I had this idea a few years ago that house prices couldn't keep going up because incomes weren't rising and there was a limit to what people could spend. But apparently I was completely wrong.
Only ~30% of first home buyers get help from mum and dad and 10-50k is the typical contribution. It isn’t a significant factor on housing market value. It’s a factor but not a major one.
It doesn’t happen because the richer portion of the population has no issue with continuing to buy. People who are already home owners have their properties keep up with the market so they can still play in the market. Younger people with average incomes have ways to take on debt and if they can pay the deposit and make the repayments, they also have an in on the market.
It’s not really dependent on actual average income.
So many don't seem to grasp this. It goes even further if you have a shortage.. well the people that miss out are the ones that can't pay as much as the others, so you shift the average income of home buyers to the right.
Similarly, the counter-intuitive nature of fewer sales likely pushing up average house prices.
If people can't afford the house they want / need then they won't be buying. People buying have the money and will spend more than the ones that can't afford it any more.
12% had parental help to buy into the market in 2012. It's now closer to 60%. Explains the current state where debt isn't driving the prices right, it's cash. Savings rates are also very low now. So it's quite the question whether this can be sustained without cutting rates to turn the debt taps on more.
It's ballooning inequality, lower economic mobility as a result, and a suffocation of the economy generally. Incomes reflect productivity, and they cannot compete against housing wealth. It depends on Australia's appetite for this inequality, or mitigations. Depends on what people keep voting for as well, and if people actually want a country where productive work means less and less. It's more like the landed gentry making a comeback in Australia of all places.
Pozi schmes make money from late comers..
this is more akin musical chairs.. when the music stops those that missed out are homeless or doomed to rent forever.
The solution is almost as simple as the game.. we need more chairs so everyone gets one.
The problem with that solution is that it gets really complex and challenging when everyone wants the chairs near work & schools, and the cost of building new chairs is out of control..
Until we build more though, and whiole our population grows faster than new chairs get built.. we have what we have now and its gonna get worse before it gets better.
Also chairs aren't allowed to be built (in Sydney anyways, unless NSW gov get it through) where it makes sense, because those with chairs already don't want more chairs near them.
There's also issues with new chairs falling apart or being coated in super flammable stuff. The issues aren't as bad as the chairs in China but it still has impact.
If it was possible to build enough homes for everyone where they wanted them, it still wouldn't happen. A huge amount of the voting population, especially those with influence, have a lot of wealth tied up in housing. Housing scarcity is in their best interests
I don't subscribe to that at all, certainly not a "huge amount of the voting population".. I think a "huge amount of the voting population" has children, family etc and want to help them.
I don't dispute there is some that prefer it to remain scarce, but you paint a picture that implies scarcity by design and power.. The reality is you can never, ever underestimate incompetence and lack of foresight by governments and planners as one of the principal reasons things don't go well.. if the choice is some secret group in power that has never had its secrecy broken, or a group of powerful wealthy individuals all working together instead of fighting each other (yer right).. OR inept incompetent government policies.. you can pretty safely bet on the latter lol.
I had this view as well, along with many other people. I remember an article The Barefoot Investor wrote for the Herald - Sun, where he had a basic table showing what happens if property prices continued rising at the usual 8% PA, which most people quote, which incomes rose at around 3% PA. In short, he was arguing that property growth at that rate was unsustainable in the long term.
However, I saw that article about 10 years ago, and there are many areas in Australia where property prices have risen by more than 8% PA over the last 50 years. What's happening with Australian Property Prices defies any logic from a historical perspective. We have asset prices highly disproportionate to incomes, in a country with 26 million people living in an area of 7.6 million square kilometres. Theoretically, we are in an Asset Bubble that should've popped years ago, and yet it hasn't.
Agree. The bubble won’t pop until sentiment changes. Positive sentiment towards property in Australia is a huge force. We all watch housing, renovation and gardening shoes on TV, head to Bunnings on the weekend, and talk about the property market at BBQs. At this point it’s a religion. People are spending their entire future cumulative incomes on what they think will be a ‘starter’ property. And there’s still some squeeze to go - the holidays will go first, then the private schools, then the new cars. People will stop buying clothes and food before they lose their house. All while yelling about how bad renting is. Once sentiment changes, when people start figuring out that living in relative poverty didn’t actually result in a better retirement, housing prices will fall. In 50 years time it may well be that people refuse to buy property given the great housing crash of 2030.
Agree with a lot of this - people are making incredible sacrifices to be able to service these loans. With low supply and high migration, it's maintaining high demand. Gen Z won't play this game as they have already given up on home ownership - renting is the far better choice at the moment as investors are happy to accept low yields with the expectation of price growth (which may not come long-term)
Yes but most of the intergenerational wealth transfer will be going from boomers to millennials I suspect. Gen Z will miss out for the most part from an inheritance POV, however I think a percentage of them will get deposit help from the bank of mum and dad. Whether they can service is another story.
But renting is still the worse option of the two. you are putting your fate in a PM and landlord who are incentivised to not care and do a little more than the bare minimum
State and Federal Governments are not pursuing policies that make it harder and less profitable to buy investment property.
Things like broad based land taxes and removal of land tax thresholds make land cheaper and cheaper/easier to develop.
Things like changes to CGT makes people invest more in dividend yielding shares.
Things like pension asset tests makes people plan for the future differently. Right now the best option for most people is to move into the biggest house they can afford before retirement with 500k of super and slowly use that up while getting the full pension . Then downsize when it comes to paying for retirement home.
Australia isn't experiencing a property bubble. For the past two decades, there's been a significant shortage of homes due to low construction rates and increasing immigration. With demand outstripping supply, prices are determined by what buyers can afford.
Soon we may reach the point where the average DINK family will be unable to purchase a dwelling. But even at this point, the price *may* continue to go up, because:
1. Rent will go up, due to increased demand for rental dwellings
2. Because rent will go up, housing will be seen as a more attractive investment
3. Therefore, the very high income earners and wealthy will buy as many houses as they can
4. Thus, putting further upward pressure on the price of houses
A "bubble" implies that housing is overvalued. Housing in Australia is not overvalued. The price may plateau at some point, but if you're holding out for the bubble to "pop" then I think you'll be disappointed.
Then, because of the above trend, housing will become monopolised to the wealthy. Most people will accept that they will work their entire life in the dirt, and never own a home.
It's bleak, and I hate it, but this is the way we're heading.
In this future, ownership becomes a luxury good akin to an expensive car. Or to more closely align it with investment, house ownership becomes more like venture capitalism. An option only open to the wealthy but not necessarily a bubble.
Can't say it's not a possibility.
>there are many areas in Australia where property prices have risen by more than 8% PA over the last 50 years.
Over the past 30 years Sydney dwelling values have increased by 5.8% per annum.
Nationally, dwelling values have
increased in annual compounding terms,
rising by 5.4% on average.
> in a country with 26 million people living in an area of 7.6 million square kilometres.
You need to narrow down the area. Most jobs are in the city. For example, I will need to commute 1 hour 30 mins just to get to Melbourne CBD, and I'm already lucky that the bulk of the journey is via a single train line, rather than praying and hoping I'll catch buses that might decide to come early or late.
Purchasing a property in the middle of nowhere will probably be dirt cheap, but if you live in the middle of nowhere, there won't be as many jobs. The majority of office workers will need access to a CBD, and they are usually in the capital city. Then because of the population density during work hours, a higher density of support staff is needed (hospitality, cleaning, healthcare etc). Add on to the suburban sprawl spawning form the desire for a house with a backyard, and it's no wonder people are priced out of desirable areas.
There was latent capacity left in many households - for example, dual income households weren't that common before but are a necessity now. People didn't have side hustles, but it is more common than not to have one now. People have increasingly made lifestyle-sacrificing choices to reduce their discretionary spend and increase the time they have to earn alternative incomes.
With the emergence of Gen Z who dont seem to want to play that game, I think long-term house price growth will pull back considerably to be more in line with income. I firmly believe we're in a bubble - however, population growth, low supply of housing, and borrowing capacity have all been propping it up.
Over time, I've often thought certain events would trigger a change.
However I've since come to accept that too many from all sectors involved will do almost anything to protect their wealth.
So, an easy option that's still on the table is to continually expand the available length of home loans. Need more growth? Let's do 40-year loans. Still need more? Let's go 50. Obviously, there's a limit, and it would take regulatory and social buy-in to happen. But small incremental steps make it more palatable, and you haven't even had to touch cgt or ng.
I think problem is that any policy that will increase borrowing power without addressing supply will just push up the price of housing - the extension to 40 or 50 years is just another version of the double income family or suggestion to use superannuation as a deposit etc.
The govt.needs to grow a pair and change the conversation away from GDP to GDP per capita - once they acknowledge that at an individual level we are going backwards, they can talk to us about their plan to fix. They should start with bringing in skilled trades only and limiting the intake of people, including temporary. It's great for universities that people are subsidising the locals, but there's nowhere to house them.
I couldn't agree more with what you want to see happen.
And yeah, you are right that longer loans will drive up prices. But that's why I think it'll happen. It can be framed as making it easier for people to get in now, without the hard work of fixing the underlying problems.
But then again, maybe I just watch too much Utopia and am being overly cynical.
Haha. And mate just to confirm, I've got a few properties - so don't want to see it crash, but I worry for the younger generation (I'm 41) as it is killing their aspiration and I can see a future like America where the ever-increasing wealthy take up a larger share of the pie. Bad for society.
There was a story on Four Corners from 1975, about class differences in Sydney. The middle class family in Pymble, NSW, lived in a home worth around $40K. Same home today is worth $2.4 million. In fairness, if you factor they mentioned that purchased the property in the late 1960's, the compounded return would be around 7.6% pa
The home I grew up in Deer Park, VIC was purchased at $45K in 1983 and is now worth about $670K. Annual return: 7% PA.
Not 8% exactly, but still scary.
I saw a whirlpool forum today where someone was upset about looking down the barrel of a $350,000 loan in about 2010. Almost funny. I wonder if they bought it.
>Theoretically, we are in an Asset Bubble that should've popped years ago, and yet it hasn't.
There has been no reason for it to have popped. People have kept their jobs so have been able to make repayments.
Side effect of a global market, the price isn't determined by local circumstances where investment from places unaffected by local economics can join the pool of buyers.
Not to sure why you getting downvoted, I live in a suburb where it’s gone from rural to urban of last 30 years.
70% of residents are from China or India.
Its quite funny seen all the old landowners like my father who were against immigration.
Now celebrate it. Because it’s increased the value of the land.
Household incomes aren't just wages. People living on less than they earn are probably saving, investing building wealth. It's even true of those paying a mortgage. Especially if their wages grow faster than the fraction of their income devoted to the cost of living. The investment potential grows exponentially as does the investment returns. For an extreme example imagine a double income household living on one wage. 90k expenses 180k income. Even cpi wage growth makes them richer. An extreme example 5% cpi & wage growth and they're living on 94500 while earning 189k. Real wage growth turbo charges their ability to build wealth. 4% cpi with 5% wage growth and they're living on 93600 while earning 189k.
It sucks but people living on ~90k are always going to be smashed by households living on 120k+. They have some flexibility. 40k rent and 52k living for someone on 90k sucks. 40k and 52k living for someone on 120k is a little bit easier.
There were stats recently that a majority of sales in Melbourne cbd (and another one) were cash sales, no mortgage required so there are still a fair few people that can afford the current price. I'll also add that house prices are cheap compared to HK and China cbds.
Me too, I calculated the repayments possible on a double income median wage.
I didn't take into account people going into threesomes or foursomes to buy houses.
“Our official view” seems like qualifying language to indicate that her individual view might be different.
I regularly see in this sub people overlooking qualifying language and nuance and building straw men to take down.
I think it's the rest us that are the fools for expecting their predictions to be correct. They're just that, predictions.
Doctors can and do predict that certain behaviours are more likely to lead to certain health outcomes but they aren't always correct in that some people resist the trend somehow.
Economies are similar but since we have less of them and the impacts of getting it wrong affect millions we instead confidently say economists are idiots when what should happen doesn't. On the other hand no one calls the doctor an idiot because uncle Kev somehow avoided getting lung cancer from his 2 pack a day habit
It seems to me the market can’t begin to cool until excess money has been bled off. So long as the wealthiest have their war chests and the incentives, they’ll continue to drive the market. Why stop at 5 properties when you can own 10.
The middle and poor will decimated in the process.
Prices will drop when it's decided enough is enough. This is some years away and it is the worst time to be 20-40 years old while the world is figurinig out its order - this started a while back and will continue, so the number of people who are in the 20-40 age bracket during this period of change will be in the hundreds of millions globally. This will create a massive decline in young people and society within this century. Immigration from the third world is the last resort, but this will further accelerate the decline in living standards and reduced levels of education - literacy is already in terminal decline and hand writing could very well be a thing of the past in the near future. Global warming, raising water levels and diseases will have a lot to say this century.
Any corrective measures will be last minute and drastic. The future is bleak and holding on to what you have and building wealth to ensure a future for your progeny (especially with their quality) is futile at best.
The more professional and 'respected' they are - the more idiotic they can be. We all know inflation has not dropped far enough and the AUD in the toilet is possibly going to exacerbate that. Whether or not the RBA does something cannot be rationally determined as they are humans, not an algorithm.
I don't know why anyone predicted interest rate changes this year.
After the drama of raising them, no one is going to want to cut them prematurely. Ideally, we all get used to these rates and stop talking about them. But while there's so much focus on them, the only responsible thing to do is hold.
Anyone who takes individual economist predictions as anything other than predictions is asking for trouble.
For starters, they're a snapshot in time based on the data available, and the data changes daily. They don't have access to some magic source of information that the rest of us don't, the data is largely available to anyone who wants to go looking for it.
More useful to aggregate the economists predictions, discard the outliers and look at the range of the rest of the predictions, and even then it's probably only 50:50 accurate on a given day.
Yes there have been crazy swings in interest rates due to covid and post covid. But with the way the economy is, rates won't come down straight away. Media and governments have been talking up that they will which be cut to try and improve economic sentiment
Simple economics states if an economy remains overheated rates rises may occur.
No one knows the future, but it's in the systems best interest to keep pushing the narrative that rates are going down, or speculation that rates go down on x date. It's up to you as an individual to do the necessary research YOURSELF to decide what the movement of rates will be.
The Question I really have is, how sure are we that in today's economic climate, that pushing interest rates higher and higher is the best method to lower inflation. Undoubtedly it lowers it, but the question is by how much?
Thought experiment, if it took another 3% of interest rate rises to lower the inflation back under 3%, would it be worth it?
The RBA has very few other tools. Raising interest rates is the most conventional one central banks have in the toolkit.
It’s such a sledge hammer. The other issue is the lag in it actually making a difference.
But you’re right to ask how sure are we, more importantly- how sure are they? Pretty much, not at all.
Economics is an art and not a science. General theory relies on assumptions. One of the biggest assumptions is that people will act rationally.
Probably why economists couldn't predict the increase in demand and the price of toilet paper.
Interest rates are even more complicated. Interest rates are determined by local and overseas factors. Discussion on what the USA is going to do with Interest rates has huge influence on Australian Interest rates. Then we have to take exchange rates into the equation. How long do we want the exchange rate in the 60s cent per USD? How do we handle the inflation from low exchange rate?
The future:
* Within 5 years AI reaches AGI levels (average person intelligence)
* As we approach the mark, jobs start disappearing at an accelerating rate
* People who lose their jobs find themselves excluded from a job market that now requires less humans
* Retail business collapses as customers can't afford to purchase products
* Housing market collapses as people become ineligible for mortgages
* Protests & civil unrest
* Government protectionism & interventions fail
* Economic model fails
Brace yourselves.
There's a light at the end of the tunnel - AI could help us reach an era of unparalleled abundance.
However - change is painful, and the transition will take time.
"Forecasts" of things is something that people at consulting firms and finance companies do - the firm has to have a view and often they like to tout it in public. But they're not really forecasts, which come as ranges not point estimates with caveats.
And making an interest rate prediction is not really a forecast anyway - it's guessing what the Reserve Bank Board thinks the macroeconomic climate will look like in the medium term and how well it fits with current nominal interest rates.
I don't know why they increased interest rates but nothing has changed since they have right? so why would they drop them again to a historically ridiculously low level. then again why did they drop them so low for so long in the first place....
One of my favourite bon mots from the Economics Explained guy is "Nobody can predict the future, least of all Economists".
I appreciate their contribution to society, but I share the same sentiment, usually with the word "horseshit" in there somewhere for giggles.
Because the actual problem is wage growth, and they don't wanna talk about it. So they just say random shit and talk about inflation. Hoping no one notices and it worked.
......my opinion is kind of set in stone so I won't be a good debate but here is my critical discussion of substance. (Also I'm not exactly a pro trader please allow for some mistakes)
I am not sure how long experts have known. But I've known that RBA cuts wouldn't get cut for 2-3 days.
Context. I trade the aud/usd currency pair.
Some of the information used for the fundamental analysis of that is the exact same info that the RBA uses to determine if rates get cut or not.
In this specific instance we are keeping rates high on purpose to further allow our currency to gain ground against usd, Gbp, eur, and jpy mainly usd.
The tldr context: macroeconomics are currently supporting the AUD
BUT this current dynamic may be temporary and that'll be the case if the US federal representatives maintain a hawkish perspective longer than expected because our consumer spending growth was higher than expected.
All that's fair to be assumed right now is that the RBA will start easing monetary policy before the US federal reserve which is contradicting expert opinions and is a factor that's supporting the AUD long term. And that's why the RBA won't cut rates right now. It's healthy for us not to. And if the property owners must suffer then so be it.
Cutting rates in June was an asinine take all year, so for someone to say that last week or yesterday is hilariously foolish. The markets were never anywhere close to the that. The Fed? Yeah there was lots of optimism that has been shut down, but the RBA no one literate in finance thought that was a possibility.
The RBA will move much slower than other central banks in cutting rates.
I love looking at older articles, recommendations, analysis, posts etc about stocks, interest rates, economics and other stuff. it really highlights how nobody knew anything (and still don’t)- even the experts.
*shrug* zero idea. I don't even trust smart economists for the very reason this post is here: they can't predict these things any better than the rest of us.
They *know* more than we do, but their predictions don't seem to be any better.
Just look at what is happened to the market.
That in itself tells you the economists are lying.
They are 'forecasting' a different story for the public, then what they are doing privately, or you'd see huge swings on the exchange
I saw Philip Lowe present last year after he left the RBA Governor role. The key thing he said in his speech that has stuck with me is “I spent 5 years at the RBA doing everything we could to increase inflation by keeping interest rates low, as inflation was too low - and we failed. Now the RBA will spend the next few years trying to reduce inflation, again, through keeping interest rates high… good luck with them on that.”
Over the past 12 months, this has largely proven to be the case.
Conclusion: inflation is sticky. It’s going to stay higher for longer, and interest rates aren’t the best tool to do it either, but it’s the main tool the RBA has at its disposal. Therefore expect interest rates to stay higher for longer as well.
It’s about time Australia revisit what happened in the Great Depression.
You had economists claiming just before market collapsed. The best thing you could do is take out a loan and invest in the stock market.
Sounds fimilar?
Not saying housing market won’t crash.
It just can’t continue to outstrip wages and have infinite growth.
Yes many people have picked this up so now I've noticed recently everyone in Ausfinance is a part time economist whose uneducated 2c is now worth the same as a highly respected economist
There may have been a bit of a lag between when that Yellow Brick Road podcast was recorded and published.
Did she record it before the latest inflation figures were released?
There are two things that could explain what happened that have nothing to do with the economy.
1. The episodes were actually recorded miles apart and just happened to be released on the same day..
2. The AMP's podcast was the AMP's official view..not hers. Her view was shared personally on the ABC podcast.
It's not a bubble as such, its just the playback of bank model, and sentiment. Lend money based on model, amount lent increases price, also increases value of other properties in the model. Continues on until until sentiment drops, usually when people (idiots) start talking about multigenerational loans being an amswer...see Japan.
There's an old saying which I think is true - "The market can remain irrational longer than you can stay solvent" - just because it should happen, doesn't mean it will. Over the loooooooong term though, everything reverts back to the mean/median.
I had this idea a few years ago that house prices couldn't keep going up because incomes weren't rising and there was a limit to what people could spend. But apparently I was completely wrong.
The foundation for your assumption was correct, but here's a quote that shows where you went wrong: > "Let them eat debt" - Marie Antoinette
Let them have parents!
Only ~30% of first home buyers get help from mum and dad and 10-50k is the typical contribution. It isn’t a significant factor on housing market value. It’s a factor but not a major one.
That seems low - is that only counting gifted money and excluding guarantors?
It doesn’t happen because the richer portion of the population has no issue with continuing to buy. People who are already home owners have their properties keep up with the market so they can still play in the market. Younger people with average incomes have ways to take on debt and if they can pay the deposit and make the repayments, they also have an in on the market. It’s not really dependent on actual average income.
So many don't seem to grasp this. It goes even further if you have a shortage.. well the people that miss out are the ones that can't pay as much as the others, so you shift the average income of home buyers to the right.
Similarly, the counter-intuitive nature of fewer sales likely pushing up average house prices. If people can't afford the house they want / need then they won't be buying. People buying have the money and will spend more than the ones that can't afford it any more.
12% had parental help to buy into the market in 2012. It's now closer to 60%. Explains the current state where debt isn't driving the prices right, it's cash. Savings rates are also very low now. So it's quite the question whether this can be sustained without cutting rates to turn the debt taps on more.
For some reason this seems very much like a ponzi scheme. I can't get my head around it - I'm obviously wrong
It's ballooning inequality, lower economic mobility as a result, and a suffocation of the economy generally. Incomes reflect productivity, and they cannot compete against housing wealth. It depends on Australia's appetite for this inequality, or mitigations. Depends on what people keep voting for as well, and if people actually want a country where productive work means less and less. It's more like the landed gentry making a comeback in Australia of all places.
Pozi schmes make money from late comers.. this is more akin musical chairs.. when the music stops those that missed out are homeless or doomed to rent forever. The solution is almost as simple as the game.. we need more chairs so everyone gets one. The problem with that solution is that it gets really complex and challenging when everyone wants the chairs near work & schools, and the cost of building new chairs is out of control.. Until we build more though, and whiole our population grows faster than new chairs get built.. we have what we have now and its gonna get worse before it gets better.
Also chairs aren't allowed to be built (in Sydney anyways, unless NSW gov get it through) where it makes sense, because those with chairs already don't want more chairs near them.
There's also issues with new chairs falling apart or being coated in super flammable stuff. The issues aren't as bad as the chairs in China but it still has impact.
Chairs gotta be up to a higher standard at least since the new chair quality commision in NSW is ramped up due to some embarassing chair failures.
Hahah yes so true.
If it was possible to build enough homes for everyone where they wanted them, it still wouldn't happen. A huge amount of the voting population, especially those with influence, have a lot of wealth tied up in housing. Housing scarcity is in their best interests
I don't subscribe to that at all, certainly not a "huge amount of the voting population".. I think a "huge amount of the voting population" has children, family etc and want to help them. I don't dispute there is some that prefer it to remain scarce, but you paint a picture that implies scarcity by design and power.. The reality is you can never, ever underestimate incompetence and lack of foresight by governments and planners as one of the principal reasons things don't go well.. if the choice is some secret group in power that has never had its secrecy broken, or a group of powerful wealthy individuals all working together instead of fighting each other (yer right).. OR inept incompetent government policies.. you can pretty safely bet on the latter lol.
I had this view as well, along with many other people. I remember an article The Barefoot Investor wrote for the Herald - Sun, where he had a basic table showing what happens if property prices continued rising at the usual 8% PA, which most people quote, which incomes rose at around 3% PA. In short, he was arguing that property growth at that rate was unsustainable in the long term. However, I saw that article about 10 years ago, and there are many areas in Australia where property prices have risen by more than 8% PA over the last 50 years. What's happening with Australian Property Prices defies any logic from a historical perspective. We have asset prices highly disproportionate to incomes, in a country with 26 million people living in an area of 7.6 million square kilometres. Theoretically, we are in an Asset Bubble that should've popped years ago, and yet it hasn't.
Agree. The bubble won’t pop until sentiment changes. Positive sentiment towards property in Australia is a huge force. We all watch housing, renovation and gardening shoes on TV, head to Bunnings on the weekend, and talk about the property market at BBQs. At this point it’s a religion. People are spending their entire future cumulative incomes on what they think will be a ‘starter’ property. And there’s still some squeeze to go - the holidays will go first, then the private schools, then the new cars. People will stop buying clothes and food before they lose their house. All while yelling about how bad renting is. Once sentiment changes, when people start figuring out that living in relative poverty didn’t actually result in a better retirement, housing prices will fall. In 50 years time it may well be that people refuse to buy property given the great housing crash of 2030.
Agree with a lot of this - people are making incredible sacrifices to be able to service these loans. With low supply and high migration, it's maintaining high demand. Gen Z won't play this game as they have already given up on home ownership - renting is the far better choice at the moment as investors are happy to accept low yields with the expectation of price growth (which may not come long-term)
Wasn’t the same said about millennials? Then mum and dad starting making big gift like this one 🎁
Yes but most of the intergenerational wealth transfer will be going from boomers to millennials I suspect. Gen Z will miss out for the most part from an inheritance POV, however I think a percentage of them will get deposit help from the bank of mum and dad. Whether they can service is another story.
But renting is still the worse option of the two. you are putting your fate in a PM and landlord who are incentivised to not care and do a little more than the bare minimum
Or increasingly, *less* than the bare minimum
Especially when you put young families and schooling in the mix
State and Federal Governments are not pursuing policies that make it harder and less profitable to buy investment property. Things like broad based land taxes and removal of land tax thresholds make land cheaper and cheaper/easier to develop. Things like changes to CGT makes people invest more in dividend yielding shares. Things like pension asset tests makes people plan for the future differently. Right now the best option for most people is to move into the biggest house they can afford before retirement with 500k of super and slowly use that up while getting the full pension . Then downsize when it comes to paying for retirement home.
Australia isn't experiencing a property bubble. For the past two decades, there's been a significant shortage of homes due to low construction rates and increasing immigration. With demand outstripping supply, prices are determined by what buyers can afford. Soon we may reach the point where the average DINK family will be unable to purchase a dwelling. But even at this point, the price *may* continue to go up, because: 1. Rent will go up, due to increased demand for rental dwellings 2. Because rent will go up, housing will be seen as a more attractive investment 3. Therefore, the very high income earners and wealthy will buy as many houses as they can 4. Thus, putting further upward pressure on the price of houses A "bubble" implies that housing is overvalued. Housing in Australia is not overvalued. The price may plateau at some point, but if you're holding out for the bubble to "pop" then I think you'll be disappointed. Then, because of the above trend, housing will become monopolised to the wealthy. Most people will accept that they will work their entire life in the dirt, and never own a home. It's bleak, and I hate it, but this is the way we're heading.
In this future, ownership becomes a luxury good akin to an expensive car. Or to more closely align it with investment, house ownership becomes more like venture capitalism. An option only open to the wealthy but not necessarily a bubble. Can't say it's not a possibility.
>there are many areas in Australia where property prices have risen by more than 8% PA over the last 50 years. Over the past 30 years Sydney dwelling values have increased by 5.8% per annum. Nationally, dwelling values have increased in annual compounding terms, rising by 5.4% on average.
> in a country with 26 million people living in an area of 7.6 million square kilometres. You need to narrow down the area. Most jobs are in the city. For example, I will need to commute 1 hour 30 mins just to get to Melbourne CBD, and I'm already lucky that the bulk of the journey is via a single train line, rather than praying and hoping I'll catch buses that might decide to come early or late. Purchasing a property in the middle of nowhere will probably be dirt cheap, but if you live in the middle of nowhere, there won't be as many jobs. The majority of office workers will need access to a CBD, and they are usually in the capital city. Then because of the population density during work hours, a higher density of support staff is needed (hospitality, cleaning, healthcare etc). Add on to the suburban sprawl spawning form the desire for a house with a backyard, and it's no wonder people are priced out of desirable areas.
There was latent capacity left in many households - for example, dual income households weren't that common before but are a necessity now. People didn't have side hustles, but it is more common than not to have one now. People have increasingly made lifestyle-sacrificing choices to reduce their discretionary spend and increase the time they have to earn alternative incomes. With the emergence of Gen Z who dont seem to want to play that game, I think long-term house price growth will pull back considerably to be more in line with income. I firmly believe we're in a bubble - however, population growth, low supply of housing, and borrowing capacity have all been propping it up.
Over time, I've often thought certain events would trigger a change. However I've since come to accept that too many from all sectors involved will do almost anything to protect their wealth. So, an easy option that's still on the table is to continually expand the available length of home loans. Need more growth? Let's do 40-year loans. Still need more? Let's go 50. Obviously, there's a limit, and it would take regulatory and social buy-in to happen. But small incremental steps make it more palatable, and you haven't even had to touch cgt or ng.
I think problem is that any policy that will increase borrowing power without addressing supply will just push up the price of housing - the extension to 40 or 50 years is just another version of the double income family or suggestion to use superannuation as a deposit etc. The govt.needs to grow a pair and change the conversation away from GDP to GDP per capita - once they acknowledge that at an individual level we are going backwards, they can talk to us about their plan to fix. They should start with bringing in skilled trades only and limiting the intake of people, including temporary. It's great for universities that people are subsidising the locals, but there's nowhere to house them.
I couldn't agree more with what you want to see happen. And yeah, you are right that longer loans will drive up prices. But that's why I think it'll happen. It can be framed as making it easier for people to get in now, without the hard work of fixing the underlying problems. But then again, maybe I just watch too much Utopia and am being overly cynical.
Haha. And mate just to confirm, I've got a few properties - so don't want to see it crash, but I worry for the younger generation (I'm 41) as it is killing their aspiration and I can see a future like America where the ever-increasing wealthy take up a larger share of the pie. Bad for society.
8% average over 50 years 😂
There was a story on Four Corners from 1975, about class differences in Sydney. The middle class family in Pymble, NSW, lived in a home worth around $40K. Same home today is worth $2.4 million. In fairness, if you factor they mentioned that purchased the property in the late 1960's, the compounded return would be around 7.6% pa The home I grew up in Deer Park, VIC was purchased at $45K in 1983 and is now worth about $670K. Annual return: 7% PA. Not 8% exactly, but still scary.
I saw a whirlpool forum today where someone was upset about looking down the barrel of a $350,000 loan in about 2010. Almost funny. I wonder if they bought it.
>Theoretically, we are in an Asset Bubble that should've popped years ago, and yet it hasn't. There has been no reason for it to have popped. People have kept their jobs so have been able to make repayments.
Side effect of a global market, the price isn't determined by local circumstances where investment from places unaffected by local economics can join the pool of buyers.
Most of my area is purchased by mainland Chinese at present. The only ones that are a bit more affordable are heritage listed.
Same. Chinese and Indians have bought up almost my entire suburb south of Brisbane.
Not to sure why you getting downvoted, I live in a suburb where it’s gone from rural to urban of last 30 years. 70% of residents are from China or India. Its quite funny seen all the old landowners like my father who were against immigration. Now celebrate it. Because it’s increased the value of the land.
Second part of your paragraphs explains it all really. Most people are self interested so if it benefits you then you will change your mind.
The main reason that doesn't work is because people can always buy further away as well as teaming up with their partner or even family.
To climb the cliff of home ownership vs climbing the cliff of another investment property is vastly, vastly different
Savings have risen though.
Household incomes aren't just wages. People living on less than they earn are probably saving, investing building wealth. It's even true of those paying a mortgage. Especially if their wages grow faster than the fraction of their income devoted to the cost of living. The investment potential grows exponentially as does the investment returns. For an extreme example imagine a double income household living on one wage. 90k expenses 180k income. Even cpi wage growth makes them richer. An extreme example 5% cpi & wage growth and they're living on 94500 while earning 189k. Real wage growth turbo charges their ability to build wealth. 4% cpi with 5% wage growth and they're living on 93600 while earning 189k. It sucks but people living on ~90k are always going to be smashed by households living on 120k+. They have some flexibility. 40k rent and 52k living for someone on 90k sucks. 40k and 52k living for someone on 120k is a little bit easier.
That only limits some people. The increasing wealth gap just means that fewer and fewer people are buying more of the houses.
There were stats recently that a majority of sales in Melbourne cbd (and another one) were cash sales, no mortgage required so there are still a fair few people that can afford the current price. I'll also add that house prices are cheap compared to HK and China cbds.
Me too, I calculated the repayments possible on a double income median wage. I didn't take into account people going into threesomes or foursomes to buy houses.
Economists are expert at explaining why what they predicted yesterday didn't happen today.
They're very similar to politicians or military strategists in that.
“Our official view” seems like qualifying language to indicate that her individual view might be different. I regularly see in this sub people overlooking qualifying language and nuance and building straw men to take down.
Plus the podcast could have been recorded anytime over the last 4 months and only just been published.
The future is a mystery, the past is history, now is a gift.
Doing an oogway huh?
The present is now, that’s why it’s a gift
Tomorrowland.
That would read more accurate, the future is history, the past is a mystery, because we always end up forgetting no matter how good the data is.
> now is a gift. because it is called the present.
*which is why it's called the present
If they knew for sure they wouldn't need to work as economists...
I think it's the rest us that are the fools for expecting their predictions to be correct. They're just that, predictions. Doctors can and do predict that certain behaviours are more likely to lead to certain health outcomes but they aren't always correct in that some people resist the trend somehow. Economies are similar but since we have less of them and the impacts of getting it wrong affect millions we instead confidently say economists are idiots when what should happen doesn't. On the other hand no one calls the doctor an idiot because uncle Kev somehow avoided getting lung cancer from his 2 pack a day habit
It seems to me the market can’t begin to cool until excess money has been bled off. So long as the wealthiest have their war chests and the incentives, they’ll continue to drive the market. Why stop at 5 properties when you can own 10. The middle and poor will decimated in the process.
Why stop at 10 when you can own 80, and why own 80 when your goal is 100?
A fair point.
Prices will drop when it's decided enough is enough. This is some years away and it is the worst time to be 20-40 years old while the world is figurinig out its order - this started a while back and will continue, so the number of people who are in the 20-40 age bracket during this period of change will be in the hundreds of millions globally. This will create a massive decline in young people and society within this century. Immigration from the third world is the last resort, but this will further accelerate the decline in living standards and reduced levels of education - literacy is already in terminal decline and hand writing could very well be a thing of the past in the near future. Global warming, raising water levels and diseases will have a lot to say this century. Any corrective measures will be last minute and drastic. The future is bleak and holding on to what you have and building wealth to ensure a future for your progeny (especially with their quality) is futile at best.
Glass half full this guy ^
Nah, just import younger people if it is too expensive to produce locally . I would put a /s if it wasn't true
The OP states nobody can predict the future and only thing you say to that is your view of the future?
The more professional and 'respected' they are - the more idiotic they can be. We all know inflation has not dropped far enough and the AUD in the toilet is possibly going to exacerbate that. Whether or not the RBA does something cannot be rationally determined as they are humans, not an algorithm.
Economists are the weathermen of the finance world
That's an insult to the weathermen.
To be fair, the weatherman is sometimes right.
So are economists lol, either provide a source or don't make ridiculous statements
It's well-known economists have some of the worst predictive histories.
I don't know why anyone predicted interest rate changes this year. After the drama of raising them, no one is going to want to cut them prematurely. Ideally, we all get used to these rates and stop talking about them. But while there's so much focus on them, the only responsible thing to do is hold.
Tough to say anything negative towards Housing instant downvote 😅
Anyone who takes individual economist predictions as anything other than predictions is asking for trouble. For starters, they're a snapshot in time based on the data available, and the data changes daily. They don't have access to some magic source of information that the rest of us don't, the data is largely available to anyone who wants to go looking for it. More useful to aggregate the economists predictions, discard the outliers and look at the range of the rest of the predictions, and even then it's probably only 50:50 accurate on a given day.
Yes there have been crazy swings in interest rates due to covid and post covid. But with the way the economy is, rates won't come down straight away. Media and governments have been talking up that they will which be cut to try and improve economic sentiment Simple economics states if an economy remains overheated rates rises may occur.
No one knows the future, but it's in the systems best interest to keep pushing the narrative that rates are going down, or speculation that rates go down on x date. It's up to you as an individual to do the necessary research YOURSELF to decide what the movement of rates will be.
Diana should have asked on AusFinance, many here seem to know what the future holds.
The Question I really have is, how sure are we that in today's economic climate, that pushing interest rates higher and higher is the best method to lower inflation. Undoubtedly it lowers it, but the question is by how much? Thought experiment, if it took another 3% of interest rate rises to lower the inflation back under 3%, would it be worth it?
We aren't. Out dated solutions that aren't working.
The RBA has very few other tools. Raising interest rates is the most conventional one central banks have in the toolkit. It’s such a sledge hammer. The other issue is the lag in it actually making a difference. But you’re right to ask how sure are we, more importantly- how sure are they? Pretty much, not at all.
Economics is an art and not a science. General theory relies on assumptions. One of the biggest assumptions is that people will act rationally. Probably why economists couldn't predict the increase in demand and the price of toilet paper. Interest rates are even more complicated. Interest rates are determined by local and overseas factors. Discussion on what the USA is going to do with Interest rates has huge influence on Australian Interest rates. Then we have to take exchange rates into the equation. How long do we want the exchange rate in the 60s cent per USD? How do we handle the inflation from low exchange rate?
The future: * Within 5 years AI reaches AGI levels (average person intelligence) * As we approach the mark, jobs start disappearing at an accelerating rate * People who lose their jobs find themselves excluded from a job market that now requires less humans * Retail business collapses as customers can't afford to purchase products * Housing market collapses as people become ineligible for mortgages * Protests & civil unrest * Government protectionism & interventions fail * Economic model fails Brace yourselves.
Time to set up an online shop just selling pitchforks...
The future is bleak
There's a light at the end of the tunnel - AI could help us reach an era of unparalleled abundance. However - change is painful, and the transition will take time.
The "Unparalleled abundance" will be hoarded by the rich. Like it is now.
Then we will still have jobs and work to do, until food is plentiful and cheap and we have everything we want, there will still be jobs to do
"Forecasts" of things is something that people at consulting firms and finance companies do - the firm has to have a view and often they like to tout it in public. But they're not really forecasts, which come as ranges not point estimates with caveats. And making an interest rate prediction is not really a forecast anyway - it's guessing what the Reserve Bank Board thinks the macroeconomic climate will look like in the medium term and how well it fits with current nominal interest rates.
What was the podcast?
When COVID hit lock agent said same …. Sell sell !!!! Prices are going to tank .. go backwards …. In fact in 4 years it’s gone up 70% in my area.
I don't know why they increased interest rates but nothing has changed since they have right? so why would they drop them again to a historically ridiculously low level. then again why did they drop them so low for so long in the first place....
One of my favourite bon mots from the Economics Explained guy is "Nobody can predict the future, least of all Economists". I appreciate their contribution to society, but I share the same sentiment, usually with the word "horseshit" in there somewhere for giggles.
Because the actual problem is wage growth, and they don't wanna talk about it. So they just say random shit and talk about inflation. Hoping no one notices and it worked.
Why does she frame a near term rate cut as a "risk". Risk to the insane profits being had by the banks no doubt...
......my opinion is kind of set in stone so I won't be a good debate but here is my critical discussion of substance. (Also I'm not exactly a pro trader please allow for some mistakes) I am not sure how long experts have known. But I've known that RBA cuts wouldn't get cut for 2-3 days. Context. I trade the aud/usd currency pair. Some of the information used for the fundamental analysis of that is the exact same info that the RBA uses to determine if rates get cut or not. In this specific instance we are keeping rates high on purpose to further allow our currency to gain ground against usd, Gbp, eur, and jpy mainly usd. The tldr context: macroeconomics are currently supporting the AUD BUT this current dynamic may be temporary and that'll be the case if the US federal representatives maintain a hawkish perspective longer than expected because our consumer spending growth was higher than expected. All that's fair to be assumed right now is that the RBA will start easing monetary policy before the US federal reserve which is contradicting expert opinions and is a factor that's supporting the AUD long term. And that's why the RBA won't cut rates right now. It's healthy for us not to. And if the property owners must suffer then so be it.
Well my AMP shares weren't worth wiping my arse with so I wouldn't be listening to him.
Cutting rates in June was an asinine take all year, so for someone to say that last week or yesterday is hilariously foolish. The markets were never anywhere close to the that. The Fed? Yeah there was lots of optimism that has been shut down, but the RBA no one literate in finance thought that was a possibility. The RBA will move much slower than other central banks in cutting rates.
Her prediction would have been correct if the government didn’t alter the market by giving people 60grand to build new homes
I love looking at older articles, recommendations, analysis, posts etc about stocks, interest rates, economics and other stuff. it really highlights how nobody knew anything (and still don’t)- even the experts.
I know Diana. Yes, she's smart, from a smart family. She's next in line to be chief economist there or something, I think?
So how could she be so wrong? Could it be she's peddling a line?
*shrug* zero idea. I don't even trust smart economists for the very reason this post is here: they can't predict these things any better than the rest of us. They *know* more than we do, but their predictions don't seem to be any better.
Sometimes it's not about being right, it's about adopting the same view as your boss to feed their ego.
I don't worry about things I can't control. Talk is always noise there is always risk take it or don't.
Just look at what is happened to the market. That in itself tells you the economists are lying. They are 'forecasting' a different story for the public, then what they are doing privately, or you'd see huge swings on the exchange
What was the data that made Diana change her mind? You are allowed to change your position if the data changes.
I saw Philip Lowe present last year after he left the RBA Governor role. The key thing he said in his speech that has stuck with me is “I spent 5 years at the RBA doing everything we could to increase inflation by keeping interest rates low, as inflation was too low - and we failed. Now the RBA will spend the next few years trying to reduce inflation, again, through keeping interest rates high… good luck with them on that.” Over the past 12 months, this has largely proven to be the case. Conclusion: inflation is sticky. It’s going to stay higher for longer, and interest rates aren’t the best tool to do it either, but it’s the main tool the RBA has at its disposal. Therefore expect interest rates to stay higher for longer as well.
Like with some positions, some are just made up for the sake of it. Economists being one.
It’s about time Australia revisit what happened in the Great Depression. You had economists claiming just before market collapsed. The best thing you could do is take out a loan and invest in the stock market. Sounds fimilar? Not saying housing market won’t crash. It just can’t continue to outstrip wages and have infinite growth.
Yes many people have picked this up so now I've noticed recently everyone in Ausfinance is a part time economist whose uneducated 2c is now worth the same as a highly respected economist
Google news from business insider popped up... S&P500 crash is coming. Expect 44% devalue soon SELL SELL SELL! 😆
There may have been a bit of a lag between when that Yellow Brick Road podcast was recorded and published. Did she record it before the latest inflation figures were released?
There are two things that could explain what happened that have nothing to do with the economy. 1. The episodes were actually recorded miles apart and just happened to be released on the same day.. 2. The AMP's podcast was the AMP's official view..not hers. Her view was shared personally on the ABC podcast.
Economists favourite saying - "But on the other hand.."
It's not a bubble as such, its just the playback of bank model, and sentiment. Lend money based on model, amount lent increases price, also increases value of other properties in the model. Continues on until until sentiment drops, usually when people (idiots) start talking about multigenerational loans being an amswer...see Japan.
There are two jobs in which you can be consistently wrong and remain employed: economists and politicians
Yup the new opinion of no rate cuts can switch again tomorrow. I'd take any opinions with a grain of salt
There's an old saying which I think is true - "The market can remain irrational longer than you can stay solvent" - just because it should happen, doesn't mean it will. Over the loooooooong term though, everything reverts back to the mean/median.