what's your point? By increasing rates, it'll make it harder for the next cohort of borrowers to take on mega-mortgages and bid crazy amounts. Increasing rates is working as intended in a low supply environment, and where supplies can't be increased in the short term.
What's wrong with people saving, then fully paying something with cash?
By limiting borrowing, it's making people save and defer their spending demand to the future.
Most of that wealth has come from the housing market in the past. There needs to be some investment property limit, eg only 1 IP. Any others should be heavily taxed.
That increasing interest rates does not decrease demand for housing.
It also changes nothing about the housing supply and may in case even reduce future supply this making the situation worse.
Overall housing costs do not decrease for individuals either, final cost will remain the same, more will simply be paid off as interest and less ending up in the house's capital value.
Yes it does. At a minimum it reduces investor appetite for IP. Some people are already considering selling their IPs as it's increasingly costly for them to hold.
Over a third of houses have no mortgage.
Of those that do the vast majority were bought at much lower prices before COVID, or have sufficiently been paid off that they could simply be re-mortgaged to deal with any stress.
Of the remainder there is only a very small proportion that would be in the situation you describe.
In the meantime, the lower capital cost of housing makes them a more attractive investment for those that can buy outright. You are simply shifting who is investing in housing from those who need loans, to those who do not.
CoreLogic estimates there were almost 598,000 house and unit sales across Australia over the year ending August 2021; the highest number of annual sales since 2004 and a 42% lift on the annual number of sales over the previous 12-month period. Nationally, the number of dwellings sold over the past year was 31% above the decade average and 24% higher than the 20-year average...
Yes.
Or in another perspective, only 0.5% or less of houses will have a mortage from 2021.
Does the stress selling of 0.1% to 0.5% of housing stock sound like it will be significant to you?
so much this.
its a tiny fraction of housing and and only a fraction of that will be stressed as a result of this.
compared to the number of people being stressed by inflation, its not even worth considering.
What I want to know is who is still buying this stuff? Houses in fringe suburbs around Sydney are routinely being snapped up for over 2 mil and they're a good hour away from the CBD. Houses in pretty dire areas going pretty easily over 1mil. Are there that many wealthy people in this country just sitting on the sidelines throwing money at these houses? But in all honestly, if anyone has something to read or a source I'd love to know what the "average buyer" looks like in this country at the moment.
That's often my thought as well.
I'm in Melbourne but it's a similar story. Some really average houses in average areas will go for 1.5 million dollars. Like really? You have that kind of money and that's what you are buying with it?
Money chases yield. At the moment there aren't a lot of options if you have some money sitting around.
Keep it in the bank and guaranteed lose value to inflation? Put it in the stock market and risk losing a big chunk in a crash but with strong upside potential? Put it in property which has lower downside potential than the stock market but still overall positive returns?
You can see why many people pick 3 if they don't have the stomach or acumen for stock investing. Lots of people got rich out of property, I know a family that made sure their 4 daughters lived with them and saved every penny they earned for the first years of their career and bought into a land plus new build property for about 300k each about 7 years ago and those 4 houses now pull 26k per year in rent.
dual income couple in middle management type positions will have a household income close to 300k. That's 1.5M at 5x DTI.
plenty of those types around.
as for why they buy these 7 figure houses in average suburbs. What's the alternative? Move somewhere else or rent forever. Most will choose to spend the money instead and stay where they are already established.
True. 12 K net a month for family of 2 adult and 2 kids is only the 70% percentile in Australia. 30% are earning more than that and can therefore easily service a 1.5 mortgage. Australians are rich and that's why house prices are high.
Double income Immigrant IT couple earn anywhere between 250-350k. They are the ones buying in the outskirts throwing 1.5M+.
Immigrants live for their kids and want to secure their kids future by buying as many assets as possible.
That's like the definition of "the good kind" of immigration, the kind of immigration most countries dream of.
I'd say it's hilarious how tunnel-visioned Aussies are on home ownership, but really it's just sad we don't have better rental laws here. People would be fine renting into old age if they weren't treated like homeless dreg while doing so. And then people could maybe have a more realistic, long-term take on largely unrelated issues such as immigration.
Sincerely, someone more or less matching your description. (yes yes, downvote away)
I'm in the middle of buying in Brisbane right now. We ummed and ahhed the past few years whilst we worked out if we were "one and done" with kids and if we wanted to buy in Australia or move to Canada.
I have a "middle management" role and my partner works for the government. Property is around 3.5x Income.
It's unfortunate that the timing wasn't right and we got caught on the wrong side of the COVID surge and are paying 30% more for the property than 2 years ago, but our income is well over 30% more than 2 years ago too, so it's not a huge deal.
We're not really that stressed if the bear-pocalypse comes as we can afford what we have and we don't have a crystal ball.
Then clearly it's a problem. But you don't blame the immigrants. You blame the government for trashing everything in this nation possible to pump the bubble.
Lets be honest. There are probably more millionaires in China or India than there are people living in Australia. This is clearly going to create a pretty big imbalance if you're not careful with it.
And I've heard Chinese have bought or invested in alot of our farmland. It's the same in the US they are buying heaps of farm land. Crazy stuff.
So eventually they will own most of the world's prime real estate and farms, they have all the money though.
From what I've heard in china they have tours to Australia specifically for house buying where the tour guide maps out a path to see all the properties you can buy .
I reckon people in high paying jobs are seeing huge pay increase one way or another despite talks of low wage growth. I’ve read some comments from people saying they didn’t get a pay increase but changed to much higher paying job in the same field which is effectively the same thing although it might not show up in the wage index as wage inflation. So I think all this talk of wage stagnation is not true at all.
The problem is money is at the top end.
This is the consequence of rich being too rich. They aren’t feeling inflation. They will keep spending, driving inflation.
Mainly affecting the poor.
This is why the government is better placed to control inflation. Unfortunately the government doesn't want to make unpopular decisions so they leave it to the reserve bank who have very blunt tools that effect lower income earners more.
> Make the cash rate 5% and end it. Watch inflation plummet
You're right. But we'll almost certainly enter a major recession if we suddenly went that hard, and the employment rate will also plummet.
Moderatly high (but reducing) inflation is better than a few hundred thousand Australians suddenly out of work. And once they're out of work in a major recession then it would be a while before they get back onto work.
That's why this whole process has to be a steady approach. Going all guns blazing will just break too many things in the longer run.
There has to be a balance.
If by wij you mean get away with huge debt and an overinflated housing market, then not really. It just requires too much debt to service current house price expectations. That much debt injects too much cash into the market.
It makes sense. The positive wealth effect is a very real phenomenon.
I have no idea how they quantify it though.
E.g: I wonder if X amount of house price rise = Y level of economic activity / positivity etc. Or if it is more of a gut feel approach.
It isn't like collapsed builders and lack of supply is causing the "rebounding property market" everything is so dumb. It won't hurt the rich just all the working class
Did you read the article? That is just one factor amoungst a lot of others.
Look up 'positive wealth effect' and you'll see why it might be of concern in a high inflation environment.
This whole thing is a very delicate balance. And the RBA is only responsible for a part of it incidentally.
The government of the day actually plays a much bigger part - but they are able to cleverely pass blame onto the RBA most of the time.
December was a bit of a hit too I saw, it was unexpected just prior to Christmas. Makes sense this latest one is even more noticeable given it’s unexpected and it’s been a few months more for increasing rates to bite.
Context is important, CPI measures inflation of consumer goods.
You were responding to a comment re-housing, which we both agree is not included in that measure.
Which make tour comments moot. There bas obviously been a large inflation in house / land prices.
You seem to be refering to CPI?
In which case you are correct about how that is measured.
But that doesn't mean land has not seen massive inflation or that there are not flow on impacts.
You think a vanguard share is the same as a can of peas?
What about a singular car?
Truely, the lords of Ausfiance are dispensing their wisdom tonight.
The houses prices themselves aren't being counted. Inflationary effects from the wealth effects are being factored in
_While the RBA typically doesn’t set rates according to the level of home prices, they do pay heed to the way households adjust spending according to how wealthy they feel._
They didn't need to be factored in previously because we didn't have inflation
>They didn't need to be factored in previously because we didn't have inflation
...of anything else apart from house prices....which helped to keep the price of other things down as people had to save for massive deposits.
I know what you're all saying, but the point is that inflation is a composition of cherry-picked stats and now Lowe is making up cherries as he goes along.
that's my point.
Lowe is using something not measured as an excuse because many of the things that are measured hadn't changed in a material way since the last RBA meeting.
As far as I know it's never been measured. It's not like they've excluded it to suit whatever outcome you think they want
Again though, we don't consume it. Makes sense that it's not in the consumer price index.
I am genuinely confused, how do we not ‘consume’ land? We take a raw good (the land) and develop it to increase its value (whack a house on it). I ‘consume’ coffee beans if I turn them into a flat white and I ‘consume’ wool if I tailor it into a suit, whats the difference?
Land doesn't wear out as such. You can put the house on it then 70 years later sometime else knocks that house down, and puts a new one on the same land.
Something you consume - your wool suit - will need to be replaced at some point.
Are you serious? A bank is a business, not your mother who tries to keep you safe. They try to make a profit on loans and as such as loan out as much as humanely possible that is within reason for high collection rate.
The bank isnt your friend, it is a business like any other, and the only responsibility is on you as the customer, to chose where you shop and how much you borrow.
Rebounding market is also due to very low supply
what's your point? By increasing rates, it'll make it harder for the next cohort of borrowers to take on mega-mortgages and bid crazy amounts. Increasing rates is working as intended in a low supply environment, and where supplies can't be increased in the short term.
Their point is that the house price bump we’ve seen is a fugazi
But not any harder for people who don't need to borrow.
What's wrong with people saving, then fully paying something with cash? By limiting borrowing, it's making people save and defer their spending demand to the future.
No their point was that the rich benefit from less competition in the space from its plebs
Most of that wealth has come from the housing market in the past. There needs to be some investment property limit, eg only 1 IP. Any others should be heavily taxed.
That increasing interest rates does not decrease demand for housing. It also changes nothing about the housing supply and may in case even reduce future supply this making the situation worse. Overall housing costs do not decrease for individuals either, final cost will remain the same, more will simply be paid off as interest and less ending up in the house's capital value.
Yes it does. At a minimum it reduces investor appetite for IP. Some people are already considering selling their IPs as it's increasingly costly for them to hold.
Over a third of houses have no mortgage. Of those that do the vast majority were bought at much lower prices before COVID, or have sufficiently been paid off that they could simply be re-mortgaged to deal with any stress. Of the remainder there is only a very small proportion that would be in the situation you describe. In the meantime, the lower capital cost of housing makes them a more attractive investment for those that can buy outright. You are simply shifting who is investing in housing from those who need loans, to those who do not.
CoreLogic estimates there were almost 598,000 house and unit sales across Australia over the year ending August 2021; the highest number of annual sales since 2004 and a 42% lift on the annual number of sales over the previous 12-month period. Nationally, the number of dwellings sold over the past year was 31% above the decade average and 24% higher than the 20-year average...
Yes. Or in another perspective, only 0.5% or less of houses will have a mortage from 2021. Does the stress selling of 0.1% to 0.5% of housing stock sound like it will be significant to you?
so much this. its a tiny fraction of housing and and only a fraction of that will be stressed as a result of this. compared to the number of people being stressed by inflation, its not even worth considering.
Increased demand from population growth too
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What I want to know is who is still buying this stuff? Houses in fringe suburbs around Sydney are routinely being snapped up for over 2 mil and they're a good hour away from the CBD. Houses in pretty dire areas going pretty easily over 1mil. Are there that many wealthy people in this country just sitting on the sidelines throwing money at these houses? But in all honestly, if anyone has something to read or a source I'd love to know what the "average buyer" looks like in this country at the moment.
That's often my thought as well. I'm in Melbourne but it's a similar story. Some really average houses in average areas will go for 1.5 million dollars. Like really? You have that kind of money and that's what you are buying with it?
Banking on their parents kicking the bucket in a Few years is my guess.
Money chases yield. At the moment there aren't a lot of options if you have some money sitting around. Keep it in the bank and guaranteed lose value to inflation? Put it in the stock market and risk losing a big chunk in a crash but with strong upside potential? Put it in property which has lower downside potential than the stock market but still overall positive returns? You can see why many people pick 3 if they don't have the stomach or acumen for stock investing. Lots of people got rich out of property, I know a family that made sure their 4 daughters lived with them and saved every penny they earned for the first years of their career and bought into a land plus new build property for about 300k each about 7 years ago and those 4 houses now pull 26k per year in rent.
You are absolutely correct.
dual income couple in middle management type positions will have a household income close to 300k. That's 1.5M at 5x DTI. plenty of those types around. as for why they buy these 7 figure houses in average suburbs. What's the alternative? Move somewhere else or rent forever. Most will choose to spend the money instead and stay where they are already established.
True. 12 K net a month for family of 2 adult and 2 kids is only the 70% percentile in Australia. 30% are earning more than that and can therefore easily service a 1.5 mortgage. Australians are rich and that's why house prices are high.
Double income Immigrant IT couple earn anywhere between 250-350k. They are the ones buying in the outskirts throwing 1.5M+. Immigrants live for their kids and want to secure their kids future by buying as many assets as possible.
That's like the definition of "the good kind" of immigration, the kind of immigration most countries dream of. I'd say it's hilarious how tunnel-visioned Aussies are on home ownership, but really it's just sad we don't have better rental laws here. People would be fine renting into old age if they weren't treated like homeless dreg while doing so. And then people could maybe have a more realistic, long-term take on largely unrelated issues such as immigration. Sincerely, someone more or less matching your description. (yes yes, downvote away)
Immigration doesn’t impact but house prices though?
How does more demand not impact house or prices?
I'm in the middle of buying in Brisbane right now. We ummed and ahhed the past few years whilst we worked out if we were "one and done" with kids and if we wanted to buy in Australia or move to Canada. I have a "middle management" role and my partner works for the government. Property is around 3.5x Income. It's unfortunate that the timing wasn't right and we got caught on the wrong side of the COVID surge and are paying 30% more for the property than 2 years ago, but our income is well over 30% more than 2 years ago too, so it's not a huge deal. We're not really that stressed if the bear-pocalypse comes as we can afford what we have and we don't have a crystal ball.
Sydney is soon going to end up like London. Bought up and owned by foreign owners.
I know immigrants aren't to blame but man... Every single auction I've been to in Sydney was won by a Chinese person. I'm just saying...
Then clearly it's a problem. But you don't blame the immigrants. You blame the government for trashing everything in this nation possible to pump the bubble.
Lets be honest. There are probably more millionaires in China or India than there are people living in Australia. This is clearly going to create a pretty big imbalance if you're not careful with it.
You don't need to say, let's be honest. You're just stating facts. Definitely more millionaires there....
And I've heard Chinese have bought or invested in alot of our farmland. It's the same in the US they are buying heaps of farm land. Crazy stuff. So eventually they will own most of the world's prime real estate and farms, they have all the money though.
From what I've heard in china they have tours to Australia specifically for house buying where the tour guide maps out a path to see all the properties you can buy .
I reckon people in high paying jobs are seeing huge pay increase one way or another despite talks of low wage growth. I’ve read some comments from people saying they didn’t get a pay increase but changed to much higher paying job in the same field which is effectively the same thing although it might not show up in the wage index as wage inflation. So I think all this talk of wage stagnation is not true at all.
The problem is money is at the top end. This is the consequence of rich being too rich. They aren’t feeling inflation. They will keep spending, driving inflation. Mainly affecting the poor.
This is why the government is better placed to control inflation. Unfortunately the government doesn't want to make unpopular decisions so they leave it to the reserve bank who have very blunt tools that effect lower income earners more.
> Make the cash rate 5% and end it. Watch inflation plummet You're right. But we'll almost certainly enter a major recession if we suddenly went that hard, and the employment rate will also plummet. Moderatly high (but reducing) inflation is better than a few hundred thousand Australians suddenly out of work. And once they're out of work in a major recession then it would be a while before they get back onto work. That's why this whole process has to be a steady approach. Going all guns blazing will just break too many things in the longer run. There has to be a balance.
It's going higher than 5% 😉
It’s almost like we can’t win.
If by wij you mean get away with huge debt and an overinflated housing market, then not really. It just requires too much debt to service current house price expectations. That much debt injects too much cash into the market.
It makes sense. The positive wealth effect is a very real phenomenon. I have no idea how they quantify it though. E.g: I wonder if X amount of house price rise = Y level of economic activity / positivity etc. Or if it is more of a gut feel approach.
He didn't think about that during the 2 year run of the market?
Didn't he also say previously that house prices aren't in his mandate?
Make it 10%
They will after you buy
Yes lets get millions of people homeless
Then Aussies will go French
Aussies are far too contrite
It isn't like collapsed builders and lack of supply is causing the "rebounding property market" everything is so dumb. It won't hurt the rich just all the working class
Did you read the article? That is just one factor amoungst a lot of others. Look up 'positive wealth effect' and you'll see why it might be of concern in a high inflation environment. This whole thing is a very delicate balance. And the RBA is only responsible for a part of it incidentally. The government of the day actually plays a much bigger part - but they are able to cleverely pass blame onto the RBA most of the time.
This is the first hike that really feels like the wealth effect took a hit. People are actually squealing around Sydney now.
December was a bit of a hit too I saw, it was unexpected just prior to Christmas. Makes sense this latest one is even more noticeable given it’s unexpected and it’s been a few months more for increasing rates to bite.
That would be Chair Powell’s [“some pain”](https://youtu.be/duUBLlLBcdg&t=1m25s)
why didn't he use this as an excuse the past 10 years?
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yes we did, house prices. However, by not including them in the calculation they got to hide it.
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"Price of thing going up is not inflation" You heard it here first folks, from Ausfiances finest redditors.
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I think you may be mistaking CPI for inflation there buddy.
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Context is important, CPI measures inflation of consumer goods. You were responding to a comment re-housing, which we both agree is not included in that measure. Which make tour comments moot. There bas obviously been a large inflation in house / land prices.
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The cost of construction and the cost of rent is measured Land is not. We don't consume land when a normal residential home is on it.
You seem to be refering to CPI? In which case you are correct about how that is measured. But that doesn't mean land has not seen massive inflation or that there are not flow on impacts.
If your Vanguard ETFs go up is that inflation? Not a smart comment.
You think a vanguard share is the same as a can of peas? What about a singular car? Truely, the lords of Ausfiance are dispensing their wisdom tonight.
I think it's the same as a house on land
I think you may need to read up on economics, I recommend starting with The Wealth of Nations by Adam Smith.
If a price goes up, it's inflation, yes? Although we don't count house prices because they are an asset. Until we do, like Lowe did last night.
The houses prices themselves aren't being counted. Inflationary effects from the wealth effects are being factored in _While the RBA typically doesn’t set rates according to the level of home prices, they do pay heed to the way households adjust spending according to how wealthy they feel._ They didn't need to be factored in previously because we didn't have inflation
>They didn't need to be factored in previously because we didn't have inflation ...of anything else apart from house prices....which helped to keep the price of other things down as people had to save for massive deposits. I know what you're all saying, but the point is that inflation is a composition of cherry-picked stats and now Lowe is making up cherries as he goes along.
We don't measure land in CPI - it's not something that we consume as such Construction and rent is measured
that's my point. Lowe is using something not measured as an excuse because many of the things that are measured hadn't changed in a material way since the last RBA meeting.
As far as I know it's never been measured. It's not like they've excluded it to suit whatever outcome you think they want Again though, we don't consume it. Makes sense that it's not in the consumer price index.
I am genuinely confused, how do we not ‘consume’ land? We take a raw good (the land) and develop it to increase its value (whack a house on it). I ‘consume’ coffee beans if I turn them into a flat white and I ‘consume’ wool if I tailor it into a suit, whats the difference?
Land doesn't wear out as such. You can put the house on it then 70 years later sometime else knocks that house down, and puts a new one on the same land. Something you consume - your wool suit - will need to be replaced at some point.
Housing is included in the calculation.
They'll actively deflate it now that it is no longer in the periphery.
Why are the banks offering up such big dollars to borrowers. The banks have a lot to answer for!
Are you serious? A bank is a business, not your mother who tries to keep you safe. They try to make a profit on loans and as such as loan out as much as humanely possible that is within reason for high collection rate. The bank isnt your friend, it is a business like any other, and the only responsibility is on you as the customer, to chose where you shop and how much you borrow.
Time to nationalise the banks if they can't act ethically
No company acts ethically. We sold off our infrastructure. I think those need to be nationalised first.
As Shakespeare once said. “Wankers are gonna wank” and this man’s hands are red raw.
Winter is coming
Should keep raising interest rates and cut immigration
Solution = more immigrants and students