Wednesday, July 2, 2014

Meanwhile in “we didn’t see it coming” Australia

Property prices through the roof with Sydney leading charge

The jump was largely driven by Sydney, where values saw the biggest rises since 2002, recording a 15.4 per cent increase. Melbourne rose 9.4 per cent. The outlook for other capitals was lower, with Melbourne and Brisbane increasing by only 8 per cent, Adelaide by 5 per cent, Hobart by 4 per cent, Canberra by 3 per cent and Darwin up by only 2 per cent to 2017. Last week, ratings agency Moody’s warned that Australia’s record-low interest rates could be generating a property bubble, blaming the RBA for “playing a dominant role in fuelling the housing market”, which was “likely to get caught up in a positive price feedback loop and could face a correction.”

Posted by khards @ 11:09 AM (3387 views)
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10 thoughts on “Meanwhile in “we didn’t see it coming” Australia

  • Central Bank collusion on a global scale.

    Do they increase interest rates and expose the declining real economy or do they keep the party of house price inflation going until the inevitable bust?

    Of course, they are going to keep the party going!! UK, Ireland, Canada, Australia, New Zealand China, USA.. They’re all in it together and cannot act alone.

    When this global property bubble pops the greater depression will start in earnest.

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  • The world is a bubble. The only think worth having now is gold.

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  • hpwatcher. There will be a time for gold, but it could collapse back to its 2008 lows before it goes up again. The mass deflationary impact of free movement of labour in Europe and now, with Obama opening up the Mexican border (and giving amnesty by the back door) will keep a lid on prices for a long time to come, combined with an absolute boom in labour and time saving applications online and in physical technology.

    Bear in mind that the EU is accellerating the process by expanding into Ukraine and Turkey, and USA is expanding its labour pool by allowing in folk from Central America via the mass immigration being allowed right now by the Obama administration.

    It is the combined deflationary action of labour mobility, also global networking capabilities via internet plus technology that will keep a lid on consumer prices for a time to come, creating a new normal of low to negative interest rates. Because if there is the hint of wage increases in Britain, hoards of folk will flood across the channel tunnel, into London Victoria Coach Station and its mega airports.

    Gold will have its day, but right now it is in a bear market. Unlike housing, the purchase of gold DOES NOT divert existing resources, i.e. if you don’t have a house, you must pay rent. With a home purchase, half your payments are paying off the principal. We had a look at our mortgage, and within two years we pay off almost £15k and our repayments right now are less than rent in the area we are buying plus, you can fix your rate for TEN YEARS. We will be doing that soon as we are sure rates have bottomed, because we feel that rates could drift a bit lower yet.

    Anyhow, this is probably one of my last posts here. I have come to believe that many of the arguments at HPC are relevant to investors, but the calculations become very different when you are talking about your home, because when you displace renting with a mortgage, capital appreciation is just a cherry on the top. Property prices would have to fall 3% per annum for a purchase to lose money, and the margin for error increases the more of the property you own. Add to that the priceless nature of being able to decorate the place how you want it, extend it, do your own gardening and keep yourself to yourself without having to cow tow to a land lord.

    And that is about it from me. Yes, with a boom, investors beware, but frankly, right now, today’s booming market creates a cushion for the coming pull back because if prices rise 60% the next five years and then fall back 40%, I am still quids in, because the price has not budged much over the period but I have paid off £35k of the principal.

    Indeed, our plan is to pay the market rental into our mortgage, effectively doubling repayments, so I expect we will have paid off £70k within the next five years. We are buffered even in the worst case scenario, and have a tracker mortgage without early repayment charges so that we can fix as soon as rates start to rise. I don’t expect to get the lowest rates, but whatever I fix it at once rates begin to rise, will be low in ten years time, and with our repayment plan, I will have paid off about 75% of the principal within ten years.

    Once you have a home, and when you are saving for a deposit, gold can have a role, in the right market conditions, but everybody needs a place to live, so gold cannot replace a home of your own when you are paying money hand over fist in rent.

    My advice is, buy the cheapest place you can find, in the most up and coming area, somewhere within your budget so you can do over-payments. Ten years time you can almost own it outright, and then you can plough money into gold if you don’t need to extend the house to make way for children.

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  • That’s a reasonable logical, sanitized and benign view of events…..IF it plays out like that, but you are discounting ”events”.

    In 2007 it looked like things were going to go on forever, but they didn’t…..things happened – events. The situation is far more acute now…oh and the level of debt is bigger, much, much bigger.

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  • hpwatcher. What I am saying, is that my plan of buying a house works fine vs renting if property prices FALL 3% per year, averaged over a 25 year period. Infact, given that my re-payments are lower than rent in the area I am buying the equasion could be stacked further in my favour. Property prices however are likely to rise on average over the next 25 years. The arguments against that work well for BTL investors who are on non-repayment mortgages seeking capital appreciation and yield on low margins, because their income is not displacing their rent.

    Incidentally, I worked out that over-payments on the mortgage return 50% in reduced interest charges over a 10 year period. I can therefore put £500 a month extra into my mortgage and save £250 over the 10 year period. That equals a 5% return, tax free per year on that investment.

    What I am saying is, investors be aware in this market, but if you are renting, Jeepers creepers, you need to own a house. If you do not own one by the time you retire, well, who can afford rent during retirement? This is the missing link. If you are less than 25yrs from retirement BUY NOW!! PERIOD!!!

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  • The retirement angle is, you need to own where you live, be it a tiny studio or a large house. You have to own the roof over your head to retire whatever size it is, wherever it is.

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  • The buying for retirement argument is 8ollocks.

    I know so many in their mid to late 30’s who cannot afford and will never afford to own a house therefore the governemtn will have to house them.
    With home ownership rates falling off a cliff and continuing to do so, it may be unwise to be in the minority of home owners, as you may find your self paying property tax to keep those renters in a home.

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  • Khards, of course, if you get Social housing, yes, that is a great alternative, but it is rarely available nowadays as an option, so for those to whom social housing is not available, home ownership is essential to retirement.

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  • @libertas – you are missing my point. If there are 50% of the population without a stable home then the something will be done. Only another 15% to go, so about 10/15 years and that will make 20 to 25 years of extortionate house prices. Most likely give way to extortionate energy prices.

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  • Sydney and Melbourne are Australia’s Londons. I live well over 1000km from Sydney. The “wealth” being generated from this boom is distorting the housing market here. In certain areas, every house under $450k is being snapped up by Sydney money as investments. I discovered this after questioning why a Sydney real estate agent was opening a branch in a local town…

    Given that we are a low wage area, this just means that local wage earners are priced out of buying.

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