It's not often the scummy barrel of Reddit comes up with gold. It's rarer still for someone to pick up on it. But today is your lucky day.
Australia's housing market is "like reading Roman history" one r/ausfinance user has claimed in a thread bemoaning the fact that some Australian houses have made more money over a 50 year period than their owners.
Entitled, "An interesting anecdote about housing and price booms," the thread explains how property can accumulate more value just sitting there than its owner can by sweating their backside off (in cheap nylon pants) for half a century.
Statistics back this theory up. As The Conversation reported last year, "Real home prices across Australia have climbed 150% since 2000, while real wages have climbed by less than a third."
The story resonated with Reddit's r/AusFinance community. One user, ben_rickert, wrote, "[I] Got in trouble for inadvertently denigrating a family friend due to something similar. Said that her house was more productive than she was, and financially I was correct."
This comment received 159 upvotes.
"She was a senior school teacher so on about $95k (Sydney). She bought her place for 700k, sold out for $1.75k just over ten years later. Her house provided more return than what she made on both a top line perspective, and was well ahead on a post tax basis."
"She wasn’t impressed when I pointed it out."
"I used it to illustrate how nuts the situation was - a pretty average house in an average area increased in value faster than a senior role could earn, and she was even further behind considering tax."
"That also doesn’t consider servicing costs of a mortgage – if you could somehow keep up with top line price growth you’d still be behind due to interest charges as you’d still need to buy in."
"I also recall an article in one of the papers a few years ago saying how idiotic it was that Millenials were buying iPhones for $1500. Very next article was saying that the average house price was increasing $2k a week. The juxtaposition was poetic."
The second top comment came from user Distinct_Plan, to the tune of 27 upvotes, and read as follows: "You’re not wrong. I’ve been browsing on the real estate sites to see what houses in my area are selling for. The freestanding houses are on average going up in value by 100k plus a year over the past 10 or so years."
"It’s ridiculous, but I also wish I had one of those houses..."
Where does this tie in with Roman history?
A little further down the comments, one user wrote: "It’s like reading Roman history. The asset class endorsed as a savings plan and a store of wealth by the Govt."
Others agreed with this claim. "Absolutely," one wrote. "Anyone who mortgaged to the gills with 5% deposit courtesy of first home owner grants and LMI has doubled their money meanwhile 'safe investors' have spent years saving a deposit."
Twigman 7, another member of the online community, wrote: "It was the killer trade of the last 30 years that you could take with huge leverage and beneficial tax treatment. I’m just wondering if anything like this will come up again?"
In response to his question: "I’m just wondering if anything like this will come up again?" various other users made various other remarks, including:
"You mean an asset class that the government all-but openly admits is too big to fail while taxing gains at zero %? Unlikely. Your best bet to become wealthy is just to buy property and wait like every other Aussie."
"I think what upsets people including me is that there was no intelligence at work here. The house narrative was so mainstream already. It wasn’t some options trade on the soybean futures."
"It goes to show that sometimes in life there are certain investment moves that are like shooting fish in a barrel..."
As for what can be learned from this so-called 'revealed wisdom' going forward, users put forward a variety of opinions, including diversification ("have property, have cash, have shares, have metals, have a job") and finding major investments ("People who shun major investments like property and shares will generally lose out in the long term").
"People who kept their cash in the bank tend to lose out where as risk taking behaviour over varied areas tends to see positive outcomes."
Not everyone agreed with this though. "Yep betting more than you have on property is always the winning strategy," one sarcastically wrote.
"Except when it's not."
"We can definitely point to times when it hasn't been – like Perth for the last decade – and Darwin when it had already taken off. We can also point to whole countries where it hasn't worked for a period of time like Ireland and the USA."
This inspired quite the debate. Shots fired included: "There are always short term dips. No one is entitled to permanent economic prosperity" and: "Equally people shouldn't buy more than they can afford."
"There are plenty of houses regionally at 300k. People conflate wealth building with lifestyle, which they shouldn't."
"Generally speaking with a 30 year horizon property is an important investment to make given the inflation that property tends to experience."
Even this idea of buying within your means out in the sticks though was questioned, with another user opining it could actually be the riskiest strategy of all...
"Interest rates aren't repeating what they've done over the last 30 years in the next 30 years. Those 300k regional properties are the most dicey ones to buy. The right location may be solid. The wrong location could never appreciate a cent."
Perhaps it's time to take a leap of faith into the fairy dust of the outrageously-expensive, perennially popular regions? As news.com.au reported today, "Australian house prices are forecast to see their sharpest rise since the 1980s."
https://www.youtube.com/watch?v=wM6exo00T5I
Maybe Bondi beach houses and Vaucluse apartments really are worth every cent? As with Ancient Rome, however (and at the risk of stating the obvious), overstretch yourself and your empire could come crumbling down.
As always, you should take all of the above with a grain of salt... and allow yourself to be guided by experts – not the ramblings of Redditors – however interesting their points.
If you'd like to go beyond murky rumours, feel free to head on over to our Money vertical, where we regularly interview real estate experts and investment managers to get their take on Australia's financial landscape.
With regards to buying a house in this current climate, Edward Brown, director at Australia’s leading real estate provider Belle Property told DMARGE last year of buying in this Covid-smacked world (while things were still a little more uncertain): "If you need to move, move. The housing crisis is only going to be caused if everyone sits back and does nothing."
"The loans are very cheap. You can go and get interest rates for under 3%. That’s cheap money – you can go and get a million-dollar mortgage and they principle an interest for about $4,000."
“So your rent and your mortgage on principal interest is about the same, potentially, if you’ve got the deposit to pay it now. Everybody focuses on property in the short term element – but what’s the long term?”
“I’m very much of the view at the moment that you want to be in and owning your own home if you can afford to.”
He also told us: “Nothing is immune – it’s an uncertain time as all aspects of the marketplace have been impacted. But again it comes back to consumer confidence – we’re still selling properties and still have people looking to buy properties.”
Another aspect to consider, when it comes to Sydney, Brown told DMARGE, is that, unlike New York and London, which are bigger, Sydney has a smaller number of ‘goldilocks suburbs’ which give residents the best of both worlds.
“It’s all about demand and supply – that have pushed prices to where they are today – they’ve seen a good appreciation in the value of homes over a long period of time.”
“Sydney year on year has proven to do very well compared to other cities.”
“Compared to London; New York, we’ve got our one CBD and those suburbs that adjoin that one CBD.”
In The Big Apple, for instance, “Manhattan is pricey, but outside in greater NY, prices are a lot cheaper” Brown told DMARGE.
A counter point to all this positivity is that AMP Capital chief economist Shane Oliver told the ABC last year we’re living in a “super cycle of debt.”
He compared the early 1990s recession with now, showing how our level of household debt has increased over the last thirty years.
“During the early 1990s recession, the level of household debt in Australia was around 40 per cent of income, whereas now it is close to 200 per cent — one of the highest levels in the world,” (ABC).
“Each time there’s a downturn people get worried about debt and pay some of it back, but before things go too far [into the positive], the Reserve Bank cuts rates and people start borrowing again — we go back to a new level of debt and it starts the cycle again.”
Digital Finance Analytics (DFA) principal Martin North told the ABC two triggers that could expose this underlying debt (thus rupturing the bubble), are a lack of migration (which is already happening thanks to Covid) and lower population growth.
He also said selling pressure will come “from mortgage stress plus investors seeking to exit."
What will determine prices then, is an arm wrestle between all these factors and the government stimuli introduced to offset them (and Sydney's ‘must buy’ housing culture).
ANZ reckons the latter will win in 2021, last year forecasting house prices will rise 9%.
Only time and for sale signs will tell the result.
Read Next
- I Purchased A $2 Million House In Sydney & All I Got Was This Crappy Umbrella
- Sydney Man’s ‘Unbearable’ Experience Reveals The Perils Of Moving Too Far Away From The City
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The post ‘It’s Like Reading Roman History’: The Truth About Australia’s Housing Market appeared first on DMARGE.
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