Australian Real Estate Myths Destroyed – A Barbecue and Dinner Party Cheat Sheet (Side A)
Myths, Lies & Platitudes
False Implication
Marketed Fear or Spruik
In the Real World
Actual Consequences
Corrected Mythology
Current p rices must fall significantly to return to their h istoric relationship with incomes, and whatever the s cale, you are at n o risk of missing out. Rather, you are at risk of losing a lot of money.
Property p rices always revert to track real incomes / Buy n ow and forever regret.
Part 1 – General Lies and Charlatanism
Property p rices always go up.
There is n o risk of p rices falling, only a risk of you being u nable to ever afford a h ouse.
Buy n ow or forever miss out.
House p rices always track real incomes over the long term, and p rices h ave crashed at least 5 times in Australia. Year on year prices are falling right n ow in P erth and Darwin, and slowing rapidly elsewhere.
You can't time the p roperty market.
If p rices are rising: " Get in before p rices go even higher!", and if they are falling: "Grab a b argain before it's too late!".
There's never been a b etter time to b uy.
There is n ear universal acceptance that p rices are due for correction in the next year or s o. The p eak is in and timing matters a lot.
Even a s mall correction could s end n ew b uyers into negative equity. There will definitely b e a b etter time to b uy.
If you choose to / must rent for s ome reason, you will die p oor and lonely.
Interest paid to b anks is dead money also. Only equity is 'alive money', because you n ever get interest b ack. Additionally, a mortgage makes real estate a leveraged investment, meaning p rice gains are amplified, but s o are losses.
Buying to avoid 'dead money' only makes sense if you expect p rice rises to exceed inflation. With price falls coming, d ead money may even become 'undead money' ( negative equity), while rental price growth is s et to s tagnate and fall for s ome time yet.
Record low rental yields and the lowest rental growth in h istory mean that renting is n ow much cheaper than b uying, and it's going to get even cheaper. This is genuine physical h ousing s upply and d emand at work, as opposed to s peculative.
Rental costs are not keeping up with incomes and inflation.
Buying p roperty in the country, an outer s uburb or s mall city will not protect you from p rice falls. And n or will d esirable inner city p roperty. The rising tide that floated all boats will s ink all b oats to varying depths.
Australia's p roperty
market is one b ig massively overpriced boondoggle.
Rent money is d ead money.
Renting is just throwing money away, whereas interest p aid to the b ank is called 'investing'.
Rental costs always go u p.
Renting will always be more expensive than buying, b ecause rents just keep rising and incomes can't keep up.
Buying your own h ouse is the only way to avoid the endlessly s piraling cost of renting.
Unlike purchase p rices, rent p rices are determined by p hysical p roperties for rent, disposable incomes, and the n umber of p eople needing s omewhere to live. There is n ow an oversupply of rental s tock, and real incomes are falling, s o rents are falling.
There's as many p roperty markets as there are suburbs and towns.
Just b ecause h ousing is expensive in one city or suburb, d oesn't mean it's expensive everywhere. Inner city markets have always been more desirable, and p roperty outside major cities is n ot overpriced.
Give u p on your d reams of owning a h ome in the trendy inner city, and grab a regional or outer suburban b argain. Property markets around Australia vary greatly in level of u naffordability,
but n onetheless they are all s everely overvalued compared to all h istoric and current economic measures.
There's never been a worse time to b uy / There's never been a better time to rent.
Mortgage interest is d ead money /
Negative equity is u ndead
money.
Part 2 – It's All About Supply and Demand
Everyone wants to live in Australia, because 'beaches and coffee'...
Strong p opulation growth will ensure that p rices always rise.
Get in q uick b efore a migrant buys your future home.
Population growth h as recently fallen to d ecade lows, d efying official forecasts.
There is n o endless s upply of migrants to continue driving p roperty values ever upwards.
Prospective migrants are beginning to realise that there are greener pastures.
Rich international investors will keep p arking cash in our h ouses.
Demand for Australian housing is endless thanks to rich foreigners.
Get in q uick b efore a rich migrant buys your future home.
Newly strengthened and enforced foreign investment laws have p ut a pin in international money laundering through Aussie real estate.
There will be n o endless supply of rich foreigners illegally buying all of our property, capital controls and d omestic laws will ensure that.
Rich international investors are going to find it very hard to p ark cash in our houses from n ow on.
Get in line for a h ouse n ow or else sleep in a cardboard b ox.
There is n o p hysical shortage of h ousing, only a surplus of s peculative demand and cheap d ebt. And b ecause of the b ubble in construction, we n ow have a very large and looming oversupply of units in all major cities.
Major oversupply of apartments will cause a significant d ownturn in unit p rices, and a knock-­‐on effect to the rest of the market as b anks withdraw risky funding and b uyers lose d eposits on tougher lending criteria.
There is a h ousing oversupply: " Anyone for a concrete b ox in the s ky?"
There is a h ousing shortage: "Land -­‐ they aren't making any more of the s tuff you know..!"
There will never be enough h ouses for everyone, because government...
Part 3 – Be Cool, Banks and Debt are Totally Safe Alright
Our b anks wear steel codpieces, and could n ever fail like those b anks in dodgy countries.
The big b anks know what's best and are to b e trusted. Get a mortgage or get poor.
Our b anks are far from s afe, and h ave recently been forced b y regulators to raise capital b uffers against the threat of financial crisis.
Regulators h ave finally awoken to major risks in our b anking and h ousing sectors, and their failure would likely cause a crisis.
Our b anks are s ome of the riskiest in the world.
Our mortgage lending standards are h igh, so bad debts will n ot b e a problem.
Mortgage defaults only happen in other countries, we always use p rotection.
Hurry up and take out a zero-­‐deposit, interest-­‐only, parent-­‐guaranteed, 40-­‐
year mortgage. Everyone else is d oing it, what could possibly go wrong?!
Our regulators h ave now admitted that lending standards are far worse than they thought, in particular 'sub-­‐prime' practices like widespread use of interest-­‐only loans.
During a b oom, lending standards are always assumed to b e b etter than they really are, but once the b ubble b ursts, p rove to have been s ignificantly eroded b y b oom-­‐time blindness to actual risk.
Our mortgage lending standards are much worse than assumed, and falling house prices could q uickly lead to h igh d ebt delinquencies and credit contagion.
Record h ousehold d ebt levels are not a p roblem, exponential growth is perfectly normal.
Households can indefinitely borrow in excess of their ability to repay, it n ever needs to b e p aid off.
You'd b etter take out the biggest mortgage you can, it's p erfectly s afe and h ighly recommended.
We have record levels of private debt compared to incomes and G DP, which cannot continue indefinitely.
Debt-­‐deflation occurs when there is n o more capacity to increase debt, and asset prices are the first victim when d ebt growth stops.
Record h ousehold d ebt levels are a b ig p roblem, and b y law of n ature cannot keep growing exponentially.
The rapid growth of investor lending is n o cause for concern.
Investors know what they're doing, and are in it for the long h aul right..?! Investors aren't speculators, they just n eed endless capital gains is all.
Investors will crowd you out, s o you s hould give u p on owner-­‐occupying and become an investor instead.
The RBA and APRA h ave implemented macro-­‐
prudential controls on investor lending p recisely because it is a b ig p roblem.
These higher costs and limits on investor lending are having a material effect on the market, which is already flowing through to price growth.
The rapid growth of investor lending is of great concern, enough s o that there are now regulatory controls on investor lending.
Our b anks are s ome of the safest in the world.
rationalradical.me -­‐ 2015
Australian Real Estate Myths Destroyed – A Barbecue and Dinner Party Cheat Sheet (Side B)
Myths, Lies & Platitudes
False Implication
Marketed Fear or Spruik
In the Real World
Actual Consequences
Corrected Mythology
Part 4 – Australia's Exceptional Economy
The economy is s trong, s o house p rices can't fall.
Our exceptional economy means s everely unaffordable h ousing is to be expected and p erfectly normal.
High p rices are a sign of success. Are you a successful p erson, or a loser without a h ouse?
A s trong economy d oes n ot prevent a b ubble b ursting, and even if it could, the economy is weak, and quickly getting a lot weaker.
Whether or n ot the economic d ownturn is s mall or large, house p rices will not b e s upported b y a 'strong economy'.
The economy is weak and set to d eteriorate significantly, s o h ouse prices will fall, and fall far.
Rising wages will ensure that h ouses can always b e afforded.
Dual incomes and ever higher p aying jobs justify nose bleed h ouse p rices.
If you want a house of your own, get a b etter job and a rich p artner.
Wage growth is n ow at the lowest level in history and likely to get much worse as the mining b oom goes b ust.
Wages will n ot magically 'catch u p' to p rices, p rices will have to fall to restore the h istoric link to incomes.
Falling real wages will ensure s hort term unaffordability and inevitable price falls.
Unemployment must rise before h ouse p rices fall.
People only get out of the housing market if they lose their job and are forced to sell.
If you want a house of your own, get a b etter job and hold onto it.
Unemployment is n ot a required precursor to p rice falls. P eople will sell when they s ee prices crumble.
Unemployment is rising anyway, and a crashing housing market will simply push u nemployment h igher.
Unemployment will rise and house p rices will fall, the order d oesn't matter.
Part 5 – Government and Monetary Support to the Rescue
Low interest rates are the new normal, and justify current h ouse p rices.
Interest rates will stay at record lows forever, and will continue juicing asset prices.
The RBA h as our b ack, and wants you to take out a mortgage, so d o it already.
Interest rates are low because the economy sucks, and the RBA h as finally taken steps to prevent house p rices from responding to further interest rate cuts.
More house p rice gains at this p oint are an u nwanted side-­‐effect of rate cuts, s o regulators are using macro-­‐
prudential measures to ensure that mortgages cost more, not less.
Low interest rates never last forever, and mortgages are already becoming more expensive, which will directly impact prices.
Low interest rates mean housing is s till affordable.
Current interest rates are the only aspect of h ousing affordability, and p rove that h ousing is s till affordable.
Interest rates were 1000% in the old d ays, and we also had to walk 100 miles in the s now to take out a mortgage, so count yourself lucky.
Interest rates only determine initial 'mortgage serviceability', not affordability, which is driven b y p rices, s ize of deposits, incomes, inflation and long term rates.
The time taken to s ave a deposit, price to income ratios and low inflation mean that h ousing h as never been less affordable and more risky.
Low interest rates make mortgages cheaper, not houses. Record p rices, low inflation and low wage growth mean housing is unaffordable.
The government won't let prices fall.
Housing is a government guaranteed investment, it's impossible to lose money!
The government looks after owners, n ot renters, so join the ranks or miss out forever.
If the government could prevent market crashes, why d idn't they p revent all the p revious b ubble b ursts and market crashes? Hmm..?!
The government h as thrown everything at house p rices, b ut is running out of tricks and money. Previous government support is a b ig reason to fear imminent p rice falls.
The government d oesn't want prices to fall, b ut can't indefinitely fight off market forces.
Tax breaks for h ousing will keep prices from falling.
Tax deductions on rental losses and d iscounts on capital gains tax will continue to d rive p rices higher.
People will trample on your housing d reams to juice their tax return, and any government that tries to take away this b aby's bottle will face electoral doom.
Tax breaks like negative gearing prove that without high p rice growth, housing is a losing investment.
A market requiring tax breaks to s urvive is n ot healthy. It is p roof that investors are much more likely to flee the market when even minor p rice falls
are realised.
Tax breaks h elped to cause a h ousing b ubble, and therefore help ensure that prices must correct. They indicate that this market is not b ased on investment fundamentals.
Part 6 – Australians and their Houses are Very Special
Our h ousing is b etter q uality than the rest of the world.
Houses are expensive because we have taste, and The Block taught u s h ow to renovate old s hit-­‐boxes.
Even though all our h ouses are exceptional q uality, you
have to b uy an old s hit-­‐box and fix it u p, or miss out.
There is lots of evidence that the construction b oom has led to very p oor q uality housing.
Problems with many n ew unit d evelopments and fringe h ousing will b egin to weight on p rices.
Our h ousing is mediocre quality at b est, and getting worse thanks to the b oom.
Owners love their h ouses, and will n ever sell if p rices fall.
Aussies are too p roud to sell the family home, s o prices would n ever fall far, or s oon recover if they d id.
The oldies aren't giving u p their mansions, s o you'd best s ettle for a fibro-­‐shack in the b oondocks.
Most p eople love their houses b ecause they've gone u p in value s o much or b ecause they n eed to justify their monstrous mortgages.
As much as p eople may love their house, the prospect of n egative equity or losing their retirement savings will eventually override such s entiment.
Owners love their h ouses, but love their p aper wealth more, and will s hit their pants when it evaporates.
Australians h ave a love affair with housing that will never end.
Australians h ave a bad case of h ousing h orniness, meaning that h ouse p rices will remain forever erect.
We collect h ouses like Pokemon in this country, and if you d on't join in on our n ational s port, there must b e s omething wrong with you. Sexually.
Love affairs tend to last while the object of d esire is young and s exy. Wealth destruction caused b y a crashing h ousing market is very unsexy.
Housing porn and d inner parties in celebration of real estate will become a relic of a s hameful p ast, a painful reminder of an affair gone terribly wrong.
Australians h ave a love affair with property that will end like many affairs do -­‐ with tears, regret and disgust at our own wilful blindness.
Part 7 – Young Folks are Just Paranoid and Lazy
Being more frugal and lowering expectations is all you n eed to d o to afford a house.
The current generation is just s poilt and jealous, housing h as n ever b een affordable.
Put d own the iPhone and overseas h olidays for a minute, and that $ 200,000 deposit will b e a cinch -­‐
prices are 10 x incomes because iPhones...
If you d on't accept a falling down h ouse or 1 0 s quare metre dog b ox 5 0 kms from where you work, you are spoilt and lazy and d eserve nothing.
Housing h as n ever b een less affordable, and crucially, average house prices are at record h ighs compared with d isposable income.
It d oesn't matter how many iPhones a young person d oesn't b uy, p rices at 1 0 x incomes are three times less affordable than long term historical trends.
Being more patient and dispelling Fear of M issing Out is all you n eed to d o to afford a h ouse. Endless price growth is the only expectation that n eeds lowering.
Young p eople and doomsayer economists are just s pouting conspiracy theories about housing b ubbles.
Average incomes, rents,
inflation and economic fundamentals have nothing to d o with affordability, h ouse p rices will get further and further out of reach and that's totally n ormal and sustainable. If you d on't buy s omething s oon, house p rices will b e 1 000 X average incomes, and take 100 generations to pay off, and even then housing s till won't b e any more expensive then it used to b e...
The problem with exponential growth of house p rices and d ebt compared to incomes, rents, inflation and economic growth, is that if it were to continue on indefinitely, in another 2 0 years, houses would cost 30 times the average income. What d o we imagine might h appen next? H ow d o you p ay 3 0 times your gross income to afford a h ouse? Answer: You d on't, which is why p rices will fall.
There is n o conspiracy, just facts. Like many countries in recent history, Australia h as channeled u nparalleled sums of wealth into unproductive h ousing speculation, causing chronic u naffordability and d iversion of money away from the real economy. The 'wealth effect' is a temporary illusion, and malinvestment in real estate impoverishes u s all in the long term.
The current generation is calling b ullshit, and recognises that h ousing has n ever been less affordable in Australian history. They also know that p atience is all that is required to s ee an end to the temporary and insane circumstances that caused the greatest bubble in Australian h istory. All things move in cycles, and the wheel has n early finished turning.
rationalradical.me -­‐ 2015