Compound growth in house prices over ?

[Yellow_Festiva]

Originally Posted by buggerlugs

http://www.news.com.au/realestate/ne...-1226497332060
Uh oh............

After casually looking for a family home for almost a year now I have backed off compleatly. We are happy where we are for the time being and I don't want to enter into a large mortgage that may gradually be higher than the asset it's secured by.

I don't agree with this line regarding their definition of negative equity however:

The report defines negative equity as any house that has seen its value grow by less than 10 per cent - below inflation - in the past four years.

Would only say it was negative if real value was less, not compared to inflation etc.

I hate being in this situation! I'm seeing so many nice places on the market.. the heart says go for it, the head says hold back ;(

I think the past 12-18 months has been a trickle of possible 'problems' with our economy... the next 6 months will say as much in terms of the direction our economy is heading as the previous 18 IMO.

There have been several top end properties for sale for over 6-12 months now that I have kept an eye on. Bought at the height of the boom for top dollar. I would hate to be in their shoes.

[BENT_8]

Wow, damning report.
Atleast a 1/4, and as much as a 1/2, of all purchases nationwide since 08 are in negative equity and will be for an estimated 6 years...

Considering these people will make some form of principal payments within this 6 year period and still find themselves only breaking even, i'd say realestate value is going to slowly decline for some time yet

[EFFalcon]

and here i am looking to buy

[b0son]

Originally Posted by Yellow_Festiva

I don't agree with this line regarding their definition of negative equity however

Ditto. Its not as if the bank increment the amount you have to pay back by inflation each year.

[flappist]

The same thing happened on 1998-2002.

You buy something at the top of the market and it drops in value so you owe more than you could sell it for.

1) Sell the house and go bankrupt then spend the rest of your life wearing a tin foil hat and ranting on internet forums about doom and gloom.

2) Just keep making the payments and ride it out. Even if the house is NEVER worth what you paid for it you will eventually own it and have a place to live.

Now one thing that the doomers always seem to forget is if we REALLY have a melt down then wages will drop significantly particularly in the non productive areas such as the public service and commercial office administration.

There have been no signs of wage drops anywhere so if you could afford the payments your house in 2008 than you can afford it now. Actually they will be lower now due to the interest rates.

The only ones who will be truely bitten are the superheroes who bought way above their capability to pay as a short term investment to make some quick bucks at others' expenses. They gambled that the prices will keep going up. Now they have to gamble whether it will recover enough for them to walk away or whether they have lost.

This is no different to those who gamble in shares or metals or whatever.

Kenny Rodgers recorded a song about it.........

[Chopped]

I was recently in Toowoomba visiting clients and one of them told me that he purchased a new property (new estate) in Harvey Bay for $360 000 in 2008. He sold it six months ago for $295 000 (it sat on the market for six months).

He said he would have waited out the downturn but was forced to sell as he lost his job and had to move to find a new one (truck trailer builder).

Originally Posted by flappist

................
There have been no signs of wage drops anywhere so if you could afford the payments your house in 2008 than you can afford it now. Actually they will be lower now due to the interest rates.
............

Interest rates are low but every other cost has gone up. Electricity, rates, water, insurance, petrol, fresh food etc etc. I think this is what is forcing a lot of people into money stress.

A home is what it has always been. Somewhere to live. It's just not the ideal "money maker" it was a few years ago.

[GT0132]

Originally Posted by Chopped

I was recently in Toowoomba visiting clients and one of them told me that he purchased a new property (new estate) in Harvey Bay for $360 000 in 2008. He sold it six months ago for $295 000 (it sat on the market for six months).

He said he would have waited out the downturn but was forced to sell as he lost his job and had to move to find a new one (truck trailer builder).

In that circumstance i would have rented it until things picked up.

What flappist says is right, servicing loans is much easier now than it was prior to 2008. Wages have increased, unemployment is low and interest rates have come down from around 8.5% pre GFC to the low 6's

Although in a situation of negative equity the banks "could" ask mortgagors to top up their equity so that LVR remains at the original level, but provided payments are kept up that's unlikely.

Regardless of how the journalists define it, negative equity means you owe more than the thing is worth. Inflation has bugger all to do with it.. The point I think they were making is that equity has declined and have labelled that as negative equity when the correct terminology should have been "reduced equity"

[atec77]

Originally Posted by Chopped

I was recently in Toowoomba visiting clients and one of them told me that he purchased a new property (new estate) in Harvey Bay for $360 000 in 2008. He sold it six months ago for $295 000 (it sat on the market for six months).

He said he would have waited out the downturn but was forced to sell as he lost his job and had to move to find a new one (truck trailer builder).




Interest rates are low but every other cost has gone up. Electricity, rates, water, insurance, petrol, fresh food etc etc. I think this is what is forcing a lot of people into money stress.

A home is what it has always been. Somewhere to live. It's just not the ideal "money maker" it was a few years ago.

Remember also the hidden costs you are now encumbered with , 300 billion overseas debt is around 15k per person for every Australia and that's a debt that wont go away , somehow the current feds have to grab that money back without alarming the populace to it's plan ,so when the house prices drop to a realistic value (and they will)and on the worth is less than owed it's going to damage a lot of people

[flappist]

Originally Posted by atec77

Remember also the hidden costs you are now encumbered with , 300 billion overseas debt is around 15k per person for every Australia and that's a debt that wont go away , somehow the current feds have to grab that money back without alarming the populace to it's plan ,so when the house prices drop to a realistic value (and they will)and on the worth is less than owed it's going to damage a lot of people

Only if you sell it.

If you buy a house for say $500k, pay it off and then it is only worth $300k and never sell it then it is actually worth nothing.

If you sell it for $300k then a similar house would also be $300k (down from $500k) so you are staying level.

If, on the other hand, you waited 10 years for the $500k house to be worth $300k you would have paid $200k in rent so therefore it still cost you $500k for your $300k house.

As I stated above, those who bought a house to live in and could afford it still can, those who went in way over their heads purely to make money may not be having as much fun.

[mostly_broncos]

Where the flippers got into trouble here in the US was when they took on large adjustable rate mortgages.

I don't know how prevalent those are in Australia but they ruined a lot of would be millionaires here. That is a loan only existing to service the flipper craze and if you have to sit on your property as the mortgage payment ratchets up you feel even more pressure to sell into dropping prices.

The banks have a lot to answer for as they marketed ARM 's aggressively and even refinanced people into them . Morally , those that look down on the flippers will say they got what was coming to them ,but the waves of defaults dragged everyone elses equity down with it.

Here is an example of one of those cases where the owners were steered into an adjustable rate for no reason at all.

http://www.alternet.org/story/155442...e_mistreatment

[Yellow_Festiva]

Originally Posted by flappist

The same thing happened on 1998-2002.

You buy something at the top of the market and it drops in value so you owe more than you could sell it for.

1) Sell the house and go bankrupt then spend the rest of your life wearing a tin foil hat and ranting on internet forums about doom and gloom.

2) Just keep making the payments and ride it out. Even if the house is NEVER worth what you paid for it you will eventually own it and have a place to live.

Now one thing that the doomers always seem to forget is if we REALLY have a melt down then wages will drop significantly particularly in the non productive areas such as the public service and commercial office administration.

There have been no signs of wage drops anywhere so if you could afford the payments your house in 2008 than you can afford it now. Actually they will be lower now due to the interest rates.

The only ones who will be truely bitten are the superheroes who bought way above their capability to pay as a short term investment to make some quick bucks at others' expenses. They gambled that the prices will keep going up. Now they have to gamble whether it will recover enough for them to walk away or whether they have lost.

This is no different to those who gamble in shares or metals or whatever.

Kenny Rodgers recorded a song about it.........

My wife has been saying much the same thing and I'm starting to agree.. We will be buying and staying put for quite a while and our financial situation is far better than most. I have a few open houses lined up and our lapsed loan approval is in the process of getting re-done.

[roberts]

"quick the ship is sinking get out"
"haha he thinks the ship is sinking, the violins wouldnt be playing if the ship was sinking"
"but we hit an iceburg"
"so what, this ship is unsinkable"
"ok well im getting off"
"seeya"

so who would you believe, the guy that sees the iceberg or the guy thats been told on good athourity that he is on an unsinkable ship?

[flappist]

Thank you both for your practical demonstration of option 2 followed by option 1.

[zilo]

Originally Posted by flappist

...if we REALLY have a melt down then wages will drop significantly particularly in the non productive areas such as the public service and commercial office administration.

There have been no signs of wage drops anywhere so if you could afford the payments your house in 2008 than you can afford it now. .....

Have to disagree with you there.

While it doesn't look like wages have dropped what I am seeing is fewer jobs and growing unemployment.

So as time goes by employers reduce staff numbers...eventually people start to accept a lower paid job just to have a job at all.

So pay cuts that way, not by renegotiation in their current job.

So, you won't see people accepting a pay cut, that would make national headlines,and that's not the way things work....they just lose their jobs for a while and start again on a lower base is what i am saying.

[BENT_8]

Originally Posted by flappist

If, on the other hand, you waited 10 years for the $500k house to be worth $300k you would have paid $200k in rent so therefore it still cost you $500k for your $300k house.

You are assuming that it would take 10 years to lose 40% of its value, what if that happened in 5 years?

If the same $500k house lost $200k in 5 years, and you paid $100k rent @ $380p/w in that time, you've saved 100k.

Heres an equation for you.
$500k @ 5% over 30yrs will result in paying $466K in interest with monthly repayments of $2600.
$300k @ 3% over 30yrs will result in paying $155k in interest with monthly repayments of $1600 + $100k rent for 5 years of renting while the bubble deflates.
$966k over the next 30yrs, V's $555K over the next 35yrs.

2 things to consider, house values are coming down and so are interest rates.

Now, where did i put that tin foil hat...

[mr smith]

When we have an economy that was largely based on refinancing and using home equity as an ATM, falling prices have a massive impact on confidence and reduced spending.
An example I went into some well established motorcycle shops in the Melb CBD, they were throwing demos at me, even for a weekend. The whole scene smelt of desperation.

[BENT_8]

Originally Posted by mr smith

When we have an economy that was largely based on refinancing and using home equity as an ATM, falling prices have a massive impact on confidence and reduced spending.
An example I went into some well established motorcycle shops in the Melb CBD, they were throwing demos at me, even for a weekend. The whole scene smelt of desperation.

Agreed.
Infact the recent wave of 0-1% interest offered on new vehicles, i would say, is a direct result of people being unable to finance their new car with their existing mortgage due to the loss of equity.
People cant afford the 8-15% car loans of yester year.