a balance sheet transfer, from my children's future to your current account.
Quote:
I didn't subtracting the real estate selling costs because I'm still living in that house
Oh, so you were talking about a paper profit, not a realised one. OK.
Quote:
I tax adjusted the interest received from cash every year instead of letting it compound and then take 37% off at the end
Fair enough.
Quote:
I didn't put in any risk/liquidity premium - didn't see it as a major problem
Which is good.
Quote:
and our interest rate was lower because everyone I know gets 0.7% off the SVR.
Sure. Most of the interest rates I used were lower than the year's high, but w/e.
Quote:
So my calculations found the solution which was right for us so we bought back then.
I'm glad it worked out for you.
Quote:
And as peter pointed out, its different for everyone's personal situation.
It is indeed, and yet the articles I've read in the SMH for the last 11 years seem to be saying that it's a game everyone should be in on, or they will fall behind! And it's never been a better time to buy! The hype is irritating, so some perspective is needed to counter it.
Quote:
p.s. I live in Sydney's Inner west and it takes me roughly 15 min per direction on the motorbike and 30 min via bicycle to get to work.
DINK? If so I think you could afford a lot more than I could 6 years ago in the inner west. Work in the City? 15 minutes on the moto would could be as far out as Enmore or Leichardt.
Glad things worked out for you. The price of your property may stay ahead of interest and inflation, I hope it does for your sake. For me though, it would be great if it dropped a little
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy