Yes however there is an Australian mentality to sell after 5-10 years and getting something better or just have a change. So if I decide to sell after 5 years and I am not ahead why would I buy in the first place??
Or the what if's?
What if I my job hours decrease? What if I lose my job? What if I am unemployed for a period of time? What if my health fails? What if we have children (or more children)? Or any other reason for a drop in income...
Big decision if there is flat or negative property price growth........
From my own experience, my personal financial situation has been improving steadily for the past 10 years even though I have always feared the opposite.
And getting a lower income is for example statistically much less likely than the opposite. Im only in my 30s though so if you are nearing retirement than maybe its a different situation.
In the long term buying will always without fail be a better option than renting. But sometimes not int he short term. My advice is to buy when you can afford to, not when you believe you can predict the market - nobody can.
That is a bit ambitious for capital growth. Real capital growth for 1880 to 1995 is around 0.5%. Even including the recent boom, 1880 to 2010 real growth is about 1%. So transfer costs are going to wipe out around 5 years captial growth. Another good reason for abolishing stamp duty!
Buying would beat renting provided 1) You don't buy at the top of a bubble, 2) you don't move too often.
But why would you be using real growth? You don't need any real growth to pay transfer costs (not as you incorrectly implied as 5% worth of real growth)
If the property doubled over 5 years and inflation also doubled in those 5 years (zero real growth), you could still sell the place, pay off the loan and have plenty left to pay for transfer costs - and that is with zero real growth!
What you should be using is nominal growth. What was the nominal growth p.a. from 1880 to 2010?
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
That is a bit ambitious for capital growth. Real capital growth for 1880 to 1995 is around 0.5%. Even including the recent boom, 1880 to 2010 real growth is about 1%. So transfer costs are going to wipe out around 5 years captial growth. Another good reason for abolishing stamp duty!
Buying would beat renting provided 1) You don't buy at the top of a bubble, 2) you don't move too often.
The important figure here is actually nominal capital growth. You need to apply the CPI deflater after costs. But the real figure puts into perspective how hard it is to actually get ahead. (in any investment). Long-term capital growth of median prices is tied to household disposable income which doesn't outpace CPI by much.
BUT median prices underestimate same-house capital growth by a fair swag when population is growing. Today's median house was on farmland in 1970.
I can say to you quite categorically that over the past 40-50 years, transfer costs have not wiped out 5 years of capital growth on average. Even today when we are in a correction, transfer of a property of similar value would only wipe out your nominal capital growth back to about 2007 and real growth back to about 2005. (Exact dates will vary depending on where, of course.)
Not that I am advocating a changeover every 5 years. If you move that often you should probably rent and maybe consider having a PI somewhere for when you settle down. Or invest in shares. Actually right now I wouldn't invest in shares either. I'd be taking a real depreciation by holding term deposits, or perhaps buying 30-year bonds and hoping for interest rates to drop so I could sell them at a profit and then take a depreciating cash position. That's risky too, because the yield curve in oz is currently inverted and the 30-year bond yields could go up despite a reserve interest rate drop. The market for everything pretty-much sucks right now.
Stamp duty is a blight on the landscape, but one thing it does do is put a damper on speculation, which is probably a good thing. And the alternative seems to be a land tax for everyone which would impose holding costs that would make housing more expensive for everyone. I think I prefer the devil we have.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
1. __ What if your salary increased every year as it has done in the past. 2. __ What if you got a promotion. 3. __ What if you upskilled or studied to achieve a higher rate of pay. 4. __ What if you were offered overtime. 5. __ What if your wife also received the financial benefits of all of the above. 6. __ What if you actually planned a pregnancy like most people and put away enough savings to get through until you placed the child into day care. 7. __ What if you inherited some money.
Surely Alec it's up to everyone to find their own path through lifes difficulties. Exactly what sort of a guarantee do you want?
yeh yeh Peter good point I am not referring to the last 5-10 years during times of economic stability and economic growth.
What about the next 5 years? Is it realistic to expect inflation and wage growth? Or expect flat growth and deflation?
Therefore your expectations... mmmm let me see what would be realistic and achievable??
1. __ What if your salary increased every year as it has done in the past - may increase midly. (cannot forsee a large increase unless I think really positively and then it will explode) 2. __ What if you got a promotion - maybe or maybe not. 3. __ What if you upskilled or studied to achieve a higher rate of pay - Tafe course maybe, but higher degree or new degree not on the horizon as I am kids focussed and want to dedicate time to kids. 4. __ What if you were offered overtime - realistically not likely in my sector. 5. __ What if your wife also received the financial benefits of all of the above - realistically not likley as she is not the go get type. Wonderful mother and wife though. 6. __ What if you actually planned a pregnancy like most people - how many people do you know that actually plan all pregnancies? Come on Peter are you some sort of robotic pragmatist? 7 --- What if put away enough savings to get through until you placed the child into day care - yes realistic. 7. __ What if you inherited some money - well not likely in the next five years given parents age etc. So not realistic, predicable and desired. I do not want my mother or father to die so I can inherit the money early.
Now I may fall into the fortunate category...
However what about the large number of Australians losing their jobs??
I get the feeling Peter you are a professional on middle to high income and you do not know anyone who may have lost a job recently. So you may lack insight, empathic abilities and the ability to objectively assess the risks for low income to middle income Australians?
Your what if's look like a positive mantra from a Neuro-linguistic programming (NLP) tape..
yeh yeh Peter good point I am not referring to the last 5-10 years during times of economic stability and economic growth.
What about the next 5 years? Is it realistic to expect inflation and wage growth? Or expect flat growth and deflation?
Therefore your expectations... mmmm let me see what would be realistic and achievable??
1. __ What if your salary increased every year as it has done in the past - may increase midly. (cannot forsee a large increase unless I think really positively and then it will explode) 2. __ What if you got a promotion - maybe or maybe not. 3. __ What if you upskilled or studied to achieve a higher rate of pay - Tafe course maybe, but higher degree or new degree not on the horizon as I am kids focussed and want to dedicate time to kids. 4. __ What if you were offered overtime - realistically not likely in my sector. 5. __ What if your wife also received the financial benefits of all of the above - realistically not likley as she is not the go get type. Wonderful mother and wife though. 6. __ What if you actually planned a pregnancy like most people - how many people do you know that actually plan all pregnancies? Come on Peter are you some sort of robotic pragmatist? 7 --- What if put away enough savings to get through until you placed the child into day care - yes realistic. 7. __ What if you inherited some money - well not likely in the next five years given parents age etc. So not realistic, predicable and desired. I do not want my mother or father to die so I can inherit the money early.
Now I may fall into the fortunate category...
However what about the large number of Australians losing their jobs??
I get the feeling Peter you are a professional on middle to high income and you do not know anyone who may have lost a job recently. So you may lack insight, empathic abilities and the ability to objectively assess the risks for low income to middle income Australians?
Your what if's look like a positive mantra from a Neuro-linguistic programming (NLP) tape..
I think Peter was just pointing out that good things can happen as well as bad. You need to be prudent, but you can be too prudent.
Some of us are very risk averse and need to worry less, and some of us are probably too inclined to take on risk. If you've got a young family, then your attitude to risk is also going to be different to what it would be if you didn't.
The current outlook is uncertain, but still better than it was at several time I can remember. Recessions happen, and there is likely to be one soon. Last time we had a real recession was in 1991, and that one was actually full of opportunity if you hadn't lost your job.
I'd be the last to say that now is the time to lever up to the gills and go for the jugular. On the other hand, when the bears are out in force is exactly the time to be on the lookout for opportunities. Last time everyone was a bull was 1H'07 which would have been a bad time to enter the market in hindsight.
I can't say there won't be a 40% crash in prices in the next 12 months. On the other hand I have lived through times when the economy was a total basket case compared to now, and if I had waited for a big property crash, I'd still be waiting and I would be quite a bit worse off than I am now.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I get the feeling Peter you are a professional on middle to high income and you do not know anyone who may have lost a job recently. So you may lack insight, empathic abilities and the ability to objectively assess the risks for low income to middle income Australians?
Your what if's look like a positive mantra from a Neuro-linguistic programming (NLP) tape..
I'm not talking about the last 5 years, I tend to think of our modern society in terms of the 20th century onwards - prior to that it was damn hard for the average person to get ahead - look at London where families own blocks of housing - that is the history that working class men broke away from after the horrors of WW1. Why do you think they received "soldier settlement" blocks when they came back from war - hundreds of thousands of trained killers can get ugly when they return to a system where they are downtrodden financially and socially - political leaders know that. WW1 broke the old class system.
Given that the first half of the 20th century had 2 world wars, one great depression, and a period of rent and house price fixing, then to make comparisons during a time of comparative military, social, and economic stability, we really should look at the period say from 1960 onwards, after the effects of WW2 had evaporated in Australia. And yes I do think that we are in a period of relative economic stability in Australia, it just seem unstable to the uninitiated.
Have a look at Nigel Stapeltons graph, the one in nominal prices, not the one adjusted for inflation. Over any extended period nominal property prices rise, which means that in real terms debts become smaller, and that is the important thing. Our central banks could allow the buying power of the dollar to rise, but they don't, they create inflation - that is their job in our current system. Inflation allows the young to buy assets at todays prices and accumulate debts at yesterdays prices. It reduces debts through inflating incomes so that asset accumulaters don't have to rely so heavily on savings. It favours the young and penalises the old who have savings, but don't have inflation adjusted income. Not many people really think about our system. We all have our economic day in the sun, and we all need to take advantage of that day in the sun.
RISK - there are two risks in life - there is the risk that we take in our efforts to feed or better ourselves, and there is the risk of not taking a risk - in my experience the latter is absolutely the greater risk - that will become very evident in your retirement years.
As for my personal experience - I deal with the finances of low to middle income Australians everyday. In fact I would see more of the nitty gritty of the financially disadvantaged in one month than anyone else here will see in their lifetime. I also see the nitty gritty of the finances of the wealthy.
I was reading comments over at macrobusiness yesterday, and one commenter said something along the lines of " I'm happy renting, I've worked out that it is cheaper, and i will buy when prices crash - I'm 57" Honestly the guy is just crazy - at 57 no lender wants you, and you don't have time to pay off a house, so he absolutely needs a 50% house price crash to have any chance of owning accomodation in his retirement years. It's like having a lotto ticket as a financial plan.
Alec, I don't listen to feelgood tapes or whale music, and i don't read self fullfilling or how to get rich books, but you're at liberty to think whatever you like.
There's more to managing risk than simply avoiding it. You can also reduce, transfer and even accept risk. Learning how to manage risk is a key part of becoming an investor (in anything).
RISK - there are two risks in life - there is the risk that we take in our efforts to feed or better ourselves, and there is the risk of not taking a risk - in my experience the latter is absolutely the greater risk - that will become very evident in your retirement years.
As for my personal experience - I deal with the finances of low to middle income Australians everyday. In fact I would see more of the nitty gritty of the financially disadvantaged in one month than anyone else here will see in their lifetime. I also see the nitty gritty of the finances of the wealthy.
Thanks for your open reply Peter. Based on your reply I can appreciate that you are in the finance industry.
I think MIW and yourself have articulated the key point. The importance of finance 'risk management' strategies for individuals. I am in a good position personally.
My line of discussion and exploration is philosophical in nature. I am enjoying the various threads and discourse. Mostly mild debate and nothing too robust.
My philosphical question is this?
Given the average first home buyer home loan is $300,000 over 30 years in 2012 what can future generations expect? What can my children expect in 20 years time when they buy their first home?
If property prices double every 10 years can my children expect a $900,000 home loan in 20 years time? Taking on such high levels of debt will require paradigm shifts in thinking for young people. The Australian dream of home ownership may not be realistic and achievable in 20 years time. It may create a generation of renters, so what effect will this have on the property market.
It is a question for the leaders of this generation.
1. What effect will high debt $900,000 loan have on the first home buyers (usually DINK). 2. What effect will a generation of renters have on the property market (the masses).
RISK - there are two risks in life - there is the risk that we take in our efforts to feed or better ourselves, and there is the risk of not taking a risk - in my experience the latter is absolutely the greater risk - that will become very evident in your retirement years.
As for my personal experience - I deal with the finances of low to middle income Australians everyday. In fact I would see more of the nitty gritty of the financially disadvantaged in one month than anyone else here will see in their lifetime. I also see the nitty gritty of the finances of the wealthy.
Thanks for your open reply Peter. Based on your reply I can appreciate that you are in the finance industry.
I think MIW and yourself have articulated the key point. The importance of finance 'risk management' strategies for individuals. I am in a good position personally.
My line of discussion and exploration is philosophical in nature. I am enjoying the various threads and discourse. Mostly mild debate and nothing too robust.
My philosphical question is this?
Given the average first home buyer home loan is $300,000 over 30 years in 2012 what can future generations expect? What can my children expect in 20 years time when they buy their first home?
If property prices double every 10 years can my children expect a $900,000 home loan in 20 years time? Taking on such high levels of debt will require paradigm shifts in thinking for young people. The Australian dream of home ownership may not be realistic and achievable in 20 years time. It may create a generation of renters, so what effect will this have on the property market.
It is a question for the leaders of this generation.
1. What effect will high debt $900,000 loan have on the first home buyers (usually DINK). 2. What effect will a generation of renters have on the property market (the masses).
Fair questions Alec.
You seem to address a point that many others do as well which is the issue of fairness. I can't answer that because although I understand the ideal, I don't see it in practice. For the most part anyone born to caring parents in this country should get a good education, and have reasonable prospects for a healthy and rewarding life - no more and no less - that's about as "fair" as it gets. I don't think we have any rights beyond that. It could be a lot worse.
We have seen an incredible run up in house prices that outpaced wage growth since the mid nineties due to many factors that have been endlessly debated here and elsewhere, but it won't continue because it can't continue. Exponential growth in house prices has now well and truly halted, and we are seeing a correction.
The debate now is only about whether we have a slow correction over an extended period, or a sharp correction - in 20 years the result will be the same - your sons and daughters will be able to buy a home.
In the interim the ratio of owners to renters may become more volatile than normal for Australia, but it won't go beyond levels that are now seen as healthy and normal for other wealthy civilised developed nations.
It's admirable to be philosophical, but it's more productive to pick up a shovel and work towards what you want in a manner suited to your income, capacity, and circumstance.
Any expressed market opinion is my own and is not to be taken as financial advice
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