Anyone else looking at buying their first home, but just can't stomach paying the ridiculous asking prices?

thord on 13/03/2017 - 15:12

I just want to get a sense to see if there are many others in a similar position?

We have money, we save and invest wisely. The deposit and repayments aren't an issue (for now), the problem is I just can't fathom the idea of dumping a decades worth of savings and investments into a single very overpriced asset.

I also hate the idea of taking out a million dollar loan which I then just give to someone else who just happened to be lucky enough to have been born a decade or two before me. Then I'm in debt for the next 30 years paying it off hoping and praying that the record low mortgage rate that we currently are experiencing remains and doesn't rise.

We could in theory keep a portion of our savings, and simply take out a cheap 1 or 2 bedroom apartment in an undesirable suburb - which in theory would be fine. BUT we're not keen on a cheaper apartment and I've seen first hand the absolutely horror of strata living with massive defect rectification bills, special levies out of no where, and stupid maintenance costs that I wouldn't incur if I had my own place as I'd do it myself. Also we consider the apartment market to be much much riskier than the freestanding house market.

Moving to a regional area is also out of the question due to the jobs my wife and I have, not to mention we'd also incur a lot of additional costs as we currently don't spend much in the way of transportation, but we would in a regional area.

It feels like we are backed into a corner with absolutely no way out.

I feel like it's affecting both of our mental health and we both feel pretty depressed over the whole thing. We're putting off kids because we can't raise them in a rental without any stability or certainty, and there would be the ever present threat of being forced to move and then what do you do with the kids school? It's just a multitude of potential problems.

We just feel totally burnt out and unhappy. How are other people coping with this shitty time?

Should we just bite the bullet and buy something, wasting our entire life savings and hope that everything is ok? Do we stick it out? Buy a cheap apartment and take all the risks that come with it?

Home & Garden

Comments

        • abb on 14/03/2017 - 12:30
          +1

          @thord: Renting isn't that bad is it? Have you been forcibly evicted very often?! Sure you don't have much power over what to do with the property, but aside from annual price rises it's generally OK.

        • manay005 on 14/03/2017 - 14:22

          @cameldownunder:
          If your affordability ends at 6% I'd be worried. We are at a historical low and should expect it to at least get back to 8% at some stage in the next 10-15 years.

          When that happens I fear for many who will struggle to make payments.

        • tomleonhart on 14/03/2017 - 14:42
          +3

          @manay005: FWIW, I don't think interest rate is going to go up to 8% anytime soon if ever.

        • owli on 15/03/2017 - 03:17

          @tomleonhart: Why? do you think we will go negative like EU and JP?

        • jayel on 15/03/2017 - 12:03

          @thord:

          at least some movement in victoria
          http://www.heraldsun.com.au/news/victoria/victorias-housing-…

        • jayel on 15/03/2017 - 12:55
          +1

          @thord:

          http://www.macrobusiness.com.au/2017/03/housing-affordabilit…

          Also, read this this morning regarding how how rents track wages and prices. wages growth beating rent since 2008 - hopefully this gives you indication of real demand ie. when you take away all of the speculators (who are only around when there is a belief in future capital gains) and base demand on owner-occupiers and investors seeking rental income, what is the real supply/demand ratio.

          We've had no problem renting where we want (inner north melb) for well below the point of housing stress and able to save much more than our rent. Our previous rental was on the market for 2 months in inner north. I don't see a supply side issue (with a few exceptions ie. houses in suburbs fitzroy).

          I don't understand why people think they can bank volatile growth from the previous years with no understanding of the underlying drivers of that growth. what changed from last year that made the property worth 20% more this year? while prices should grow in line with demographics/infrastructure/wealth etc. does 20% reflect the fundamentals or is most of that growth coming from speculation demand feeding on itself? It seems risky where new buyers deposits could be wiped out if prices simply reverted back to a point only 1 year previous. Having recourse loans in Australia unless your investment strategy is long term to ride out a slump and hoping prices return to the peak you may be on the hook for the loss in value or forced into bankruptcy if you need to sell before you can get out of negative equity.

        • manay005 on 15/03/2017 - 13:20

          @tomleonhart: I recall 3/5 year rates being close to this only a few years ago so I wouldn't be so sure. I think it is very reasonable to assess your level of mortgage stress at 8%.
          That said, given the national disaster that would result I expect the masses to force government in to some kind of artificial intervention.

        • BexForHeadache on 15/03/2017 - 18:01

          @manay005:

          The days of 8%+ rates are loooong gone. The world is a different place.

        • tomleonhart on 15/03/2017 - 20:24

          @manay005: I agree with bexforheadache.

          The amount of debt in the world at the moment don't allow for any drastic interest rate rise.

          Will need a complete catastrophic event for rate to reset. Long term interest rate trend is down. iMo

        • meumax on 16/03/2017 - 10:00

          @tomleonhart:
          Except that the trend for rates in the US is up due to the economic recovery there. Once the US fully recovers, growth will resume everywhere else in the world, then what will happen to local rates?

        • ashikk on 16/03/2017 - 10:09
          +1

          @sinishta: Well said.. I took the risk 11 years ago by buying a town house 40 km away from Ashfield Syd for $195k as we had 40% deposit plus 7k govt grant my mortgage was less than the rent I was paying. 5 years later that became ours and sold in 2016 for $440k. Best decision ever made.
          Regret: Not buying a 4 bedroom 2 storey house in Kellyville for $560 in 2011, thought it was overpriced, now its worth 1.1 mil.
          Let go the negative attitude and realize that everytime you pay mortgage few bricks on the house becomes yours.

        • tomleonhart on 16/03/2017 - 10:16

          @meumax: I don't believe us is going to fully recover.

          Depend on how long you look at trend. http://www.tradingeconomics.com/united-states/interest-rate

          The chart above show me a downward trend since the 1980 and the recovery has never been higher than the previous peak. And it took almost 10 years at 0% rate with unprecedented money printing to raise 1%.

          interest rate might rise but it will be the banks doing it themselves not because of RB.

        • Gr8deel on 16/03/2017 - 13:24
          +3

          @sinishta:

          sure it is. I bet your property has gone up in value and you still can afford the mortgage repayments due to having a decent job or you have tenants etc. However for a lot us not fortunate to live in Sydney/Melbourne etc and lets say..live in Perth. The value of the property has gone down substantially, jobs are scarce and rents have fallen dramatically. Now I am looking at avoiding bankruptcy by the skin of my teeth due to the property I bought. Worst thing ever ..and a big factor.. simply the location I live in. There REALLY is a lot of luck to the equation..sure.. not all luck..but still a big factor. I totally agree with OP about feeling a bit ripped off through no fault off his own.

        • meumax on 16/03/2017 - 15:24
          +1

          @tomleonhart:
          Interesting. Might be because of the amount of debt in the global system now. Smaller number of interest rate hikes having the same effect as the more numerous hikes in past growth cycles.

          For example, read this article today saying that just 3 to 4 25 basis point hikes in rates would have the same effect on mortgage servicing requirements as 10 - 11 hikes in the early 90s due to the larger debts we have today. https://www.domain.com.au/news/the-reserve-banks-next-intere…

          Sounds about right to me. House prices are invariably dependent on how much banks are willing to lend people. Therefore, if you buy at the bottom of the interest rate cycle you're gonna lose big time. The time to buy is when rates are at their highest. You benefit from locking in your debt, being able to have your debt inflated away, servicing gets easier as rates fall and your equity grows as rates fall and asset prices rise due to people being able to borrow more bidding up the price of houses.

        • manay005 on 16/03/2017 - 17:32

          @tomleonhart:

          I think 8% would be enough to tip many over the edge.
          You say the amount of debt the world is in but this issue is local. The amount of household debt in Australia is markedly higher than the rest of the world because of our insane House price to Income ratio's. Therefore the rest of the world will have a greater ability to absorb higher interest rates than Australia. The question is therefore can Australia live in an environment where our rates are much lower than overseas? Interesting to see what impact it has on our dollar, could hit below 50 cents pretty quick.

          Ultimately I don't think we can sustain house prices increasing at 5 times wages for much longer before something "snaps".

          Funny the US raised rates against overnight and Nab have responded by lifting theirs.

        • nikey2k27 on 17/03/2017 - 06:48

          @thord: 2 to 5 years tenancies way aus should go.

        • tomleonhart on 17/03/2017 - 15:11

          @manay005: I understand your logic. And frankly I think 6% from the RBA is enough to tip people off let alone 8%.

          To answer your question about if Aus can sustain lower interest rate while the rest of the world is higher, name me 3 developed countries where interest rates are higher than AUS by a large margin, say 2%?

        • ykwon10 on 17/03/2017 - 15:18

          @tomleonhart: here you go Answer is NONE

        • tomleonhart on 17/03/2017 - 15:38

          @ykwon10: exactly

        • tomleonhart on 17/03/2017 - 15:38

          @ykwon10: exactly dupe lol

      • Euphemistic on 14/03/2017 - 12:40
        +5

        It's not wasting your life savings buying an appreciating asset. Besides, you can't take it with you, you might as well use your savings for something worthwhile, that's what savings are for.

      • thriftybunny on 14/03/2017 - 15:03
        +5

        I feel you @thord
        Waited for a couple of years because I thought the housing market would come down, nope it didn't, it went UP.
        Can't change the year we were born, I feel people born 5-10 years before me generally had better career opps and cheaper houses.

        Anyway, in the end a friend said, "you need a home, you need a place to live, don't think so much about the price and "investment"". So we went and bought the first house we liked AND could afford. It's not a great investment or price, but at least we'll be happy living there.

        For a year I felt like I overpaid - HORRIBLE feeling - even though we enjoy our home. Then we realized that house price actually went up more and we couldn't even afford our home if we were to buy it now. Though to be honest I still don't think we got it at a "good price", and I work hard bargain hunting looking for discount toilet paper and hand wash on OzBargain :P so you can imagine it was a hard pill to swallow.

        I know this is corny but, count your blessings, can't win every battle, and eventually, you'll move passed it and onto new things in life.

      • danyool on 15/03/2017 - 00:32
        -1

        we're just going to hand over everything to someone who by sheer luck and happenstance was born 20 years before us and benefitted from the biggest boom is memory

        Not quite sure i understand your argument/angst. Also, in Sydney, the recent boom in prices was mostly over the past 3-4 years - and the market was flat for several years before that. So it's not just people 20 years older, it's anyone who happened to buy in the past few years - so they could even be younger. Unfortunately for you and me (and most of the people on this thread!), we didn't buy! I was thinking about a year ago after the prices had already gone up so much, that the market might take a breather - but it has still gone up even more since then (in my areas). Are we finally near the top? Can't say, but prices do look pretty expensive now - but i thought that last year!!

        On the bright side - you can gloat when the Shares are better than Property articles come out - and enjoy practicing for making babies in the meantime ;)

        If you do ever buy, I wouldn't sink all of your funds into the property - I'd leave a bit out for rainy days.

  • MeesusEff on 13/03/2017 - 15:50
    +6

    Sigh , exactly how I am feeling atm. Wanting to look for a first home to live in with my partner, and FHOG has been axed for established homes. WTF talk about unfair bs. Cant fathom forking out $20k + on top of the house price for stupid stamp duty as well.

    • dogboy on 14/03/2017 - 09:46
      +2

      That is one expensive stamp! Yes, I agree that Stamp Duty is just ridiculous.

    • neonlight on 14/03/2017 - 09:49
      +5

      FHOG doesn't help much. The sellers will just raise the price to make the difference, the seller and agents gain more profits…

  • [Deactivated] on 13/03/2017 - 15:51

    im waiting on my grandparents, parents and family where i am next of kin to die off.
    then ill buy all the properties.

    • thord on 13/03/2017 - 16:07
      +11

      Sadly for many of us that just isn't an option.

    • signanddatehere on 14/03/2017 - 14:46

      or simply stop spending on vw car mods. a bit too late though :P

      the mods like K04 upgrade and stuff and then to Mk7 r, could have been used for a deposit back in 2012.

      • [Deactivated] on 14/03/2017 - 14:52

        yeah should of bought an audi and a house.

  • [Deactivated] on 13/03/2017 - 15:52
    +34

    I'm Gen X and completely willing to say that the baby boomers ponzied problems down to millenials. I laughed at my sister when her HECS on a shorter degree was double mine, even though she's only 7 years younger, but somewhere between Gen Y and millenials the shafting became ridiculous, and I stopped laughing at the disparity and felt it's a genuine rort. Unfortunately the young have the least voice and the most theoretical distance until current bad decisions by government come to fruition.

    PS California have a cool system where paying mortgage interest is tax deductible for your primary residence. It's fantastic. It actually encourages first home ownership rather than fifth.

  • TakaHas on 13/03/2017 - 15:55

    I also hate the idea of taking out a million dollar loan which I then just give to someone else who just happened to be lucky enough to have been born a decade or two before me.

    Someone else will be complaining about this 30 years from now and if you take action now to buy a place, you will be the one living the Australian dream!

    • thord on 13/03/2017 - 16:02
      +3

      I can't see that being true because that would just confirm that the whole market is a ponzi scheme and we're all waiting for a bigger fool to bail us out. That's super concerning for someone looking to make the biggest purchase / investment of their life.

      It also seems to suggest that the ever increasing house prices will continue to outpace wages, but that also seems fishy to me because there must be a stopping point somewhere.

      It also seems fishy because we're at record low rates. I highly doubt record low rates will last forever and if they rise, people's borrowing capacity will be reduced. So unless there's massive wage growth it makes me even more worried.

      • mskeggs on 13/03/2017 - 18:07
        +15

        House prices have surged in the last 25 years as female workplace participation surged, giving extra income to pay a higher mortgage, and rates fell on the back of securitisation then QE in response to the GFC.
        As you clearly appreciate, there is no extra adult at home to send out to work these days to tap extra income, and rates cannot fall more than 0.75% lower.
        There is no scope for past gains to repeat for current buyers, and there is substantial risk that negative real growth may occur.

        • thechemist on 17/03/2017 - 00:58

          No-one thought QE could have happened to that scale before the GFC as it would have led to crazy inflation (basic economomics) but it happened. Past gains may still occur (I hope not for our Kids futures). As an example I am in Melbourne was looking at the same house down the street (its just land with the house being a shit hole) which has sold 3 times 2001 (400k),2008 (780K) 2016 (1.48M). The house has not been improved one bit and every time it sold I and most people around were like this is crazy how could anyone afford it and the market must be at its peak. 2024 price who knows

          To the OP take a view and go with it as it is yours and your families future on the line (no pressure buddy). Do as much research as you can as when I bought in 2013 I was reading articles by so called experts (domain etc.) consensus view that prices in Melbourne were maxed out and would only grow at the rate of inflation. Inflation over last 3 years combined was less than 10%. Capital gain after all cost if I sold property today at least over 40%.

          Know your local market, good streets, growth pockets in certain suburbs etc. I pay very little attention to National, City even suburb medians as there are suburbs within suburbs. Talk to friends/families in areas you want to buy to gain this info or if you don't then go to auctions and talk to the neighbours (more than 1/2 of them are so chat with them as they will give good advice as everyone wants an owner occupier to be a neighbour as having a revolving door of renters next door is not desirable)

    • JohnHowardsEyebrows on 14/03/2017 - 01:00
      +4

      Your assumption is prices will continue to rise like this…put simply, the prices cannot go on forever. They're already far too high, and only because they're supported by quite frankly regressive tax dodges afforded to those who don't need it.

  • usbc activist on 13/03/2017 - 15:59
    -1

    AFAIK, every generation of people felt the pinch when buying a house. It is wise to put your money into realestate. Generations of people prospered doing the same and most probably we will too. Unless we screw up big time. So, it is still a good idea to buy that property you are postponing buying….And why do think you need 30 years to repay. You can and you should plan to repay it much much earlier.

    • cloudy on 13/03/2017 - 16:05
      +2

      By screwing up big time do you mean the economy recovers and interest rates normalize? Our interest rates are at record lows.

      • usbc activist on 13/03/2017 - 16:39
        +2

        By screwing up I mean, the demand for housing goes down in our cities, which I don't think will happen. We have fewer cities than US. The migration makes sure there is demand and there are people who would like to rent.

        • cloudy on 13/03/2017 - 21:13

          I'm not sure why one would describe "screw up" as a fall in demand. I've only ever heard real estate agents spruik property in such fashion.

    • mskeggs on 13/03/2017 - 18:11
      +16

      I bought my first home, and apartment, in 1998. It cost five times my salary. It was in the inner west in Sydney. My income was the same as my friend who was a teacher, about $48k.
      This generation is feeling a pinch several times worse than 20 years ago.
      It is only wise to put your money into real estate when it isn't falling in price.
      Look at the USA in 2007, of Japan in 1991 to see how wise real estate investors buying at the top of the market are.

      • Kangal on 13/03/2017 - 19:03
        +17

        Yeah, just to get an idea of the disparity between your generation and mine keggs:
        - I've had to pay about x2-x3 higher price for university degree
        - I've started on a similar/lower salary to you
        - Daily living expenses/prices have increased around 50-100% (think childcare!)
        - The price parity between my salary and a comparable home is 8-fold
        (compared to your 5-fold)

        So you would've been stupid to be in your 25+ and not buy a house in 1997-2001.
        You would've been able to pay it off easily in 10 years.

        Now you'd be lucky to be in your 25+ and even buy a house in 2014-2017.
        And going off comparable means, you'd struggle to pay it off in 20 years.

        So the OP's anxiety is justified.
        It's a huge risk buying a home today without having proper partner, friends, and family support financially.
        It's also a risk to rent, and hope for things to improve when they might be getting worse.

        • mskeggs on 13/03/2017 - 19:48
          +31

          I completely agree.
          It does our country no good to have high housing prices, although the beneficiaries of them apparently can't see that.
          The best outcome for the whole country would be very, very low house prices, so we could spend our incomes on other things.
          It is especially galling that the 3/4 or home owners who don't own investments can't see this.
          You are no richer if your house is now worth $1m it is costs you $1.3m to trade it for one with an extra bedroom.

          The deck is stacked heavily toward housing investment at the expense of the good of our country, and I say this as a person who owns an investment property.
          Our tax laws are impoverishing our kids and it is a disgrace.

        • atolikan on 14/03/2017 - 00:36
          +4

          @mskeggs:

          Thanks for the valuable input, been great reading your comments in this thread.

  • cloudy on 13/03/2017 - 16:02
    +4

    Do some maths and work out if it is cheaper to rent.
    In many cases, I've calculated it is financially better off to rent than to buy assuming no preconceived assumption on house price movement. Although I do admit most people just assume house prices will continue to go up and never down, I disagree, but it's ur opinion that matters to you.

    • thord on 13/03/2017 - 16:06
      +3

      "Do some maths and work out if it is cheaper to rent."

      Problem is that this point of view is how you'd compare investments, not how you'd make a decision on whether to buy a home.

      Plus, it's impossible to guess the variables. If rates rise, renting is much better. If house prices rise, owning is better. If the stock market performs poorly, owning is better. If it performs well, renting is better.

      It's super super hard to make a good guess.

      But regardless of all that, the point is I don't want to rent, I want to own but the cost of ownership is so jarring and so out of step with previous experience, that I can't help but think whilst owning would be great, it would be a terrible long term decision.

      • cloudy on 13/03/2017 - 16:15
        +1

        Actually, I find the variables very easy to work out.

        I bought my place a few years ago, and I live in a unit of 6 exactly same town houses.

        I've done some pretty reasonable and basic maths on it, and basically the renters next door to me should do better off assuming houses prices don't move, interest rates don't move and rents don't move.

        Now, I also did some basic maths of what happens if IR does move, down (chances are low, and impact moves it back into balance). But if IR goes up( more likely, renter benefits greatly).

        Rents movements, I looked at some rent history of these townhouses, they don't move much, and if they do, only by like $10 per week.

        House prices is the only one I don't assume, coz they have been rocketing, but who knows?

        After all that, and including all fees i worked out a renter pays around 8-10k less than the landlord. But renter gets no capital gain/loss.

        But if u don't like to see this decision based on figures, u can just buy, coz u want to buy and don't think about it. Just borrow and buy up.

        If u want, I can throw in hard figures, but I'm on my phone right now.

        • thord on 13/03/2017 - 16:20

          It's all good, I've done multiple spreadsheets myself. And like I've said elsewhere, it's not really about the $ figures, it's about the risk and the fact that we're giving away a decades worth of extremely hard work to someone who essentially just got lucky. That's a hard thing to come to terms with. It's also very hard to know whether we are screwing ourselves by taking this big step now, or whether we are making the right call to just get it over with.

          The variables I had were:

          • Mortgage interest rate
          • Property value growth rate
          • Savings / investments growth rate

          I kept most other possible variables constant for simplicity. But even still, the above made it complicated enough.

        • Kangal on 13/03/2017 - 19:09
          +2

          @thord:
          I don't understand your justification of
          " giving away a decades worth of extremely hard work to someone who essentially just got lucky."

          Do you mean, you want your kids to struggle from the bottom and hope they can scrap something for themselves in the future?
          Or, are you not going to have kids, and don't wanna give away a million dollars to your relatives?

          You know it is your house!
          At the end of the day life you could always sell it, rent, and spend your million blowing that money away on things you like such as travelling etc etc. There's no law saying you have to leave an inheritance to anyone.

          I just don't see the reasoning for your thoughts there.
          Please explain.

        • cloudy on 13/03/2017 - 21:26

          @thord:

          I see what you mean. I originally mis interpreted your question as a financial one, but it sounds like a philosophical one.

          How I see it is, the fact is we're living in a time where we are less fortunate in terms of housing. We are searching and buying property in a era where a confluence of factors makes housing a blatant rip off for us(I'm 30 and I assume you are similar in age and situation).

          But for life certainty, family, kids, you name it, if buying a permanent abode is important, then I reckon you should bite the bullet.
          Think of it this way, we're unlucky in property but we never had to see a war, or a recession, or a lot of other things.

          Lastly, the risks of life savings plunged in, it's a risk only u can decide if it's worth taking. Because I certainly believe it is possible hoouse prices can fall, and possible we can pick it up cheaply in the future. I can also be wrong. So it's a risk :)

        • abb on 14/03/2017 - 12:35
          +1

          @Kangal: They're talking about 'giving away' the money they have saved for the deposit, to the previous owner of the property they're buying.

          e.g. previous owner probably paid 5x annual salary, Thord is paying 10x annual salary, hence previous owner is getting big profit purely by choosing the right year to be born in.

        • thord on 14/03/2017 - 14:05

          @abb:

          Exactly.

        • Kangal on 14/03/2017 - 15:56
          +1

          @thord:
          But that is OUT of your control.
          Surely, you would've done the EXACT same thing in his position.

          Don't hate the player, hate the game : )

          PS You didn't answer my question about your retirement. Do you want to sell off your assets before "you die" and live the high life, and go out with a bang? Or do you want to use your assets, so that your children could buy their homes in the future… essentially giving them a leg up like "that previous owner who had it easy"…

        • thord on 14/03/2017 - 16:53
          +1

          @Kangal:

          Right, that's kind of the point. It's totally out of my control and I feel like we're being absolutely screwed, whilst others through sheer happenstance are benefitting immensely.

          As for retirement, we plan on living off the growth of our investments in retirement, leaving the principal for our kids. We don't really care about the luxurious life or blowing it all.

        • afoveht on 14/03/2017 - 17:00

          @thord:

          living off the growth of our investments

          This is precisely the reason for property prices being where they are - people wanting growth / a free ride. You have just chosen another vehicle, maybe one which has not performed as well as real estate.

          There may well be a case to regulate real property now and come up with some control over the costs of what is essentially a basic human utility, but a longer term approach must deal with the idea of (unlimited) property ownership, real and otherwise, altogether.

      • Thenarrator on 13/03/2017 - 22:03

        there are plenty of brand new apartments work 700k within 30min to cbd.

        Cheaper if you go second hand apartments.

        Since you mentioned you are well off, surely u can afford 700k

      • z0s0 on 14/03/2017 - 13:20
        +2

        You need to accept that if you want this particular in-demand consumer good, you're going to have to pay a lot of money for it right now.

        It's not an investment. It's a consumer good priced in a manner that (as you're well aware) has little connection to its' fundamental financial value.

        So, accept that, and move on. You either decide to pay up, or you decide not to.

        There's no problem raising kids in a rental. Most of the urbanised world does it. Their life will turn out fine.

        Imagine the experiences you could offer them that an large, 30-year, barely serviceable debt would preclude.

      • AddNinja on 14/03/2017 - 15:54

        Can you move to a city in another country?

    • supersabroso on 14/03/2017 - 23:44

      You're kidding me right??? Let's just start with a $600,000 home loan (3 bedroom house), at 4% interest you're paying $24,000/year ($460/week) in interest that you will never get back….but only for the first year. The second year, odds are it'll be $22,000/year, then $20,000 etc.

      This quickly drops down to $50-100/week in interest, ie. Rent free over a span of 10-30 years depending on how good you are at paying back your home loan. How much is rent every year? Same for the first year, then more and more and more.

      Hold on a sec, you say what about the capital? That costs $600,000 over 10-30 years. I bet you it'll be more than the 3% interest ING gives you (which caps out at a balance of $100k). In fact, you can see the average house price growth is about 10-15%/year.

      You'll find out very quickly that renting is a poor, poor choice. The fact of the matter is that you're busy paying off someone else's house because you don't have enough deposit to buy your own house. Remember, rent goes up, interest payments go down over time so you're paying far more for other people to own their homes than whatever pennies you save in the short term.

      • cloudy on 15/03/2017 - 00:16
        +1

        It seems so obvious doesn't it? It's a SURE thing, just dump money into property coz rent money is dead money and house prices will will go up 10-15% a year (so a 600k house goes up 60-90k a year), which means you have to earn another 90k post tax just to make up for a lost year not being in the market. lol

        what a lovely set of assumptions, on those figures u produce no one should wait a single second, buy a property now, or else you need to be on a 150k a year salary just to not go BACKWARDS being out of the property market.

        Surely you can see the stupidity in your on numbers.

        I'll give some real numbers based on property near me (in city Brunswick in Melb, property BOOM state which your kind should love).

        Property sold for 520k.
        Then Rented for 380 per week. 19,800 per year.
        Strata and council is 3k all up.
        I believe RE agent would take around 1%, so 2k in this instance for their work.
        So all up landlord gets short of 14k in income.
        520k at 5% interest pays the bank = 26k per year (this is amortized payments, so part IR and part Cap)
        Basically negatively geared 12k per year.

        Say, after 30 years the landlord owns the property outright with no loan.
        Landlord gets the benefit of property values appreciating, but pays 12*30= 360k for the privilege.
        I assume no IR increases, but the truth is 5% home loan rate is record lows, and many doubt it'll stay here forever. I also assume, no plumbing issues, or insurance claims from storms, etc etc, coz this is all landlord expense, and it's never empty, a lot of unrealistic assumptions.

        I wont go into tax coz no one is the same.

        Renter:
        Whom we assume had the choice of buying this property, has 520k, puts it into a equally risky diversified portfolio, say, the same as a balance portfolio in Super. They generally earn inflation +3%, so 4.5% right now yields $23400.

        Pays 19,800 per year, and no stress of any of the stuff I've mentioned for landlord, other than insecurity of living long term. If I factor in rent increases, you will definitely get turn over of tenant. So its fair to no make no rent assumptions given I've made no council, insurance, etc increases too.

        has around 3500 to boot extra a year.

        So the end game is;
        Landlord has paid 360k extra after 30 years, but has the future value of the property.

        Or Renter,
        who has 3500 30 year annuity. You can use your own annuity calc to see what its worth. You can plug in other assumptions I might have missed. But you definitely can't say buying property is the only right answer financially.

        • supersabroso on 15/03/2017 - 00:57
          +2

          I'm not talking about buying a house as a better investment compared to buying stocks. I'm talking about it being far better for your first home because you're in the position where you have to pay rent or live on the street.

          You make a good point, however the $600,000 figure I'm talking about is the loan amount, you don't have this money all you would have is the 5-10% deposit ie. $30,000 or $60,000. If you did, then there would be no interest payments and you can enjoy your rent free house right away thus far better than trying to invest in safe long term shares. $3,000 in strata/year only applies to townhouses/apartments not houses. Realistically, the council fees will cost you about $20-30/week in rent.

          Under no circumstances does the renter come out on top. The only way this can possibly happen is if house prices continuously drop over the years instead of being stead or rising. Remember, if you make 4.5%/year on stocks but you also pay 4.5% in rent then you're making absolutely nothing.

          The maths comes out like this (median rent increase is 3.9% in Sydney):
          Renter first year - 4.5% profit on $60,000 so…$2,700 profit. OK, $28,350 loss in rent (not rental income) on a $630k house that you could have bought instead.
          Renter second year - 4.5% profit on $62,700 so…$2,821 profit. OK, $29,625 loss in rent.
          Renter twentieth year - 4.5% profit on $144,703 so…$6,512 profit. OK, $60,934 loss in rent.

          (Assuming houses level off right away and remain the same rate of increase as stocks at 4.5% instead of the ridiculous 10-15% growth for the past 5 years, realistically it'll be much higher in the short term)
          Buyer first year - 4.5% profit on $630,000 so…$28,750 profit. OK, $25,000 loss in interest/council fees
          Buyer second year - 4.5% profit on $658,750 so…$29,644 profit. OK, $24,000 loss in interest/council fees
          Buyer twentieth year - 4.5% profit on $1,453,952 so…$65,428 profit. OK, $1,500 loss in council fees

          The big difference is that the 4.5% is applied on the $630k house value from year 1, however, as a renter it only starts at 4.5% on 60k. If you know anything about compound interest, the difference over 20 years between starting on 60k and starting on 630k is phenomenal. Furthermore, this really shines if you are not a high income earner and you can only spare say $0k - 10k in savings on top of the rent. Then you're only adding another 4.5% at +0-10k/year but your house is still compounding at 4.5% on +$30k/year even if you can't make a single principal repayment or only reduce it by $10k/year.

          Yes, you're right stocks are a good investment. Do you know what these two people can do 20 years down the track? The buyer can already invest about $59,000/year more in stocks than the renter as his loss is that much less than the renter. If he sells the house, it's hundreds of thousands more than the renter.

        • Harold Halfprice on 15/03/2017 - 02:15

          Uhhh… so the guy buying the house has to borrow 520k, but the renter just has a magical 520k sitting there which he uses to invest elsewhere?

        • [Deactivated] on 15/03/2017 - 10:06
          +1

          @sjn:

          Where's the profit ???

          Your assumed profit is that you are selling your house after x years and move in a cardbox house. There is no profit. You sell and move somewhere else, every house price rises the same. There's no profit there.

        • Harold Halfprice on 15/03/2017 - 15:44

          @zapy:

          Huh? I didnt say anything about profit. cloudys analogy compared a buyer vs a renter. the buyer took out a 520k loan and had to PAY interest, but the renter started off with 520k that he GAINED interest on.

          the analogy doesnt work.. the renter starts off with an extra 520k.

        • cloudy on 15/03/2017 - 20:14

          @sjn:

          Thanks for the comment, I know I didn't write well at midnight, bit lazy with explaining it all.

          Now: 520k = House (today). House (today)=520k

          So in my I've expensed the cost of having the a roof over his head. By him paying rent. But the landlord, I've not included this expense. So in order to be fair (which I have been), I can either remove his income (which then he wouldn't be a landlord anymore), or I can simply give the renter 520k, the EXACT equivalent to removing 19,800pa from the landlord.

          So it's no miracle. :)

        • cloudy on 15/03/2017 - 20:15

          @sjn:

          I hope my later reply helps you understand your knowledge gap.

        • cloudy on 15/03/2017 - 20:47

          @supersabroso:

          Yea, so I think you are right in many terms, but I think where I differ from you fundamentally is these finer points:

          If someone buys, they take on financial risk by taking a big loan.
          Renter has no obligation, no financial risk, thus I try to even this risk out by arguing the renter could also invest and earn a reasonable return.

          But if we assume any return on house prices, its hard for a renter to come up trumps.

          But it's not without zero chance of a housing price crash.

  • eapster on 13/03/2017 - 16:02
    +6

    Why not buy the property that you want as an investment? That way you have someone else pay off part of it with the added bonus of tax deductions.
    Then in some years time, move into it when you have built enough equity.

    • thord on 13/03/2017 - 16:06
      +4

      "Why not buy the property that you want as an investment?"

      Because the problem is that I want a place to call my own home. This isn't about making the most money. This is about gaining a home - but also avoiding ripping ourselves off / crippling ourselves.

      • zealmax on 13/03/2017 - 22:01

        I hear ya. Everyone needs a place to call home. Whether it be a fibro shack out west, or a fibro shack out east. I personally don't understand people that buy property and rent it out, while they themselves are out renting. Somebody I knew did that, and his argument was the rent he paid and rent he got was about the same, only difference was he could get depreciation and negatively gear rates, and interest. He was under the impression he was making money by doing this. He didn't think about CGT. What you depreciate will catch up to you when you sell and CGT is calculated. I don't think many people realise that when you depreciate property, it eats into your cost base.

        • lexxyacc on 13/03/2017 - 22:18

          There is 50% discount on CGT, so it's not as straightforward as you portray. Your acquaintance was right, it is typically more sound to rent your PPOR and have an investment property rather than live in your PPOR.

          Of course, none of this constitutes an investment advice.

        • zealmax on 13/03/2017 - 22:28

          @lexxyacc: I don't think it is more sound to rent in a booming market. His property went up 600K in 3years. There is no way his negative gearing even with CGT discount can make up for that.

        • eapster on 14/03/2017 - 09:17

          Ok maybe I wasn't clear in my original post, what you need to do is buy the property you want now and live in it for a period of 6 months before moving out to a rental to take advantage of the 6 year rule. (https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…)

          As long as you move back into the property within 6 years and you dont buy another PPR in the meantime you should be fine and not have to pay any CGT on sale. Win!!

          I speak from personal experience and yes it does involve moving around a bit and sacrifices, but no-one said it was going to be easy. We did what we had to do to buy our dream home in the location we wanted.

        • zealmax on 14/03/2017 - 09:39

          @eapster: I have heard about the 6 year rule, but not in detail. Can you still claim negative gearing? If you can, then it is definitely worth looking at.

        • eapster on 14/03/2017 - 09:46

          @zealmax:
          Yup, I'm claiming negative gearing as we speak… :)

    • cypher67 on 13/03/2017 - 16:41
      +2

      The problem is the rent you get in return doesn't come close to covering the cost of repayments. So you would be paying $500 a week for someone else to be living in your house, while you rent some little unit from someone else.

  • tomleonhart on 13/03/2017 - 16:07
    +2

    It's a shame that you guys are putting off having kids.

    Where are you guys working? It's fair to say that you don't want to get a million dollar loan but if you guys are both working, would you consider moving a bit further out from the city ?

    Plenty of place to buy apartment for 400 - 600k and plenty of house in the 600-800k further out.

  • scrimshaw on 13/03/2017 - 16:40

    This is why I live in western suburbs, the houses in the more affluent areas have minimums of around 990 and most 4 bed/ 1 garage houses cost upwards of $1.4 million in some of the North / East Syd areas I looked at.

    Ten years ago, these properties would've cost nearly 33 percent less.

    Nobody in my family has a million to spare and 950k is already stretching it.

  • Nugs on 13/03/2017 - 16:40
    +4

    the sky is blue (well, sometimes).

    • sd4f on 14/03/2017 - 12:01

      Not in Sydney it aint…

  • mskeggs on 13/03/2017 - 16:48
    +15

    Moving to a regional area is also out of the question due to the jobs my wife and I have, not to mention we'd also incur a lot of additional costs as we currently don't spend much in the way of transportation, but we would in a regional area

    We don't live in a city anymore and our quality of life is phenomenal. We moved from Glebe to the mountains.
    There aren't many jobs that can't be found either in other cities (Hobart, Adelaide, Brisbane, Perth all have more reasonable real estate) or by commuting from the urban fringe (and some jobs will let you work a day a week at home to make that easier). I know plenty of Blue Mountains commuters and work with South Coast and Central Coast commuters.
    And transport costs are an incidental compared to the several thousand dollars a month mortgage saving.
    And there are other jobs too (although away from the CBD wages go down for most things).
    When I was 27 I worked with a guy who commuted from the Mountains and I thought he was nuts. Once I had a family and didn't need pubs and restaurants 5 nights a week, and wanted to live in a community where you know your neighbours and the teachers and the shop keepers and footy coach etc. and popping to the shops is a 10min walk, not a 20min traffic fight, I changed my mind.

    I share your general concerns. Signing a 30 year mortgage locks in a solid expense basically forever, and removes flexibility to take lower paying jobs in future, or for a parent to spend some years at home with young kids.
    And the macro picture isn't looking great either.
    When I bought a first house, or my parents, we had much higher wage growth and inflation. It meant higher payments, but 10 years in to the payback period, your income had doubled and your repayments stayed the same. I remember my father in-law paying his last mortgage payment of $600, a big sum when he took out the loan, but tiny these days. It won't happen like that any more, meaning the debt will still be a sizeable payment a quarter of a century later.

    • danyool on 14/03/2017 - 22:24

      not a 20min traffic fight

      So true!

  • garetz on 13/03/2017 - 18:17
    +1

    What goes up must come down, its just a question of when. Just a tiny correction like the gfc made prices plummet between 5 and 15%. Imagine a major correction. Its inevitable. Before the huge billion dollar bailouts there was a cycle of 7 years of ups and downs, usually leading to a recession or correction. Now its constant unsustainable growth year in and year out. When the average property price in sydney is over 20x the average wage i would be extremely worried.

    • No ONE on 13/03/2017 - 22:31

      Not if it goes into space, it will never make its way down to the earth (assuming we are talking about earth) until forced by a foreign objects. :D

  • ItsMeAgro on 13/03/2017 - 18:31
    +2

    Everyone says the bubble never bursts, but 2017 has a decent chance of being the year the market finally cools a bit. I wouldn't be in a hurry to buy a house right now.

    • chumlee on 13/03/2017 - 18:41
      +1

      That assumes there is a bubble. Maybe property wasn't valued enough in the past and now we see the value and benefits

      • mskeggs on 13/03/2017 - 18:50
        +8

        Maybe. Are you prepared to place a $1m+ bet that prices will still go up?

        • chumlee on 13/03/2017 - 20:25
          +2

          Since 2008 i have been having this same debate with people in the property forum on hotcopper and a lot of these property gloom and doom posters have left hotcopper in shame at being severly wrong.

          I'm not a property spruiker and i dont have any other property than my PPOR but one thing i have witnessed in my life is asset values always overshoot on the way up and down. So while you think prices may be expensive you don't know where the top is except in hindsight

        • JohnHowardsEyebrows on 14/03/2017 - 01:05
          +4

          @chumlee: No shame in being wrong on property…put simply our economic policies (courtesy of Keating) have kept us going for a quarter century of uninterrupted growth. As such, no surge in unemployment has given people a false sense of security in mortgaging themselves to their eyeballs. Interest rates have sunk to ridiculously low levels, and immigration has exceeded supply increase at the same time.

      • ItsMeAgro on 13/03/2017 - 19:00
        +6

        Maybe property wasn't valued enough in the past and now we see the value and benefits

        Yes, haha, I can see now that I've been a fool. Of course Mt Druitt is a vastly better place to live than Tokyo, Paris and New York.

        http://www.luckyoz.com/new-york-tokyo-homes-cheaper-sydney-s…

        • Kangal on 13/03/2017 - 19:20
          +2

          +1

          Thanks for the link.
          It's a fresh perspective seeing the average NYer bringing ~$77k income, whilst having lower Daily Expenses, AND a cheaper house prices.

          Although I don't think its exactly Apples to Apples (pun intended).
          Whilst in NY you might get a great home, I think those are mostly Apartments. You own the house but not the land. In Mt Druitt, you might own a much much creppier house but you also own the land where it sits on.

          (if I'm wrong; they're comparing actual LAND-HOUSES; then current-gen Aussies really are getting shafted !!)

        • mskeggs on 13/03/2017 - 20:42
          +5

          @Kangal:
          Outside Manhattan, there are neighbourhoods around NYC where a terrace, duplex or single house on small blocks are available. And within a 30min commute to downtown. Not to mention New Jersey if you can lower oneself ;-)

          I was very surprised at how affordable a Tokyo apartment was (admittedly for smaller floor area that a corresponding Sydney one) when I holidayed last year. I had been raised on a diet of Tokyo has stratospheric property prices. But we have certainly overtaken.

          For a country with sane real estate, check out Germany. Tenants get long (5yrs) leases if they want, rent increases are related to inflation, there is even a settlement arrangement if a tenant makes capital improvements to a property and subsequently leaves. As a result, their housing is cheaper to buy and to rent, of a high standard for renters, and a steady investment for property owners. Note I gather Berlin has caught some of the cheap money bubble that we, Canada, London and top tier US cities have, so it isn't perfect.

        • MrTweek on 15/03/2017 - 13:49
          +2

          @mskeggs:

          check out Germany. Tenants get long (5yrs) leases if they want, rent increases are related to inflation, there is even a settlement arrangement if a tenant makes capital improvements to a property and subsequently leaves. As a result, their housing is cheaper to buy and to rent, of a high standard for renters, and a steady investment for property owners.

          Yeah, Germans buy real estate to live in it, not to get rich quick.
          It's not even 5 year leases, they are rather unlimited. You can't kick out a tenant against their will, unless you need the apartment for yourself (which you need to prove in court). Generally renters have a lot more rights than in Australia.
          This makes renting out less attractive and thus keeps investments low and the real estate market healthy.

          But also the structure of the country is very different. Although 4 times as many people as Australia, Germany's biggest city (Berlin) is smaller than Sydney or Melbourne.
          Population is spread out much more evenly, with hundreds of cities in the size of Canberra/Hobart/Geelong.
          Moving 40 minutes away from your job usually means moving to another city. It's very possible to live in a small, cheap, quiet country town while commuting to the city centre in 20-30 minutes (often even via public transport).

          In Australia on the other hand, everything is concentrated on a few huge cities. A lot of people can't move away because there are not enough jobs anywhere else, and it's too hard to start up businesses in the country because there are not enough skilled professionals. Understandably, newly arriving migrants as well as educated folks from country towns end up in Melbourne or Sydney where they can make money.
          All this puts a lot of pressure on the real estate market.
          The only thing that would solve this issue for good would be a healthy decentralization.

          Imagine there were some high speed train lines to Ballarat/Bendigo/Geelong/Warragul, making it possible to commute to Melbourne CBD in 30-40 minutes.
          This would immediately make these towns much more attractive than Cranbourne, Craigieburn or Werribee, spreading out the population and eventually make it possible to maintain businesses there too.

          But well, not going to happen while I'm alive.

  • Hiroko on 13/03/2017 - 19:03
    +8

    i think you guys are feeling burnt out and unhappy because youre sitting there waiting for a housing crisis which is quite honestly unrealistic.
    the longer you sit out for, the more you will regret.
    you have money, you save and invest wisely… why not "invest" in a nice place you deserve and can call home??
    stop making excuses and feeling sorry for yourselves… make it happen.

    • anonymous8 on 13/03/2017 - 21:33

      No way.

    • MrTweek on 15/03/2017 - 13:51
      +3

      unrealistic
      Others argue that unlimited growth is unrealistic.

      In all fairness, nobody knows and nobody can possibly know until it happens.

      It's a gamble and nobody can deny that.

      • Hiroko on 15/03/2017 - 23:11

        i dont deny that…
        but what IS realistic is that OP is missing out on a lot right NOW, knowing that he is very well capable of servicing finances to provide a happy home for his family.
        Live for NOW - the world could end tomorrow… yes i know… that sounds unrealistic right?

  • Stewardo on 13/03/2017 - 20:20
    +1

    What about buying a house in an established suburb in a regional area, and renting in Sydney.

    • mskeggs on 13/03/2017 - 20:53
      +3

      I think the argument is that capital returns have been so spectacular in Sydney over the last decade that a CPI capital increase and 4% income return looks like stupidity.

      The risk with regional property is that they are the last to go up and first to fall.
      Because land is pretty cheap, there is little tension in the market like there is in established areas in Sydney and Melbourne. A house 1km from the centre of Orange is only 10mins closer than a new estate, so there is little of the pricing pressure we see in inner cities.
      That said, it is reasonable to suppose regional cities will maintain their rental yield if they are big enough to overcome the closure of a mine or steelworks or something. And they can be very nice places to live.

      • Stewardo on 13/03/2017 - 21:23

        There is a lot of regional cities that aren't Boom and bust towns, especially on the coast, have a bit of a look at the market you might be surprised at the value of houses out of Sydney.

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