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Australia Is The Biggest Bubble In Recent History, It's Heading For The Mother Of All Hard Landings
Topic Started: 4 May 2012, 11:30 AM (5,322 Views)
genX
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You see I have a huge problem with this kind of logic genx. You still need a roof over your head, so whats your plan?

Interesting. It's my life, what do you care? I thought I still had freedom of choice, but apparently not. The Central Committee in Canberra for telling me what the fuck I should do with life has determined that I MUST BUY PROPERTY. And they have enrolled all good comrades to support the Party and re-educate any dissenters.
Yes, I still need a roof over my head, so what? If investors keep throwing money into investment properties, there will always be somewhere to rent.
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1. if it's a big crash and this person is as fucked as you say the bank will repo the house and kick you out

Sooooo .... not only will the bank wear the capital costs while they dispose of the place, plus any outstanding principal that the sale price does not meet, they will also terminate the asset's one remaining source of cash flow. I can see why you are so successful with logic like that.
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2. if it doesn't crash you keep throwing money in their pocket and house prices don't move

Whose pocket? The bank's? The landlord is putting money into the bank's pocket. The landlord? Ever heard of negative gearing? The landlord is giving me a 50% discount on the cost of living there.
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3. if it's a small/slow crash you will sit in your rental thinking prices will drop more in 12 months like all bears, continuing to waste money on rent. in all likely hood you don't pick the bottom and prices go up in a few years

You are right. Rent is a complete waste of money. So is food. Money spent on food is just dead money. I should really go an buy a farm and grow my own food. No, I should buy a farm and rent it out to a farmer at half what it costs me in interest to own the farm. Same with petrol. It's a complete waste of money. I know you are out there drilling for oil so you don't throw dead money at those oil companies. After all, all the landlord, and the farmer and the oil company are doing is TAKING ALL THE RISK ON MY BEHALF TO DELIVER HOUSING, FOOD AND PETROL. Total and complete waste of money.

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I'm not advocating buy buy now or anything of that nature, but the idea that it's a financial win to rent all your life is a bad one. the only instances where renting is better than owning when purchasing WITHIN YOUR MEANS, is if you have an unreliable income. renting is just you making someone else rich, they wouldn't be doing it if it wasn't the case.


Buying food is just making someone else rich. Buying petrol is making someone else rich. Buying electricity is making someone else rich. You think I am renting, but really I am buying accommodation.
This may come as a surprise to you, but the wealth of nations is built on specialisation, not generalisation. Each person produces or manages the goods and services that their expertise, knowledge or skills give them a comparative advantage over the generalist. Generalism on the other hand is no different from Communism. If you want Communism, fine, but for me, I'll pass, if that is still OK with the Central Committee that is.

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stinkbug
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Rent and interest are BOTH dead money.

The difference is that interest (usually) costs more than rent at the start, but reduces in real terms over time, whereas rent will generally remain steady or increase in real terms. So the question becomes more now or more later?

Renting has its place, and is a major part of the housing puzzle, but ultimately paying off a home leads to owning that home outright. Although rent and invest is a viable strategy, I'm not convinced most people could actually execute this strategy consistently. So the issue becomes what to buy and when, which is where lots of the arguments start.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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genX
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Rent and interest are BOTH dead money.

Really there is no such thing. The concept of 'dead' money is a nonsense, a fairy tale to frighten children. There is only money. And money is just a medium of exchange. Each of us produces or manages some good or service that others need, and visa-versa. We use money to express our opinion of the value to us of those goods and services. This is known as a market.

In a free society, one can exchange ones goods and services for whatever one wishes. A person who lives in such as society is said to have 'unlimited power of contract'. In societies that are not free, ones power of contract is limited to that which the people in power approve of.

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The difference is that interest (usually) costs more than rent at the start, but reduces in real terms over time, whereas rent will generally remain steady or increase in real terms. So the question becomes more now or more later?

Not always true. Interest rates increases can increase the amount of interest owed faster than principal is paid down. This was a very common occurrence over the last 700 years. It allowed the banking families of Europe and her colonies to effectively steal assets from debtors. The common opinion now is that time is behind us, and can never happen again. And yet, it is exactly what is happening now all over the world.

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Renting has its place, and is a major part of the housing puzzle, but ultimately paying off a home leads to owning that home outright.

There are many Chinese, East Germans, Eastern Europeans and Russians who might disagree with that statement based on historical experience. The title system is enforced by the government. If the government that created that system disappears or collapses, so do the titles. You should have a look at what is going on in the US at the moment. Something that people 5 years ago would have said was impossible. There are millions of homes with no clear title. No clear title means no ownership. Many of these homes are in states with a Torrens Title system. It boggles the mind that even in a Torrens Title system that there is no clear title.
Do I think this will happen in Australia? Probably not. But it's foolish to think you 'own' property. Property rights are still very fragile, they are only 700-800 years old. Even common title is only a couple of hundred years old. For 5000 years before that, ownership was determined the old fashioned way.

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Although rent and invest is a viable strategy, I'm not convinced most people could actually execute this strategy consistently.

If you are talking about what OTHER people should do, it doesn't really matter what is viable in a free society. In a nanny state however, I agree, we should just tell people how to run their lives and what to spend their money on. It would be a hell of a lot easier to run a business when you are the only one in town, and the prices are fixed by mandate.
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So the issue becomes what to buy and when, which is where lots of the arguments start.

No, the issue is whether you want to buy or not. Arguments over whether property will make you rich, or waste your money, or is a good investment or a poor one are completely irrelevant when considering that question. If you really want to buy, then the cost, the return, the interest are all irrelevant, just as they would be if you really wanted to buy a '64 Stratocaster or an Aston Martin DB2.
Claims about investment returns, or forced savings plan, or getting rich, are just dogma, and should be treated with the contempt reserved for any dogma.
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stinkbug
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genX
6 May 2012, 09:22 PM

A well thought out reply, GenX, but I disagree on several points.

Real interest cost decreases over time. Even if interest rates rise in the shorter term, inflation is always working to reduce the real value of the loan. Unless we have actual, real world deflation, interest reduces with time. For most people in their own home paying P&I rather than IO loans, the principal is also being whittled away. Eventually, the principal is gone, and the loan is no more.

Property title within a country like Australia is rarely an issue. Australia is not a country that has been subject to dictator governments or coups. Realistically, if Australia became a place where property rights were not worth the paper they were written on, we would have much greater problems than property prices.

Your point about living in a nanny state is fair enough, but it should be noted that many of the people who take no steps at all to secure their retirement expect the government to fund them at public cost. Enforced super for most people is a good idea from this perspective.

Your final point is, unfortunately, mostly made up gibberish. This discussion isn't about whether property will make you rich, or is a good investment, it's about comparing the relative benefits of renting versus buying, and what this means in the real world for people who work to support themselves and their families. What type of investment someone buys is another discussion as is arguing about the relative merits of various investments. In the real world, many people house themselves buy buying or renting. Don't forget than about a third of Australians live in homes that are owned outright - how do you think that happened?
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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genX
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A well thought out reply, GenX, but I disagree on several points.

I was sure you would :)
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Real interest cost decreases over time. Even if interest rates rise in the shorter term, inflation is always working to reduce the real value of the loan. Unless we have actual, real world deflation, interest reduces with time.

This is generally true, and in the 20th century it became mostly true, but historically, on a longer timeline, this is not true. This is because until the 20th century, all of the capital was owned by less than 1% of the population. Have a look at how in the 21st century the capital flows are increasingly away from 'the people' towards the billionaires of the world, and you will see that we are trending towards the historical norm.
You know the word 'mortgage' means 'until death', right? A mortgage was a perpetual lease for serfs so they could lease land from the land owners. The contract ended upon the serf's death.
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Property title within a country like Australia is rarely an issue. Australia is not a country that has been subject to dictator governments or coups.

You didn't read my post carefully. Until recently, the United States had a very robust and legally secure system of title. Or, that should really be systems (plural) of title, because it is a State right. The US has not had a revolution for over 200 years. One could argue that their military industrial complex is a military dictatorship, but generally people will call you a crackpot if you do. Despite having a robust system of titles, a well codified and accessible legal system, the best developed capital markets in the world, the US system of title is now in shambles. There are MILLIONS of properties that have no clear claim of title, no chain of custody, fraudulent liens (in the form of loan notes) against non-existent titles. How did this happen in the arguably the most advanced democratic free market capitalist country in the world? One full of bloody lawyers it should also be noted.
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Realistically, if Australia became a place where property rights were not worth the paper they were written on, we would have much greater problems than property prices.

Yes. You get it.
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Your point about living in a nanny state is fair enough, but it should be noted that many of the people who take no steps at all to secure their retirement expect the government to fund them at public cost. Enforced super for most people is a good idea from this perspective.

Except the superannuation scheme has cost the public treasury far more in lost tax revenue that they would have ever paid out in state benefits such as pensions. I agree it was probably a wise fiscal decision, but the implementation has been abysmal, as you would expect from governments. If governments knew how to manage money, they would be working in the private sector.
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This discussion isn't about whether property will make you rich, or is a good investment, it's about comparing the relative benefits of renting versus buying, and what this means in the real world for people who work to support themselves and their families.

I have a family, and I live in the real world. How about you?

For the last 24 years of my life, I have had no interest in owning a house. On the other hand, a great many OTHER people, including my family, colleagues at work, even complete strangers on the internet are VERY interested in me owning a house, which at first I found odd, and then made me curious, especially as it was none of their business.

I eventually came to the realisation that those people were simply repeating dogma they heard elsewhere, either in the media, or from THEIR family and colleagues and complete strangers. Propaganda is a funny thing. We are such superb experts at it in the West now that most people don't even know it exists. But the property ownership dogma is most definitely propaganda. The agenda being pushed is that of the owners of capital. They are doing it because they believe that property ownership reduces the power of organised labor, and they are doing it because they need somewhere else to park their capital in what are essentially mature economies that have corporations who don't need capital or risk markets.

If you think that is gibberish, fine, it's no skin of my back. I'm with the owners of capital. I have no debt, and I have capital at the ready. If you think I am wrong, go ahead, take the other side of that trade. Nothing adds liquidity to the market like players.

As to the relative merits of renting or owning, the two are not comparable, as one involves a purchase, and the other involves debt at interest.
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newjez
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timmy
6 May 2012, 07:30 PM
You see I have a huge problem with this kind of logic genx. You still need a roof over your head, so whats your plan? I see only a few ways this can play out.
1. if it's a big crash and this person is as fucked as you say the bank will repo the house and kick you out
2. if it doesn't crash you keep throwing money in their pocket and house prices don't move
3. if it's a small/slow crash you will sit in your rental thinking prices will drop more in 12 months like all bears, continuing to waste money on rent. in all likely hood you don't pick the bottom and prices go up in a few years


I'm not advocating buy buy now or anything of that nature, but the idea that it's a financial win to rent all your life is a bad one. the only instances where renting is better than owning when purchasing WITHIN YOUR MEANS, is if you have an unreliable income. renting is just you making someone else rich, they wouldn't be doing it if it wasn't the case.
But renting works in Germany Timmy. Why are they different?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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miw
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newjez
6 May 2012, 11:55 PM
But renting works in Germany Timmy. Why are they different?
For some definition of "work" I guess you could say it works. At various times I was trying to find a place to live in Munich and Cologne. Definitely did not work for me. Almost nothing available, nothing affordable, and everything owned by a small number people who had literally thousands of apartments.

But when I told my German friends I planned to own my own place, they thought I was mad. Guess it worked for them....

Your point, however, is fair enough. There is no law of the universe that states that disaster will necessarily happen if you don't own your own place, nor that owning your own place necessarily averts disaster.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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stinkbug
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genX
6 May 2012, 11:37 PM


For the last 24 years of my life, I have had no interest in owning a house. On the other hand, a great many OTHER people, including my family, colleagues at work, even complete strangers on the internet are VERY interested in me owning a house, which at first I found odd, and then made me curious, especially as it was none of their business.

OK - now I get your point. Thanks for the additional explanation. :D
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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NotFooled
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The Bear Whisperer

genX
6 May 2012, 11:37 PM


I have a family, and I live in the real world. How about you?
.

I eventually came to the realisation that those people were simply repeating dogma they heard elsewhere, either in the media, or from THEIR family and colleagues and complete strangers. Propaganda is a funny thing. We are such superb experts at it in the West now that most people don't even know it exists. But the property ownership dogma is most definitely propaganda. The agenda being pushed is that of the owners of capital.

And yet you seem to have fallen for the propaganda about having kids, something arguably far worse for the future of our planet than some property bubble in Australia given our limited resources and over population issues already being experienced. You are part of the problem. Congratulations.
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genX
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And yet you seem to have fallen for the propaganda about having kids, something arguably far worse for the future of our planet than some property bubble in Australia given our limited resources and over population issues already being experienced. You are part of the problem. Congratulations.


Not real bright are you?

But thanks for volunteering to remove yourself from the gene pool. Your gain is nothing compared to society's as a whole.
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