What's everyone's opinion on this?
American Dude (Economist) says our city home prices will fall by 50% at best, because a bubble in China will burst??
fatboyslim on 10/02/2014 - 12:38
Last edited 10/02/2014 - 13:13 by 1 other user
Last edited 10/02/2014 - 13:13 by 1 other user
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His name is Chicken Little I think
Australia is always 5-10 years behind USA, so expect it.
Yeah and Australia can defy the laws of maths and history and NEVER have a crash, hahhahaha, yeah right.
Live in denial. OZ is best, we manufacture nothing, import everything, wealth made from sand.
What about a link and an actual name?
It's Harry Dent: http://en.wikipedia.org/wiki/Harry_S._Dent,_Jr.
His book titles illustrate how far wrong he's been in the past and his subsequent transition from boom merchant to gloom merchant:
Our Power to Predict (1989)
The Great Boom Ahead (1993)
The Great Jobs Ahead (1995)
The Roaring 2000s (1998)
The Roaring 2000s Investor (1999)
The Next Great Bubble Boom (2006)
The Great Depression Ahead (2009)
The Great Crash Ahead (2011)At some point in time…. even a chimp can get something right!
Sorry if i offended any chimps out there :(
If the story wasn't on one of the last bastions of unbiased journalism like A Current Affair or Today Tonight then I wouldn't trust it! :p
this is fr "the daily telegraph"
LOL, that's almost as good…
but it is not "the telegraph's" opinion, they are quoting this dude, saying the above, I guess that's different
Hmmm, it's the Tele so not really any different! ;)
oh, I remember u were arguing with another guy in another forum. so u r obviously a landlord and laughs at ppl who rent.. so u're obviously not a believer :D
Wow, here's me badmouthing trashy journalism & that's what you drag up…pathetic much?
FWIW, yes I am a landlord, and owner occupier, and have done very well out of it over the last few decades thank you very much….so, no I don't believe in the sky falling in either, if that helps you sleep at night bro! :)
I seriously can't believe how much you guys overthink this stuff…
I don't meant to offend u, cos I own properties too. I 'm on ur side in that forum, don't u worry. mate
No worries, I actually stopped looking in there because discussing the topic with that halfwit was literally making me feel more stupid! I'm trying to adhere to the old adage, never argue with an idiot, they drag you down to their level & beat you with experience! (Twain, IIRC)
That's the problem with most internet forums, you get a lot of guys with crackpot theories (no matter how plausible sounding to novices), solely backed up by links to stuff published by other equally misinformed people with no directly relevant life or practical experience on which to consider the viewpoint objectively…gotta love those interwebz! ;)
FWIW, I do not look unfavourably on my tenants by any stretch of the imagination, I actually take care of them very well because in turn they take good care of my property…I've also been in their shoes at various points in my life; so whilst I'm happy to take their money, I do not view them as inferior to me in any way whatsoever.
He does have a point though, if you've been to auctions lately, they're mostly Asian buyers that's been out bidding everybody (assuming china has the biggest population in asia, then a good chance that this buyer is chinese), so if there's a pop in china, confidence will be down, and hence a crash.
I've been to many auctions lately (around Brisbane), and rarely see Asian buyers attending, let alone out-bidding everybody. Maybe it is a function of geography?
Maybe it is a function of geography?
This is completely correct, there are pockets where this happens.
Had to go look for this quote it's so true
Economists are people who’ll figure out tomorrow why the forecast they made yesterday wasn’t realized today.
If prices go up or down and you are only owner occupier what real difference will it make?well, there's also a saying where: there r always 3 opinions fr 3 economists:
1 will say go up, another down, another no change.but personally, Australia is prob the place that hasn't had a real bubble that has bursted, eg USA in 2008, Europe now, japan in the early 90s.. so our turn soon?
At Uni they used to say that economics was the only course where each year the exam questions stayed the same but the answers changed.
If the average house was 24% cheaper, would you be more inclined to buy one? I would. And I think a lot of others would too.
To fall 50% there has to be some desperate times with Euro style unemployment.
Incredibly unlikely, in my opinion.
This guy is a demographer, so I will take his advice on aging populations and immigration seriously. But he has little qualification to be talking about Chinese government driven investment limits.
That said, Chinese real estate does look insanely expensive, and capital city R/E in Oz is very dear too. So I don't expect to see big gains in the future. But that is very different to expecting a crash.Agreed, these panic merchants are a dime-a-dozen IME…
would u say our home prices was expensive in 2012? because I do. Well, unfortunately, house prices gone up another 100K in 2013 alone. (Sydney Median) so bubble getting bigger?
Sure, but does that mean it is a bubble going to pop? Or does it mean growth will be at under average for a number of years. A crash is not the only outcome of rising prices.
Actually all you need is the expectation it will be cheaper next month than it is this and the price continues to fall.
When you are well into a decline you tend to get people really asking the question "what is the right value", which tends to be much more 3-4 times median wages level. Things fall with that value as the base.
Of course, if someone jumps in and buys at a higher price, that can stop the rot - but its far from certain until the fall slows and stops.
Sure, if there is a decline.
Much more likely, I suggest, is growth will be below trend for a number of years as wage growth takes prices back to something sensible. Apart from last year, growth had been like this for quite a number of years.
Remember too, that 4 times median salary was set with a single breadwinner. What has effectively happened in AU since 1980 is the earning power of the spouse has been directed to housing, bidding up prices to a new normal of higher than 4x median earnings.
Is that new normal 10x earnings? I doubt it, it seems very high, but I can assure you if you wait to buy at 4x avg earnings you will never get a house in Sydney/Melbourne.Another factor is decimation of regional economies, kudos to our politicians in Canberra, concentrating the population and the nations money to the main cities.
A burst would be the only scenario I would buy in Sydney. I'm amazed at how many people throw their lives away to mortgages.
I agree.. If houses were half what they were now and stayed stable.. Most people would work for 1/2 their wage.. ($100,000 - $50,000) and probably have more time of and more spare family time ect. But we all know the government wants people paying more tax on higher wages.. Yet the Government has employees to.. What goes up doesn't come down… Petrol, Taxes, Wages… ok interest rates but that's just an enticement to keep things going.
chinese real estate market been looking bad now for few years with price over what two people can pay. my firend live here now told me has crash as gov over there keep it up.
Just google apartments for rent in Shanghai, and you can find many for rent that are about $500AU to $700AU per month.
Australian r losing job since last year, if u look around carefully, u will notice lots of redundancy and more r incoming.
People have been predicting massive price drops in property for about 6 or 7 years - usually the same people - who seem to delight in the idea of mass unemployment and them swooping in like vultures to buy property.
Equally, there are the people who think property will always go up in value at a great rate - usually those people have big investments in property.Both are off the mark in my opinion.
Of course different markets will react differently - some suburbs will do well, others very poorly - but on the whole I don't see property either jumping in value nor depreciating massively in the next few years.
It is certainly possible that there could be a price correction in places like Sydney, but it would be unlikely to be more than 15% worst case unless the economic conditions deteriorated drastically - and there is no bubble (just because something is overvalued, doesn't necessarily make it a bubble).
More likely though are modest increases in the foreseeable future - but nothing like we were seeing 10 years ago.FYI I am an owner occupier (inner Sydney terrace), but have no investment property.
This chart is pretty interesting and shows property prices doubled in 4 years when 50% CGT discount was introduced.
http://upload.wikimedia.org/wikipedia/commons/0/0b/Melbourne…
Gawd, that brings back some memories…I can remember being actually embarrassed about buying a house for what seemed like peanuts during the tail end of the NSW HomeFund fiasco in the late 80's/early 90's!
The interest rates were ridiculous though…like 19% or something, so it was no free ride…but there were some bargains to be had back then! ;)
people was hand here home back to bank at that time.
Yep, some of them were also still saddled with a massive debt even after doing so…heaps had to declare bankruptcy.
The take home message is don't go too hard, too soon when it comes to investing in anything!
It appears the price increase started before the CGT introduction, when interest rates went to "all time lows" and continued to rise until "interest rates climb" then levels off despite CGT remaining in place. So although CGT may have had an effect, the bigger cause of rising prices was low interest rates.
Prior to the 50% discount there was an indexation method which was formula driven and factored in the amount of time you held the asset and adjust your proceeds/cost base for inflation, which would normally give you a reduction in your capital gain. The 50% discount method was a good average and just made it simpler to calculate.
Infrastructure charges in Brisbane are 50 000 dollars per lot. Then you have DA prices
open space contributions and a whole lot else. The right to build is much more expensive in aus compared to other countries.Even if the cost of land itself hadn't risen, with the advent of the gst, infrastructure charges, property would still have doubled in price.
The only way that will change is if unemployment gets bad enough that local councils stop being such greedy sods.
My understanding is that Aus has a real shortage of dwellings, so the prices will not go down dramatically …. whether you own it or rent it, you need a place to live.
I am happy that I got into the market in 2010, I couldn't have afforded my house now.
But I am concerned about the lending practices, where banks are approving loans upto 5 to 6 times the salary.hopefully the aging population as it gets bigger, has more deaths per year (currently 120k/year)
Now if we have 500k deaths a year, that means more empty housing.
More baby boomers reaching age 70 with drinking habbits and bad life styles = early deaths = decreased population, not hard to do the math, just get the data and calc.
Statistics don't really support this. We know life expectancy is only increasing, the problem is going the other way.
Life expectancy is increasing, and we also have immigration.
Australia's population is only going one way - up.Doesn't help gen X and gen Y
This is why I'm annoyed at the Government.
They're so focused on the aging vote.
They won't make efforts to ensure baby boomer property owners sell down their property/ies.
This is also why we need heavy immigration.
There are too many people in Sydney for this to happen
I believe the '50% off housing' scenario works something like this:
China bubble bursts due to rampant credit growth for low quality assets
Growth diminishes to almost nothing, maybe even a recession in China
Most of our mineral exports go to China for building infrastructure, houses, etc. Export prices collapse as these commodities are no longer required in such large amounts
Our banks rely heavily on short term international money markets to fund local borrowing. Since lenders are no longer terribly keen to lend us money (exports have collapsed, along with the dollar), our borrowing costs rise
Due to rising interest and rising unemployment in Australia we have many people defaulting on mortgages, therefore prices fall as it becomes a buyer's market
Is it likely to happen? Well, some pessimistic economists have been predicting a collapse in the Australian housing market for almost 7 years now.
About two-thirds of consumer mortgage funding comes from the reserve bank and a small amount of retail deposits. The remaining third comes from the international money markets.
Of course, when interest rates drop, the reserve bank becomes more attractive to borrow from. They probably will drop.
Bottom line: the international money markets drying up wouldnt be as apocalyptic as people think.
http://learn.nab.com.au/how-bank-loan-rates-relate-to-the-rb…
"Approximately 65% of our funding for this lending comes from money deposited with NAB by our customers."
"35% of our funds are sourced from the global wholesale market from large institutional investors such as superannuation and investment funds and international banks. Around 1/3 comes from domestic investors and 2/3 from overseas investors."
And most importantly:
"Banks don’t borrow money from the Reserve Bank of Australia (RBA) to fund lending."
The RBA is a lender of last resort. In an emergency it will take collateral from a bank and lend money to it, but it's a desperate measure and any bank doing so would look very weak and be punished on the share market.
Just to clarify, the statement "Approximately 65% of our funding for this lending comes…" may inaccurately suggest the banks lend you money that they HAVE.
No, they don't have the money, they are heavily leveraged.
In short it means, for every 100$ of customer deposit, they are allowed to borrow you around $900-1100 - typically in the world it depends on the cash reserve ratio established by the central bank (works slightly different for OZ, but the main principle is the same).
All outstanding amount above the initial $100 deposit is simply created by the bank by entering numbers in their computers. Then, you pay interest on non-existent money and as you pay it back, the additional amount created by the bank in the process of lending gets destroyed, though they keep the interest, which is bank's profit.
This is so extremely well hidden from the public, that most of people don't even understand this mechanism and think that banks lend money that they have…
For me, the biggest scam of the century.
This is taught in year 10 economics.
Perhaps the implications haven't been clearly understood by the society, no wonder really, 1 in 4 Americans for example don't know Earth circles around the Sun.
To be clear this is what modern society/capitalism is based on.
Its what gives us our multi trillion dollar economies.
Without an effective banking system, we'd still be in the 70s/80s in terms of progress.
The real problem is we/traders/big businesses use borrowed money for speculation. This makes the whole economy much more fragile. As we saw with the financial crisies
Bought my current place back in 2003 and I thought it was already pretty expensive back then. So for the last 10 years I've been telling my property-seeking friends to hold off because market is going to crash any time and you'll be able to grab a bargain when it does.
Now all my friends hated me for that.
I shall shut up & stop giving financial and real estate advice based on economics which I have no idea about…
Scotty - Exactly what I did too, unfortunately. I nearly bought a property in 2005. Made an offer, it got accepted and then I withdrew the offer because the sentiment was that prices would fall. 8 years later, we're still renting and honestly think I've been priced out of the market. The suburb I live in has gone from being a $600K median price to $1.1m now in 8 years. On the contrary, my salary has gone up only about 20% during this period.
This happens all the time yet most naysayers will keep their heads buried in the sand thinking the inevitable will happen soon-ish. Don't mind it drop by 30%…effectively that's just make me breakeven for one IP, still ahead by 15% on another. In fact I prolly encourage it to drop the 30% so I can go buy more.
Ive been waiting for an ozbargain property deal for last 10 years but nothing has come up! :)
I was too young to buy back then, but I felt it was obvious time to buy, the GST was going to create a multiplier effect on housing.
Don't listen to this clown. Ask whomever the Aus gov't is who's in at the time. They're the ones who artificially control the status-quo to keep us just poor enough.
I've been to a few auctions, almost one every weekend in the last 3 months. This is what I observe in every property. On a typical house near the Epping area of Sydney, the bidding starts at around $700K. Nice and low. Not meaning to sound racist, but what happens is this - At about $800K, the Aussies / locals drop out. At $950K, the south Asians (Indians / Sri Lankans) drop out. At about $1m, the Koreans drop out. And then it is usually a hard battle between a couple of Chinese families. Usually ends up around $1.2m to $1.4m (RP Data will value the house typically around $800K - $1m)
I've wondered often where they find the funds for that sort of purchase. Last week, there was a Chinese uni student with her grandfather, bidding $1.5m for a property. A couple who lost an auction said that the Chinese families get access to 1% interest rates on loans in China, and are hence able to buy here. Sounds like an urban myth, but would love to hear if there is any truth to it.
Off topic, better value if they keep heading closer to Pennant Hills Rd anyway…
Also, RP numbers are always going to be under given it's calculated based on exchanged sales which is after the event. It's 6 weeks old at a minimum, possibly older at times. Pricefinder's update intervals are even longer again (but they're cheaper).
Lower RP numbers also draw in more buyers.
RE Agents ONLY work for sellers they have no loyalty to buyers.Off topic, the REIV (Real Estate Institute of Victoria) who supplies RE sales figures to most of the news papers are Fully funded by RE agents. They can leave off or put on what ever sales are included in that report..
I think you're missing the point - the RP numbers that I am referring to is a valuation calculated by RP using exchanged and settled sales information. In a rising market, the data just got fed into the system lags behind the market movement hence they can only be used as an indication NOT what's a property is worth. Hell, even when a valuer do a full val doesn't necessarily means they can fully appreciate how much is a property worth.
My mistake I thought you were talking RealEstate Pricing not settlement value. It's just strange that Houses never seem to have a market valuation that is higher than what it sells for.. Surly that should have happened when the market had it's dip?
If you're talking about the valuation ordered for mortgage then it will be contract price tops, it rarely exceeds that amount. In a rising market, more often than not the val will come in under the sale price i.e. someone has to cough up the shortfall, find another lender or give up altogether.
The couple who claimed Chinese families get access to 1% interest rate loans are probably confusing Chinese and Japanese. Even in Japan where the official lending rate is under 1% no one can go to a bank and get a 1% variable or fixed rate home loan for the entire term. Sounds a little like sour grapes to me.
I don't think an overseas lender will give a home loan for a secured property in Australia.
1% rate can only happen if family member still live in China. i have mate family live in beijing they own 8 house in OZ keep it so cheep over here. plus Chinese family like buy house for kid as get old. i wish my mum and dad by me a house.
People in China pay between 5 and 6.5% interest on home loans. Loans for international property (borrow in China, buy in Australia) are riskier (sovereign risk, exchange rate risk, etc) so interest rates would be higher or terms more restrictive than normal.
I guess the banking is not as regulated in China? These might be from private / illegal loans there. Wenzhou is particular notorious, where people pool funds together to invest.
China has a large shadow banking system like you describe, where people pool funds to invest. Quite why someone would think it's a good idea to lend money at 1% when the official inflation rate is above 4%, banks pay 3% on deposits and home loans are around 5 to 6% is beyond me.
Generally if someone can't borrow from a bank as they're buying a risky investment or are seen as a sub par debtor they pay higher interest rates, not less.
I think if someone is putting forward the claim that Chinese citizens are borrowing money at 1% interest and buying properties with it in Australia they should provide more evidence than 'my mate's parents said so' or 'I heard Chinese could'
Their "shadow banking" system is going to be their downfall. You can only "cook the books" for a finite time before it collapses.
so it seems: once the cheap money stop coming fr overseas, price rise will halt.
but what about those rich off the plane "Asians" that comes in tour buses, buying a few apartments off the plan at once? with cash?
My aunty. I dont even know how the heck they manage to get that much amount of cash through customs.
Try going and buying a house in China or Indonesia… DENIED.
Noticed a whole heap of Chinese banks popping up on our shores in the last couple of years?
Not even sure if they report things properly as per AML requirements like the other banks.
Abs house price index just released.. Sydney house prices up 4.7% in the December quarter and 13.8% for the 12 months.. Big numbers..
13.8% is when they bundled the entire Sydney together. If you look at the hotspots, I reckon that number easily doubles.
It must be true… i read it on the internet….
The only people that make money from house prices going up are:
The Banks.
The tax man.
Real Estate Agents.
Property Developers and associated company's
Few People profit from the increase prices.None of these groups have an interest at keeping housing at an affordable price. (Upward Pressure on prices)
Home owner buys a house in the 80's for $56,000 dollars sells it in 93 for $130,000 then buys a house for $130,000 No profit. Sells the house again in 2007 for $450,000 then buys a house for $500,000 still no profit. The only profit makers are "As Above"
In the local market I ask myself if prices keep going as they are..
We will be completely owned buy external buyers outside Australia who can afford the outrageous prices.
Or
it's going to cost $3000 just to get a plumber just to turn up to your house to look at your plumbing. (Wages Through the roof)
I find it hard to see wages going up and up and up just to keep up with housing prices..But I've thought there maybe a House decline for 8+ years.. it's still not happened.. I still think somethings gotta happen.. Just When.
(I own my own home) well borrowed…
Completely agree. Expensive housing prices only benefit the parasites.
Australia is so uncompetitive internationally because wages are so high, but they have to be high so that people can pay for housing. It should be illegal for non-Australian citizens to be able to purchase real-estate, and the ones who already own property here should be given 3 months to sell it off or have it "socialized" and converted to public housing. The Australian government is supposed to look after Australians, not the rest of the world.
Zero population growth policies would help ease housing prices to. High immigration intakes creates more demand for housing. I see no benefit is allowing Australia's population to rise to 50 million, only more destruction of nature, more shopping malls, more congestion on the roads, more sky scrapers….
Looks like one of the local rent-seekers tried to vote you down for this comment. You hit the nail on the head.
negative gearing need to only be on new houses. keep older house cheeper. new home owner.
That is more than a little extreme: requiring non citizens who own houses to forcibly sell them within 90 days. Apart from breaking a whole raft of well established laws, it also means those hapless home owners would get rock bottom prices for their properties because all buyers would know it's a forced sale.
Would you force permanent residents, who are not Australian citizens, to sell up too?
We just need a one house policy. - One house per resident tax file number. Give one year to allow incumbent rent seekers to comply (or be faced with an outrageous level of taxation each part year they hold more than one house). Job done.
Home owner buys a house in the 80's for $56,000 dollars sells it in 93 for $130,000 then buys a house for $130,000 No profit. Sells the house again in 2007 for $450,000 then buys a house for $500,000 still no profit. The only profit makers are "As Above"
Wow, that is remarkably short-sighted thinking…
How? Explain?
It's just an example of what I was saying. It's not the only outcome.
But it falls under what MOST people do involving housing..…buys a house for $130,000 No profit. Sells the house again in 2007 for $450,000…
Even after any expenses, and with no CGT, I'd call that $320k a pretty reasonable profit…wouldn't you???
…then buys a house for $500,000 still no profit.
The buyer has used the previous substantial profit to conduct a significantly upgraded asset purchase…that he/she will probably sell later at a higher price again resulting in another profit; or perhaps even be happy to retire in; so that's hardly a loss in anyone's books.
Viewing volitional upward movement as detrimental simply because you cannot see some intangible "profit" in each subsequent purchase, is a gross oversimplification of the process. Who cares if it's what MOST people do, that means MOST people are making smart, progressive purchases.
Like I said, it's a pretty myopic way of looking at things, as you've now admitted yourself: It's not the only outcome.
You would have to work out the interest rates and costs paid to properly evaluate whether profit was actually made or not.
I bought a house and it increased in value but the increased value was made up of interest and loan repayments, not profit. If you continued from one house to another, always carrying upwards debt and paying the minimum payments, there was little profit back then. Interest rates in 1989 hit 18% with Advance Bank.
Only if you assume the property was fully owned, can you state categorically there was a profit, and this information wasn't given.
Also … unless you downgraded the area you lived in, or downsized the property, you would be swapping like for like and would have no significant asset upgrade from 450 to 500.
Exactly. It's very simple.
The only way you'll profit buying and selling your PPOR and buying another is if your old has increased at a greater % than the new.
There's two houses that cost $50k. You buy one. 10 years later your house has grown to $250k, you sell for $250k ($200k profit!!!) and buy the other one for $250k. You're bananas if you think you actually made $200k profit - you made nothing.
You would have to work out the interest rates and costs paid to properly evaluate whether profit was actually made or not.
Just remember, we're talking about an owner occupied residential property here, so whilst these things cannot reduce your taxable income, interest & expenses can easily be accounted for if you had to pay rent elsewhere…we've all gotta live somewhere, and at the end of the day that's gonna cost something!
For instance, my current residential property mortgage payment is about half the market rent, yet it's still appreciating in value…see where I'm going with this???
There is no profit involved though when buying and selling your PPOR unless your current house appreciated more in value then the property you were buying. i.e., the two $50k house example above.
Your example isn't equivalent. Let's say you're saving $10k a year rent but you have $200k tied up in the house. A renter has $200k in shares and is making 5% in the stock market, $10k cash… it's no different. You can quite easily come out ahead by never owning property. It's not like the renter is losing tons of money because he didn't buy a house appreciating in value.
Again this is strictly PPOR buying+selling. There are many reasons to owning: not wanting to move, wanting to do whatever the heck you want etc. And many reasons to renting: move into newer, nicer places. Change suburbs with little consequence depending on life circumstances etc.
If you had 10 houses, then yeah having them go from $50k to $250k is great. If you only had your one place, and you sold + bought another house that also went up in value a lot, you're definitely no better off because you're always operating in the same market.
My example was for owner occupier re my original comment.
Profit is made when you no longer need a house.
1.Homeless.
2.Retirement Home.
3.Death.The Idea for CGT for new Houses only is a great idea..
CGT = Housing for renters.
First Home Owners Grant just increased the price of new houses, a new home buyers tax offset would have been a whole lot more effective.
Just remember kids, no matter how much you talk yourselves around in circles, one man's 'market value appreciation' is another man's 'profit'…it's merely a matter of semantics.
The fact is that if I sold up today I would be vastly better off than if I had never purchased property; part of that is my own fiscal input, and part is courtesy of the very same property price increases that people keep bitching about. I can assure you that I'm a lot better off than some of my friends & family who lost money when the stock market took a tumble & when the arse fell out of superannuation a few years back! Many of these people lost hundreds of thousands from their life savings that they could never recover!!! Conversely, I have never seen anyone lose money on a smart property investment, only on dumb (heart) purchases!
I've been around a long time, I've seen it all come & go, so you're not telling me something I haven't already lived through several times over…I do not know anyone personally who has accumulated any significant degree of wealth without property ownership. Yeah, I hear people tell you they're getting this & that from whatever investment, but more often than not when they die they leave nothing…I do not want that legacy for my family…would you?
There is simply no better long term investment than bricks & mortar IMHO…you may feel otherwise, and feel free to put your money wherever you choose, but I have done, and continue to do well out of my property investments.
Per my example, there isn't automatic profit to be made from buying & selling your PPOR. People who paid $50k in 1970 and it's now worth 1 million didn't make $950k profit if they need to pay 1 million to get their next comparable house :) It's all relative.
Investment properties are different because you're selling for profit (ideally anyway) and don't need to buy another.
You can look at any of the "rent vs mortgage" calculators to see it can work out better to rent in a lot of cases. The trick of course, is to take the money you would have spend on the mortgage on other investments. This often doesn't happen and as such the only way a lot of people can make any money long term is "forced savings" via mortgage.
This part:
People who paid $50k in 1970 and it's now worth 1 million didn't make $950k profit
and this part:
if they need to pay 1 million to get their next comparable house
Can be mutually exclusive…I'm surprised that you guys can't see that?
It's all relative.
That's about the only salient point here, what I would choose to do with any capital gain may be significantly different to what you would. I've known people to downsize, reinvest, upgrade & even just splurge on crazy shit like a year long first-class RTW holiday with the money they've made…horses for courses! ;)
You can look at any of the "rent vs mortgage" calculators to see it can work out better to rent in a lot of cases. The trick of course, is to take the money you would have spend on the mortgage on other investments.
Wrong. I've heard this nonsense a thousand times over the years, and I even fell for it for the period of a few years way back in the 80's myself. Yeah, I thought I was doing great with my whizz-bang Banker's Trust Managed Portfolio, but my friends buying property were flying ahead of my gains. It actually took a smart RE agent (my own property manager as a tenant) to snap me out of it. Within 3 years of buying my first home I swore I'd never rent again…the benefits were that great!
Rent is dead money any way you look at it from a residential POV; and let's be honest, rents are becoming prohibitively expensive nationally ATM. You need to get in & buy as early as you can because prices will only continue to go upward (we've already established that the doom & gloom merchants are traditionally full of shit)…fair enough they may not always skyrocket, but at worst they will continue to creep up gradually.
From a real world investment perspective you will be far better off pouring every spare cent into your mortgage in the crucial first years to reduce your principal; therefore your interest burden; reducing the term of your loan. Yeah, you've gotta sacrifice your comfy lifestyle a bit for a short time, but it's well worth it if you really wanna get ahead.
People move to the country to 'save money'. Except the property was much cheaper back then. Their house has gone from $120k to $600k, they move to a smaller town for $350k odd. But that house was $50k back when they bought their original one. Hence why it's all relative. The person who owned the cheap house paid off their mortgage years ago (interest is HUGE. There's lots of people who have paid $600k over 25 years for their $300k house, so unless the house is worth $600k+ they're not getting their money back. Not even counting inflation).
There are places I would rent and ones I wouldn't. It's simple for me: what % return would I get? Some properties return about 3%! These are the ones you want to rent as ownership costs are wayyyy higher. You don't want to rent a place where the owner is making 6-7%+ though.
It's not that straight forward. I moved a touch over $90k out of mortgage into in shares end of August last year, I've made ~$12k since. That's with $5k locked in, and $7k gains in active holdings.
My interest rate is ~5% so in that time I've paid $2250 interest. That makes me $10,000 in the past 6 months better off. If the market looks bad, I'll sell & move the money back into the mortgage. Simple :) (that's not to brag, just providing a real life example of "put all your money in the mortgage" is actually often bad. Use that leverage!). Follow whatever is returning well at the time, which is never 1 form of investment or industry. Heck, sometimes like during the recent crash you'd rather have had your money just sitting in cash!
The original point was owning a house doesn't automatically equal profit when you sell. As sidetracked as we've gotten!
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What economist? Where?