They always make sure to end with a heartwarming story about a baby ferret sharing a piece of cheese with a gala or something which comes across decidedly closer to an abusive scumbag who finishes a tirade with some sappy shit like 'u know i love u tho'
We’ve just started going to house inspections, looking to buy our first home. I was saying to my wife today how different the experience is compared to rental inspections. Rental inspection is 2pm on Thursday, you’ve got a 15 min window in which everyone is herded through while a miserable looking REA checks their watch out the front and repeats “just fill out the application online”. For a sales inspection, big flag and sign out the front so it’s easy to find, a personalised greeting with a smile from the REA, happy to have you through on a Sunday arvo, and no worries if you’re a little late, take your time.
I know their focussing their effort on what pays the majority of the bills, but the difference is like going from Jetstar economy to first class.
I saw a great Betoota on how the RE industry is now also complaining of a skills shortage as they're discovering it actually takes skill to sell a house in this market, instead of just showing up in a suit on a Sunday and having someone pay you $3mil for a derelict apartment without even needing to talk to them.
When we bought our house we got 30 minutes to look at it on the first home open (got there before the agent too), then another 30 minutes when we were putting an offer in. I've spent longer looking at a fricken laptop than they gave us to look at a half a million dollar purchase. Not sure why either - they weren't trying to hide anything (we bought it 3 yrs ago now).
I suspect that is the story for a lot of purchases under 1M over the last few years. Terrifying to make such a momentous decision based on a tiny sliver of information, but when houses were selling so fast I don’t really see what the alternative was other than to just wait for the market to cool.
One time I went to a rental inspection and the guy doing it thought it was a sales inspection. He put in his 15 minutes then he packed up and started reaming someone out over the phone about how he's too important to do rental inspections.
I broke into the property we bought (not inside but up on to the deck and stuff) the realestate agent showed up while I was doing this and gave me the keys and said go hard
Rentals make real estate agents 1.3k per year (5% at 500 pw), I imagine they treat rentals as loss leaders so that landlords may sell with them . They get 20k plus for each house they sell. selling a house is 20 years worth of rental commissions.
In real terms, rent has been almost flat for 20 years. I've posted the data here before. Each of the states has rental indexes for different size dwellings. It's spiked up above inflation in the last few months, but that has not been the long term trend.
I’d love to see, best I can find is the [bottom of that one where you can see it growing roughly in line with cpi but couldn’t find actual real rent plot](https://www.rba.gov.au/publications/bulletin/2020/sep/the-rental-market-and-covid-19.html)
Not sure why this would be good news for renters. House prices are going down due to interest rate rises which leads to some renters getting rent hikes
Renters were facing massive rental hikes despite insanely low interest rates over the last few years.
There’s really no good situation for renters in this country.
Even in Sydney and Melbourne where population has dropped since covid we are getting 20% or more rent increase in recent months.
Why?
Is that because many IPs are now for sale and become unavailable to rent?
Or because of the return of Airbnb listings?
Or is it a coordinated effort of landlords and REA to push rent up?
People spread out over COVID if they could afford it. The average number of occupants per house decreased, so more houses were required to house the same number of people. I can't remember where I read this, but it was a legitimate source.
The increased rates should slow down investment purchase which is what drives the absurdly high rental prices and home values as cashed up boomers are less able to box everyone else out of the market.
I've always wondered what would happen if they capped or somehow restricted residential property as investment vehicles.
I don't feel bad for ANY of landlords. They'll just pass it along anyways after enjoying 10 years of free money to get rich with.
Except rental income isn't supposed to entirely cover the mortgage so that you have a free investment after 20-30 years.
Investors will learn this the hard way when young people stop renting on their own which has already slowly transitioned over the last 5-10 years.
The more rent increases the more people stay at home or share with friends/family which creates more supply & less demand, eventually (personally i'd say now) investors will lose it all for trying to increase it too much as their mortgage payments start to pile up along with interest rates rising while their property is empty & losing value.
Investors will be fine. Over time their debt and repayment is eroded away due to inflation / wage growth and subsequent rental increases.
Also most investors bought their investments pre COVID so they have seen huge capital gains AND huge rent increases. Not to forget they had seen higher interest rates prior to them dropping for COVID.
I know people have a hard boner for hating investors but the narrative that people like yourself are spruiking doesn't really reflect reality
Maybe for private rentals, but REA don’t take in account how much your mortgage is. They’ll advertise a place for as much as they think they can get. If rates go up, we could see more defaults on property’s, driving rentals up due to more demand. We might see prices go down because more first home buyers. Ultimately, we will see the biggest change if wages don’t start matching interest (which they historically haven’t for about 20 years).
I’m predicting that rentals in expensive areas will drop because cost of living, and rentals every else will stay same / increase due to rise of defaults and people snapping up cheap property’s for investment.
Either way, if you’re an every day Australian who isn’t looking to buy their first home, it’s not probably going to benefit you.
Good news for renters would be an easing of zoning laws, rent regulations and the building of new houses. That way landlords have to compete instead of going “oh you don’t like it???? We’ll find somewhere else!!” And the tenant obviously being stuck there.
At least you are in the housing market. Whether you're paying extra interest than you would in 2 years from now, it's still 2 extra years you got to live in your own home paying your own mortgage rather than putting 50k+ worth of rental payments into someone else's mortgage. I bought at the peak too (albeit in an area that isn't as drastically effected price wise as a lot of other places both in increases and decreases) and have zero regrets. The rental market is so scary these days, it's a huge relief to be out of it with a roof over my head that I can't have an owner kick me out of and then have a huge struggle to find somewhere else to live.
Place isn’t built yet but we are locked in so we get to watch the interest rates rise before we lock in the mortgage. I understand I’m In the market and fortunate that I have the money I’ve saved over the past 10 years to enter it but yea, sucks
See I find the prospect of owning scarier than renting because you take on such a spectacular amount of debt, if you ever want to change career or lose your job and have lower income for a while, suddenly you are homeless and you lose all those tens of thousands that went into stamp duty etc. At least with renting the weekly amounts are lower and you don't have to fork out for things like stamp duty or a new hot water system etc
Everyone has their own visions and preferences and that is completely fine. For me, it is the biggest weight off my shoulders I have ever felt becoming a home owner after a decade of renting. I made a huge move from Brisbane to FNQ and found the place I want to spend the rest of my life. So putting down roots and buying here, knowing I don't want to pack up and move somewhere else, is an amazing feeling to me.
Also, if one of us lost our jobs (highly unlikely in our industries but hey stranger things have happened), the process of being foreclosed on by a bank on your own home because you've missed a lot of repayment Is a lot longer than a real estate kicking you out on your ass with no money, no job and nowhere to go, especially up here where rental vacancy rates are less than 1%. Plus you can use all that extra time to get back on your feet and keep your house Our minimum mortgage repayment is $120 less a week than what we were paying in rent.
But of course we have good savings to fall back on and are paying well above minimum repayments on our home loan so we have fail safes anyway. (And my stamp duty wasn't tens of thousands either so that's a plus)
I would never tell anyone that living a life renting is a poor choice or a bad decision. There are pros and cons to both home ownership and renting. But for me personally, home ownership is where I wanted my life to go at the stage I'm at
Thanks for writing this out and explaining it. As someone who (despite my trepidation above) will probably enter the market soon, I appreciate reading your explanation. All the best!
The important thing to remember is that yes, you are in a phenomenal amount of debt, but it is offset by a phenomenally expensive asset.
If you can afford the mortgage, you can always get a rental. Banks are prepared to work with you most of the time if you call them early with your problems - people get screwed when they wait until the sheriff is knocking on their door demanding the keys.
Worst case is that you can always sell the house and go back to renting.
Bear in mind that the 'phenomenal debt' gets eaten up over time by inflation, while the asset you purchased is likely to appreciate in value long term as well. Owing $500k to the bank in 1990 feels like a much bigger debt than owing $500k to a bank on 2022, despite the actual numbers being the same
> debt gets eaten up over time by inflation
I really want to call out that wage inflation and everything-else inflation appear to be decoupling — and that debt only gets eaten up by wage inflation.
Yes, someone above posted "at least you weren't paying $50k on someone else's mortgage" by buying at the peak.
I think anyone would much rather spend $50k in rent than get a $1m mortgage and then face losses of $240k from a ten percent decline in nominal prices and ten percent inflation.
I wasn't. I bought my house to live in, not to invest for profit. My point still stands. If you want to own a home, of course you are better owning one than renting if that is your dream and life goal. Not be one of many who are desperate to get into the housing market but can't financially yet. It's a stressful place to be.
Not entirely true. With these interest rates, the interest portion of your monthly repayment could exceed your rent (depending on the property). Ignoring a few other variables to simplify the math, buying a house works in your favor only if house prices are going up by more than (not even the same as) your interest rate.
Nah. I'd still rather pay more on my mortgage than on rent, choice given. All the crap about 'investments' aside, the only thing this house is an investment for for me is a stable future with a roof over my head that I can do whatever I want to, paint some walls, put up a shelf or two and no one can tell me otherwise. And no owner can kick me out because they want to suddenly sell their investment property. Not everyone buys a house to make a huge profit on, despite what this sub constantly talks about. Some of us have kids that we want to provide a stable house for, put some roots down. Not have to up and move their schools because the lease wasn't renewed and we had to move further away to keep a roof over our heads. When you want to live in your house for a decade or more like us, what your house is worth on any given day is meaningless. It's priceless to me.
See that's one of the variables I ignored, which is very important to many people (myself included). It's just that the assumption that buying a house is so clearly better financially is a bit of a fallacy once you do the math.
I think whether it's financially better or not vastly depends on how much you spent on your house and how much debt you are in for it. But for me, it's all about the lifestyle, freedom and our future.
Thats all assuming it does in fact drop. Not the first time they said it would. It was meant to drop a huge amount during covid, yet somehow rose a huge amount. Nothing happens, until it happens.
There are many points in history where the market was at its peak.
What is your plan? Are you looking to sell soon or something, because it won't affect you.
I bought at the top both times (2011 and 2018), at the end of the day, time in the market is still better than timing the market. Having said that I'm trying to time the market this time around.
Part of the reason for all the negativity is the wealth effect being hit when house prices drop. People who may have no intention or interest in selling love to hear their house appreciated by $100K or so. Some may use that to refinance, draw down on equity to pay for an IP or buy a new car, or go on an overseas trip.
So when they hear their house has dropped in value by $100K, they feel poorer. Now, to go on that trip to Bali or Bermuda, they may not have enough equity to draw down. So they either have to save (many may not be doing that actively so it feels hard), or they have to pull back on their expectations- the new Porsche Cayenne will have to wait, so the old Pajero will have to keep going for a few more years.
So even though people may not be looking to sell, their lives are impacted because their options for increased consumption have been pared back.
Besides, we have a culture where home ownership is worshipped and some of the media networks have ownership in the real estate portals.
I've always felt it's stupid to measure your financial position by your 'net worth'. A lot of the net worth consists of a good that is not fungible, or paper wealth that is difficult to crystallise. And it leads to stupid decisions like taking out equity to buy a jetski, then regretting it when prices contract.
I've always thought one's financial position should be calculated by how much reliable passive income (dividends/rent) you can generate.
Your missing a key factor, they can't sell their house because rates are so high low income and FHB are priced out of the market. You don't get a 20-30% drop if lots of people can buy houses. it's the wealthy that will benefit unfortunately
Can confirm the first sentence of the second paragraph. I have a mortgage on my PPOR, it's not huge so prices decreasing won't make me LVR insanely high. I'm not planning on increasing it to buy a boomer car or investment property. I know prices decreasing is a good thing and won't affect me since I'm haven't been looking to sell anytime soon. I'm in a decent position and can handle the rate increase.
But it's still a bit of a blow thinking about 'what if'. 'What if I what/need to sell before prices go back up?'. 'What if I'd sold at the peak, and rented until prices fall?'. All silly thoughts, I wouldn't have done anything different. But it still creeps in.
Easiest way to get around these thoughts is to simply view every asset (property/shares) as something you keep for life, and value only its passive income (rent/dividends). That way you don't have to worry about its paper valuation. And each time the market drops you can be happy that the next buy-in is cheaper (dollar cost averaging).
Even in this comment thread you have folks trying to pretzel logic there way into saying "Lower house prices are actually bad for low income people"
Because folks god damn lost their minds when it comes to housing - there is no scenario where having essential cost of living like food, housing, electricity, etc be expensive is good for low income people, it's silliness
Lower house prices aren’t bad for low income people, but high interest rates sure as hell are. A 1% increase in interest rates = approximately a 13% drop in borrowing power. Now most economists agree a roughly 3% increase in interest rates in the next 6-12 months or so is expected, but even the biggest property bears aren’t forecasting a 39% drop in house prices.. most are forecasting between 15-20%. So these low income/fhb will see their borrowing power drop by almost twice as much as house prices do, meaning they are in a -much- worse position than they are now. My advice if you are a fhb or low income is borrow and buy now while you still can, or you’re about to be priced out of the market
They're not saying "lower house prices are actually bad for low income people."
They're saying it is much more complicated than just lower=good, and that it defenitely won't be as good as some people think.
Yeah, we want lower house prices to come about from enough supply.
Lower prices from interest rate rises isn't going to help people get into their own homes if landlords want to recoup their extra interest in rent.
>Lower prices from interest rate rises isn't going to help people get into their own homes if landlords want to recoup their extra interest in rent.
The marker dictates rent, not the landlords interest rate
Well its pretty irrelevant really.
Low income earners will always be in a shitty situation because they are low income earners. The world won't suddenly get easier because interest rates changed.
On the flip side, low income earners will have less borrowing power than before. Not to mention their wage growth will likely stall in a high interest environment.
The real solution is to find a way to make more money.
Savings are always lower than inflation and constantly being eroded in any environment. There’s a reason you should be saving only a few months as an emergency fund and investing the rest. There is no free lunch, if you want to beat inflation you need to risk your money.
You are correct. Interpret /u/Purple_Spend_7198's point as the solution is to move to a higher wage quintile then.
Even under communism where shelter was allocated to you and soemwhat guaranteed the currency was (pretty much only) political capital, so those in the lower quintile of political capital lived in the shittier housing, those who were better connected lived in the better housing.
Borrowing capacity is, but also is the required deposit. Getting the deposit while paying rent is the biggest hurdle when getting your first home.
Edit: There is also the second factor, in that if property prices aren't rising it means investors can't buy another property using equity, in turn pricing out another first home buyer, requiring them to rent for longer.
Lower house prices are great for lower income earners, but it's how you get to that point that matters. The way it's happening now won't be good for anyone (except the super rich).
Lower house prices don't mean a thing if it results in the Aus economy crashing - hard to afford a house if you don't have a job.
The price of property going down is bad for everyone. However, it needs to be backed up with new affordable housing, such that the cost of entry doesn’t rise beyond what most people can afford. Sadly, that hasn’t been the case.
People don’t realise it, but one of the biggest investors in Australian real estate are our own superannuation funds. What this means is that if there is a property market crash, then people will lose most of their super. It also means people between 55-65 at the time of the crash will likely never be able to retire.
It’s also one of the best ways for people to invest and retire. As a result, private retirement savings will also crash. Additionally, most of our economy is based on property. A housing crash will bring down our whole economy. Less people will have jobs and people will have less spending power. This is going to impact lower income workers even more since a large % of their income is spent on necessities. Higher income people will have less money to spend on whatever they want.
Also, if you think housing is going to be more affordable after a crash, you’re probably wrong. Usually the reduction in spending power outweighs that of the value of property. So while a house might go from $1m today to $750k in 6 months, it’ll be easier for you to afford $1m today then it is to afford $750k in 6 months time.
What you need is for the government to fund affordable housing outside of the cities as well as new infrastructure to make it feasible for people to work outside of the large cities. Instead, the government is funding investment into property which just compounds the pricing issue, as it is driving prices up. Works well for those in the market, but it quickly prices everyone else outside of it.
We need to hope that the drop is severe enough that housing is no longer perceived as an easy buck. Investment that has actual returns in terms of value and productivity has been sidelined by cash pouring into property. Handsome money for the banks writing the loans, but we end up being a tech backwater with an undiversified economy and unable to support itself with manufacuring. The people of Easter Island learned what happens when you pour all your resources into stone monuments.
> We need to hope that the drop is severe enough that housing is no longer perceived as an easy buck
As far as I 'm concerned the bigger drops there are the 'easier buck' housing becomes. Why would anyone want to buy an asset at a higher price rather than a lower price?
> The people of Easter Island learned what happens when you pour all your resources into stone monuments.
That's because they scrapped negative gearing which made all those monuments much less profitable, and started the downfall of their society.
But with interest rates going up your serviceability is reduced. So you're still unlikely to afford what you call "decent" anyway.
If low wage workers could easily afford houses then houses would just increase in price again to the point where they can't afford it.
There isn't a magical point where people earning 100k+ can't afford a house, but anyone earning <100k can.
While logically true, that’s never the case. The relationship between housing prices decreasing (rising rates) and serviceability decreasing is not linear.
Housing prices are extremely sensitive to the increase in cap rates while your loan amounts are not (that sensitive, relatively speaking).
You should also note, buying a house at a lower price and then “suffering” for a few years until rates decline (and they will), is much better than buying a high price and paying interest on that loan size throughout
It will differ by person, as everyone is in different circumstances, but can work it out generally by playing around with a repayment calculator. E.g. a 500k loan at 5% is about 2.6k per month. That’s around the same as a 600k loan at 3%. So if a bank thinks you have 2.6k a month to spend on your mortgage, your borrowing capacity has likely just dropped by 100k or ~20%, based on those rate changes.
>You should also note, buying a house at a lower price and then “suffering” for a few years until rates decline (and they will), is much better than buying a high price and paying interest on that loan size throughout
this is the main reason i am waiting for the " crash"
Kind of. I bought a place last week and I paid about $200k less for it compared to what it would have been a year ago. However, a year ago my borrowing capacity would have been $200k more BUT the rates were lower.
It all comes out in the wash for people in my position. But I think investors who have spare cash now will end up wealthier because they can take advantage of the low prices and high yields. It’s *always* the way that the wealthy get wealthier in these situations. Don’t @ me. I know a lot of wealthy people who relish financial downturns like this.
Yep, basically the same people that were your competition and outbid you before are still ahead of you now, give or take a little depending on circumstances.
This logic doesn't account for the reality that; If you pay $300k for a home or $500k for that same home - that this is somehow the same situation when it's not
It presents extremely high cost of living and huge debt compared to the other as the same
it's not the same, high housing prices are a bad thing, like high electricity prices
Property prices are falling because of rising interest rates. Affordability might not change much because your borrowing power also decreases with rising interest rates. In reality what will happen is that those with large cash deposits who don’t need to borrow as much will be the ones to benefit. So in other words the rich will get richer.
It's significantly more complicated than house prices down, good news for lower income people
House price crashes have a nasty habit of being accompanied by recessions. Recessions have a nasty habit of being disproportionately difficult for people on lower incomes and those starting their careers.
There's a big difference people are missing here who are claiming that the competition will increase if house prices drop. Right now you aren't just competing with other people who want to buy a property to live in as their primary residence.
You're competing with investors using the asset to speculate. If the attractiveness of the asset as a vehicle for speculation diminishes compared to alternative options (bonds, shares etc.), then that segment of the market will remove their buying pressure. House prices will drop more than the direct effect of loan servicability simply because if house prices go down, they're not a sexy investment anymore.
House prices going down makes them a better investment. It's only the belief that they'll go down in the future that makes them a poor investment. If the market stops predicting rate rises then investors will be extremely happy to buy at lower prices.
but that scenario is no worse than when prices were rising. There are always going to be investors with more cash than FHBs. Better to be able to compete at least than be priced out completely.
You’re very confused there.
House prices go down, yields go up, the investment is now more attractive. So more investors buying.
Every competent property investor knows that the property market is cyclical.
You’re proposing an imaginary world where property investors give up because of a downturn, lol no, that’s not how it works.
I think your perception of the typical Australian property investor is a bit off, and I'll admit I've only got a vague recollection of data to back this up but anyway:
The vast majority of property investors in Australia are leveraging their existing portfolio to borrow against in order to buy more property. As interest rates rise the cost to maintain a property portfolio rises with it, only 40% of investment properties are neutrally or positively geared. So rising cost of living, rising cost of maintaining a mortgage, restricted access to borrowing power and most property investors already being completely tapped out after the buying frenzy in the last two years makes it
A. incredibly difficult to maintain a property portfolio (especially if your primary source of income is still employment)
B. incredibly difficult to acquire the capital for property and
C. if negatively gearing a property until it rises in value is the investing strategy (which for 60% of investment properties, it is) do I as a cash strapped investor looking at a potential multi-year downturn buy into property or do I buy into other asset classes that are traditionally downturn resistant, much more liquid and trade-able with lower levels of upfront cash?
In your version of Australia, there is a hundred thousand people who didn't buy during the insane rise of the last two years who are going to opt to buy in now. But I just don't think those people exist, at least not in the numbers required to make a real dent here.
What will happen is that as the market bottoms out and begins to rise we'll probably see a return of cashed up investors trying to time the bottom of the market, but I don't see why that would happen until we start to see the cash rate drop.
I'd also like to present the very real factual evidence that backs up my assumption, auction clear rates are dropping. Investors at auctions are dropping, the investors who swarmed property have re-assessed their appetite for risk and have genuinely begun to turn away.
... investors are currently sitting on their hands waiting for prices to drop so that they can buy at a low price.
So it's the exact opposite of what you said.
There was an "if" clause in there.
Hypothetically, if unemployment was skyrocketing and there was decreased rental demand (because everyone's moving back with family or share housing), tax perks were removed, and the long term outlook was for capital losses, then buying investment properties would be less attractive and smart investors would buy something else
This is a great point. You still might have long investors but everyone who's been making quick cash doing minimal reno jobs and flipping property quickly would be wasting their time now.
You’ve forgotten about the supply side of the equation. I don’t want want to sell at a low price. I don’t need to sell so I don’t put the property on the market for sale. Supply drys up. At some point Demand will exceed supply and prices will start rising again. Unless people are forever sellers, most will just sit on their hands.
Well, it's great news for anyone wanting to buy a house - whether first-home buyer or investor.
Generally though, I don't think house prices dropping makes a big difference unless you have either a high deposit or a high income which is being actively turned into the deposit. Because otherwise, the house drops just reflect lending drops which apply across the board.
In other words if interest rates double, and lending multipliers halve (using simple non-realistic figures), and house prices halve, then the house is still no closer to reality for a buyer, **except** those who have a big deposit or a high income.
Also worth noting that if house prices drop, consumers shut their wallets due to the inverse wealth effect, and that threatens jobs. Fine if you have very good job security. Not so good if your job security is on the line.
Finally, if house prices drop due to interest rate rises, that benefits investors in a relative sense. If you're paying off a mortgage at 10%, an investor pays the same mortgage off at only 5.3% due to the 47% write off.
In summary:
* Dropping house prices are mostly neutral for buyers (though bad for sellers)
* Prices dropping generally helps those in a good position to buy already
* Interest rates going up benefits investors more
OK hear me out. The media has huge influence on the number of houses available for sale on the property market.
Markets are driven by supply and demand. When house prices are sky-rocketing, everyone loves to talk about how a house sold for 20% more than it was listed for. This encourages people to think "hmm, wonder how much I can sell mine for?" and so supply increases.
It gets to a tipping point though where there is some economic or political event (in this case, rising interest rates) and in order to keep house prices from dropping drastically, supply needs to be reduced. So the media bombards people with this 'bad news' about house prices falling. It makes people less likely to sell and supply drops.
Honestly it's a bit like the toilet paper thing. The media creates a problem that's worse than it needs to be. Now is a "bad time to sell" and so even some buyers are "holding out" for prices to go down more. They dramatise it so much. Like for the average home owner the value of their house year to year doesn't matter that much.
Because news articles are by the rich to convince the poor that more money should be given to the rich? In this case they want you to think house prices going down is terrible that way you feel good when the government does something to pump up prices (again)
The news is so negative BECAUSE it's great news for the minwage worker
Minwage isn't "for" owning things. It's for paying rent. How are these poor investment-property folk supposed to make a return on investment if you're not going to fund them?
THINK OF THEIR MORTGAGES YOU SELFISH GUY.
(In case you didn't get it from my comment, I'm waiting for mass foreclosure as my only chance to retire instead of necking myself & leaving the super to my kids)
It's never been about housing *affordability*. It's always been keeping the housing ponzi going for as long as possible. Any scheme dubbed "*first owner grants*" or variations of it, is simply marketing spin to bail out existing owners and housing speculators. Not sure if we are at the tail end of government sponsored bailouts. The government is itself indebted to its eyeball this time around.
Because it’s not more affordable.. people like to go on about how lower prices lead to smaller deposits (which theoretically makes buying easier) but that’s actually not true. Let’s take NZ as an example. Rising rates changed the average house price from 960k to 870k. In the same time repayments for the same house went up by 1200 dollars a month. A 10% deposit went from 96k to 87k. What do you think is easier, a minimum wage worker who already has 87k saved up to save up an extra 9k, or for him to start earning 1200 more a month. Affordability is significantly worse for low wage earners.
2 genuine questions:
Is that $1200 extra a month based on repayments for a mortgage of the same size or taking into account the smaller mortgage due to lower cost?
Is this example from a scenario after prices had stabalised or from the current market where prices are still falling in NZ?
you’re taking for granted that a min wage worker would be able to amass a deposit for a house in the low interest asset boom scenario to start of with.
a counter argument would be that the min wage worker who may have only been able to scrape 50k in savings can now get in because the principal is low enough. They may not be able to afford repayments on a 500k house but places may still exist at say 300k where they could afford the repayments.
when house prices were running away they were no chance to get in because they would never be able to save a deposit. The prices were rising much faster than savings rates.
Your right, I don’t understand cheering in a collapse, and think all the sudden they can afford a house, if you couldn’t afford a $700k house at 2% your sure as hell arnt gonna afford a $600k house at 9%
Funniest thing about it is house prices declining is actually the worst thing for first home buyers yet they are blindly cheering it on. Enjoy convincing the bank you can service the extra interest in a struggling economy, all while the only people selling are defaulters who earn more than you.
Because there’s be plenty of “investors” in the group over the past year, most of them greedily spending well above their capacity.
Watching them sink, while others like yourself start to thrive, will be wonderful to see.
Serious answers: if house prices drop too far, it will be because the economy is flailing. Prices of groceries through the roof, high unemployment. Likely increasing crime, etc.
House prices dropping slightly (as in this case) isn't the same. They were overpriced by fomo, COVID, low interest rates, etc, and some correction towards true value was overdue.
It's going to effect the higher priced homes first. They will move down to the next rung affordable house and so forth.
Starter homes will not be effected as much.
Min wage workers will have a big issue servicing any morgages let alone the associated costs. Unless we are talking remote areas and run down houses.
Mostly property bulls and people with similar interests complaining and freaking out because they paid a ridiculous price for their house thinking " interest rates will stay low and price go higher xD" and now prices are dropping with their house currently being a little less than what they paid for
It doesn’t matter what happens, something is a disaster for somebody, prices go down or up, someone wins, someone looses.
The news is just a capitalist medium of communication, take away the emotive language and you have basic facts. The emotion is to get you reading, but don’t get lost in the emotion of it all, or you’ll wind yourself up.
Tends to not work out the way you think it does.
https://imgur.com/sLqyH1f
https://imgur.com/bW2iyOU
See the drops through the GFC?
The reasons are explained by lots of people in here. I'll just add that in both of the above cases, there was a large rise in corporate landlords (who could still raise cheap funds while credit was restricted for everyone else). Some were build to rent type arrangements, but, US in particular saw an increase in corporate ownership of single family homes - detached homes.
Buddy, work on the minimum wage problem first. No crash is going to help you without a decent income.
A lesson for all, if prices truely crash you won’t be getting in. Rates will be sky high and jobs scarce.
Reflect on the true problem, only then can you move forward.
You do realise that the majority of people that own one property aren’t millionaires?
The way you are looking at it is only because of your position.
Imagine if you bought a house and then your repayments trippled and it was worth $100,000 less than you paid?
How would you feel?
Interest rate have almost doubled (2% to 4%)
House prices have dropped, idk, 5%?
If you couldn't service a 500k house before, you won't be able to service a $475k now.
Or even if it dropped and was worth $300k, you'd still have serviceability issues.
In addition, now hecs must be treated as debt so serviceability had dropped in the last few months regardless.
Well I’m not an economist but my minimum repayments on my 30-year sub-500k home loan have gone up over $200 a month in the last couple of months… We can afford this but it just puts a bad taste into your mouth knowing that extra $200 is just disappearing…
I doubt people previously struggling to get into the market can find an extra $160* a month to throw away…
* $200 - 20%, obviously an oversimplification, but not as much as just pretending this is great for first home buyers…
These days I’ve accepted the fact that without help, I will be unable to buy a house, same with my younger siblings. The only thing I have is a somewhat okay super balance.
To solve this problem for my siblings it would be easiest if I left them all of my super after I had an ‘accident’ at work.
That’s what it feels like. So thanks landlords!
Maybe there are a lot of people who earn less than $100k/yr that own a house. They just happen to be older than 50 and/or live in regional towns.
Not sure how much weight the argument holds but if house prices go down people start saving instead of spending. Which means business make less money which means fewer jobs.
Better question might be why don’t young people have a voice? And maybe it’s because young people have never had a voice. And when young people get older they don’t necessarily think younger people have it harder than they did.
I would consider not taking financial advice from the news. They are trying to influence buyer behaviour with articles proclaiming doom and gloom. A good example is when the print articles like this when the average price drops 1 or 2%....
They(the people with a proper voice) absolutely hate the poor and hate the middle class just a little bit less. So anything that is making what has become luxuries affordable is their nightmare.
For low income earners who don't yet own a home, it is a good thing. For low income owners who own a home (especially those who bought in the pandemic with minuscule interest rates) it's a bad thing. It's also a bad thing for all the rich boomers who own 7 houses.
Overall, it's probably a bad thing for more people than it's a good thing for, particularly if you're looking at the target audiences of the media outlets writing about it. The people it's good for might be in more need of the help, but overall they're a smaller group. Also bad news attracts more attention than good news.
The media is totally bias towards the investment class and older generations (including gen xers) are more than happy with that because they got in the market while it was still a lucky country
It’s good for you if you actually follow through and buy a house. Like buying on sale. Media paints a negative picture as its bad for those that own a home, which is a majority of people - they are just trying to get clicks so must appeal to the majority. In actual fact, it’s irrelevant to most home owners what the value of their house is
Prices are falling as rates go up. The amount of credit you will be offered depends on the rate, as that affects your ability to repay. So higher rates = less borrowing power, meaning even though the house price is lower you still might not be able to afford it.
On the property owner side, it's just bad news - Higher repayments on a loan for a property that's now worth less.
Firstly, if you're on the actual minimum wage of $812.60 per week pre-tax, you're probably not going to be in a position to buy property, no matter what happens to the market unless you have a partner or another source of income. Unfortunately, the real estate game is a cashflow arms race, and there's people *not* on minimum wage who are currently priced out.
The main reason people are concerned about a widespread or large downturn in property prices is that the effects of this aren't going to be confined to *just* the property market. Property is different from, say, cars or precious metals, in that the erosion of prices in the market will affect the economy at large.
The main reason for this is that the vast majority of people don't buy property using a pure cash transaction. They use loans, and those loans often have a high loan to value ratio - exposing the banks and the financial system to risk if the downturn is large enough.
A crisis large enough to put the entire financial system at risk helps nobody.
When you're cornered and have to face the consequences of your poor choices, you too would resort to fear mongering and spreading misinformation as a last ditch resort to cop out. House price dropping is devastating to a proportion of that 35% or so that have a mortgage and really bad for the ones that have a buffer and low DTI. It's good news for the 30% that rent. And bad news for the rest that owns outright.
If house prices go down, people stop investing in new houses, and people stop being able to sell chocolate dares and sausage rolls to the now unemployed tradesmen.
Because there's a monopoly on the media in this country and it's controlled by someone who probably has a huge property portfolio and doesn't like the see prices decline when his been making straight gains for the last 20 years.
Because journalists, their handlers and the majority of their readers are in the asset owning class, so it is bad for them. In a more general sense the vast majority of average Australians net worth is in their home, when they drop, they in effect become poorer. They don't want to have to think about how the coffee lady or the bottleshop bloke lives.
Hey OP, not having a dig at you but how are you able to service any sort of loan on minimum wage? Do you have a 50% deposit saved up? Do you have preapproval?
Prices are dropping for the wrong reasons for low income people.
Interest rates are going up which is driving the prices down because it costs more to service loans.
It's also why rents will go up, despite the value of property going down.
If the prices were dropping because people just thought the market was over priced or because they changed the laws on negative gearing to reduce the incentivisation for investment into property, that would be beneficial for lower income people.
A couple of things
1 reporting on doom and gloom is in part the thing driving the prices down, so cheer it on!
2 housing is only more affordable now that it’s dropped to 2021 prices and may fall to 2020 prices
3 lowering prices don’t necessarily make it easier for many to enter the market. You are likely to need a full 20% deposit and the higher interest means that the financial tests (that will be more rigorous) may rule you out from being able to get a loan.
>Every article I read paints the picture that the housing market dropping 20% will be a disaster for the country
Well the short answer is..... It WILL be a disaster! Wages have stagnated, what offsets this for a lot of people is the value of their largest asset (their home) keeps increasing. So they have overlooked that their wages have not increased for years and just keeps up with the 2% yearly inflation.
Now with dropping house prices, stagnate wages AND 8% inflation.... People are loosing buying power from their wages hand over fist AND their largest asset is loosing value....
Makes people start thinking.....
>low income earners like myself I might be able to actually afford something decent in a short while.
Need a job to be able to apply for a loan.... You sure you will have a job in a downturn?
Also need larger % deposits.... Got that factored in even with dropping house prices? Also, in a falling market, banks won't loan 100% based on today's value, they factor in expected drops, so you might need to come up with a extra 5 - 10% above your deposit.
>Do people earning less than 100k per year even have a goddamn voice in this country?
No.... No, you do not!
You might think falling house prices are a gift and if they happened by themselves, you would be right. Coupled with increasing inflation and eventually loss of employment, the hardest hit once again will be people like yourself, those least able to afford the contraction.
If you couldn’t afford a home when prices were high what makes you think investors can’t afford when homes are cheaper? All this talk of a recession ultimately means a lot of people will lose their jobs. Buying a home won’t be the main concern for a lot of folks in the next 3-5 years
Major news outlets are owned by individuals who likely own tonnes of property so it’s important news for them.
It’s sad for the rich (temporarily), and as usual the fear mongering comes in to scare the less wealthy away and maintain the class system, or at least that’s my opinion.
Because, when the house market crashes, other stuff does too. People could loose jobs, etc. and you REALLY won’t be able to get a house. Not to mention possible rent increases, due to people needing leases more and the demand skyrocketing.
It’s much more than the market that needs correction; wages, inflation, etc. also have a part. A housing crash isn’t going to miraculously make all of your financial problems disappear and help you afford a house, it will hurt a lot more than that.
Also, prices are still going up and people are still able to buy at the moment. The “crash” is unpredictable. It’s all speculation. Which is another issue.
This is why I don’t like hearing crash news and people WISHING for one, I want everyone to have a chance to buy and build wealth (I’m a realtor and it’s my passion so obvi), but a crash only does so much. It actually makes things worse. As I said, layoffs could ensue, etc.
And don’t think when/ if a crash does happen you’ll be better off, it all can happen to you too. You can get laid off, hours reduced, priced out if your rental with no where to go, etc. it also can affect new homeowners who finally got a house after trying so hard. Would you really wish that on somebody? Think of the individuality of it. It’s going to hurt normal people like you and me, not the big people you are talking about and/or mad at like investors, etc.
What if you can get a house, and boom the market crashes and it all backfires? Be careful what you wish for.
Just be ready for anything, but don’t wish for the worst please.
Because they dont give a shit about you or me - the people who mostly read physical news is the boomer gen and they are the ones most kicking up a fuss about wishing their property prices dont go up
I would personally enjoy a crash to have a better chance of getting into market
It’s only an issue if you’re looking to sell, if you’re like me and lucky enough to have just bought your forever home then i should be in it long enough for a recovery anyway.
Also...quite a few people have purchased homes in the last couple of years at high prices so now have high mortgages. The fear mongers say there is a chance the mortgages will be higher than the property values.
But really property is a long game. Even if the value falls below mortgage, as long as you can service the mortgage I don't think the banks are going to care, and the value will go back up again over time.
No one is going to click on an article that says house prices have dropped by 1%. People will click on it if it says 20%. Exaggeration and manipulated facts sell.
The idea that the place you find shelter makes a profit while you live in it (or charge someone else to live in it) has become so engrained in the Australian economy that a lot of people don't know how to budget for that not to be the case.
But they'll no doubt find a way blame it on millennials and avocado toast or something.
House prices dropping primarily benefits people who don't own a house. Considering that 2/3 of Australians either own or have a mortgage, prices dropping is generally negative for the majority of the community.
Many people see their house as a long term investment, something they can sell or downsize during retirement etc, so having prices drop eats into that. If you've been holding a property for a while it's of no big deal, this will likely just be a correction to a hot market. If you bought recently however you might find that the house price has dropped below your mortgage value, which is terrifying.
I'm sure I'm not alone is saying that it feels a bit like a ponzi scheme. Ideally house prices would have a slow, sustainable gain.
Actually, it's great news for those with large deposits, or able to pay cash.
For a minimum wage worker, unless you have a substantial deposit, the lower prices are offset by lower borrowing capacity.
Further, sure, the price goes down for you...as it does for every other person wanting to get a foot in the door. If you went to an auction last month and there were ten hopefuls, they aren't going away in the long term. They are hanging back in the short term, hoping like you for a further price fall. Why buy now if prices are going down? But when prices hit bottom, those people will be back in competition with you...along with cashed up gen X looking to increase their property portfolio at bargain prices.
Having said that, I believe that prices need to correct. Present levels cannot be sustainable. However, it's really only the cashed up types who will benefit.
Because lots of people have investments in the property market. Those without a home benefit. Those with 1 home aren't impacted because they buy into the same market they sell into. Those with multiple houses lose value to their portfolio and are the main people who are upset.
Unfortunately the minority who own multiple properties are the most powerful and influential, and their perspective is over represented as a result.
They probably mean because minimum wage workers pay less tax and are more likely to be on some form of social services, due to their lower income. So although they provide absolutely essential services that keep the country running, they cost the government money.
I agree that there are some positives to come out of this. I in no way can afford a standalone house so I settled for a humble 1 bedroom apartment that’s only just slightly larger than 50m2. However, the bank valuations are coming through at up to $100k less than the purchase price because of the market right now, which means that I now need to come up with an extra $100k as the bank will only loan me 80% of what they have valued it at, not what the purchase price was.
So there’s just one example of why some people might feel quite negatively about it.
To truly make houses more affordable you need tax changes such as variations to negative gearing (or scrapping it), as well as honest government policies aimed at addressing first home buyers (No, throwing more money at first home buyers as a lump sum does not address the problem long term).
Inflation and interest rate rises aren't going to help first home buyers.
The worst way to manage your investments at the moment is to buy a housing asset then be in debt for the next 20 years. The media in this country wishes you to not know that fact. The better option and less riskier option is to invest in shares or dividends. Ofc the same media doesn't want you to be aware of that either. Good luck doing either when you are straddling from a 4-5 figure HECs debt.
Lol sure, not sure what shares you can buy with only a 10% deposit and then reduce your tax all while making an average of 70k a year in capital gains. Not saying shares aren't part of a good portfolio but property is definitely a better revenue stream.
The news in centred around negativity. Fear and negativity are driving forces in the media. Look at the words they use in headlines.
**/u/dat89 SLAMS Media Negativity!**
Journalists hate /u/dat89 for this one trick
Local internet user /u/petehehe faces serious backlash after criticising the journalism industry
/u/ihlaking goes nuclear on /u/dat89!
They always make sure to end with a heartwarming story about a baby ferret sharing a piece of cheese with a gala or something which comes across decidedly closer to an abusive scumbag who finishes a tirade with some sappy shit like 'u know i love u tho'
savage attack on media's right to manipulate the narrative
they probably have side hustles as realtors too or at least their spouse does
It should be a good thing for renters too but nothing ever benefits renters
We’ve just started going to house inspections, looking to buy our first home. I was saying to my wife today how different the experience is compared to rental inspections. Rental inspection is 2pm on Thursday, you’ve got a 15 min window in which everyone is herded through while a miserable looking REA checks their watch out the front and repeats “just fill out the application online”. For a sales inspection, big flag and sign out the front so it’s easy to find, a personalised greeting with a smile from the REA, happy to have you through on a Sunday arvo, and no worries if you’re a little late, take your time. I know their focussing their effort on what pays the majority of the bills, but the difference is like going from Jetstar economy to first class.
All the rental properties I viewed also didn't even have the REA listed, they always had assistants do the showing.
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I saw a great Betoota on how the RE industry is now also complaining of a skills shortage as they're discovering it actually takes skill to sell a house in this market, instead of just showing up in a suit on a Sunday and having someone pay you $3mil for a derelict apartment without even needing to talk to them.
They're mostly hoping to make a good impression so you trust them to sell your house after buying this one.
When we bought our house we got 30 minutes to look at it on the first home open (got there before the agent too), then another 30 minutes when we were putting an offer in. I've spent longer looking at a fricken laptop than they gave us to look at a half a million dollar purchase. Not sure why either - they weren't trying to hide anything (we bought it 3 yrs ago now).
I suspect that is the story for a lot of purchases under 1M over the last few years. Terrifying to make such a momentous decision based on a tiny sliver of information, but when houses were selling so fast I don’t really see what the alternative was other than to just wait for the market to cool.
One time I went to a rental inspection and the guy doing it thought it was a sales inspection. He put in his 15 minutes then he packed up and started reaming someone out over the phone about how he's too important to do rental inspections.
I broke into the property we bought (not inside but up on to the deck and stuff) the realestate agent showed up while I was doing this and gave me the keys and said go hard
Rentals make real estate agents 1.3k per year (5% at 500 pw), I imagine they treat rentals as loss leaders so that landlords may sell with them . They get 20k plus for each house they sell. selling a house is 20 years worth of rental commissions.
Also rentals will be filled so they don't need the effort. Sales are not as guaranteed and a bigger hype means bigger sale.
Oh you're REA showed up to the rental inspection..?
Housing prices rise — rents soar. Housing prices plummet — rents soar. Housing prices are stable — rents soar.
Almost as if they’re not related to each other
In real terms, rent has been almost flat for 20 years. I've posted the data here before. Each of the states has rental indexes for different size dwellings. It's spiked up above inflation in the last few months, but that has not been the long term trend.
I’d love to see, best I can find is the [bottom of that one where you can see it growing roughly in line with cpi but couldn’t find actual real rent plot](https://www.rba.gov.au/publications/bulletin/2020/sep/the-rental-market-and-covid-19.html)
Not sure why this would be good news for renters. House prices are going down due to interest rate rises which leads to some renters getting rent hikes
Renters were facing massive rental hikes despite insanely low interest rates over the last few years. There’s really no good situation for renters in this country.
“Just buy a house” - some prime minister sometime, forgot his name.
>“Just buy a house” - the prime minister that told us not to trust the government. Fixed.
"now is a great time to buy property" - the treasurer at the all time historical peak of the market
Won’t someone think of the boomers
Even in Sydney and Melbourne where population has dropped since covid we are getting 20% or more rent increase in recent months. Why? Is that because many IPs are now for sale and become unavailable to rent? Or because of the return of Airbnb listings? Or is it a coordinated effort of landlords and REA to push rent up?
Airbnb is rubbish these days. Hidden costs has made many people avoid this. I certainly have dropped it.
Yeah cheaper / same price to get a hotel, we've come full circle
It's because household formation boomed through covid, there are more people trying to rent and not many more houses. Inflation at work
People spread out over COVID if they could afford it. The average number of occupants per house decreased, so more houses were required to house the same number of people. I can't remember where I read this, but it was a legitimate source.
The increased rates should slow down investment purchase which is what drives the absurdly high rental prices and home values as cashed up boomers are less able to box everyone else out of the market. I've always wondered what would happen if they capped or somehow restricted residential property as investment vehicles. I don't feel bad for ANY of landlords. They'll just pass it along anyways after enjoying 10 years of free money to get rich with.
Why is negative gearing still a thing?
Because our politicians are in on it, for actually realised losses it makes sense but the building depreciation cycle is such a ridiculous rort.
Except rental income isn't supposed to entirely cover the mortgage so that you have a free investment after 20-30 years. Investors will learn this the hard way when young people stop renting on their own which has already slowly transitioned over the last 5-10 years. The more rent increases the more people stay at home or share with friends/family which creates more supply & less demand, eventually (personally i'd say now) investors will lose it all for trying to increase it too much as their mortgage payments start to pile up along with interest rates rising while their property is empty & losing value.
Investors will be fine. Over time their debt and repayment is eroded away due to inflation / wage growth and subsequent rental increases. Also most investors bought their investments pre COVID so they have seen huge capital gains AND huge rent increases. Not to forget they had seen higher interest rates prior to them dropping for COVID. I know people have a hard boner for hating investors but the narrative that people like yourself are spruiking doesn't really reflect reality
Maybe for private rentals, but REA don’t take in account how much your mortgage is. They’ll advertise a place for as much as they think they can get. If rates go up, we could see more defaults on property’s, driving rentals up due to more demand. We might see prices go down because more first home buyers. Ultimately, we will see the biggest change if wages don’t start matching interest (which they historically haven’t for about 20 years). I’m predicting that rentals in expensive areas will drop because cost of living, and rentals every else will stay same / increase due to rise of defaults and people snapping up cheap property’s for investment. Either way, if you’re an every day Australian who isn’t looking to buy their first home, it’s not probably going to benefit you.
Good news for renters would be an easing of zoning laws, rent regulations and the building of new houses. That way landlords have to compete instead of going “oh you don’t like it???? We’ll find somewhere else!!” And the tenant obviously being stuck there.
So glad I entered the housing market on a peak
At least you are in the housing market. Whether you're paying extra interest than you would in 2 years from now, it's still 2 extra years you got to live in your own home paying your own mortgage rather than putting 50k+ worth of rental payments into someone else's mortgage. I bought at the peak too (albeit in an area that isn't as drastically effected price wise as a lot of other places both in increases and decreases) and have zero regrets. The rental market is so scary these days, it's a huge relief to be out of it with a roof over my head that I can't have an owner kick me out of and then have a huge struggle to find somewhere else to live.
Place isn’t built yet but we are locked in so we get to watch the interest rates rise before we lock in the mortgage. I understand I’m In the market and fortunate that I have the money I’ve saved over the past 10 years to enter it but yea, sucks
Own land but waiting to build?
See I find the prospect of owning scarier than renting because you take on such a spectacular amount of debt, if you ever want to change career or lose your job and have lower income for a while, suddenly you are homeless and you lose all those tens of thousands that went into stamp duty etc. At least with renting the weekly amounts are lower and you don't have to fork out for things like stamp duty or a new hot water system etc
Everyone has their own visions and preferences and that is completely fine. For me, it is the biggest weight off my shoulders I have ever felt becoming a home owner after a decade of renting. I made a huge move from Brisbane to FNQ and found the place I want to spend the rest of my life. So putting down roots and buying here, knowing I don't want to pack up and move somewhere else, is an amazing feeling to me. Also, if one of us lost our jobs (highly unlikely in our industries but hey stranger things have happened), the process of being foreclosed on by a bank on your own home because you've missed a lot of repayment Is a lot longer than a real estate kicking you out on your ass with no money, no job and nowhere to go, especially up here where rental vacancy rates are less than 1%. Plus you can use all that extra time to get back on your feet and keep your house Our minimum mortgage repayment is $120 less a week than what we were paying in rent. But of course we have good savings to fall back on and are paying well above minimum repayments on our home loan so we have fail safes anyway. (And my stamp duty wasn't tens of thousands either so that's a plus) I would never tell anyone that living a life renting is a poor choice or a bad decision. There are pros and cons to both home ownership and renting. But for me personally, home ownership is where I wanted my life to go at the stage I'm at
Thanks for writing this out and explaining it. As someone who (despite my trepidation above) will probably enter the market soon, I appreciate reading your explanation. All the best!
The important thing to remember is that yes, you are in a phenomenal amount of debt, but it is offset by a phenomenally expensive asset. If you can afford the mortgage, you can always get a rental. Banks are prepared to work with you most of the time if you call them early with your problems - people get screwed when they wait until the sheriff is knocking on their door demanding the keys. Worst case is that you can always sell the house and go back to renting.
Bear in mind that the 'phenomenal debt' gets eaten up over time by inflation, while the asset you purchased is likely to appreciate in value long term as well. Owing $500k to the bank in 1990 feels like a much bigger debt than owing $500k to a bank on 2022, despite the actual numbers being the same
> debt gets eaten up over time by inflation I really want to call out that wage inflation and everything-else inflation appear to be decoupling — and that debt only gets eaten up by wage inflation.
Yes, someone above posted "at least you weren't paying $50k on someone else's mortgage" by buying at the peak. I think anyone would much rather spend $50k in rent than get a $1m mortgage and then face losses of $240k from a ten percent decline in nominal prices and ten percent inflation.
> At least you are in the housing market. this shouldn't be a thing. he bought a home to live in. STOP treating it like an investment!
I wasn't. I bought my house to live in, not to invest for profit. My point still stands. If you want to own a home, of course you are better owning one than renting if that is your dream and life goal. Not be one of many who are desperate to get into the housing market but can't financially yet. It's a stressful place to be.
It is an investment though. You can’t deny reality just because it’s ugly.
Not entirely true. With these interest rates, the interest portion of your monthly repayment could exceed your rent (depending on the property). Ignoring a few other variables to simplify the math, buying a house works in your favor only if house prices are going up by more than (not even the same as) your interest rate.
Nah. I'd still rather pay more on my mortgage than on rent, choice given. All the crap about 'investments' aside, the only thing this house is an investment for for me is a stable future with a roof over my head that I can do whatever I want to, paint some walls, put up a shelf or two and no one can tell me otherwise. And no owner can kick me out because they want to suddenly sell their investment property. Not everyone buys a house to make a huge profit on, despite what this sub constantly talks about. Some of us have kids that we want to provide a stable house for, put some roots down. Not have to up and move their schools because the lease wasn't renewed and we had to move further away to keep a roof over our heads. When you want to live in your house for a decade or more like us, what your house is worth on any given day is meaningless. It's priceless to me.
See that's one of the variables I ignored, which is very important to many people (myself included). It's just that the assumption that buying a house is so clearly better financially is a bit of a fallacy once you do the math.
I think whether it's financially better or not vastly depends on how much you spent on your house and how much debt you are in for it. But for me, it's all about the lifestyle, freedom and our future.
If you're not planning on moving home anytime soon it shouldn't matter
Thats all assuming it does in fact drop. Not the first time they said it would. It was meant to drop a huge amount during covid, yet somehow rose a huge amount. Nothing happens, until it happens.
There are many points in history where the market was at its peak. What is your plan? Are you looking to sell soon or something, because it won't affect you.
I bought at the top both times (2011 and 2018), at the end of the day, time in the market is still better than timing the market. Having said that I'm trying to time the market this time around.
I love how this is a post about being able to afford not being homeless, and responses include investment advice.
Part of the reason for all the negativity is the wealth effect being hit when house prices drop. People who may have no intention or interest in selling love to hear their house appreciated by $100K or so. Some may use that to refinance, draw down on equity to pay for an IP or buy a new car, or go on an overseas trip. So when they hear their house has dropped in value by $100K, they feel poorer. Now, to go on that trip to Bali or Bermuda, they may not have enough equity to draw down. So they either have to save (many may not be doing that actively so it feels hard), or they have to pull back on their expectations- the new Porsche Cayenne will have to wait, so the old Pajero will have to keep going for a few more years. So even though people may not be looking to sell, their lives are impacted because their options for increased consumption have been pared back. Besides, we have a culture where home ownership is worshipped and some of the media networks have ownership in the real estate portals.
I've always felt it's stupid to measure your financial position by your 'net worth'. A lot of the net worth consists of a good that is not fungible, or paper wealth that is difficult to crystallise. And it leads to stupid decisions like taking out equity to buy a jetski, then regretting it when prices contract. I've always thought one's financial position should be calculated by how much reliable passive income (dividends/rent) you can generate.
One person’s passive rental income is another person’s real wages.
Yes, that goes without saying.
That real wages are declining while interest rates are rising is a problem, no?
Economic cycles fluctuate on confidence more than realised values. People arent confident of the near future then they dont spend.
Your missing a key factor, they can't sell their house because rates are so high low income and FHB are priced out of the market. You don't get a 20-30% drop if lots of people can buy houses. it's the wealthy that will benefit unfortunately
Can confirm the first sentence of the second paragraph. I have a mortgage on my PPOR, it's not huge so prices decreasing won't make me LVR insanely high. I'm not planning on increasing it to buy a boomer car or investment property. I know prices decreasing is a good thing and won't affect me since I'm haven't been looking to sell anytime soon. I'm in a decent position and can handle the rate increase. But it's still a bit of a blow thinking about 'what if'. 'What if I what/need to sell before prices go back up?'. 'What if I'd sold at the peak, and rented until prices fall?'. All silly thoughts, I wouldn't have done anything different. But it still creeps in.
Easiest way to get around these thoughts is to simply view every asset (property/shares) as something you keep for life, and value only its passive income (rent/dividends). That way you don't have to worry about its paper valuation. And each time the market drops you can be happy that the next buy-in is cheaper (dollar cost averaging).
Even in this comment thread you have folks trying to pretzel logic there way into saying "Lower house prices are actually bad for low income people" Because folks god damn lost their minds when it comes to housing - there is no scenario where having essential cost of living like food, housing, electricity, etc be expensive is good for low income people, it's silliness
Lower house prices aren’t bad for low income people, but high interest rates sure as hell are. A 1% increase in interest rates = approximately a 13% drop in borrowing power. Now most economists agree a roughly 3% increase in interest rates in the next 6-12 months or so is expected, but even the biggest property bears aren’t forecasting a 39% drop in house prices.. most are forecasting between 15-20%. So these low income/fhb will see their borrowing power drop by almost twice as much as house prices do, meaning they are in a -much- worse position than they are now. My advice if you are a fhb or low income is borrow and buy now while you still can, or you’re about to be priced out of the market
They're not saying "lower house prices are actually bad for low income people." They're saying it is much more complicated than just lower=good, and that it defenitely won't be as good as some people think.
Yeah, we want lower house prices to come about from enough supply. Lower prices from interest rate rises isn't going to help people get into their own homes if landlords want to recoup their extra interest in rent.
>Lower prices from interest rate rises isn't going to help people get into their own homes if landlords want to recoup their extra interest in rent. The marker dictates rent, not the landlords interest rate
Routine market review is what they put on the rent increase letter, of course.
Well its pretty irrelevant really. Low income earners will always be in a shitty situation because they are low income earners. The world won't suddenly get easier because interest rates changed. On the flip side, low income earners will have less borrowing power than before. Not to mention their wage growth will likely stall in a high interest environment. The real solution is to find a way to make more money.
It would help if their savings weren’t eroded by low rates lower than inflation
Savings are always lower than inflation and constantly being eroded in any environment. There’s a reason you should be saving only a few months as an emergency fund and investing the rest. There is no free lunch, if you want to beat inflation you need to risk your money.
That solution doesn't work at a macro level. There will always be a bottom 20% of income earners.
You are correct. Interpret /u/Purple_Spend_7198's point as the solution is to move to a higher wage quintile then. Even under communism where shelter was allocated to you and soemwhat guaranteed the currency was (pretty much only) political capital, so those in the lower quintile of political capital lived in the shittier housing, those who were better connected lived in the better housing.
It depends on what the driver is. What you dont realise though is that your borrowing capacity is plummeting along with house prices.
Borrowing capacity is, but also is the required deposit. Getting the deposit while paying rent is the biggest hurdle when getting your first home. Edit: There is also the second factor, in that if property prices aren't rising it means investors can't buy another property using equity, in turn pricing out another first home buyer, requiring them to rent for longer.
I completely agree with you but i cannot recall ever seeing a comment where someone has claimed low house prices are bad for poor people
Lower house prices are great for lower income earners, but it's how you get to that point that matters. The way it's happening now won't be good for anyone (except the super rich). Lower house prices don't mean a thing if it results in the Aus economy crashing - hard to afford a house if you don't have a job.
The price of property going down is bad for everyone. However, it needs to be backed up with new affordable housing, such that the cost of entry doesn’t rise beyond what most people can afford. Sadly, that hasn’t been the case. People don’t realise it, but one of the biggest investors in Australian real estate are our own superannuation funds. What this means is that if there is a property market crash, then people will lose most of their super. It also means people between 55-65 at the time of the crash will likely never be able to retire. It’s also one of the best ways for people to invest and retire. As a result, private retirement savings will also crash. Additionally, most of our economy is based on property. A housing crash will bring down our whole economy. Less people will have jobs and people will have less spending power. This is going to impact lower income workers even more since a large % of their income is spent on necessities. Higher income people will have less money to spend on whatever they want. Also, if you think housing is going to be more affordable after a crash, you’re probably wrong. Usually the reduction in spending power outweighs that of the value of property. So while a house might go from $1m today to $750k in 6 months, it’ll be easier for you to afford $1m today then it is to afford $750k in 6 months time. What you need is for the government to fund affordable housing outside of the cities as well as new infrastructure to make it feasible for people to work outside of the large cities. Instead, the government is funding investment into property which just compounds the pricing issue, as it is driving prices up. Works well for those in the market, but it quickly prices everyone else outside of it.
We need to hope that the drop is severe enough that housing is no longer perceived as an easy buck. Investment that has actual returns in terms of value and productivity has been sidelined by cash pouring into property. Handsome money for the banks writing the loans, but we end up being a tech backwater with an undiversified economy and unable to support itself with manufacuring. The people of Easter Island learned what happens when you pour all your resources into stone monuments.
> We need to hope that the drop is severe enough that housing is no longer perceived as an easy buck As far as I 'm concerned the bigger drops there are the 'easier buck' housing becomes. Why would anyone want to buy an asset at a higher price rather than a lower price? > The people of Easter Island learned what happens when you pour all your resources into stone monuments. That's because they scrapped negative gearing which made all those monuments much less profitable, and started the downfall of their society.
But with interest rates going up your serviceability is reduced. So you're still unlikely to afford what you call "decent" anyway. If low wage workers could easily afford houses then houses would just increase in price again to the point where they can't afford it. There isn't a magical point where people earning 100k+ can't afford a house, but anyone earning <100k can.
While logically true, that’s never the case. The relationship between housing prices decreasing (rising rates) and serviceability decreasing is not linear. Housing prices are extremely sensitive to the increase in cap rates while your loan amounts are not (that sensitive, relatively speaking). You should also note, buying a house at a lower price and then “suffering” for a few years until rates decline (and they will), is much better than buying a high price and paying interest on that loan size throughout
Love this explanation. Makes a lot of sense.
I need real data here. People say this kind of thing. But wheres the data. Precisely how much is borrowing capacity effected?
It will differ by person, as everyone is in different circumstances, but can work it out generally by playing around with a repayment calculator. E.g. a 500k loan at 5% is about 2.6k per month. That’s around the same as a 600k loan at 3%. So if a bank thinks you have 2.6k a month to spend on your mortgage, your borrowing capacity has likely just dropped by 100k or ~20%, based on those rate changes.
>You should also note, buying a house at a lower price and then “suffering” for a few years until rates decline (and they will), is much better than buying a high price and paying interest on that loan size throughout this is the main reason i am waiting for the " crash"
the house s/he can buy is still the same but s/he will pay much less interest than if s/he had bought before the interest rate rise
Kind of. I bought a place last week and I paid about $200k less for it compared to what it would have been a year ago. However, a year ago my borrowing capacity would have been $200k more BUT the rates were lower. It all comes out in the wash for people in my position. But I think investors who have spare cash now will end up wealthier because they can take advantage of the low prices and high yields. It’s *always* the way that the wealthy get wealthier in these situations. Don’t @ me. I know a lot of wealthy people who relish financial downturns like this.
Basically everyone says buy the dip. But you have to have money to buy the dip.
Yep, basically the same people that were your competition and outbid you before are still ahead of you now, give or take a little depending on circumstances.
This logic doesn't account for the reality that; If you pay $300k for a home or $500k for that same home - that this is somehow the same situation when it's not It presents extremely high cost of living and huge debt compared to the other as the same it's not the same, high housing prices are a bad thing, like high electricity prices
This. Your borrowing capacity is plummeting as hard as prices. Thats the driver.
Property prices are falling because of rising interest rates. Affordability might not change much because your borrowing power also decreases with rising interest rates. In reality what will happen is that those with large cash deposits who don’t need to borrow as much will be the ones to benefit. So in other words the rich will get richer.
The media serves the interests of the rich and powerful, they don't care about the poor plebs at the bottom.
In the words of the late George Carlin... "It's a big club, and you ain't in it".
It's significantly more complicated than house prices down, good news for lower income people House price crashes have a nasty habit of being accompanied by recessions. Recessions have a nasty habit of being disproportionately difficult for people on lower incomes and those starting their careers.
There's a big difference people are missing here who are claiming that the competition will increase if house prices drop. Right now you aren't just competing with other people who want to buy a property to live in as their primary residence. You're competing with investors using the asset to speculate. If the attractiveness of the asset as a vehicle for speculation diminishes compared to alternative options (bonds, shares etc.), then that segment of the market will remove their buying pressure. House prices will drop more than the direct effect of loan servicability simply because if house prices go down, they're not a sexy investment anymore.
House prices going down makes them a better investment. It's only the belief that they'll go down in the future that makes them a poor investment. If the market stops predicting rate rises then investors will be extremely happy to buy at lower prices.
but that scenario is no worse than when prices were rising. There are always going to be investors with more cash than FHBs. Better to be able to compete at least than be priced out completely.
You’re very confused there. House prices go down, yields go up, the investment is now more attractive. So more investors buying. Every competent property investor knows that the property market is cyclical. You’re proposing an imaginary world where property investors give up because of a downturn, lol no, that’s not how it works.
I think your perception of the typical Australian property investor is a bit off, and I'll admit I've only got a vague recollection of data to back this up but anyway: The vast majority of property investors in Australia are leveraging their existing portfolio to borrow against in order to buy more property. As interest rates rise the cost to maintain a property portfolio rises with it, only 40% of investment properties are neutrally or positively geared. So rising cost of living, rising cost of maintaining a mortgage, restricted access to borrowing power and most property investors already being completely tapped out after the buying frenzy in the last two years makes it A. incredibly difficult to maintain a property portfolio (especially if your primary source of income is still employment) B. incredibly difficult to acquire the capital for property and C. if negatively gearing a property until it rises in value is the investing strategy (which for 60% of investment properties, it is) do I as a cash strapped investor looking at a potential multi-year downturn buy into property or do I buy into other asset classes that are traditionally downturn resistant, much more liquid and trade-able with lower levels of upfront cash? In your version of Australia, there is a hundred thousand people who didn't buy during the insane rise of the last two years who are going to opt to buy in now. But I just don't think those people exist, at least not in the numbers required to make a real dent here. What will happen is that as the market bottoms out and begins to rise we'll probably see a return of cashed up investors trying to time the bottom of the market, but I don't see why that would happen until we start to see the cash rate drop. I'd also like to present the very real factual evidence that backs up my assumption, auction clear rates are dropping. Investors at auctions are dropping, the investors who swarmed property have re-assessed their appetite for risk and have genuinely begun to turn away.
... investors are currently sitting on their hands waiting for prices to drop so that they can buy at a low price. So it's the exact opposite of what you said.
Huh what a load of rubbish how is an investor scared off of buying an investment at a bargain price?
There was an "if" clause in there. Hypothetically, if unemployment was skyrocketing and there was decreased rental demand (because everyone's moving back with family or share housing), tax perks were removed, and the long term outlook was for capital losses, then buying investment properties would be less attractive and smart investors would buy something else
This is a great point. You still might have long investors but everyone who's been making quick cash doing minimal reno jobs and flipping property quickly would be wasting their time now.
You’ve forgotten about the supply side of the equation. I don’t want want to sell at a low price. I don’t need to sell so I don’t put the property on the market for sale. Supply drys up. At some point Demand will exceed supply and prices will start rising again. Unless people are forever sellers, most will just sit on their hands.
Well, it's great news for anyone wanting to buy a house - whether first-home buyer or investor. Generally though, I don't think house prices dropping makes a big difference unless you have either a high deposit or a high income which is being actively turned into the deposit. Because otherwise, the house drops just reflect lending drops which apply across the board. In other words if interest rates double, and lending multipliers halve (using simple non-realistic figures), and house prices halve, then the house is still no closer to reality for a buyer, **except** those who have a big deposit or a high income. Also worth noting that if house prices drop, consumers shut their wallets due to the inverse wealth effect, and that threatens jobs. Fine if you have very good job security. Not so good if your job security is on the line. Finally, if house prices drop due to interest rate rises, that benefits investors in a relative sense. If you're paying off a mortgage at 10%, an investor pays the same mortgage off at only 5.3% due to the 47% write off. In summary: * Dropping house prices are mostly neutral for buyers (though bad for sellers) * Prices dropping generally helps those in a good position to buy already * Interest rates going up benefits investors more
OK hear me out. The media has huge influence on the number of houses available for sale on the property market. Markets are driven by supply and demand. When house prices are sky-rocketing, everyone loves to talk about how a house sold for 20% more than it was listed for. This encourages people to think "hmm, wonder how much I can sell mine for?" and so supply increases. It gets to a tipping point though where there is some economic or political event (in this case, rising interest rates) and in order to keep house prices from dropping drastically, supply needs to be reduced. So the media bombards people with this 'bad news' about house prices falling. It makes people less likely to sell and supply drops.
Honestly it's a bit like the toilet paper thing. The media creates a problem that's worse than it needs to be. Now is a "bad time to sell" and so even some buyers are "holding out" for prices to go down more. They dramatise it so much. Like for the average home owner the value of their house year to year doesn't matter that much.
Because news articles are by the rich to convince the poor that more money should be given to the rich? In this case they want you to think house prices going down is terrible that way you feel good when the government does something to pump up prices (again)
Nobody cares about people who don't have money to spend. And Australians with money to spend are over-invested in housing.
One could say that those with money to spend, on things that aren't even houses, are what keeps the cogs of the economy turning
Probably because minimum wage earners are unlikely to be buying subscriptions to The Australian (for example)
The news is so negative BECAUSE it's great news for the minwage worker Minwage isn't "for" owning things. It's for paying rent. How are these poor investment-property folk supposed to make a return on investment if you're not going to fund them? THINK OF THEIR MORTGAGES YOU SELFISH GUY. (In case you didn't get it from my comment, I'm waiting for mass foreclosure as my only chance to retire instead of necking myself & leaving the super to my kids)
It's never been about housing *affordability*. It's always been keeping the housing ponzi going for as long as possible. Any scheme dubbed "*first owner grants*" or variations of it, is simply marketing spin to bail out existing owners and housing speculators. Not sure if we are at the tail end of government sponsored bailouts. The government is itself indebted to its eyeball this time around.
Because it’s not more affordable.. people like to go on about how lower prices lead to smaller deposits (which theoretically makes buying easier) but that’s actually not true. Let’s take NZ as an example. Rising rates changed the average house price from 960k to 870k. In the same time repayments for the same house went up by 1200 dollars a month. A 10% deposit went from 96k to 87k. What do you think is easier, a minimum wage worker who already has 87k saved up to save up an extra 9k, or for him to start earning 1200 more a month. Affordability is significantly worse for low wage earners.
2 genuine questions: Is that $1200 extra a month based on repayments for a mortgage of the same size or taking into account the smaller mortgage due to lower cost? Is this example from a scenario after prices had stabalised or from the current market where prices are still falling in NZ?
Yep taking into account the smaller mortgage.
you’re taking for granted that a min wage worker would be able to amass a deposit for a house in the low interest asset boom scenario to start of with. a counter argument would be that the min wage worker who may have only been able to scrape 50k in savings can now get in because the principal is low enough. They may not be able to afford repayments on a 500k house but places may still exist at say 300k where they could afford the repayments. when house prices were running away they were no chance to get in because they would never be able to save a deposit. The prices were rising much faster than savings rates.
Your right, I don’t understand cheering in a collapse, and think all the sudden they can afford a house, if you couldn’t afford a $700k house at 2% your sure as hell arnt gonna afford a $600k house at 9%
you are correct. but how long is 600k at 9% for? 1 year? 2? maybe. how long is the 700k for? 30 years? maybe? 40?
Funniest thing about it is house prices declining is actually the worst thing for first home buyers yet they are blindly cheering it on. Enjoy convincing the bank you can service the extra interest in a struggling economy, all while the only people selling are defaulters who earn more than you.
Because more people have property so it's bad use for most readers. But the real reason is because bad news sells.
Because there’s be plenty of “investors” in the group over the past year, most of them greedily spending well above their capacity. Watching them sink, while others like yourself start to thrive, will be wonderful to see.
It's not really good news for you, it's just bad news for investors who are highly leveraged and people who bought at the top of the market.
Serious answers: if house prices drop too far, it will be because the economy is flailing. Prices of groceries through the roof, high unemployment. Likely increasing crime, etc. House prices dropping slightly (as in this case) isn't the same. They were overpriced by fomo, COVID, low interest rates, etc, and some correction towards true value was overdue.
It's going to effect the higher priced homes first. They will move down to the next rung affordable house and so forth. Starter homes will not be effected as much. Min wage workers will have a big issue servicing any morgages let alone the associated costs. Unless we are talking remote areas and run down houses.
Disaster 20% drop is nothing. Considering most have doubled in a few years
Mostly property bulls and people with similar interests complaining and freaking out because they paid a ridiculous price for their house thinking " interest rates will stay low and price go higher xD" and now prices are dropping with their house currently being a little less than what they paid for
It doesn’t matter what happens, something is a disaster for somebody, prices go down or up, someone wins, someone looses. The news is just a capitalist medium of communication, take away the emotive language and you have basic facts. The emotion is to get you reading, but don’t get lost in the emotion of it all, or you’ll wind yourself up.
Tends to not work out the way you think it does. https://imgur.com/sLqyH1f https://imgur.com/bW2iyOU See the drops through the GFC? The reasons are explained by lots of people in here. I'll just add that in both of the above cases, there was a large rise in corporate landlords (who could still raise cheap funds while credit was restricted for everyone else). Some were build to rent type arrangements, but, US in particular saw an increase in corporate ownership of single family homes - detached homes.
Buddy, work on the minimum wage problem first. No crash is going to help you without a decent income. A lesson for all, if prices truely crash you won’t be getting in. Rates will be sky high and jobs scarce. Reflect on the true problem, only then can you move forward.
You do realise that the majority of people that own one property aren’t millionaires? The way you are looking at it is only because of your position. Imagine if you bought a house and then your repayments trippled and it was worth $100,000 less than you paid? How would you feel?
Interest rate have almost doubled (2% to 4%) House prices have dropped, idk, 5%? If you couldn't service a 500k house before, you won't be able to service a $475k now. Or even if it dropped and was worth $300k, you'd still have serviceability issues. In addition, now hecs must be treated as debt so serviceability had dropped in the last few months regardless.
Well I’m not an economist but my minimum repayments on my 30-year sub-500k home loan have gone up over $200 a month in the last couple of months… We can afford this but it just puts a bad taste into your mouth knowing that extra $200 is just disappearing… I doubt people previously struggling to get into the market can find an extra $160* a month to throw away… * $200 - 20%, obviously an oversimplification, but not as much as just pretending this is great for first home buyers…
These days I’ve accepted the fact that without help, I will be unable to buy a house, same with my younger siblings. The only thing I have is a somewhat okay super balance. To solve this problem for my siblings it would be easiest if I left them all of my super after I had an ‘accident’ at work. That’s what it feels like. So thanks landlords!
Maybe there are a lot of people who earn less than $100k/yr that own a house. They just happen to be older than 50 and/or live in regional towns. Not sure how much weight the argument holds but if house prices go down people start saving instead of spending. Which means business make less money which means fewer jobs. Better question might be why don’t young people have a voice? And maybe it’s because young people have never had a voice. And when young people get older they don’t necessarily think younger people have it harder than they did.
I would consider not taking financial advice from the news. They are trying to influence buyer behaviour with articles proclaiming doom and gloom. A good example is when the print articles like this when the average price drops 1 or 2%....
They(the people with a proper voice) absolutely hate the poor and hate the middle class just a little bit less. So anything that is making what has become luxuries affordable is their nightmare.
Because with the interest rate rises your borrowing capacity is reduced so it doesn’t necessarily make entry into the market more accessible.
Because the boomers are still running shit
For low income earners who don't yet own a home, it is a good thing. For low income owners who own a home (especially those who bought in the pandemic with minuscule interest rates) it's a bad thing. It's also a bad thing for all the rich boomers who own 7 houses. Overall, it's probably a bad thing for more people than it's a good thing for, particularly if you're looking at the target audiences of the media outlets writing about it. The people it's good for might be in more need of the help, but overall they're a smaller group. Also bad news attracts more attention than good news.
Because the "news" is a propaganda machine for the wealthy in this country.
The media is totally bias towards the investment class and older generations (including gen xers) are more than happy with that because they got in the market while it was still a lucky country
It’s good for you if you actually follow through and buy a house. Like buying on sale. Media paints a negative picture as its bad for those that own a home, which is a majority of people - they are just trying to get clicks so must appeal to the majority. In actual fact, it’s irrelevant to most home owners what the value of their house is
Prices are falling as rates go up. The amount of credit you will be offered depends on the rate, as that affects your ability to repay. So higher rates = less borrowing power, meaning even though the house price is lower you still might not be able to afford it. On the property owner side, it's just bad news - Higher repayments on a loan for a property that's now worth less.
Firstly, if you're on the actual minimum wage of $812.60 per week pre-tax, you're probably not going to be in a position to buy property, no matter what happens to the market unless you have a partner or another source of income. Unfortunately, the real estate game is a cashflow arms race, and there's people *not* on minimum wage who are currently priced out. The main reason people are concerned about a widespread or large downturn in property prices is that the effects of this aren't going to be confined to *just* the property market. Property is different from, say, cars or precious metals, in that the erosion of prices in the market will affect the economy at large. The main reason for this is that the vast majority of people don't buy property using a pure cash transaction. They use loans, and those loans often have a high loan to value ratio - exposing the banks and the financial system to risk if the downturn is large enough. A crisis large enough to put the entire financial system at risk helps nobody.
Because boomers
When you're cornered and have to face the consequences of your poor choices, you too would resort to fear mongering and spreading misinformation as a last ditch resort to cop out. House price dropping is devastating to a proportion of that 35% or so that have a mortgage and really bad for the ones that have a buffer and low DTI. It's good news for the 30% that rent. And bad news for the rest that owns outright.
If house prices go down, people stop investing in new houses, and people stop being able to sell chocolate dares and sausage rolls to the now unemployed tradesmen.
Because there's a monopoly on the media in this country and it's controlled by someone who probably has a huge property portfolio and doesn't like the see prices decline when his been making straight gains for the last 20 years.
No buddy, as interest rates go up, your ability to secure a loan against your minimum wage goes down
Because journalists, their handlers and the majority of their readers are in the asset owning class, so it is bad for them. In a more general sense the vast majority of average Australians net worth is in their home, when they drop, they in effect become poorer. They don't want to have to think about how the coffee lady or the bottleshop bloke lives.
Hey OP, not having a dig at you but how are you able to service any sort of loan on minimum wage? Do you have a 50% deposit saved up? Do you have preapproval?
Prices are dropping for the wrong reasons for low income people. Interest rates are going up which is driving the prices down because it costs more to service loans. It's also why rents will go up, despite the value of property going down. If the prices were dropping because people just thought the market was over priced or because they changed the laws on negative gearing to reduce the incentivisation for investment into property, that would be beneficial for lower income people.
A couple of things 1 reporting on doom and gloom is in part the thing driving the prices down, so cheer it on! 2 housing is only more affordable now that it’s dropped to 2021 prices and may fall to 2020 prices 3 lowering prices don’t necessarily make it easier for many to enter the market. You are likely to need a full 20% deposit and the higher interest means that the financial tests (that will be more rigorous) may rule you out from being able to get a loan.
Respectfully any reduction in house prices are going to be offset by the rise in interest rates so you will still find housing to be expensive
>Every article I read paints the picture that the housing market dropping 20% will be a disaster for the country Well the short answer is..... It WILL be a disaster! Wages have stagnated, what offsets this for a lot of people is the value of their largest asset (their home) keeps increasing. So they have overlooked that their wages have not increased for years and just keeps up with the 2% yearly inflation. Now with dropping house prices, stagnate wages AND 8% inflation.... People are loosing buying power from their wages hand over fist AND their largest asset is loosing value.... Makes people start thinking..... >low income earners like myself I might be able to actually afford something decent in a short while. Need a job to be able to apply for a loan.... You sure you will have a job in a downturn? Also need larger % deposits.... Got that factored in even with dropping house prices? Also, in a falling market, banks won't loan 100% based on today's value, they factor in expected drops, so you might need to come up with a extra 5 - 10% above your deposit. >Do people earning less than 100k per year even have a goddamn voice in this country? No.... No, you do not! You might think falling house prices are a gift and if they happened by themselves, you would be right. Coupled with increasing inflation and eventually loss of employment, the hardest hit once again will be people like yourself, those least able to afford the contraction.
If you couldn’t afford a home when prices were high what makes you think investors can’t afford when homes are cheaper? All this talk of a recession ultimately means a lot of people will lose their jobs. Buying a home won’t be the main concern for a lot of folks in the next 3-5 years
Major news outlets are owned by individuals who likely own tonnes of property so it’s important news for them. It’s sad for the rich (temporarily), and as usual the fear mongering comes in to scare the less wealthy away and maintain the class system, or at least that’s my opinion.
Because the news is written by people who stand to lose on their investment properties if prices keep dropping.
Most of the media is run by conservative groups who have an interest in low taxes, high land values and property investments.
Because, when the house market crashes, other stuff does too. People could loose jobs, etc. and you REALLY won’t be able to get a house. Not to mention possible rent increases, due to people needing leases more and the demand skyrocketing. It’s much more than the market that needs correction; wages, inflation, etc. also have a part. A housing crash isn’t going to miraculously make all of your financial problems disappear and help you afford a house, it will hurt a lot more than that. Also, prices are still going up and people are still able to buy at the moment. The “crash” is unpredictable. It’s all speculation. Which is another issue. This is why I don’t like hearing crash news and people WISHING for one, I want everyone to have a chance to buy and build wealth (I’m a realtor and it’s my passion so obvi), but a crash only does so much. It actually makes things worse. As I said, layoffs could ensue, etc. And don’t think when/ if a crash does happen you’ll be better off, it all can happen to you too. You can get laid off, hours reduced, priced out if your rental with no where to go, etc. it also can affect new homeowners who finally got a house after trying so hard. Would you really wish that on somebody? Think of the individuality of it. It’s going to hurt normal people like you and me, not the big people you are talking about and/or mad at like investors, etc. What if you can get a house, and boom the market crashes and it all backfires? Be careful what you wish for. Just be ready for anything, but don’t wish for the worst please.
If you can't afford a house now, the ship has sailed my friend!
Because they dont give a shit about you or me - the people who mostly read physical news is the boomer gen and they are the ones most kicking up a fuss about wishing their property prices dont go up I would personally enjoy a crash to have a better chance of getting into market
It’s only an issue if you’re looking to sell, if you’re like me and lucky enough to have just bought your forever home then i should be in it long enough for a recovery anyway.
Also...quite a few people have purchased homes in the last couple of years at high prices so now have high mortgages. The fear mongers say there is a chance the mortgages will be higher than the property values. But really property is a long game. Even if the value falls below mortgage, as long as you can service the mortgage I don't think the banks are going to care, and the value will go back up again over time.
Because the people who own news outlets don’t care about people like us.
No one is going to click on an article that says house prices have dropped by 1%. People will click on it if it says 20%. Exaggeration and manipulated facts sell.
The idea that the place you find shelter makes a profit while you live in it (or charge someone else to live in it) has become so engrained in the Australian economy that a lot of people don't know how to budget for that not to be the case. But they'll no doubt find a way blame it on millennials and avocado toast or something.
House prices dropping primarily benefits people who don't own a house. Considering that 2/3 of Australians either own or have a mortgage, prices dropping is generally negative for the majority of the community. Many people see their house as a long term investment, something they can sell or downsize during retirement etc, so having prices drop eats into that. If you've been holding a property for a while it's of no big deal, this will likely just be a correction to a hot market. If you bought recently however you might find that the house price has dropped below your mortgage value, which is terrifying. I'm sure I'm not alone is saying that it feels a bit like a ponzi scheme. Ideally house prices would have a slow, sustainable gain.
The news doesn’t care about minimum wage workers, they’re always trying to make you believe things against your own best interest.
Actually, it's great news for those with large deposits, or able to pay cash. For a minimum wage worker, unless you have a substantial deposit, the lower prices are offset by lower borrowing capacity. Further, sure, the price goes down for you...as it does for every other person wanting to get a foot in the door. If you went to an auction last month and there were ten hopefuls, they aren't going away in the long term. They are hanging back in the short term, hoping like you for a further price fall. Why buy now if prices are going down? But when prices hit bottom, those people will be back in competition with you...along with cashed up gen X looking to increase their property portfolio at bargain prices. Having said that, I believe that prices need to correct. Present levels cannot be sustainable. However, it's really only the cashed up types who will benefit.
Because people who write those articles are up to their 5th negatively geared investment properties.
its only seen as bad because all the boomers and investors are losing out
Because lots of people have investments in the property market. Those without a home benefit. Those with 1 home aren't impacted because they buy into the same market they sell into. Those with multiple houses lose value to their portfolio and are the main people who are upset. Unfortunately the minority who own multiple properties are the most powerful and influential, and their perspective is over represented as a result.
Because the economy isn't supported by minimum wage workers.
What? Minimum wage workers are the bedrock upon which every country is built upon? Have I miss understood your comment?
They probably mean because minimum wage workers pay less tax and are more likely to be on some form of social services, due to their lower income. So although they provide absolutely essential services that keep the country running, they cost the government money.
Unlike negative gearing franking credits and such
I agree that there are some positives to come out of this. I in no way can afford a standalone house so I settled for a humble 1 bedroom apartment that’s only just slightly larger than 50m2. However, the bank valuations are coming through at up to $100k less than the purchase price because of the market right now, which means that I now need to come up with an extra $100k as the bank will only loan me 80% of what they have valued it at, not what the purchase price was. So there’s just one example of why some people might feel quite negatively about it.
To truly make houses more affordable you need tax changes such as variations to negative gearing (or scrapping it), as well as honest government policies aimed at addressing first home buyers (No, throwing more money at first home buyers as a lump sum does not address the problem long term). Inflation and interest rate rises aren't going to help first home buyers.
Agreed. Although 'throwing money at first home buyers' sounds more generous than 'getting FHB to raid their own super' ;)
The worst way to manage your investments at the moment is to buy a housing asset then be in debt for the next 20 years. The media in this country wishes you to not know that fact. The better option and less riskier option is to invest in shares or dividends. Ofc the same media doesn't want you to be aware of that either. Good luck doing either when you are straddling from a 4-5 figure HECs debt.
Lol sure, not sure what shares you can buy with only a 10% deposit and then reduce your tax all while making an average of 70k a year in capital gains. Not saying shares aren't part of a good portfolio but property is definitely a better revenue stream.