Houses, Interest rates and affordability. (1 Viewer)

[loquasagacious]

This may go against the prevailing wisdom of those who watch house porn like hot auction but anyway here goes.

Since 1996 the cost(affordabilty or lack thereof) of a house has gone up 70%.

In this same period Interest rates have fallen.

These facts are the premise of an argument which runs as follows:

When interest rates were high we could not afford to borrow much, therefore we (or rtaher our parents or older siblings) could not afford to spend much on a house and therefore house prices were kept low.

Interest rates rose and as we had been borrowing as much as we were allowed we kept doing this, we borrows more so we could spend more on a house. The ned result being that we pushed the price of houses up becasue we were willing to pay more, we have done this to such an extent that:

It is now more difficult to buy a house now than it was when interest rates were in double digits. Futhermore the huge mortgages home owners have mean they are susceptible to the slightest interest rate rise.

Hence the young of our nation are screwed in two ways:

baby boomers are voting for a party they believe will keep their interest rates low as opposed to guarantee education and a future for their kids.

And becase the baby-boomers have pushed up house prices so much, higher than inflation and higher than wage growth (wage growth aprox 20% since 1996 versus 70% increase in house prices). The young can no longer afford to buy a house.

And thus I prophesise:

Our generation will be consigned to renting houses owned by the baby boomers generation whilst they all move to queensland. Hopefully when they go into nursing homes they will loose interest in property and stop bidding the price up, so when they die and we inherite prices might have fallen abit and so somewhere between middle-aged and approaching retirement we might be able to buy our own houses.

On the other hand our grandparents possess a remarkable ammount of wealth (6 billion plus form memory) and so when they die they might opt to skip giving it to our parents because they dont need it and instead give it to us. And then we can buy houses, and quite likely dive up the house prices again.

Or in a worst case scenario our grandparents die our parents collect, pay off their mortgage or more likely buy investment property and drive up prices still more and we are still excluded.

To break from prophecy becuase I have decided that prophets need beards and when I have one it annoys me.

The plus of the baby-boomers owning lots of property and us having to rent from them, we could make the pension means and asset tested so we can cut their welfare payments and hopefully save us from crippling social security payments draining the budget.

Then we could only hope that the savings this would deliver would NOT be passed on to us in the form of tax cuts, maybe this time round instead of giving us more money in our pockets to spend on consumables we could do something sensible with it like pay for our retirement in advance so that we do not f*ck evrything up like the baby-boomers.

 

[Cyph]

I think people borrow more money to buy a better house in a better location.

 

[loquasagacious]

I think people borrow more money to buy a better house in a better location.

It doesnt work like that becasue while people in a shit area might want to borrow more money and move somewhere nicer other people living in other not quite as bad areas (we'll assume that a nice area is full of high income earners and a crap one of low income areas) will also borrow more and try to move to nicer areas and becasue they earn more and can borrow more people who live in a shit place arnt going to get a house in Neutral Bay. And even those in a mediocre place arnt going to either becuase people who earn more than them will be able to spend more than them and get the best places.

So thats why north sydney is full of high income earners and kellyville isnt, it's fairly simple economics.

People borrow more money hoping they can outbid the person next to them, someone who earns more will always be able to borrow more but lower interest rates mean that evryone can borrow more. Therefore high income earners can still borrow the most but they will have to borrow more than they did so that middle income earners don't buy the house that the high income earners want. And this pushes the price of a house up. Its all to do with Supply and Demand and in this case the ammount people can afford to spend.

 

[Not-That-Bright]

What i find interesting is... while right now it is hard for young people to get work, soon there won't be enough young people to do all the work. It's going to become hard to keep an academic style job as of course..basic services will be what needs to be done first.

Maybe it's time to think about becomming a plumber/electrician/hospitality worker/etc

Wether we had low interest rates or not, the richer people would still be buying the more expensive homes.. .and their affordability would be about the same.

Young people can buy homes... just not around sydney lol

 

[loquasagacious]

What i find interesting is... while right now it is hard for young people to get work, soon there won't be enough young people to do all the work.

Lol yeah, I hadn't considered that, baby boomers retire suddenly its an employees market, unfortunately if we then get higher wages becasue of this demand for our labour, which we then hope to actually be able to buy a house what will happen is wage-push inflation and even though we earn more we won't hjave in real terms more to spend. Lol I must just be in a real happy mood today.

Wether we had low interest rates or not, the richer people would still be buying the more expensive homes.. .and their affordability would be about the same.

Exactly the rich will always get the best houses, however it is because of lower interest rates that evryone has been able to spend more on a house. This is what has pushed up the prices and made it hard for a young person to get a house (a house in sydney that is.... going to tassie and buying a neighbourhood is still possible lol).