Sadly that is exactly how short sighted some renters are. They see that their current rent is less than the repayments on a similar home and decide to rent for life. They end up paying much more on their accommodation costs.
Whats that got to do with fuck all?
Besides, there are many, many reasons why people rent: your mobility for one is greatly enhanced if you havent got a mortgage around your neck.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Besides, there are many, many reasons why people rent: your mobility for one is greatly enhanced if you havent got a mortgage around your neck.
Really, I have lived in 3 states in 15 years. NSW, VIC and now WA. When I want to move I do so, rent out the place I am currently living in and buy some thing else where ever I am going. Easy once you have that first property, put 5 good working years into it and you have all the mobility you want for the rest of you're life, it is a choice.
The first mortgages I ever had seemed huge at the time, scared me. Now I look back and laugh, people who don't buy under estimate the power of inflation, wage growth, capital growth over time. What seems huge now will seem small in 10 years from now.
Really, I have lived in 3 states in 15 years. NSW, VIC and now WA. When I want to move I do so, rent out the place I am currently living in and buy some thing else where ever I am going. Easy once you have that first property, put 5 good working years into it and you have all the mobility you want for the rest of you're life, it is a choice.
The first mortgages I ever had seemed huge at the time, scared me. Now I look back and laugh, people who don't buy under estimate the power of inflation, wage growth, capital growth over time. What seems huge now will seem small in 10 years from now.
Correct.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
Great men for the whole "it was like this for me therefore it is like that for everyone" argument you two.
Anyway...
Does High Home-Ownership Impair the Labor Market? David G. Blanchflower, Andrew J. Oswald
Quote:
We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policy-makers and researchers. We find that rises in the home- ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanism might explain this? We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
IUnfortunately for the property industry – those who make money building or selling houses – in the past decade or so more and more people have come to the conclusion that the numbers on residential property just do not stack up.
Those who might have bought a home are choosing to rent – or make do with the bare minimum – and many investors are choosing to pass. On most metrics, and in plain English, residential property has become unaffordable.
But using prices and incomes as a measure of affordability just will not cut it when there's property to be sold. Enter the HIA-Commonwealth Bank Housing Affordability Index, recently published for the September quarter.
The results were encouraging. According to the index, house prices have become 15 per cent more affordable in the past year. It is almost enough to make you want to throw your hand up at the next inner-city property auction.
"Hang on a minute," you say, "haven't I been reading about rising house prices and a lack of first home buyers? Property can't be affordable and unaffordable at the same time. What gives?"
What gives is the magic of indexing. Whether you're looking at property, shares or any other asset, if you're looking at an index it's useless to you unless you know how it's calculated and what it represents.
In this case, what's called a "housing affordability index" isn't just a representation of housing costs, but also a measure of housing finance costs. Specifically it's a measure of movements in variable mortgage interest rates. As we all know, the Reserve Bank has been cutting interest rates like there's no tomorrow. So next month's mortgage payment has gone down more than housing prices have gone up and, hey presto, housing is now "more affordable".
A year ago I calculated my own "variable mortgage payment index" (above) and I've recently updated it. You can see, despite the different names, that it and the housing affordability index track pretty much the same path.
What do these charts tell us? Firstly, it's variable rate mortgage payments that have become more affordable, not houses. Secondly, mortgage payments are subject to rapid change. In five years the Reserve Bank has cut its cash rate from 7 per cent to 2.5 per cent and none of us know for sure when they'll reverse these measures.
If you're borrowing to buy a house, the housing affordability index is effectively giving you an indication of next month's mortgage payment, which is almost irrelevant. You should be focused on the cost over 5, 10 or 25 years – the period over which you'll pay it off.
In plain English, property isn't particularly affordable, especially in our capital cities, and low interest rates are just a temporary band-aid over that fact, not a low-cost housing solution.
What seems huge now will seem small in 10 years from now.
Yet Shadows himself said at the start of this thread.
"My view is that price to income ratios experienced a one-time increase during the late 90s and early 2000s"
I know a lot of people here are expecting the boom of the past 20 years to repeat itself, but if this view is correct then the best you can hope for is for property increases to track wage increases.
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