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#101 2011-01-11 05:49:50

intelligencer
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From: Bris
Registered: 2010-06-24
Posts: 2,681
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Re: Australia heads for economic crunch

bennybbc wrote:

So when house prices stay flat you're loseing money at the rate of infation. And if they drop it hits you twice as bad. Sounds like a big gamble in an unstable market to me.

Keep in mind that I dont advocate this for investment property context, but rather your primary home.

As long as your loan is affordable, and that means different things to different people, and you can pay it off then it doesn't matter what house prices do in principle.

If prices stay flat, then so what? You bought at a price you were comfortable with. The goal becomes to pay the loan off as quick as you can within reason. Why do I say that? Because generally a home loan will be the cheapest money you'll be allowed to borrow. If your money can be put to work getting higher returns then its worth considering taking the risk of investing it elsewhere. Otherwise hit the home loan as hard as you can. It's a form of enforced saving. Your interest payments will be comparable to rent prices, and your principal payments will grow as you 'save' this way.

In a rising market, you have locked in your purchase price and can exit at any point without losses. Your initial investment has floated up with the rest of the market and you can buy a similar home, or upgrade by taking on a loan that is again within your capacity.

In a flat market, you are comfortable with your repayments and stay busy paying the loan off. You dont lose any more than a renter.

In a falling market, there are two possibilities. In a generalised decline of prices you are not losing money in a real sense. You were happy with the price you bought in at, you keep on paying off that loan as you were without concern for prices. Why? Because in a generalised decline your house is still retains its relative state compared to other houses. Similar houses will be priced the same. In a decline in one localised area, then you'll have to live with the possibility you made a bad choice of locale etc.

In the generalised falling market, as long as you pay your house off, you can always count on the fact you'll be able to sell your house later "at a loss" and buy a similar house that has also declined the same amount. Or upgrade the same way you would if the market was rising by putting more money in.

If you have borrowed within your means then no market scenario should worry you imo.


Nothing is enough for the man to whom enough is too little.

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#102 2011-01-11 05:50:35

malachii
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From: Victoria
Registered: 2010-06-08
Posts: 1,869
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Re: Australia heads for economic crunch

I remember walking along the bay front of a town in the UK (after the housing crash) with my wife's grandmother (she was in her mid 90s so it was a slow walk!!) and we were talking about real estate (she was VERY money savvy).  I asked about the houses on the waterfront and if they were considered cheap now. She replied that they had never been cheap and had always increased by more than any other area around them.  They were never considered affordable.  I asked if they would have been worth buying at any stage and she replied that in her 80 odd year memory - even during the great depression - that they had always increased in value - it was just the amount of increase that changed. 

Take from this what you want - but at the end of the day real estate if bought wisely is a good investment.  Sometimes you just need to think outside the box.


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#103 2011-01-11 06:06:33

Randomz
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From: Adelaide
Registered: 2010-05-18
Posts: 758
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Re: Australia heads for economic crunch

Excellent reply s1lv3r, respect!

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#104 2011-01-11 06:25:54

Bargain Hunter
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From: Sydney, Australia
Registered: 2010-07-11
Posts: 732
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Re: Australia heads for economic crunch

Malachii, in relation to your point about waterfront property, just because something hasn't happened before doesn't mean it can't or won't happen in the future.

I remember reading somewhere that in the U.S. the subprime crisis was the first time in over 100 years that the median national house price (as opposed to state/region specific declines) suffered a correction (a decline of more than 10% from it's peak price). Before that many people in the U.S. claimed it could never happen.

Intelligencer the point is that monetary inflation, at least initially doesn't affect the price of everything equally. The price of houses, stocks and bonds could decline sharply due to higher interest rates during a bout of high inflation, meanwhile the price of commodities, farm land, food items and essential services such as health care could rise dramatically. This is especially the case given the high debt levels of households and the overvaluation and un-affordability of housing.

In regards to your varying scenarios, yes you will be okay if house prices decline if you can still pay your mortgage but you would have been better off if you rented and then bought after the decline as you would have less of a mortgage to service.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson
"You only find out who is swimming naked when the tide goes out" --Warren Buffett
"These days man knows the price of everything, but the value of nothing" --Oscar Wilde

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#105 2011-01-11 06:26:50

mmm....shiney!
Silver Stacker
From: 昆士蘭
Registered: 2010-11-15
Posts: 16,000
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Re: Australia heads for economic crunch

hey s1lv3r, how do you go about providing for your daughter's social development? As an ex-teacher, I believe that schooling's best asset was it's ability to provide an environment in which children learnt to socialise. Having raised children in a small regional town, the friendships my kids made with others at their local school helped in their acceptance into sporting clubs and wider social interactions amongst their peers.


The woolgrower's target shall be the good thriving of his flock and its pastures, and so of himself and those whose livelihoods depend on his enterprise.
"The Woolgrower's Companion", 1906.

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#106 2011-01-11 07:15:21

bennybbc
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From: Melbourne
Registered: 2010-05-30
Posts: 456
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Re: Australia heads for economic crunch

Some great points here. I guess locking in a house for your average Joe that doesn't understand long term wealth creation is probably the bet as long as they can afford to keep in times of hardship.

For those that can grow wealth in a slowing housing market it will open doors and most likely give them better options in the long run.

As for the beach side houses of the rich and famous, it was the top end of town and in particular beach houses that got hit the hardest during the gfc.

Just for interest sake, I bumped into a bloke putting out for sale signs thisarvo. He's been run off his feet and can't keep up, business is booming for him at the moment. Could be short term or seasonal thing but I think the next few months will be interesting.

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#107 2011-01-11 07:38:00

chimpanchu
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From: Australia
Registered: 2009-08-06
Posts: 1,653
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Re: Australia heads for economic crunch

Sydneysiders are caught in between a rock and a hard place. Can't afford to buy a house and too expensive to rent too!


"The world needs to grow up and realize that governments are not the measure of legitimacy.
Legitimacy comes from adherence to ethical principles, not from politics.
2500 years of economic history show clearly that political power corrupts.
All governments without exception, lie, cheat, and steal, and always have."
   -- Richard Maybury

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#108 2011-01-11 13:03:33

dickmojo
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From: Toowoomba
Registered: 2010-04-18
Posts: 238
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Re: Australia heads for economic crunch

chimpanchu wrote:

Sydneysiders are caught in between a rock and a hard place. Can't afford to buy a house and too expensive to rent too!

This is a main factor that will precipitate an aussie housing bust. Rents can only rise in line with wage increases, and cannot rise in line with interest rates or housing price increases. The demographic wave of baby boomers selling up the family home and downsizing will bring a lot of spare square metres of living capacity onto the market. Rents will actually fall (deflation) I believe, which will wedge a lot of leveraged investors up against the rock of rising interest rates and the hard place of falling rents.

That said, the impact of the epic flood destruction of infrastructure and interruption of wealth generating industry in Queensland could take the planned interest rate rises this year off the table. However, it would also seriously dint our trade surplus, and push us back into a trade deficit.


"Come, Watson; the game is afoot."

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#109 2011-01-11 16:55:10

Stedlar
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Registered: 2010-08-16
Posts: 1,068
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Re: Australia heads for economic crunch

mmm....shiney! wrote:

hey s1lv3r, how do you go about providing for your daughter's social development? As an ex-teacher, I believe that schooling's best asset was it's ability to provide an environment in which children learnt to socialise. Having raised children in a small regional town, the friendships my kids made with others at their local school helped in their acceptance into sporting clubs and wider social interactions amongst their peers.


Home schooling social development can be catered for through the participation of various sporting, hobby groups or even getting together with other home schooled kids for social events. Like all things home schooling, it just requires the parents to be proactive and responsible. It comes with the advantage of you being able to choose who your kids socialise with.

I have friends who home school, it's like all things, you can do it yourself if you are prepared to take the time to learn and do it properly.


It's going to take much longer that we think, and happen much quicker than we expect.

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#110 2011-01-11 21:09:01

s1lv3r
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From: Melbourne, AU
Registered: 2010-09-08
Posts: 109
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Re: Australia heads for economic crunch

mmm....shiney! wrote:

hey s1lv3r, how do you go about providing for your daughter's social development? As an ex-teacher, I believe that schooling's best asset was it's ability to provide an environment in which children learnt to socialise. Having raised children in a small regional town, the friendships my kids made with others at their local school helped in their acceptance into sporting clubs and wider social interactions amongst their peers.

1) Please see Stedlar's response smile

2) another point to consider - in my personal experience I endured some amount of bullying and humiliation in my school (and beating).

I am very happy to think that there's a good chance my child will not be forced to experience this by not going to a school but rather having a choice of talking to other kids in other various groups/sections/teams - wherever and whoever she chooses.

I am not saying that every school is like that.

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#111 2011-01-11 21:27:55

JulieW
Silver Stacker
From: Australia
Registered: 2010-10-14
Posts: 11,132

Re: Australia heads for economic crunch

Schooling and education are not the same thing.

As Confucius said:

"Study without thought is labor lost; thought without study is dangerous"

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#112 2011-01-13 06:17:26

Stedlar
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Registered: 2010-08-16
Posts: 1,068
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Re: Australia heads for economic crunch

Lots of things tie you to an area, friends, family, schools, services, ect. Try having kids and then see how relocatable you are.


It's going to take much longer that we think, and happen much quicker than we expect.

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#113 2011-04-16 22:53:14

damien192x
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Registered: 2011-04-12
Posts: 98
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Re: Australia heads for economic crunch

Well at 21 my parents have allowed me to stay home for now, they actually WANT me here, the condition is in exchange for a roof over my head and food, I have to sock away 80-90% of my total income and invest it.  I guess they are investing in me - This way I will be able to pay them dividends in their retirement & old age smile

By staying home their costs aren't *that* much more than if I was to move out, anyway.

Sure you can cut coupons, stop getting coffee, cutting back, be frugal - but at the end of the day by staying at home i'm effectively giving myself a 100%+ pay rise. In short - to save the amount I Have in 2.5 years - If I was paying rent and bills it would take me closer to 15.

Not for everyone, but its something worth considering. I know a lot of younger couples who have "built on" into the backyard of the parentals place, much cheaper, and you still get enough privacy/space. ( As long as the in laws aren't Frank and Maree big_smile )

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#114 2017-02-17 19:20:55

House
Moderator/ Legend
From: Stack City
Registered: 2012-04-30
Posts: 9,643
Trades :   232 

Re: Australia heads for economic crunch

Another random expert has predicted we're finally on our way to Crunch Time®

AUSTRALIA is headed for an "economic Armageddon", with record household debt, record foreign debt and a massive housing bubble creating a perfect storm that could "wipe out" millions of families if there is a global shock.

That is the apocalyptic warning of a former government economic advisor, who says the government needs to cut tax incentives such as negative gearing and welfare handouts and the RBA needs to increase interest rates in order to avoid a "devastating depression".

Corporate governance specialist John Adams, who was an economics and policy advisor to Senator Arthur Sinodinos and management consultant to a big four accounting firm, believes he has found seven disturbing signs that the global economy is primed for a major fall.

Worse still, Australia is particularly vulnerable because of significant structural imbalances, including record levels of household debt not seen since the lead up to the last great depression in the 1920s.

Sign 1: Record Australian Household Debt
Sign 2: Record Australian Net Foreign Debt
Sign 3: Record Low Interest rates
Sign 4: Australian Housing Bubble
Sign 5: Significant Increases in Global Debt
Sign 6: Major International Asset Bubbles
Sign 7: Global Derivatives Bubble

RecycledNews.com.au


WBI- 41.16

"There's no point in paying a mortgage on an asset that is going to fall by 40 per cent or so in the next few years". Steve Keen, 2008.
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#115 2017-02-17 22:06:55

BuggedOut
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From: New South Wales
Registered: 2015-07-21
Posts: 1,797
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Re: Australia heads for economic crunch

This time it's different.

17623_kickcan.jpg

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#116 2017-02-18 02:39:10

JulieW
Silver Stacker
From: Australia
Registered: 2010-10-14
Posts: 11,132

Re: Australia heads for economic crunch

Sound of can:

The Turnbull government is looking "closely" at a rent-to-buy scheme for first home buyers similar to that used in Britain, Fairfax Media has confirmed, as MPs rush to fill the void on housing affordability with their own ideas.

Nationals MP Andrew Broad on Friday floated a proposal to allow renters to buy a home without paying a deposit, if the money they normally spent on rent was commensurate with the mortgage repayments.

http://www.theage.com.au/federal-politi … uf8lz.html


p.s. 

The only certainty is the government will not countenance Labor's policy of abolishing negative gearing for existing dwellings.

Last edited by JulieW (2017-02-18 02:41:00)

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#117 2017-02-18 02:50:53

Big A.D.
Silver Stacker
From: Sydney
Registered: 2009-10-29
Posts: 6,449
Trades :   52 

Re: Australia heads for economic crunch

Nationals MP Andrew Broad on Friday floated a proposal to allow renters to buy a home without paying a deposit, if the money they normally spent on rent was commensurate with the mortgage repayments.

Right, so lots of purchases brought forward, no equity for the buyer who'd going to pay interest on the full purchase price rather than the purchase price minus the deposit and zero buffer for the bank who'd be sitting on an underwater mortgage if anything more serious than a few roof tiles fell off in a strong breeze.

What a brilliant idea tongue


I am the Leafy Sea Dragon.

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#118 2017-02-18 04:00:09

SilverDJ
Member
From: Australia
Registered: 2014-11-01
Posts: 2,528

Re: Australia heads for economic crunch

intelligencer wrote:

As long as your loan is affordable, and that means different things to different people, and you can pay it off then it doesn't matter what house prices do in principle.
If prices stay flat, then so what? You bought at a price you were comfortable with. The goal becomes to pay the loan off as quick as you can within reason. Why do I say that? Because generally a home loan will be the cheapest money you'll be allowed to borrow. If your money can be put to work getting higher returns then its worth considering taking the risk of investing it elsewhere. Otherwise hit the home loan as hard as you can. It's a form of enforced saving. Your interest payments will be comparable to rent prices, and your principal payments will grow as you 'save' this way.

Bang on.
So few people understand this though.
Many think you should never pay a cent above the minimum on your house, that's crazy.

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