Share on Facebook Share on Twitter Share on Reddit + - First home buyers desert housing market By Leith van Onselen in Australian Propertyat 6:55 am on May 15, 2012 | 151 comments Login to access MacroBusiness Members special reports. If you are not a member, sign up here. Please fill in the following form to login Username: Password: or Please fill in the following form to subscribe * Username * Email * Password About Latest Posts Leith van OnselenLeith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs. Latest posts by Leith van Onselen (see all) Another Victorian contact tracing fail? - October 23, 2020 Melbourne listings rocket after real estate restrictions ease - October 23, 2020 What happened to following the COVID-19 science? - October 23, 2020 Share on Facebook Share on Twitter Share on Reddit + - YOU MAY ALSO BE INTERESTED INMelbourne listings rocket after real estate restrictions easeFrom Eliza Owen, Head of Research Australia atCoreLogic weekly house price update: Big rise!In the week ended 22 October 2020, the CoreLogicSydney's auction market continues to strengthenCoreLogic has released its final auctionAUSTRAC demands property money laundering lawsThe CEO of AUSTRAC - the Australian Government Comments Janet May 15, 2012 at 7:12 am New Zealand’s FHBers may be in for a treat! From today’s TV news “..the Reserve Bank is thinking of tightening up on lending, by forcing buyers to have a larger home deposit before they can qualify for a mortgage.” Minimum 20% is being considered, I hear. gtempo May 15, 2012 at 9:25 am A better measure (Keen) would be to tie the finance leverage ratio to the estimated cash flow instead of the “value” of the property. Values lie somewhere around price when the market is sane but get out of whack in babbles. A measure like the estimated rent is more accurate because the rental market is more liquid. -gt greggsy May 15, 2012 at 10:25 am Actually rewarding saving and purchasing responsibly over highly leveraged speculating? could never happen in Aus, that’s how we are different. on another note, i was speaking to some fellow traders yesterday, they were talking about how they analyzed charts for weeks before taking a $10k punt on a stock. in the same conversation, another friend told a story of how they walked past an auction, had a quick look at the place, then bought the house ($540k). hmm Microtrader May 15, 2012 at 1:13 pm They obviously don’t understand either stocks or the housing market. Monkey May 15, 2012 at 7:27 am Could be a factor that FHBs hang out with other FHBs. I am now frequently being told by recent FHBs that they made a mistake. In one case the person wants to sell but says “I can’t because I will lose money”. The result is that their budget has $100/month to cover all unexpected expenses like trips to the doctor, dentist, damage to apartment, car problems, unexpected bills. Another case: the person has decided they cannot afford to live in their own apartment and will have to move into a share-house. I can’t say that hearing that sort of stuff over a cup of Nescafe blend 43 while shivering because the heating is not on is a great incentive to buy. LBSMEMBER May 15, 2012 at 7:47 am Monkey you hate to hear that but I guess if your young and believe the MSM that property will go up forever will catch up some people. The Great Correction is in full swing and really needs to be. bskerr2 May 15, 2012 at 10:33 am It is really bullsh*t how the government and others in real-estate have mislead youth and FHB’s, enslaving them with debt to try keep the market from crashing. They are total victims of a crime. cyrusp May 15, 2012 at 11:10 am “They are total victims of a crime.” They are also mega mortgage mugs. Recent FHB’s were repeatedly warned that Australia had a real estate bubble and still chose to over leverage themselves. They really do need to blame themselves as well. jimboMEMBER May 15, 2012 at 11:42 am +1. They are just as guilty as the rest of them, being adults and responsible for their own actions. I saw many examples of FHBs who shouldn’t have been considering a purchase, knocked back repeatedly by the banks, trawl the mortgage broker market to eventually find an approval. It still wasn’t easy, in some cases they had to lie about the purpose of the loan, initially declaring a property as an investment to use the rental as part of the serviceability calculation, before ‘changing their mind’ at settlement. Another trick was for the broker to simply lie about their income. Anything to get the finance across the line. The warning bells would have been dire and there’s no excuse now. Watch the legal cases sprout about being ‘misled’, when it all turns sour and it’s someone else’s fault. Rusty Penny May 15, 2012 at 5:54 pm They are mega mortgage mugs because they have been encouraged to do so. A wise group of elders would do much to protect it’s young, not engage in parasitic behaviour against them. Now as far as knowing better, perhaps, but they were given a massive level of encouragement to buy, that was the purpose of the increase to the FHOG. Remember, it was a policy actually devised to make them buy. It was a polci designed to promote activity, those targetted engaged in that activity. A successfu policy perhaps? Additionally, the Investment manager at my workplace say in with a closed forum where Ric Battelino was present, not long after the policy was implemented. His words, and it made everyone in the room turn heads and go ‘did he just say that?’. “We know we’re gunna burn first home buyers”. It’s about making someone pay, and those that pay aren’t the ones that caused it in the first place. Charles Ponzi May 15, 2012 at 1:22 pm Yes, Ponzi schemes are illegal. The BurbWatcherMEMBER May 15, 2012 at 7:55 am Disheartening stories, those… hamish May 15, 2012 at 9:48 am You should never let Dracula decide how much blood you can donate…. russellsmith55 May 15, 2012 at 9:56 am +1 lol Serenco May 15, 2012 at 10:19 am I’ve seen these people in my cohort of FHB’s buying houses in the last year or so and I’ve tried to explain the situation to them but none of them believe you, not really. It only makes me sad to think of the younger people (ie my friends) being the greatest fools in this game cause it’s probably going to ruin their lives for a while. My mother on the other hand received some inheritance recently and I’ve never let up about her not buying a house lol cyrusp May 15, 2012 at 11:15 am “it’s probably going to ruin their lives for a while” But on the bright side their children will be raised with a healthy dose of debt aversion. Tarric May 15, 2012 at 11:24 am What bothers me about this story is it isnt about people with massive negative equity or about people who lost their jobs, its about people who were stupid enough to get a loan they couldnt afford. Or more likely they cant afford to maintain their lifestyle and pay their new mortgage (much like many of the FHBs I know). Charles Ponzi May 15, 2012 at 1:31 pm Banks knew that many first home buyers would never be able to pay back their loan unless house prices continued to rise. The banks took the gamble and should bear the loss (they certainly collected their bonuses on the way up!!!). Tarric May 15, 2012 at 1:59 pm I agree that the banks had to know what they were getting themselves into. But that doesnt get home buyers off the hook, they still made a conscious choice to sign their life away. If they chose not to research that choice properly then that is their loss. On the issue of banks it does make me wonder how banks are going to make ends meat when/if the market does have 40% of its value wiped out quite quickly. In the face of strategic defaults and home buyers getting mortgages for 250k instead of 500k their profits are going to dry up real quick. cancerward May 15, 2012 at 7:38 am First home buyers desert the market as they realise politicians are financially illiterate … Joe Hockey, Shadow Treasurer, on Q&A last night, paraphrased: “Negative gearing is a type of rent control. It’s more complicated than that but it sounds nice. Without it, rents would go up and it’s happened in the past when negative gearing was removed.” Wanted to throw my shoe at him and frogmarch him to your commentary on Saul Eslake with the nice charts. http://www.macrobusiness.com.au/2011/04/negative-gearing-on-the-nose/ cancerward May 15, 2012 at 8:16 am It might be that FHBs reading this blog know more about the housing market than Joe Hockey, shadow treasurer, does. From Q&A last night: Hockey: “Negative gearing is a type of rent control. It’s more complicated than that but it sounds nice.” david collyerMEMBER May 15, 2012 at 8:16 am I am surprised FHB’s are not lower. Some young adults are still committing their life’s forward earnings in the face of once-in-a-century losses. Shudder. Don’t Buy Now! Jason May 15, 2012 at 8:21 am A friend of mine bought their first house a week ago. I think there’s still a lot of parental pressure. The ‘rent money is dead money’ meme still gets trotted out a lot by our baby boomer parents. Janet May 15, 2012 at 8:34 am What did your friends say to your obvious response, “But interest paid to the bank is just as dead as rent money; more so if the costs of ownership outweigh the cost of renting”? Jason May 15, 2012 at 9:05 am To be honest, I don’t bother any more. You lose friends pretty quickly when you try to discuss such things with them. When they’re tied to hundreds of thousands of dollars of debt, they don’t want to think about whether they made the right decision or not. david collyerMEMBER May 15, 2012 at 9:28 am Rent money is dead money? So is interest on a mortgage. Housing loans are an opportunity to save by paying them off faster; they are not themselves savings. The bank-preferred repayment schedule will waste your life. Land generates economic rents – imputed in the case of homeowners. The dead money in rents is < interest. Choose your poison. Don't Buy Now! Tarric May 15, 2012 at 11:26 am I couldnt agree more Jason, I have had some pretty big dust ups over these issues and we’ve all just agreed to disagree. Its their life and their decision if they want to piss away all that mnoney thats their choice. Like they say if you want to stay friends with someone dont discuss Religion or Politics, here in Australia I would add the property market to that list. TNA May 15, 2012 at 12:43 pm “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” Upton Sinclair GB May 15, 2012 at 1:39 pm “To be honest, I don’t bother any more. You lose friends pretty quickly when you try to discuss such things with them” agree, tried warning fiends and family of mine that were all leveraging up their unrealised property market gains into bigger houses with bigger mortgages and 100% LVR IP’s in 2010/11 about the property market fundamentals. they didnt like it. Some i never heard from for weeks after. i know it was becuase they didnt like my veiw on property. they felt offended. such is the level of brainwashing about “property only ever goes up” in this country that it cant even be discussed amongst your closest friends. sad really but what people cant see they need to feel to understand. Phil the engineer May 15, 2012 at 3:03 pm Guess I’m lucky… My old man actually commented to me about 12 or 18 months ago that it’s not a good time to buy. The market has been proving him correct since (especially as I was living on the gold coast at the time) flawse May 15, 2012 at 11:41 am david collyer May 15, 2012 at 8:16 am I am surprised FHB’s are not lower. Agree David. Generally the figure don’t show FHB’s fleeing the market. There is not enough fear yet methinks. There is still an underlying belief that it can’t happen to us! Dan May 15, 2012 at 1:29 pm Agree. I think From here on, investor% + FHB% = falling knife%. Peter Fraser May 15, 2012 at 5:43 pm flawse – it’s only NSW FHB’s that have shown large falls and that was entirely predictable. a63 May 15, 2012 at 8:21 am It’s not just first home buyers feeling the pinch. CPI at 2% and a lot of us are struggling with rising costs which are likely to get worse. Maybe we’re starting to see asset price deflation, but real cost of living is going the other way with the exception of a few items. Cognitive Dissonance May 15, 2012 at 1:06 pm “as every day goes by, I see deflation in the things you own and inflation in the things you need.” Summing up the reality of our global situation, one of Bass’s colleagues adds “This is a grand experiment and they typically never end well.” Kyle Bass Hayman Capital a63 May 15, 2012 at 1:25 pm Too true. In the US, the M2V is falling off the cliff, and with the banks having excessive reserves at the FED, the CPI inflation is not going to happen, only at the margins. The real cost of living is the killer. Felixfrost May 15, 2012 at 8:34 am I think FHB are starting to realise that they will get stuck with the ‘starter’ flat if house prices stabilise or go down. Considering that the entry level property costs more than most of us can afford it’s a big incentive to wait and see. It’s not that I can’t afford to buy, but I can’t afford to buy what I need (and I’m still talking apartments here), so I don’t want to be saddled with my ‘starter’ flat all through to my retirement. Mr X May 15, 2012 at 9:05 am That is a good point. Many people, especially FHBs, buy into a poor quality or new “starter” property because they want to get onto the ladder. If they see no chance of upgrading in the near future, they just won’t buy at all. hamish May 15, 2012 at 9:56 am Rapidly inflating prices will trap you in your ‘starter flat’ as well, as the nominal price gap between it and the house you wish to upgrade races ahead of your income. outsidetrader May 15, 2012 at 10:59 am Yes – ironically, ungrading becomes relatively cheaper as prices fall – because the gap between what you own and what you want shrinks. But I don’t think many property owners or potential buyers rationalise things that way… flawse May 15, 2012 at 11:55 am In a rising market it’s the availability of increased leverage to your increased deposit that makes it possible to upgrade. Indeed you must upgrade if your house is going to eventually pay for your retirement! Serenco May 15, 2012 at 10:21 am plus you gotta feel sorry for those who mortgage up to their eyeballs to get that basic studio apartment when in a few years their friends who through away money on dead money rent get to but detached 3 bedders for the same price Revert2Mean May 15, 2012 at 1:20 pm you gotta feel sorry for those who mortgage up to their eyeballs Nope. Jacks Money May 15, 2012 at 7:40 pm +2 Seo May 15, 2012 at 6:40 pm When I hear the advice to buy a starter home in the current market it makes my blood boil. In the late 80s, when I was young and not as switched on as I am now, we bought a “starter” home. It was one of the worst decisions I have ever made. Although we didn’t over extend ourselves, and didn’t have a problem with day to day expenses, we lost thousands of dollars when we had to sell at a loss to upgrade (as well as the stamp duty and moving costs). It would have been ten times worse in the current market. I do feel for those first home buyers with parental pressure (that is why we bought in the late 80s). It is easy to fall for the idea that parents know best when you are young and inexperienced. In my defense of that dud purchase in the 80s – there was no macro business around then! BubbleyMEMBER May 15, 2012 at 8:56 am The cost for FHB is simply too high. Half a million dollars IS a lot of money, yet here in Darwin that’s an asbestos riddled hovel advertised as a First Home Buyers bargin. The cost of renting said hovel is $550 a week, the repayments are $1200 or more per week, not including rates, insurance and repairs and old hovels need a lot of repairs. The average FHB works this out on the back of an envelope and is staying out of the market. Australia is too expensive for Australians to live in. The Claw May 15, 2012 at 10:41 am The cost of renting said hovel is $550 a week It must be the credit bubble that is forcing up the rents. They tell me that a shortage of housing is impossible. Apparently Ireland, Spain and some numbers on a page prove this. Serenco May 15, 2012 at 12:15 pm but $550 a week on 500k loan is a terrible yield, surely this supports the credit boom idea The Claw May 15, 2012 at 1:01 pm but $550 a week on 500k loan is a terrible yield, surely this supports the credit boom idea What credit boom idea are you refering to? Your figures indicate a low yield which is evidence of a low yield and low interest rate environment. The $550 figure is expensive and is evidence of a shortage of that type of housing. BubbleyMEMBER May 15, 2012 at 3:16 pm A clean (non Hovel, less than 10 years old) 3 bedroom apartment is a minimum of $600 – $750 in Darwin. The city is being physically held back by the lack of land releases. A rocky 600sq’s of land in the middle of an empty paddock is $280,000 on the out skirts of town. The irony is that Darwin, population 120,000, is surrounded by millions of kilometres of land. The Inpex gas development has also created a property boom in Darwin. Ironically it is preventing the tradies they so desperately need to build the project from being able to afford to live here. Hoe Jockey and Aony Tbbott May 15, 2012 at 6:19 pm Cause / effect Bubbly. The cause was an incompetent NT Government not catering for growth which was in line with ABS projections; the effect is eye watering rental costs and housing affordability. The cause is alot of angry people in Darwin; the effect will be a change of Government. Lef-tee May 15, 2012 at 1:10 pm Last I heard, Darwin was experiencing an LNG boom, like my hometown of Gladstone – where you’ll need plenty of dollars in your pocket to rent an asbestos-ridden hovel and even more to buy one. Rusty Penny May 15, 2012 at 1:43 pm The cost of renting said hovel is $550 a week It must be the credit bubble that is forcing up the rents. It’s called herding by the suppliers, and a captive consumer. Velociraptor May 15, 2012 at 3:12 pm Most of the spiralling ‘for sale’ signs sit in front of empty houses. The Claw May 15, 2012 at 4:43 pm Perhaps you could position the sign horizontally and live underneath it. No shortage here, move on please. Velociraptor May 15, 2012 at 5:16 pm Your posts are entertaining. Please continue often. Macdaddy May 15, 2012 at 8:46 pm On my street in Coconut Grove I’ve noticed an apartment that has sold recently after 1.5 years on the market, stale stock is moving and it will be interesting to see the upcoming housing stats for Darwin. Also plenty of ‘under contract’ stickers on for sale signs only to be removed (property back on market) at a later date. The Inpex factor is embedded in the Darwin psyche, including mine… McPaddyMEMBER May 15, 2012 at 8:57 am That first chart is a real killer to the “Aussie property sailed through the GFC” argument. Looks to me like it died around March 2008 and only successive jolts from the government paddles to the chest are able to make the patient appear momentarily alive before it settles lifeless back into the bed. Notroh May 15, 2012 at 9:09 am hey guys my first comment, ive read MB for a while and thought its time to ad a comment, im a FHB although i havnt bought yet and wont for some time, i know rent money is dead money but i see like this, my aanual rent isnt bad about 15000 for a nice place with the misses, so im loosing 15000 a year but if i bought a home of the same standard im looking at a half mill loan, in a market that is going backward by 2 to 3 % a month id be loosing 40000 to 50000 grand a year in dead money and that is painful, not to mention the market deflation could very likely accelerate, im on the fence for a good five to ten years and could give a damn about lost rent money when i buy in eventualy, the money id lose now to interest charged debt would probly buy a house outright. Serenco May 15, 2012 at 10:23 am welcome to the saved by MB club! I was in the same position as you a year or two back. Pretty much identical rent and asking price too! boyracerMEMBER May 15, 2012 at 10:36 am Notroh, Welcome to the renters club but can I just say rent money is not dead money. It is a cost to provide shelter, no different to expenditure on food. Buying a house involves costs also to provide shelter. Neither is dead money as such. The only time either is dead money is when you are paying for more than you need to but that then becomes a lifestyle choice. I just hate the term “rent money is dead money” as it is so wrong and not to mention it tries to imply that interest on a bank loan is somehow superior. Serenco May 15, 2012 at 10:40 am its like saying grocery money is dead money cause you could be growing your own food instead of paying someone else for it! N.C. May 15, 2012 at 11:09 am Rent money is not dead money. A year ago I was living on the NSW Central Coast, paying a modest mortgage, and working two jobs. One of those jobs required a 2 hour each-way commute to Surry Hills 3 days per week. I rarely saw my children… My partner was unable to work because of the lack of decent jobs where we were – she would have to be looking for work in Sydney or Newcastle. After school care finishes at 6pm – no good to anyone who’s not home before 7pm. But who wants to farm their kids out that way every day anyway? For the privilege of home ‘ownership’ we were paying hand over fist with time, and unable to realise our earning potential because we were out in the sticks where the only jobs are for tradies – you know, out where housing is more ‘affordable’… When we sold, we didn’t ‘make’ any money – we got out with about $10K less than we went in with, plus a second hand car that we own outright. I reckon we were pretty lucky. Now, we’re living in Sydney’s inner west, I’m working a four day week and my wife works three. We pay about the same in rent as we paid to service our home loan – maybe a little bit more. But we can save, and I get to see my kids. Occasionally we go out and spend money on the things we need, because we’ve actually got a few dollars to spare… No, rent money is not dead money. Tarric May 15, 2012 at 11:53 am Thats a great story N.C, it just goes to show that there are still great opportunities out there for a good life if you play your cards right. hamish May 15, 2012 at 1:06 pm You’re un-australian doing that N.C. Stop thinking for yourself and get back into debt before this rationality disease takes hold … 😉 dumb_non_economist May 15, 2012 at 11:56 am BR, Interest money IS rent money, rent on your housing loan! mshboy1 May 15, 2012 at 11:58 am I am in your club as well, I Owe MB alot! I am a happy renter with no stress! Keep the hard work MB Mav May 15, 2012 at 9:10 am Baby boomer entitlement got questioned again on Prime time TV – Tim Costello of WorldVision raised the issue of NG in ABC Q&A yesterday. Joe Hockey batted that with the same old furphy about rents rising if NG is removed. Joekey, Don’t worry about us, renters. We can cope with the increased rent. Burn the property investors please. The Patrician May 15, 2012 at 10:03 am Saw that. Q&A continues to dissappoint with few coherent Q’s and many glib A’s stuffed with political rhetoric. The format could work but really needs to be tightened up. Maybe a new host? The Hockey fumbled “Mum and Dad best” answer and the Wong response was the only highlight. Hockey not happy and left in a hurry according to Stephen Mayne. Serenco May 15, 2012 at 12:17 pm bring on kerry o’brien or george neegus mlsc1974 May 15, 2012 at 10:19 am Mav Saw that last night and was amazed Joe got the last word in on that topic. To the masses he made sense, and shut down Tim Costello in a very condescending manner. I did not see the “economist” adding anything to one of the few true economic points on the night. I think Tim Costello should be applauded for even raising this sacred cow on the show. And, seriously, does Joe Hockey look like a better Treasurer than the current twit….. The Patrician May 15, 2012 at 10:44 am +1 Cudos to Tim Costello on the NG point. Big Joe looked genuinely suprised. Our Treasurer-in-waiting, shown up on macroeconomic theory by a priest. One of Hockeys worst performances and he knew it. mlsc1974 May 15, 2012 at 10:57 am Tim may have been an even better Treasurer than his brother Peter… Cockey Hockey might be counting his chickens too soon. The Patrician May 15, 2012 at 11:18 am Maybe Joe figures he is “entitled” to his chickens? Chaos May 15, 2012 at 11:31 am The better ‘treasurer in waiting’ is fated to be ‘Communications minister’ due to his position on Carbon pricing/Tax/ETS. The Patrician May 15, 2012 at 11:46 am +1 Talk about a waste of talent. I cannot get a read on Turnbull. What is his end game? 6IC to Primeminister Abbott? dumb_non_economist May 15, 2012 at 12:03 pm Joe Hockey knows less about economics than I do. Tarric May 15, 2012 at 1:07 pm Couldnt agree more. He seems like a genuinely nice guy from what I have heard but that doesnt mean he would make a good treasurer. His rhetoric makes even less sense than Swanny’s (I dont even know how that is possible but somehow it is) and this is just icing on the cake of his complete lack of any real knowledge about economics. I am just waiting until the blame game begins on who’s fault the housing bubble was, there will be all might shit fight with Swanny and Hockey duking out trying to scape goat each others party. Hoe Jockey and Aony Tbbott May 15, 2012 at 7:23 pm Abbott and Hockey’s lack of coherent policy and budgetary expertise will be exposed in due course. All Malcolm has to do is sit and wait. drsmithyMEMBER May 15, 2012 at 10:38 pm He seems like a genuinely nice guy from what I have heard but that doesnt mean he would make a good treasurer. I struggle to believe this of a man who insults a woman sitting beside him just because she shares her bed with another woman. I am just waiting until the blame game begins on who’s fault the housing bubble was, there will be all might shit fight with Swanny and Hockey duking out trying to scape goat each others party. A simple graph should make it plain nearly all the damage was done during the Howard/Costello years. Ray White May 15, 2012 at 3:41 pm +100 can’t believe Joe was left alone on this topic and nobody mentioned anything regarding affordability should NG be removed. It wouldn’t be possible to remove immediately without killing some mega banks but over a decade maybe possible. I am another happy renter thanks to MB and DR. I have gone even a step further, having been in RE I sold up in 2010 and rented, bought a caravan and 4wd and now am travelling OZ living on the 5.5-6% TD returns on my large home deposit. I have halved my expenses from $104k – $52k Pa. I see huge savings in the $1m+ price range in (floreat, wembley etc) Perth IF I ever go back. Keep up the great work MB and commenters. I can’t get by without my daily dose. Mav May 16, 2012 at 2:09 pm I didn’t realize Tim is Peter’s bro. That explains why LiberalBot types don’t fling epithets (commie, greenie, socialist) at him. [email protected] May 15, 2012 at 11:00 am Saw it MAV my blood is still boiling. He cited the hawke gov’t experience [an all or nothing ham fisted attempt] to support his view. Lazy bastards can’t revisit the issue with a modified approach. Economic and political pissants. A pox on them all. flawse May 15, 2012 at 12:03 pm I dunno jelmech…you need to learn to say what you feel 🙂 Looking at the Aus political horizon gives me a sinking sick feeling in the pit of my stomach! darklydrawlMEMBER May 15, 2012 at 8:13 pm “Economic and political pissants. A pox on them all.” oh – hear hear and amen to that. The whole lot of them are insipid and slimey. Wish we had a “No! None of you” option at voting time. Goldilocks May 15, 2012 at 8:25 pm I had a chat about the economy at work, and presented my thoughts of dismay at both sides of politics, speaking aloud my wish for the politicians to plan ahead with a bipartisan manner for the benefit of the future generations, cutting excesses both at social and corporate welfare. I was told (kindly) that I sound socialist and was told that the political parties here will never function in such a manner for the common good but plan a year ahead only, now and always. Now educated, ready to head for the polls with Donald Duck in mind when the time comes. A disappointed, apparently socialist soul. Idealist, admittedly, and sad. drsmithyMEMBER May 16, 2012 at 7:58 am Now educated, ready to head for the polls with Donald Duck in mind when the time comes. A disappointed, apparently socialist soul. Idealist, admittedly, and sad. Vote Greens ? Closest thing you’ll get in this country to a centrist party advocating sustainable economic policies. DrBob127MEMBER May 16, 2012 at 10:50 am “Vote Greens? Closest thing you’ll get in this country to a centrist party advocating sustainable economic policies.” +1 AK May 16, 2012 at 3:13 pm Socialist? When proposing to cut welfare? I think the term ‘socialist’ is branded about too much to stigmatise people who want change. Jason May 15, 2012 at 12:03 pm When was that during the Q&A? Can’t stand watching the show these days (it makes me depressed), so don’t want to watch the whole thing. csfnMEMBER May 15, 2012 at 4:17 pm Q&A showed its true colours a couple of years ago when Tanya Plibersek (then housing minister) made a few appearances. In her first appearance, she was cornered by an articulate young man in the audience who made the point that what FHB would really value would be lower prices, and that her government’s policies were all about making pricing higher. Tanya prattled on a bit about ‘housing affordability’ before going off-piste into a remarkably frank admission on the dangers of falling house prices (‘…we saw the damage that did in the US and we don’t want that happening here…’). I can only imagine the reaction from her media minders viewing it at the time. In her subsequent appearances Tony Jones seemed to make it his mission to ensure that she didn’t get a single question on housing, never mind discussion of ‘housing affordability’ or, heaven forbid, debate on the existence of an Oz property bubble. The Claw May 15, 2012 at 4:49 pm In her subsequent appearances Tony Jones seemed to make it his mission to ensure that she didn’t get a single question on housing, never mind discussion of ‘housing affordability’ or, heaven forbid, debate on the existence of an Oz property bubble. I remember it well. Will never watch Tony Jones or Tanya Plibersek again. They make me physically ill. thomickersMEMBER May 15, 2012 at 10:40 pm Best Tanya Plibersek line: “we will struggle to feed ourselves [if we don’t have a price on carbon]” themoops May 20, 2012 at 11:36 am I remember a year or two ago a baby boomer who had just retired asked a panel of gen y b-c grade celebrities if he should feel guilty about being a ski of sorts. Of course all the gen ys played it safe and said it’s ok but then Tony made a mention of how the boomer would have gotten his house for a lot cheaper, the boomer became quite perturbed and that was the end of the discussion. My point being the people who run the ABC have their chardonnay socialist agenda which involves house prices staying high. I think Tony has to stick to being something of a puppet. They don’t want the working class back in their Inner West. Remember “Get Up” and their shunning of the call to end negative gearing? aj. May 15, 2012 at 11:02 pm What amazes me is there is still only 1 in 11 people using NG – and the rest of the community getting screwed over in their taxes by having to subsidies these dopey speculators. Surely there are more votes in smacking speculators than average taxpayers? ThinWhiteDuke May 16, 2012 at 1:42 pm The problem is the repucusions of removing NG will result in wholesale drops in residential property prices which impacts all residential property owners, investors and home owners alike. It is a policy that will lose more votes than it wins so no government will be brave enough to do it. Hockey’s response on Monday night and Wong’s silence that followed pretty much confirmed to me that NG will not be meddled with by either major party in the foreseeable future. nforwood May 15, 2012 at 9:24 am Does this match a previous post about how rental properties are down but houses for sale are up? Is it that previously first home buyers were moving out of home or their share house and buying a place but now they are deciding to rent? N.C. May 15, 2012 at 12:05 pm It may do – assuming that many investors are hoping to sell their run down and overpriced properties to FHBs. GB May 15, 2012 at 9:56 am all ponzi schemes fail once new investors are no longer willing to provide the funds needed to pay out exiting invetors. Revert2Mean May 15, 2012 at 1:27 pm Exactly, and then the painful process of mean reversion begins. Velociraptor May 15, 2012 at 3:15 pm +1 spot on. reusachtigeMEMBER May 15, 2012 at 10:14 am FHB’s are on strike aren’t they? If they’re not, they are fools. I do pity those that didn’t get the memo last year. thomickersMEMBER May 15, 2012 at 10:36 am What is Dr Ando’s reply to this? Revert2Mean May 15, 2012 at 1:29 pm Do you really need to ask? Doc Ando is a one trick pony who is not analysing, he’s proselytizing. rob barrattMEMBER May 15, 2012 at 12:21 pm There are 2 kinds of people in Aus MB readers (and thus informed through the likes of Steve Keen ) and MSM readers. I was asked literally yesterday by a guy at work “should I invest in a NGd buy to rent (in Brisbane) right now?”. I almost choked on my sandwich before directing him to MB and Debtwatch. An hour later he was a changed man. I only wish we could rescue more of them. They’re not greedy speculators, they’re ordinary people who know they can’t save through a financial institution because of the tax hit and are nervous about equities. The real culprits are the governments who bring in NG schemes, FHOGs, CGT exemptions etc which temporarily inflate the market and trap thousands. technofreak May 15, 2012 at 1:10 pm Rob, I have sent a few people to MB as well and watched with enjoyment as they changed their tune 😉 Thank MB for doing your thing and saving people from the MSM clap-trap 🙂 VirusMEMBER May 15, 2012 at 1:26 pm I, on the otherhand, use this as tool.. if i like the person, direct them to MB/bubblepedia… if i don’t like the person or have vendetta against him/her.. i direct them to Dr.Handy WilScrew articles! :-), I know.. i am cruel.. but hey.. i am human 🙂 bv2726MEMBER May 15, 2012 at 4:05 pm Well done. Remember though, that sometimes you are not doing anything. A lot of people will believe what they want to believe. And if they see an article reinforcing their beliefs, they believe it more. technofreak May 15, 2012 at 4:47 pm Yes agreed. I only direct those who I know are close to making this choice themselves and are ready for some real information. Then they can also share the same information effectively and help share this knowledge more effectively 😉 N.C. May 15, 2012 at 6:15 pm So too the converse – even my pop-psychologist says so: http://youarenotsosmart.com/2011/06/10/the-backfire-effect/ “The Misconception: When your beliefs are challenged with facts, you alter your opinions and incorporate the new information into your thinking. The Truth: When your deepest convictions are challenged by contradictory evidence, your beliefs get stronger.” md May 15, 2012 at 12:38 pm Yesterday, the Age reported that the Federal govt has quietly increased immigration numbers by 30%. http://www.theage.com.au/business/federal-budget/the-missing-forecast-rising-population-growth-20120514-1ylzh.html I guess they figure that if Australians aren’t going to buy at ridiculous prices, they’d better get some more immigrants in who will. rob barrattMEMBER May 15, 2012 at 12:45 pm Population growth The ultimate Ponzi scheme.. darklydrawlMEMBER May 15, 2012 at 8:18 pm Yeah, but that has been Victoria’s business model for the past 10 years, particularly adored by those pack of losers, the ex Brumby, Bracks criminals who used to be in power in this state. I can tall you now, it ain’t turning out too well here in Deep South Oz with their ‘Plan A’. Sure it worked for a while, but now it is turning ugly enough down Melbourne way… Of course there is no ‘Plan B’…. Why half those ex ministers are not in prison by now I have no idea. TNA May 15, 2012 at 12:56 pm Yep, I’m one of those immigrants and I’m not buying. Policy fail. Actually, I only know one immigrant who is, and he’s always been a gullable tw*t. Velociraptor May 15, 2012 at 5:25 pm Saved by Kiwis and refugees (or American miners in Moranbah)? “The most recent demographic release from the Australian Bureau of Statistics is for the year to the end of September, when the population grew by 1.4 per cent with net overseas migration down to 172,500. Last week’s budget announcements included an increase in the migration “official program” of 5,000 places to 190,000, but that gives little-to-no idea of what’s actually happening with net migration. For a start, the official program doesn’t count the nearly 14,000 migrants who arrive in the humanitarian program, or a number of smaller categories. Ditto for the 25,000 or so Kiwis who cross the ditch each year, or the international students for whom visa requirements have again been loosened or the sub-section 457 temporary work visas which have been recently embraced and promoted by both sides of politics as Australia struggles to handle its skills shortage.” Its a 5000 increase on normal. The rest is a constant (Kiwis, refugees, 457s and students). Pascoe is now descending into a low brow bullshit artist spruiker instead of the normal misguided fool. Await net migration figures before giving that d*ckhead any air time. Aristophrenia May 15, 2012 at 12:47 pm Read this thread and then did a follow up to a thread from a while ago about rents in the booming western suburbs – investment central and FHB grounds – Yes the place is absolutely littered with $300 p/w rentals for 4 and 5 bedroom brand new houses – once more, 4 and 5 bedroom houses, BRAND NEW, for $300 and under. And things are just getting started. Turned my attention to the previous BOOMERS Balwyn, and even some more inner city areas – and things continued. 3 bedrooms, $350 p/w Why would I go out and buy something and pay $800 a week, when I can live in it for less than half of that ? It makes absolutely no sense what so ever..its bloody crazy. Temjin May 15, 2012 at 12:58 pm Love renting because I see it as a 50% discount on having a shelter, proudly sponsored and subsided by your fellow property investors and taxpayers via negative gearing. 😀 Unfortunately, my friends don’t really like it when I say this. Rob barratt, unfortunately, there is only so much people we can save. It’s tough to start a conversation on properties without going emotional on it. I feel a bit helpless when I know another friend of my (who recently broke up with her bf too) had brought a property and wish for capital gain to pay for her future expenses. Nothing could have been done. The Claw May 15, 2012 at 4:54 pm Love renting because I see it as a 50% discount on having a shelter, proudly sponsored and subsided by your fellow property investors and taxpayers via negative gearing. I love driving through a tollway and paying $5 because I see it as being subsidised by $10 compared to if I had driven a truck along the same route. I love saving and being subsidised. Not sure who by in this case though. Houston Rocket May 15, 2012 at 1:40 pm Has anyone done any research into the impact on the removal of the Living Away from Home Allowance (LAFHA) on rents? Surely all these poor souls undergoing so much hardship to live in the best country in the world – that they need to be incentivised by our Govt to live here – will leave in droves and drive rents down? Alternatively the several hundred dollars a week that will now have to come out of their own after taxed pockets will see them shifting their accommodations to the cheaper end of the spectrum. Any MB reports or otherwise on this? boyracerMEMBER May 15, 2012 at 3:44 pm Good point Mr Rocket – I was wondering this self same thing only last week. I am assuming it will take some time to filter thought the marketplace as the changes are relatively recent and not expecting any dramatic movements. Although I am hoping it occurs soon as I would love to renegotiate my own rent (I live in a potentially affected suburb) in a softening direction!! aj. May 15, 2012 at 10:53 pm Good point! In younger days we were pretty relaxed about rent when we got a posting to another city because the rent was pre-tax and there was the food component mixed in. This will squeeze inner-city rents I reckon. Arcady808 May 15, 2012 at 2:07 pm Thanks to forums like this one I was able to save one of my colleagues from investing his $400k inheritence in more property over one year ago. He had a rather stereotypical baby boomer approach to his investments and already owned several properties. However, he was not too clued up on the direction the market was taking and the cash was burning his pocket. He quickly came around when I showed him the Refind site and he could appreciate the quantity of housing building up, chasing fewere buyers. He has not invested since, perhaps finding himself 4% net in interest better off and quite possibly avoiding a loss on his would-be investment. It struck me as odd how little research he had done beforehand. It has struck me as odd how little interest he has had subsequently in sites like this. I guess some like to sit back and be told what to do, to believe someone who appears to be well informed. To cap it all despite him being thousands better off I’ve still not received any thanks! Aristophrenia May 15, 2012 at 3:02 pm He’s invested it in property, he just didn’t tell you. They always do. bv2726MEMBER May 15, 2012 at 4:13 pm You didn’t actually convince him. He just procrastinated. He thinks he made the right decision. That is why there is no thanks. Minus Zero-Sum Game May 15, 2012 at 3:25 pm Real estate investment in many areas of Australia has proved to be a very profitable investment strategy up until circa 2008. Like Australian shares, which also peaked in value circa late 2007 / early 2008, both equities and real estate average values were significantly overextended above their long-term regression trend lines. This is a classic case of an asset bubble, where buying at these overextended levels represents the highest level of risk. The risk is further magnified when an investor borrows money to invest, for example, a large margin loan on a stock portfolio when the All Ords share market index was near the late 2007 peak around 6500. The Australian share market subsequently dropped around 50% from peak to trough through to March 2009. Real estate prices, on the other hand, in most areas have only experienced moderate falls by comparison. This is partly why I consider equities (buy and hold strategy) to be higher risk compared to investing in Australian real estate. The returns on Australian equities have been poor when referenced to an inflation adjusted time-series chart of the All Ordinaries over the last 12 years. By comparison, real estate values over the last 12 years have produced very good returns for most investors. Contrary to popular financial media advice, timing is important when buying into shares or real estate. An investor should be aware of longer-term regression trend lines before investing in asset classes. Because Australian real estate average values are (in my opinion) still significantly overvalued, now is NOT a suitable time to buy. Instead, renting and then saving what is left over can be invested. My preference is higher interest savings accounts. In my case I have longer term term deposits @ 5.8%, and saving accounts @ 5.4%. My target savings are $25k minimum to $40K maximum per year towards the initial deposit. This level of saving has in place for several years. My weekly rent is fortunately low (just under $100), hence an ideal situation to accumulate savings towards a home deposit when real estate average prices further fall to more affordable values. bv2726MEMBER May 15, 2012 at 4:31 pm The big difference between shares and property (relevant to Margin loans). Shares are valued instantly, and revalued instantly. So a margin loan (on shares) is more “risky”. Basically, so many property investors do not realise that they have a margin loan on property…it is just harder (and subjective) to revalue the properties… Peter Fraser May 15, 2012 at 5:49 pm First you tell me they are different and then you say they are the same. You were correct initially, you don’t get margin calls on residential property. innocent bystanderMEMBER May 15, 2012 at 6:21 pm well some do. maybe when trying to refinance or if their home is collateral for a business. GB May 15, 2012 at 8:21 pm correct. PF likes to ignore this fact Peter Fraser May 15, 2012 at 8:32 pm No that’s untrue when the lending facility is a normal home loan. When the thread is about First Time borrowers then it’s fair to assume we are not discussing commercial facilities with lending covenants – that’s a whole different ballgame. GB – I’ll explain it to you one day, but not tonight. strongband May 16, 2012 at 5:34 am PF, I know several FHBs who have received margin calls on their FHs. Adz May 15, 2012 at 4:01 pm Leith, I’d love to see some analysis of how stopping LAFHA for foreign nationals now, and limiting to 12 months for aussies in 2 years time, will affect rental prices. I can’t seem to find any numbers on people claiming it, but I know quite a lot of expats that are claiming it, who will have to move to cheaper accomodation. scottmuz May 15, 2012 at 8:53 pm Agree Adz. Without LAFHA many expats are going to be in big trouble. I had it for a 18 months and it makes a huge difference. For many life in Australia will not in finacially possible without it. We had to downsize when I lost it. I was talking a team-mate in my cricket team. He owns a cleaning business, and apparently even foreigners working in low skill jobs like cleaning are claiming it. hamish May 16, 2012 at 11:45 am Hadn’t heard of this LAFHA till now. After a quick look at what it is, I imagine the changes will make a lot of jobs much less attractive at current pay rates, which I guess is just exposing how damn expensive Australia has become, and how real estate prices & rents feed back into the cost of everything. technofreak May 15, 2012 at 4:50 pm Hopefully the belief system is finally breaking down and all this folly will stop. Fauxmorganpas May 15, 2012 at 5:35 pm I have had two friends buy there first homes in the past 3 months. I tried my hardest to persuade them otherwise and directed them to look at MB. The baby boomers do like getting in peoples ears…. innocent bystanderMEMBER May 15, 2012 at 6:20 pm well, I am a baby boomer and I have convinced several young people over the last few years not to buy (and that is in Perth with a rental vacancy rate of 1.6%, not easy being a renter here) – the one exception, much to my dismay, was my niece who recently bought in Sydney 🙁 Jon May 15, 2012 at 6:08 pm Looking at some of the charts, if nothing else one could say the GFC and its aftermath (known in Aus as the Bribing Season – increased FHB Grants, gifted pink batts and the Harvey Norman $900 voucher) was the apogee of home sales in recent decades. What the RE industry needs to inflate prices is GFC MkII. Quality Focus May 15, 2012 at 8:39 pm A further point of discussion in relation to property is the almost complete lack of regulation around the promotion of property as an investment class and the related “financial advice” given by the vested interests. Financial advice in relation to any other asset class requires an AFSL and so many obligations to be met, yet anyone can “advise” young people to make the biggest investment of their lives without the adviser having to have a grain of truth in their advice or any relevant qualifications or experience! Unbelievable! When the price crashes come the government and regulators will be left with a lot of blood on their hands! Deo May 16, 2012 at 2:28 pm Yeah I know what you mean. Look at this document as example: http://www.ironfish.com.au/pdf/ironfish-property-report.pdf scottmuz May 15, 2012 at 8:41 pm Just had a call from my sister’s friend who is in the UK. He works in the same industry as me and was thinking of moving to Oz so wanted to talk about what the move would be like (I am an Aussie but had moved back from the in 2010). I ran him through the costs of an equivalent house (to what he has in the UK) in a nice area in Sydney and he almost chocked on the phone line (we determined they were twice as expensive and he lives in a lovely village in SE England). Then I went through the other costs like cars double those in the UK, food 30% more expensive than UK, etc, etc. I explained to him that Australia is a lovely place as long as you are happy to rent forever or be a debt slave until you die. I wonder if he’ll still come. interested party May 15, 2012 at 9:44 pm I reckon we can call renting a short trade on housing. Quantified risk and limited downside. meandring40 May 15, 2012 at 10:40 pm The term mortgage actually means death-pledge. Notroh May 15, 2012 at 11:32 pm thanks for your great comments serenco, boyracer and NC, ill reacess my thinking to dead money, i tend to think if i cant capitalise on money down its dead money but i can see your points. but what is the best counter play to a deflating housing market? cash in the bank? PMs? equities? alot of people have been saying to me recently “cash is king” but say that to weimar germany, the cash is king play came from the 30s depression but i thought cash was gold and silver back then, could be wrong.. TheRedEconomistMEMBER May 16, 2012 at 8:40 am It is good to see another article by Leith passing the Fairfax Editors. http://www.smh.com.au/business/firsthome-buyers-thin-on-the-ground-20120515-1yoj7.html I do note though, the artivle did not make it into the Property (Domain) Section. But appears under the Business Banner. Clearly Fairfax are under instructions from their pay masters not to run any articles that question or raise issues about the perilous state of the residential property market in Australia, particularly NSW and Victoria. Easier to slide in a piece on strata laws relating to dogs. coolnik May 16, 2012 at 11:57 am The worse part is that when you click on that link, you see a picture of comical Andy smiling at you goading you to buy buy buy. I simply close the tab whenever I see him. Leith, can you atleast ask the fairfax editors not put on that stupid video on the same article? People will start confusing between you and comical Andy unfortunately! Unconventional EconomistMEMBER May 16, 2012 at 12:21 pm Fairfax edited my article very badly. My quote was barely recognisable and they wrote “BAS” instead of “ABS”. I cannot stop them from placing the Comical Andy video at the top as it is their site. TheRedEconomistMEMBER May 16, 2012 at 2:45 pm coolnik, I agree. When you click on hyperlink to the article… You see dear Dr Wilson staring at you… trying to mesmerise you into buying property now. It may be Fairfax’s idea of balance. Where a factual article has to be balanced by some paid spruik. It is an absolute disgrace. Leith… you should see if you can be guest panelist on Sky Business’s, Property focused, “Your Money, Your Call” with Margaret Lomas. Team you up with Dr Wilson to prove you are not the same person. Provide a bit a balance. But we know what the chances of that is… Mav May 25, 2012 at 5:47 am Well Dr Ando has a delayed video response to this article http://media.domain.com.au/property/domain/first-home-buyers-soar-3318942.html?&exc_from=strap How can he get away with this unbelievable nonsense??? TheRedEconomistMEMBER May 16, 2012 at 2:44 pm coolnik, I agree. When you click on hyperlink to the article… You see dear Dr Wilson staring at you… trying to mesmerise you into buying property now. It may be Fairfax’s idea of balance. Where a factual article has to be balanced by some paid spruik. It is an absolute disgrace. Leith… you should see if you can be guest panelist on Sky Business’s, Property focused, “Your Money, Your Call” with Margaret Lomas. Team you up with Dr Wilson to prove you are not the same person. Provide a bit a balance. But we know what the chances of that is… Bob Smart May 24, 2012 at 11:10 pm Here’s a funny letter from an Australian bank to a First Home Buyer (FHB) Dear FHB Thank you for taking out a 100% LVR loan in April 2009. Please take advantage of the $14,000 to $21,000 first home owners grant (FHOG) that the Government offers. The Government will help to part fund your purchase. Are you aware that if there is an increase in interest rates, your loan repayments will increase , and you will immediately experience increasing financial risk. Are you aware that if there is an increase in interest rates this usually affects the property market. The RBA and ABS historical data has demonstrated that property prices may decline. If the property market declines you may experience reduced equity in your home and you will not be able to borrow more funds from us. Therefore we will set you on a short term financial journey, where we anticipate interest rate rises, your increasing loan repayments and your increased financial risk. If property prices decline this will result in a reduction of your home equity (assets) combined with rising interest rates and therefore increased debt (liabilities) . You will have less assets and owe more money to us. It is highly probable that you may experience negative equity in your home. Our objective is to lock you into a mortgage and debt for as long as you can sustain this financial stress and pain. We apologise for this as it’s nothing personal, it’s just business. We take this approach, because we can, under Australian law. In the USA borrowers can walk away from a negative equity scenario, however fortunately (for us) you are highly obligated to continue to pay your mortgage. If you end up in a bit of strife don’t forget to milk your retirement savings via your superannuation fund. If you have less funds in retirement and you become dependant on the Australian Government, we don’t care. The Government encouraged you to take out this loan via the FHOG, the Government does not discourage you or protect you from taking out this high LVR (high risk) loan via consumer credit legislation, and the Government will need to support you in retirement. Our gain is your loss and the Governments loss. That’s life. Thank you for your loan business Yours sincerely Predatory lender A case study explores a $300,000 standard variable rate, principal and interest 30 year home loan. With a $8 monthly loan service fee. The variable rate was initially 5.75% in April 2009 and the monthly repayment $1751. The total interest charge over the 30 year term was calculated at $330,901 and total repayments calculated at $630,091. The variable rate increased after April 2009 and rose to 7.40% in May 2010. The monthly repayment would then be $2051 or an additional $300 pm. The total interest charge over the 30 year term would then be calculated at $446,944 and total repayments calculated at $746,944. In May 2010 the total repayments for the 30 year term of the loan had increased from $630,091 to $746,944. An increased debt of $116,853. The borrower who took out a 100% LVR $300,00 loan in April 2009 would have been in a significantly worse off financial position in May 2010 regardless of property price trends. Loan repayments would have increased by $300 pm and total 30 year repayments would increase by $116,000 (increasing debt). Who said predatory lending doesn’t exist in Australia?