Real estate

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SoftBank-Funded Silicon Valley Unicorn Katerra, Which Was to “Transform” the Construction Industry, Collapses

Published by Anonymous (not verified) on Wed, 02/06/2021 - 8:28pm in

Katerra, one of the rare unicorns with a real or at least plausible business, fell to Covid. Lawsuits will fly.

Paying off a home loan used to be easier than it looked. It's now harder. Here's why

Published by Anonymous (not verified) on Wed, 02/06/2021 - 3:25pm in

So you think it’s the right time to dive in and buy a home.

I can’t tell you you’re wrong. I can tell you it would have been better to do it before prices began soaring, and that if they keep soaring it will get worse still.

When the year began, the typical Sydney price was $872,000. Five months later at the start of June it is $970,000.

That’s a jump of almost $100,000 in a matter of months — an awfully big price for procrastinating.

In Melbourne the typical price has climbed from $682,000 to $740,500. In Perth it has climbed from $471,000 to $521,500, and so on.

And banks are beginning to withdraw the cheapest of their still-very-cheap mortgage rates, at this stage mainly the fixed four-year rates which had been below 2%.

So why on earth wouldn’t you dive in, cut your living expenses to the bare minimum and try and buy a home while it’s the least bit possible?

One (slight) reason to relax is mortgage rates. Despite the increases in fixed four-year rates, three-year rates have barely moved. That’s because the Reserve Bank has promised to hold the three-year bond rate constant at 0.1%.

Buying has become a bigger commitment

The three-year bond rate determines the cost to banks of their three-year fixed rate mortgages.

The Reserve Bank has said it does not expect to lift its 0.1% cash rate until “2024 at the earliest”. Movements in the cash rate determine movements in variable mortgage rates.

But there is another reason for proceeding with caution and taking stock.

Read more: Home prices are climbing alright, but not for the reason you might think

For our parents, buying a home was an exceptionally good deal, not only because homes were cheaper — until the end of the 1990s homes typically cost between two and three times household after-tax income, they now cost closer to five — but also because over time the loan became easier to pay off.

Housing prices as proportion of household disposable income

Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises. Core Logic, ABS, RBA

That isn’t because mortgage rates were coming down — at times they were going up — it’s because during our parents’ times wages (and prices) were climbing.

It meant that even if someone of our parents’ generation just squeaked through one of the bank’s tests about their ability to make payments on a mortgage, a few years and lots of inflation and several big wage rises down the track those mortgage payments shrank compared to everything else.

Once, wage rises took care of repayments

Many of our parents paid off their mortgages early.

One way to look at this is that the bank’s ability-to-repay calculators were set too harshly. They failed to account for future hefty wage rises and inflation.

It’s probably also true that they were set more generously than they might have been in an implicit acknowledgement of what the assistant governor in charge of the Reserve Bank’s economic branch Luci Ellis calls “mortgage tilt”.

The former governor, Glenn Stevens, used another term, “front-end loading”.

Mortgages were ‘front-end loaded’

When inflation was high, and as a consequence interest rates were high, wages that climbed rapidly with high inflation made the servicing burden “most acute in the very early phase of a loan, falling over time”.

On a graph (and the former governor presented a graph) the line showing payments as a portion of income tilts down over time.

In a world of lower inflation and interest rates, the tilt becomes flatter.

By now (Stevens published the graph in 1997) the line must be near horizontal.

If wage growth remains near the record lows the treasury is forecasting it will become scarcely any easier to make payments on a home loan over time.

Yet the banks are still handing out loans using the sort of formulas they used to.

If you get a loan you’ll be assessed as being able to (just) make the payments as always, but you’ll be denied the near certainty of being able to more easily meet the payments as time goes on.

Now, we retire mortgaged

This is a different from the risk you’ll also run of today’s ultra-low mortgage rates climbing (which banks do take into account in deciding whether to give you a loan).

The proportion of homeowners reaching retirement age while still paying off their mortgage has doubled in 20 years. Which might be why some banks ask for details of your super before granting you a loan. It isn’t an idle inquiry.

Might things get better? Maybe, if we can get wages moving again.

Evidence given to Tuesday’s post-budget Senate estimate hearing provides cause for hope, and despair.

Super hikes will make things worse

The budget forecasts for wage growth over the next four financial years are incredibly low — 1.5%, 2.25%, 2.5% and 2.75%

On Tuesday Treasury Secretary Steven Kennedy revealed that each would have been higher — 0.4 points higher — had the government not persisted with the five scheduled annual increases in compulsory superannuation contributions of 0.5% of salary starting in July.

The treasury believes each increase will slice 0.4 percentage points from wage growth, on the basis that employers, who are legally required to pay the contributions, will have to find the money somewhere.

Commonwealth budget, 2021-22

It’s the same conclusion reached by the government’s retirement incomes review.

It’s cause for hope because it means that when those five increases stop (in mid-2026, or sooner if the government stops them mid-track) wages might be able to grow more strongly.

It’s cause for despair because if the treasury is right, we are denying ourselves wage rises we could use in return for super we will increasingly use to pay down our mortgages.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Despite Federal Moratorium, Eviction Rates Returning to Pre-Pandemic Levels

Published by Anonymous (not verified) on Tue, 25/05/2021 - 3:40pm in

The eviction process is restarting, even when it is premature under the law. What will the collateral damage be?

Government To Allow Under 30’s To Sell Their Organs For A House Deposit

Published by Anonymous (not verified) on Thu, 13/05/2021 - 9:38am in

The Government has announced that they will be easing restrictions around the selling of organs to allow those citizens under 30 the chance to become property owners.

”We know that it is tough at the moment for young Australians to enter the property market so we’ve done something about it,” said the Treasurer. ”Going forward a house won’t cost you an arm and a leg, just a kidney or spleen.”

When asked how this would help the already over inflated property market, the Treasurer said: ”It will help greatly, especially older Australians.”

”As the homes they own will be worth more and if they need it they’ll be able to source some fresh young organs to help keep them alive.”

”Now, if you’ll excuse me, I saw a baby with some candy I might go and explain to it how the tax system works.”

Mark Williamson

@MWChatShow

You can follow The (un)Australian on twitter @TheUnOz or like us on Facebook https://www.facebook.com/theunoz.

We’re also on Patreon: https://www.patreon.com/theunoz

The (un)Australian Live At The Newsagency Recorded live, to purchase click here:

https://bit.ly/2y8DH68

Homeless Reflect on Life in a New York City Hotel Room, One Year Later

Published by Anonymous (not verified) on Wed, 12/05/2021 - 5:27pm in

Covid housing for the homeless has been beneficial not just for public health but for many of the individuals in the program.

Even Credentialed Young People Pessimistic About Their Futures

The fact that even well-placed young people are insecure and pessimistic is further proof of the impact of inequality and rentierism.

Home prices are climbing alright, but not for the reason you might think

Published by Anonymous (not verified) on Wed, 14/04/2021 - 7:30pm in

It’s tempting to think home prices are soaring because there aren’t enough homes.

But that can’t explain the sudden takeoff from about the year 2000, the sudden takeoff from about 2013, and again now – against expectations – the stratospheric takeoff in the wake of the COVID recession.

Broadly, we’ve enough homes. The 2016 census found we had 12% more dwellings than households, up from 10% in 2001.

That’s 12% of our houses and apartments empty – used as holiday homes and second homes, or waiting for tenants.

If there really weren’t enough homes for people who wanted them, it would be more than property prices soaring; it would be rents.

Instead, overall rents have been barely moving – growing even more slowly than wages – for half a decade.

Rent price index versus wage price index

December 2009 = 100. ABS Wage Price Index, Rent Price index from Consumer Price Index

For the half-decade from 2016, a half-decade in which Australia’s population grew by more than one million, Australian rents barely moved.

The supply of places to live in has kept pace with the demand for places to live in, but the supply of places to own has not.

More landlords, more tenants

If that sounds odd, remember people want to own houses for reasons other than living in.

Since about the year 2000, big numbers of Australians (and foreigners) have wanted to buy them to rent them out. They’ve wanted to become landlords.

Read more: Rents, not prices, are best to assess housing supply and demand

Twenty years ago only one in 15 of us were landlords. It’s now one in ten – more than two million of us.

To get those properties (other than where they’ve built them) they’ve had to outbid at auction the people who would have bought them to live in.

They’ve been helping create their own tenants, while pushing up prices.

We’re chipping away at Menzies’ legacy

From when Robert Menzies stepped down as prime minister in 1966 until the end of the 20th century, about 71% of Australian households owned the home they lived in – one of the highest rates in the world.

Since about 2000, owner-occupation has been sliding. The latest figures (themselves some years old) put it at 66%.

Among those aged 35 to 44, it has fallen to 63%

Over that time the cost of buying a home has shot up from two to three years’ household after-tax income to three to four years’ income.

Housing prices as proportion of household disposable income

Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises. Core Logic, ABS, RBA

What appeared to set things off was a decision by Prime Minister John Howard in 1999 to halve the headline rate of capital gains tax. Not that the committee he asked to investigate the idea recognised the possibility at the time.

The Ralph Review recommended that half, rather than all, of each capital gain be taxed, rather than the portion above inflation as had been the case since capital gains were first taxed.

The rationale was that this would “encourage a greater level of investment, particularly in innovative, high growth companies”.

A rush into property rather than high-tech companies

The review was right about the change encouraging investment, but wrong about the sort of investment.

Rather than buy shares in innovative companies, Australians bought rental properties like they never had before.

If they bid enough, they could borrow enough to negatively gear; to make sure their interest charges exceeded their income from rent, giving them annual losses they could offset against wages that would otherwise be taxed at high rates.

Read more: When houses earn more than jobs: how we lost control of Australian house prices and how to get it back

There was nothing new about negative gearing. It had been permitted from the beginning. What was new was the opportunity to later sell the property at a profit, knowing only half of the profit would be taxed.

Investors could offset all of their losses and be taxed only half their eventual gain.

Pretty soon, more than a third of the money lent for housing each month went to landlords. For several dizzying months during 2015 it was 45%. First home buyers struggled to compete.

In 2016 then treasurer Scott Morrison raised the prospect of winding things back, saying negative gearing had led to “excesses”.

APRA cleared up what our leaders could not

Labor went to two elections promising to do just that and the Coalition came out in support of the practice in public.

Behind the scenes, the Australian Prudential Regulation Authority was using its power over lenders to force lending to landlords down, getting it down ahead of COVID to 27% of new housing loans.

APRA succeeded in taking the pressure off prices where politicians couldn’t.

But that’s far from the whole story. There are other more deep-seated reasons why house prices are climbing, and they too have little to do with demand for accommodation.

Read more: Zoning isn’t to blame for Australia’s soaring house prices

Prices took off again from about 2014, shifting up from three to four years’ household income to between four and five years. That time it was Australians getting richer after years of mining booms and being able to borrow more cheaply.

Houses in general mightn’t be a good investment (there being a regularly increasing supply) but houses in prime positions were in fixed supply, there being only so many good locations.

And then it fed on itself. The father of modern economics John Maynard Keynes described investing as a game in which the best strategy is not to put money into what you think is worthwhile, but to put money into what you think other people will think is worthwhile.

It’s happening again

He spoke of a third degree, where “we devote our intelligences to anticipating what average opinion expects the average opinion to be”, and added there might be fourth, fifth and higher degrees.

It’s happening again. With mortgage rates at new extreme lows and wealthier Australians having come out of the crisis with their wealth intact, it makes sense to do what others are doing and push up prices to buy before others push them up further.

It’s nothing to do with a shortage of housing, but for many it will push home prices further out of reach. That’s because in Australia housing is two things: accommodation and a form of speculation.

Peter Martin Saturday AM with Linda Motram April 17 2021.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

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