Do House Prices Always Go Up?

[Peter B - CV8]

Originally Posted by XBROO

Anyone thinking of buying then renting, should look into RAAF houses as you don't have to worry about finding good tenants. And they repaint and freashing the house up every 4 years for you.

I take it that you mean the DHA (Defence Housing Authority). Yes, they can be very good at maintaining the property - but they do charge about double the normal managing agents commission rate..... when you add up the extra commission over a few years it's a fair few $$$$. Property also has to meet their criteria.

[Resurrection]

Originally Posted by flappist

Over the last 50 years, in Australia, in how many years have house prices dropped?

Not very often. However that does not mean one should not be cautious. If somebody purchased a house just before one of these down periods was about to occur it could take them many years to recover their losses.

[290GTP]

Biggest mistake a lot of first time property buyers make is they start out too big. I mean no one wants to start at the bottom rung & work their way up the property ladder anymore. The mentality people have nowadays is that they want the big house with 5 bedrooms, theatre room, double garage, etc etc & they want it now. That's fine if you can afford it but most first timers cant. They also buy these McMansions in new suburbs away from the coast for waaay to much money & then they wonder why they get into financial difficulty after a couple of years.

Start out small, doesn't matter if its a poxy 1 bedroom unit as long as its in a good, established area you will eventually make money. My first place was a 2 bedroom unit in a good area. I rented it out for 4 years then lived in it for 3. Gave it a coat of paint, put in some new carpet & poly kitchen doors. Then sold it in a stagnant market for a good profit.

Next a I bought a small 3 bedroom brick house in a good street & good area, but it was a house no one wanted. I lived in it for for 4 years. Did most of the reno's myself, I think I only spent around 20 grand in the 4 years I was there, but the house was totally transformed. I sold it in 2011 in a dud market for a really good profit.

Don't be greedy, buy smart & work hard, you will come out on top.

[nuthin' fancy]

The value of property is directly related to how much a bank will lend you on your income.

When I started lending in the mid 80s, you ignored the wife's income and based the loan amount on the husband's income. In the late 80s lenders moved to a model that was basing monthly payments on 25% of a combined gross income and 40% of a single gross income.

Now it is 40-45% of gross income, joint or otherwise.

As each of the 'innovations' have occurred, the prices of houses has pushed ahead in response to the higher loan amounts available. I don't know what the next push will be, perhaps the utilisation of superannuation as a 'deposit' for a home (i.e. You have $35,000 in super and pledge this as security so you can borrow 100% of the price of your first home). I can't see what else will create a substanitla increase in borrowing capacity, although lower interest rates will have an effect.

Negative gearing also allows you to borrow more (and the inevitable consequence of being able to borrow more is that you spend more) and on it goes.

At some point the market will correct itself, with or without Government intervention (e.g. removing negative gearing benefits over time) but I doubt it will happen overnight in a sudden, unexpected manner, the change will be gradual.

Governments have used First Home Owner Grants and are now moving to a stamp duty discount for first home buyers to stimulate demand and maintain stamp duty income revenue streams.

There are many interwoven elements in what affects house prices but we don't really have an oversupply of property (there are some localised, minor exceptions), our population growth is around skilled workers from overseas who require quality housing and can pay for it, our legal environment makes it almost impossible for properties to be taken away without considered recompense, our banks are strong and profitable. I think we're OK.

Even if your home doesn't increase in value, what does it matter? You have a roof over you head and you would either be buying or renting. Over time rent will increase, mortgage payments will reduce. The value doesn't matter unless you sell and you tend to move in similar markets so the change from one property to another isn't affected by price (in fact the lower the price, the cheaper the cost of change).

Just my humble opinion and may I observe the decent tone of this thread, many on this topic have degenerated into nonsense and unsubstantiated claims.

[zilo]

Originally Posted by nuthin' fancy

The value of property is directly related to how much a bank will lend you on your income.

When I started lending in the mid 80s, you ignored the wife's income and based the loan amount on the husband's income. In the late 80s lenders moved to a model that was basing monthly payments on 25% of a combined gross income and 40% of a single gross income.

Now it is 40-45% of gross income, joint or otherwise.

As each of the 'innovations' have occurred, the prices of houses has pushed ahead in response to the higher loan amounts available. I don't know what the next push will be, perhaps the utilisation of superannuation as a 'deposit' for a home (i.e. You have $35,000 in super and pledge this as security so you can borrow 100% of the price of your first home). I can't see what else will create a substanitla increase in borrowing capacity, although lower interest rates will have an effect.

Negative gearing also allows you to borrow more (and the inevitable consequence of being able to borrow more is that you spend more) and on it goes.

At some point the market will correct itself, with or without Government intervention (e.g. removing negative gearing benefits over time) but I doubt it will happen overnight in a sudden, unexpected manner, the change will be gradual.

Governments have used First Home Owner Grants and are now moving to a stamp duty discount for first home buyers to stimulate demand and maintain stamp duty income revenue streams.

There are many interwoven elements in what affects house prices but we don't really have an oversupply of property (there are some localised, minor exceptions), our population growth is around skilled workers from overseas who require quality housing and can pay for it, our legal environment makes it almost impossible for properties to be taken away without considered recompense, our banks are strong and profitable. I think we're OK.

Even if your home doesn't increase in value, what does it matter? You have a roof over you head and you would either be buying or renting. Over time rent will increase, mortgage payments will reduce. The value doesn't matter unless you sell and you tend to move in similar markets so the change from one property to another isn't affected by price (in fact the lower the price, the cheaper the cost of change).

Just my humble opinion and may I observe the decent tone of this thread, many on this topic have degenerated into nonsense and unsubstantiated claims.

I read your first line and wondered whether to read any further...really.

You are a lender?

Seems you have missed the connection between interest rates and how that affects how much one can borrow and you are simply focussing on income.

Without factoring on big interest rate movements how can you possibly assess one's ability to repay over the life of a loan?


My opinion is that house prices are based on repayment ability, and recent years have seen very low interest rates that drive up prices, not just aggregate incomes of both partners as you seem to suggest.

[nuthin' fancy]

Originally Posted by Ugg

I read your first line and wondered whether to read any further...really.

You are a lender?

Seems you have missed the connection between interest rates and how that affects how much one can borrow and you are simply focussing on income.

Without factoring on big interest rate movements how can you possibly assess one's ability to repay over the life of a loan?


My opinion is that house prices are based on repayment ability, and recent years have seen very low interest rates that drive up prices, not just aggregate incomes of both partners as you seem to suggest.

I'm a broker but have done everything from $500 credit card applications to $100m commercial property recoveries.

Banks add 1-2% to the current interest rate to 'test' your repayment ability under stress.

Interest movements are gradual, I was looking at the changes that greatly increased the amount could borrow in one fell swoop.

When I started at CBA, you could borrow 3 1/2 times your average savings in the six months prior to application.

Typical salary was $20k, a big loan for me to write then was $50k.

Now, you can borrow about 5 times your annual salary.

Recent low interest rates have not translated to widespread property value increaes, the opposite is true.

However, if the economy turns around and rates push back to 8%, plenty of people who have bought and stretched themselves at 6% won't know how to cope.

[mostly_broncos]

House prices may have gone up steadily over the last 100 years but nothing in the world has kept pace with inflation over that period.



the last 100 years in the US has destroyed 97% of the value of the US dollar. The numbers may be different for Australia but not by much.

Here is a chart of inflation in the USA since the american revolution


http://www.zerohedge.com/news/2013-0...can-revolution

If you find a chart that shows housing values over 100 years it won't go up like that


The flipper culture was never meant to help owners it was all about enriching bankers and the Taxman. Both have an addiction to your income and they sit hand in hand like leeches in the middle of every transaction . Neither has ever done a day of honest work in their life . They care for nothing but money. They don't make anything into the world , they don't make cars or houses or grow food.

Inflation was created to steal your savings on a daily basis , the historical defense against inflation was hard assets . The system won't let you off the hook that easy , every sale of a hard asset generates a tax event where the other shoe drops on you and steals the rest.

The market is rigged between the banks and the taxman and the transaction costs will eat you alive.

Everyone forgets to do " all " the math when they talk about these subjects.


Sellers forget that they get taxed on the net proceeds before they get to deduct for inflation. Hold a house for 30 years and make a huge paper profit then make a big tax payment on your phantom capital gain then subtract for inflation's effects and maybe it won't look so rosy.

Without the inflation the growth in housing prices might only be 1% year over year but you would still pay the taxes .

its not income- taxes = profit

the real formula is


income - taxes - inflation = profit?