Property direction

[Jamathi]

Originally Posted by Lolly

If European cities is a trend, people there have long given up the aspiration of owning their own home/apartment. That said, its still feasible to pick up a 2 bed apartment in Maylands down near the river, million dollar homes, golf course, parks, 4-5 klms to city etc for $220-240K.

I think the expectations of the first home has to be adjusted. My folks first home was a 2 bed fibro home and then over time they bought and sold, upgrading a little each time to something more comfortable.

To true.
I started with sweet fanny nottin and worked/traded my way up to the slums I now live!
Went without plenny in time meomorial!

[Ambian]

Originally Posted by shmoo

Yep spot on.

Its a cliché that gets used over and over but its appropriate - first home buyers need to get over the "plasma" obsession.

Is this really the case? You do hear it very often, but it usually comes across as "blah blah blah those youngins ... blah ... back in my day" and I kind of switch off. I don't really know many people looking to buy a house, so haven't experienced it first hand. Is the issue that people want big flashy houses for the first home? and not a 'foot in the door' type of place? Are people getting heavily into debt before even buying a house? is that part of the problem also?

A bit random I know, but I live a sheltered life

[shmoo]

Originally Posted by Ambian

Is this really the case? You do hear it very often, but it usually comes across as "blah blah blah those youngins ... blah ... back in my day" and I kind of switch off. I don't really know many people looking to buy a house, so haven't experienced it first hand. Is the issue that people want big flashy houses for the first home? and not a 'foot in the door' type of place? Are people getting heavily into debt before even buying a house? is that part of the problem also?

A bit random I know, but I live a sheltered life

Yes I do believe it is an issue. I see it every day, people claiming "mortgage stress" are sitting in their home with all brand new fitout and a new plasma and all the trimmings. Often people are buying these things on credit whilst they are renting and they are stuffing themselves before they even buy a house. So they're getting off on the wrong foot.

[dr00]

people dont seem to understand how crippling debts like credit cards, personal loans, store credit etc can be when you are young. how many people do you know that have bought from harvey norman on credit, buy cars/bikes on finance, maintain consistent credit card debts etc? it puts them so far behind that they cant even see the light at the end of the tunnel when they realise they need to think about buying a house and so they throw their hands in the air and whinge about how its impossible to buy a house.

[xanthian]

Don't give me that personal debt crap. "Young People" my age (22) who bury themselves in personal debt don't usually even have a good reason. I know one person who foolishly signed his name to the lease on a place, and when the business they were running it for went under, he had to fill out the contractual obligation on the lease for the remainder of the period. He's the only person even remotely near my age that I've seen with a legitimate reason for credit card debt (and he's dug his own way out of the ~40 grand hole he'd dug for himself).

I have roughly 17 grand invested on the stock market (ok, let's call it 16; I'm out $700 with the recent crashes), bought my bike outright, and while I still live at home, I pay my fair share of the bills, cook for myself, do my own laundry, and am not supported by my parents whatsoever (other than the lodgings, of course).

My job isn't all that great, but it pays $20 per hour.

Somehow, I've managed to survive with a credit card with $1000 limit. I even went to Bali with friends last year. How did I achieve all this? Put quite simply, I never spend money that I don't have. Prior to my current job, I was unemployed for 6 months by choice and so unbelievably stinghy with my money you wouldn't believe.

It's nothing more but an attitude problem that needs readjusting. "Oooh, money, yeah, I'll take it, hang the consequences."

[Jonchilds]

Originally Posted by Ambian

Is this really the case? You do hear it very often, but it usually comes across as "blah blah blah those youngins ... blah ... back in my day" and I kind of switch off. I don't really know many people looking to buy a house, so haven't experienced it first hand. Is the issue that people want big flashy houses for the first home? and not a 'foot in the door' type of place? Are people getting heavily into debt before even buying a house? is that part of the problem also?

A bit random I know, but I live a sheltered life

No significant debts here, (though have a $2k credit card which gets paid every month) but to take out a $200k mortgage by myself would leave me living below the poverty line (defined as $378/wk in March this year). To purchase the place as an investment property though whilst renting a similar property would leave me with much better standards of living.

It's insane that it's more economical to rent an identical place and have someone else live in an investment property than it is to live in my own property.

[Jamathi]

What you fail to come to terms with is that the amount of repayments on Non morgage loans is very much taken into account in your *morgage loan service ability*
In other words if you have already repayment commitments, they are deducted from your total ability to service the morgage
So having no credit liabilities when applying for a morgage will see you be able to lend a bigger amount.

[shmoo]

Originally Posted by Jamathi

So having no credit liabilities when applying for a morgage will see you be able to lend a bigger amount.

Not only that, but banks generally assume you use 75% of your credit card limit. So having a 5 grand limit can seriously impair your borrowing capacity.

[Pkunk]

Originally Posted by shmoo

Not only that, but banks generally assume you use 75% of your credit card limit. So having a 5 grand limit can seriously impair your borrowing capacity.

And whats the first thing all my mates have done once they cancelled their credit cards, secured their house loan?

Reapplied for their credit cards with higher limits

[thro]

If you think its hard to buy your first property these days, you're right.


In the past, "affordable" property has been considered to be that with a value of 3-4x annual mean earnings.

ie, you earn 30k/yr, you could easily afford a 120k house.

A factor of 5-6x earnings (eg, 300k for 50-60k/yr), and you're looking at property being considered "unaffordable" (or rather 'not easily affordable').

In Perth, we're seeing property prices significantly above 6x earnings. often 8-12x earnings, and its pretty damn hard. Our property values, when compared to median income are actually worse than many areas of europe, america, etc. Some of the worst in the world, in fact.


Unfortunately I cant find the source for that info above, read it a few months ago before I reinstalled windows and lost it :|

I'll keep looking.

Obviously as deej says, buying a house is a good idea. However if you think its hard at the moment, its because it is - even by world standards at the moment.

Is this situation sustainable? I've got no idea i'm not an economist...


edit:
Comments on our pricing from a UK perspective: House Prices Down In Australia..... - House Price Crash forum

29 . How overvalued is Australian residential property?
Adam Schwab writes:



Another US house price survey, another decline in value. This time it was the National Association of Realters which revealed a 7.7% drop for the year to March -- the largest fall the association has recorded since it started taking records in 1982. The average median house price in the US is now ,000. Leading the way down were Sacramento (29% fall), Las Vegas (20.2%) and Phoenix (15.4%).

The correction seems to be heading across the Atlantic, with David Blanchflower (who is a member of the Bank of England) suggesting last week that UK house prices could fall by 30%. Blanchflower’s view was based on the fact that "the UK average house price of £178,555, according to Nationwide Building Society, is six times mean earnings. That’s way above the long-term average multiple of 3.7. To get there, UK house prices would have to fall 30 per cent, even counting in three years of 5 per cent growth in average earnings."

The logical question arises -- if the US has fallen by upwards of 30% in some regions, and the UK is priming for a big drop -- exactly how overvalued is Australian residential property?

There are two schools of thought. Property bulls will suggest that while prices appear high in historical and relative terms, the number of people moving to Australia exceeds the number of dwellings being constructed -- supply and demand suggests that this will continue to put pressure on house prices. This view is supported by increasing rental yields.

The contrary opinion is that Australia is in the midst of a housing bubble in which prices bear absolutely no reflection of underlying economics. Using the metric suggested by Blanchflower -- the median price of a house in Sydney is $551,000, while the Melbourne median is above $450,000. According to the RBA, average weekly earnings for all employees are $45,729.

Therefore, the average house price in Sydney is 12 times earnings, and in Melbourne it is 9.8 times earnings. Sydney house prices are therefore almost double those of the allegedly overpriced UK in relative terms.

Another metric which is considered to be more telling is the ratio of monthly mortgage payments versus income. In the UK, the current rate is 50%, which is significantly higher than the long-term average of 37%. In Australia, the ratio is above 57%.
It appears that Australian residential property is one giant Ponzi scheme of sorts, with property owners relying on ever-increasing house prices to vindicate their investment.
The US has slumped, the UK is looking extremely wobbly, yet Australia continues to sail through, despite its residential property appearing far more expensive than our Anglo-counterparts.

The key for Australian residential property is employment. Not only is Australia virtually at full employment, but despite consumer confidence being down, few workers expect to lose their jobs. If that changes, our housing market could experience a very substantial correction.

edit:
boldfaced point for effect...

also..

Australia 'on verge of recession' | Business | News.com.au


Personally I think short term (next few years), the shit is going to hit the fan.

Interest rates will go up, those people out there currently mortgaged to the hilt on 8-9% are in for a rude shock if rates his 17% like they did the last time round...

[Scoundrel]

Originally Posted by thro

A factor of 5-6x earnings (eg, 300k for 50-60k/yr), and you're looking at property being considered "unaffordable" (or rather 'not easily affordable').

In Perth, we're seeing property prices significantly above 6x earnings. often 8-12x earnings, and its pretty damn hard. Our property values, when compared to median income are actually worse than many areas of europe, america, etc. Some of the worst in the world, in fact.

I've got an idea - don't spend 8 to 12 times your earnings on buying a property. Little wonder first homebuyers and retards who can't do simple maths and household economics are now losing their homes when they couldn't realistically afford them in the first place. Banks should have known better when giving these people finance but now it's all coming back to bite them on the arse as per the US banks' exposure to sub-prime lending and henceforth available credit to Aussie banks being tightened.

Higher interest rates at the moment are having the effect of rationalising the borrowers out of the market place who were probably over committed right from the word go. Anyone with half a brain would have made an allowance for at least one rate rise in doing their affordability sums.