Here are another eight property myths.
Obviously, from the heading, this is part two.
To read part one, go here.
Myth 9 – Our strong economy will prevent house price falls
Spruik – if you want to buy, either work harder; get a better job/s or a rich partner
Reality – most new work is casual and wage growth is low and declining
Truth – our economy is weakening and is increasingly vulnerable to external stocks.
Interest rates are falling because things aren’t that great, economically speaking.
Myth 10 – Low interest rates are the new normal
Spruik – in an increasingly deflationary world, low interest rates are here to stay
Reality – most (when excluding foreign buying influence) house price gains are the unwanted side effects of rate cuts – so regulators are implementing measures to calm things down, plus most banks increasingly won’t be able to pass on the full official rate cuts
Truth – the ability to repay the loan, regardless of interest rate or loan term, is paramount.
Rising unemployment (plus underemployment) is the bigger issue.
And deflation means falling prices, so why should housing be exempt?
Myth 11 – Lowering interest rates improves housing affordability
Spruik – the RBA dropped the cash rate by another 0.25%, meaning that the average mortgage cost has dropped by 4%, which means that prices will rise accordingly
Reality – the current 0.25% drop means a saving of about $60 per month off the average Aussie mortgage.
Moreover, interest rates only determine initial mortgage serviceability, not affordability.
Affordability is driven by price; size of deposit and loan; income; inflation and long-term rates/trends.
Truth – low interest rates make mortgages cheaper, not housing.
The time needed to save for a deposit; price to income ratios; low wage growth and now potential deflation, have made housing increasingly unaffordable.
Myth 12 – Property tax breaks protect house prices
Spruik – no government will upset the apple cart, as tax deductions on rental losses and discounts on capital gains help drive house prices higher
Reality – tax breaks, like negative gearing, help to illustrate that without high price growth, housing for the majority, is really a losing investment
Truth – if tax incentives are a (the) major attraction to an investment class, then something is wrong. It isn’t healthy.
Investment should be based on market fundamentals.
Many investors are likely to start selling if prices stagnate; most could flee if prices fall in earnest.
Tax incentives will have no bearing on these decisions.
Myth 13 – Our housing quality is great
Spruik – our houses are expensive because they are near the beach, bush, a Westfield, railway stations – you name it – and they are also well built; large and just plain lovely
Reality – The Block is just BS and the quality of much of the new builds is pretty poor and becoming more so in recent years.
Most of the ‘old dogs’ are leaving the construction industry and the backfill are more interested in tatts, their hairdos and Pokémon.
Truth – the problems with many new apartment developments and new outer suburban boxes will begin to weigh on valuations, resale prices and future rents.
The established (and often better built) market is already catching a cold.
Myth 14 – Home ownership is our way of life
Spruik – housing is our real national sport.
There is something wrong with you – you’re seriously un-Australian – if you don’t own your own home and aren’t trying to get on the property investment ladder.
Reality – increasingly so, more Australians and across all demographic segments, are choosing to rent rather than buy.
Truth – the dinner parties in celebration of the latest real estate conquest will fade, like most fashions.
We need to redirect our collective energies away from unproductive pursuits like selling houses to each other for ever-increasing prices, and towards more sustainable economic ones.
Myth 15 – Just do it tough for a while so you can get ahead
Spruik – stop playing with your iPhone for a few months, save up for that deposit and Bob’s your uncle, you can start playing the property game instead.
Reality – working two jobs; children in day-care; HECS bills to pay; little to no wage growth and increasing energy and most transport costs make it hard to save that $50,000-plus deposit.
In short, if you are over 35, it is now near impossible.
Truth – it doesn’t matter how many iPhones a young couple owns, prices up to ten times household income are three times less affordable than long term averages.
The world may have changed, but not that much!
Myth16 – Non-property owners are just lazy gits
Spruik – non-owners are either doomsayer, wannabee economists; or are too lazy to get off their rental arses and do the hard yards.
If BS thinks so, then it must be right.
Reality – many of the components that have driven past price growth are very unlikely to continue for much longer.
Many of these drivers are now reversing trend.
Truth – the property market is cyclical.
Yes, there is a seven year cycle that fluctuates across four distinct phases. But this property cycle is caught in a greater orbit and by objects with far more gravitational pull.
To paraphrase billionaire Bill Gross, you have a better chance of observing another era like the previous 40-year one on the planet Mars, than you do here on good old Earth.
I haven’t gone all negative.
I am not having a meltdown.
I’m just trying to articulate things as I see them; and provide some balance, maybe, to the property porn that is becoming more hard-core and widespread.
All these myths say to me, is that property buyers need to measure many more times before they cut, and much more so than in years gone past.
Moving forward, time is very unlikely to correct a property mistake.
Times, they are a changing.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.