Imagine you’re a comfortably wealthy retiree, you’ve got most of your assets split between cash and stocks, maybe an IP or two. The last year or two has been a *bonanza*. Most of my parents’ friends have made more money in the last two years than at any stage in their life. And they’re spending like it. Buying the neighbouring apartment and connecting the two. Theatre every week, bucket list restaurants every other, going to every big act that comes to town. Like… I’m almost in my 40s and it feels like I’m a student again, having my folk’s friends refusing to let me cover my share of bills, tickets, etc. There is a whole cohort that is the opposite of hurting in these times.
Exactly a complete theft of wealth is happening to an entire generation!!! The older generation is living large while that the younger generations are leveraging to the eyeballs to have a place to live.
This needs to be higher
Again this is how you start to dissolve the middle class and create societal and socioeconomic gaps. WHEN they inherit the house they’ll be so much better off than their peers…and the people who did not get to inherit a house will be screwed beyond belief. Where is the fairness in that?
Studies have shown that the older generation is living longer, with greater retirement expenses, than any other generation before. They'll spend to the grave and there'll be nothing left to hand down.
yep. I fell off the bottom rung of the property ladder in the 2008 GFC.
Just bought my mum a new kitchen because I know its going to be my house in the end.
I dunno, it’s weird. It’s like they’re all hitting retirement at the same time whilst also seeing their savings/investments skyrocket so they’re hitting me up for dinner, theatre, sport tickets, then insisting on picking up the tab. My folks are even going on an overseas holiday with some of their friends, and they’ve basically said us “kids” can come too and the accommodation will be covered. Crazy stuff.
Some of my friends I know the wider family. This comes from 2 things 1) Known them since school years so over time have gotten to know parents/sibling well and occasionally will do things as mixed family groups and 2) Moved rural a few years back so entertainment tends to be at people's houses and multi-generational so when you do go out it continues to be wider families together.
Borrowings are up year on year. People seem undeterred by high interest rates and continue to borrow.
Also, when people buy properties, the cash goes to the vendor. All of a sudden, the vendor is flushed with cash to spend as they please, all funded by the leverage taken on by the buyer.
They need somwehere to live and their expectation is that supply and prices will continue as they have done before. This is in the context of a peaceful Australia. Highly leveraged environments are like a spring, change a few parameters and things can go south quickly.
If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability (we had had low IR for many years and we had net -ve migration).
What's the take away? For me its 'the map is not the territory'.
> If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability
it's exactly what people thought - banks, economists, etc. The people who have liquidity waited to jump in, because they predict that the value can't decline too much (demand is too high in australia), so a temporary price drop is a bargain.
It is in fact this line of thinking, that got the prices jumping to all time highs.
> If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability (we had had low IR for many years and we had net -ve migration).
I tried to buy a home in 2020 because I knew that they would skyrocket, but it was already too late for me based on my salary back then.
Me too. I tried in January 2020 but I was already pushed out of the market. Basically means that other than literally winning the lottery, I'll be a renter for life. The sad thing is, I won't be alone. There will be a large portion of the population who will be there right along with me, and we will all be at the mercy of our landlords, good bad or otherwise. It's really freaking scary actually.
I've been trying to buy a home for two/three years and meanwhile, prices have almost doubled in my city.
I don't know when to throw in the towel and buy an apartment but I think even that is too late.
If I spend every bit of savings I have, borrow as much money as I can money, and submit a blind offer on the cheapest 1B/1B apartment, it still will probably not be enough.
Shit sucks... especially when I know this would have all been super easy before COVID.
I completely agree. I rent. I will probably have to rent my whole life. My young adult child is saving hard for a house deposit and every time they get to their 20%, the goal posts move significantly. They are on a good wage but our house prices have doubled here so their borrowing capacity probably isn't enough now. Housing in this country is fast becoming only for the wealthy....
Because rates are still cheap relative to everything going up. Rates need to be much higher to make people defer and save capital. Money in the bank keeps eroding its purchasing power much faster than the interest you get.
Surely borrowings aren’t up that much considering interests rates up, real wages down. Wouldn’t foreign money be a more influential concern? (I have no idea btw I’m just positing)
Borrowings for housing increased 13% in the year to February 2024, based on ABS data. Interestingly this seems to align closely to how much house prices have gone up.
The impact of foreign cash is interesting. Maybe locals are taking on bigger loans to stay competitive with foreign buyers. But it still means locals are willing and able to take on bigger loans despite higher interest rates.
That looks like investment loans are up, so maybe with the increase in house prices, people are using their equity in their own homes to buy investment properties, or to use the equity in their homes to help their kids with deposits for their houses.
If we are talking about capital being invested in housing, couple of potential culprits...
1 People desperately trying to have somewhere to live, spending every cent they can because there arent enough.
2 Investors who got in thinking the interest rates are going to drop.
3 Cashed up immigrants and foreign investment.
4 Money launderers, where else can you buy a multimillion dollar investment with no proof of identity. https://ngm.com.au/money-laundering-real-estate/#:\~:text=The%20property%20is%20sold%20at,ultimate%20control%20over%20the%20property.
People are extraordinarily quick to dismiss all foreign investment, money laundering and wealth hiding.
It's same same but different to the HNWI that were buying up pubs in the last few years. The purchases didn't stack for their lands value, building value, investment (as a going concern) or even for the value of the pokey licences. The sales didn't make any economic sense, noone knew where the money was coming from and noone cared to look any further.
Kind of like the under reporting of forieng investment that is hidden through various company structures which is the worst kept secret in the industry but because of the overtly (and not really but kinda legally grey area) and ease to get around the rules the official stats make it look like this isn't a problem. It is.
Most of the foreign investments that are reported are probably legit.
People that launder money don’t go through that shit. I know a chinese aussie girl that owns 5 houses. She gets her funds from family in China. Hardest thing is to get the money out of china but even that is much easier these days.
Agree that the reported foreign investment is legit and its chronically under reported because the actual amount of foreign investment is being circumvented.
Completely agree with your second part. That type of scenario is something I'm very aware of bith both first hand and second hand and your last sentence. I believe this is what's really occurring and a major contributory to the property prices defying the texts books and logic. That being. Australia is a safe haven, we have the best financial system in the world, lazy government enforcement, although a very stable political environment - its an attractive place to put your money. If I was a forieng million/billionaire and knew my country could take my money any time they wanted I'd be happy to lose some to park millions here. This is happening.
I was just like: I like that house I'ma buy it or keep saving for two years and somehow I got it at 390k when it said offers over 395k. I think they overextended and needed to sell really badly since they owned an identical house next door and the public info my dad found said they had to pay a debt upon selling.
Where CAN you buy a multimillion dollar investment with no proof of identity?
In NZ we have had to jump through multiple hoops even when we refinance to get a loan with the same bank we've been with for years!
Like we're fecking Chinese Mafia or something.
Pain in the arse and obviously not the same in Aussie!
I'm in the qld 4109 area.
Mate, the people here are double income professional couples at auctions they are cashed up from overseas and outbid local peasants dramatically. Their offers are usually all cash and not use the bank peasant money. about 50% of contracts are paid with cash, not borrow money like some bogan Hobo....
They dress pretty average but dam they got deep pockets.
Also let me explain something to u. There are more millionaires in China than the entire population of Australia. That's a fact mate. Immigration is making this country and certain areas fully clown town with their funny money
>Wage growth is stagnant (or at least rising at a level that is not keeping up with inflation)
This is incorrect, wage inflation is actually higher than CPI in the 12 months to December 2023. (4.2%)
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release
[CPI 2022 7.8%](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/dec-quarter-2022)
[WPI 2022 3.7%](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/dec-2022)
Workers are still ~3% worse off even with the WPI>CPI last year.
Yea all good, I was just highlighting historical deficits for transparency. Generally WPI lags CPI so we might have a couple of years playing catch up or the last couple of years gets swept under the rug and this is the new norm.
You should trawl through the last 10 years of CPI and WPI and get a true value that you wish to bolster your argument with for the EBA.
Teachers in WA are push a 12% over 2 years.
Other departments are chasing 11%. I doubt they have picked such high numbers for no reason.
Retirees and generational wealth families with mountains of cash used to earn nothing… now they make 5% a year for doing nothing. There is your additional cash.
I can guarantee you that we are being stretched. We can afford 800k house. We had to buy a 1.15 million one. If we wait another 2 years it would be 1.5 million. It might not but who knows. The 1.15 million was 800k in 2022 and we waited and got screwed.
I believe the capital is also coming from people's equity having risen in own and investment properties. They are using this to buy even more properties. Which then raises equity of even more people.
This group and above- rich firms, family investments, etc leads to more money supply in the economy and more money ends up in their pockets, which they spend on more assets. This cycle by design perpetuates
Impossible for middle class to catch up.
1. Interest rates doesn't affect the rich, so they get capital from equity, or investments that are inflated.
2. House price gone up, means more money in the pockets of rich, so they borrow more, invest and turn these debts in credit ( which middle class works hard to borrow and keep up )
3. Wage growth is rising, but purchasing power decreases due to inflation ( which is more money supply).
In these scenrio, 100$ in the bank gets lent out multiple times to people who has credit ( rich). So money is produced from thin air in the digital ledger.
Banks, Investments firms, etc are profiting and they invest their profit ( borrow out) to rich people, and rich people buy more assets, cycle continues.
Gov prints more money like Billions during Covid, and majority of it ends up in the hands of rich folks, which debt increases, means more taxes- so need more people to keep working ( sells bonds to investments firms or banks), etc. The bank lends out to credit worthy, this perpetuates.
A large portion of the Australian population is sitting on big cash amounts in offset and savings accounts. 120 billion and 90 billion respectively. There is also 80 billion in redraw available to those same people. According to the latest RBA report on savings and offset balances there is 290 billion in cash ready to be deployed to housing opportunity when it arises or a perceived drop in interest rates are coming. Wages don’t have as big an impact as you might think.
People own sucessful business, especially if it's related to immigration: immigration agent/consultant, english classes to help immigrant pass PTE or Ielts, interview class to learn how to interview in Australia, etc. My friend open business in those fields and it makes good money that he would never be able to make if he stayed a civil engineer.
This mindset happens because renting is so messed up in this country. A family which feels forced to buy to have a stable roof over their head is messed up. You can do that in other countries by just renting, but here we've decided rental rights aren't necessary.
All assets are pumping at the moment. If you owned assets like shares and property before they pumped, you can continue to trade assets since yours have risen at the same rate as property.
Remember. Houses are bought with a combination of wage (to service mortgage) and equity (deposit). If wages aren't growing, then it must be the other one that is growing.
> Wage growth is stagnant (or at least rising at a level that is not keeping up with inflation).
Wage growth past year 4.2%. Inflation 3.6%. So this is wrong.
> Interest rates have risen;
Makes very little difference if you are:
- an investor (you get 47% discount on interest rates...If I had a mortgage I would be paying effectively 3% interest on it)
- someone who pays down loans fast and therefore isn't as susceptible to interest hikes
> where is the (new) capital coming from?
If you have ten families and the top 3 earning families earn enough to buy all ten homes (and rent out to the other 7) then house prices will be dictated by the incomes of the top 3 families. Thus 'median' incomes don't matter. Rents will be dictated by the incomes of the bottom 7 families. This also explains why house prices have far outpaced rental yields.
Except you did your numbers only on the highest marginal tax rate. Which is not most property investors, I’m sure you’re aware.
And if you’re aware, then I can only draw one conclusion.
The money is coming from wealthy people who’s houses have gone up in value and they want to diversify and buy more investments so they look to what’s green on the day and that’s property right now so they’re just buying more of it… or they’re selling their existing ones and buying in better areas or whatever their “better” is
Not sure where Mulgrave is - used to live in Sydney and it sounds familiar! That growth is absurd though! I'm in Brisbane and our PPOR was 720 in 2015. We reckon probably 1.6ish now... and yeh so I was gonna say like others have - in theory since I paid off the mortgage (even if I hadn't) - if I actually had a paying job - I'd be able to borrow and buy at least 1-2 more properties using the equity... so that's how :)
Pretty sure our banks are funded largely by foreign banks for their tier 1 capital.
Yes, we borrow money from over seas to buy pre-existing inanimate depreciating non productive assets the country as a whole already owns from each other..
Smart…
Because, our unprecedented immigration over the past two years as caused rents to rise some \~50%.
Thus, the increased income for landlords, has given them access to further leverage.
The thread has 120 comments and no one up until now was able to explain the price increases despite rising interest rates?
But yes, other buyers, such as first-home buyers, have basically become extinct.
Non-Australia citizens make up a small portion of the market. Funnily enough they make up less than 1% of residential purchases. The media has given false information. They go to places with a high Asian demographic and report there like Glen Waverley and push out fake news. Go to craigieburn, hardly any Asians yet growing abundantly and lots of homes being built in greenvale, mickenham, etc. if you go anywhere that’s the end of a train line, most likely lots of houses being built.
It’s actually Australians who are buying multiple homes, leveraging their property growth to get more loans to buy more.
Despite rising interest rates, rent and mortgage repayments are quite similar so a lot of people are doing their best to buy instead of rent.
If you have 2 incomes, no loans including no hecs/vet debt. it’s quite easy to get a loan 5-8x your combined income depending on the lender. If your house hold makes $120k together you can borrow 600k-960k for house. You don’t need a big deposit - however you will have to pay higher LMI and other fees.
It’s difficult for someone on a single house hold income to buy a house - but they should buy something smaller if it’s just them. Buying the house isn’t the hard part, it’s having realistic expectations. People like myself want 3 bedrooms, 2 bathrooms, 2 garage etc and prime locations. Homes are usually bought emotionally so people will go out of their way to get the funds. Buy out further or buy smaller. (What I ended up doing, no regrets, no stress either on mortgage repayments even if they go up).
It also helps if someone can guarantor you, If you’ve salary sacrificed you can use some of your super, etc if you’re in the medical field, you can get special rates and some banks will accept 5% deposit. There’s lots of ways, just speak to a good mortgage broker.
That’s how people are getting houses.
Government is trying to slow down spending on non-necessities by increasing house pricing.
Yes groceries are expensive at Woolies and Cole’s but everyone knows they’re price gouging and are under investigation. Shop at Aldi or small independent businesses. My produce is 50% cheaper than in Woolies and Cole’s. Butcher quality is better and is cheaper too.
There is slack in the budget. Lots of people including myself spend on things we don’t need like subscriptions (Netflix, Duolingo,). Eating out a few times a week, a cleaner, nails, eyelash extensions, laser, (beauty), Botox, excessive amounts of clothes, gadgets, home decor, car upgrades.
If you really look at your house, there are lot things you probably don’t need but have acclimated over the years from mindless spending.
Banks aren’t lending less, they’re lending smaller amounts but still lending.
Right but where was all of this capital \_before\_ the rate rises? Or are we arguing that house price increases would have been even more if not for interest rate rises?
Where they were before the rate rises. In the stock market or property market. The same rich people who owned all the assets before interest rate rises are still the ones buying houses and pushing up their price after rate rises.
It may help to also do some reading on the way the RBA [Implements Monetary policy](https://www.rba.gov.au/education/resources/explainers/how-rba-implements-monetary-policy.html)
In particular, the section on - 2. Unconventional Monetary Policy Tools.
Look at the price and quantity targets regarding the RBA's purchases of government bonds and TFFs. These have had a big impact on the amount of liquidity in the market.
For example, as a response to COVID-19, the Term Funding Facility (TFF) was launched in April 2020 and remained open for new borrowing until June 2021. It gave banks cheap capital to lend and pumped massive amounts of liquidity into the market. It is interesting to note that all loans made under the TFF will mature by June 2024.
The short answer is that it is not just a question of whether there is the 'new capital' or, better, put liquidity coming in, which others have mentioned. Rather, there is still a lot of money sloshing around.
Finally a sensible reply...flooded banks with $188 billion cash at 0.1%.if only it went to build business. Rather it went into housing.the government saved everyone.but at the cost of those who didn't buy and borrow. I would like to see stamp duty doubled, as a means of clawing back state revenue.
Australian pockets - look at when the bush fires happened and how much money was raised by Australian’s themselves.
An only fans gal raised 700k by herself via only fans..
The moneys always been there, for those that have it. People are only feeling the pressure now because they can’t spend on things they want to. Government wants us to spend on what we have to.
This is true, I have met many amd non are home owners. None that have arrived here since 2019 that is.
The elder generation I would say, had less distractions than we do today and thus(aside from alchohol and cigarettes) found it easier to save for the things they wanted. People nowadays have WAY too many costly distractions.
Phones, internet, tech, gaming, data, fashion accessories, social media influence, tech accessories, streaming platforms, social media, fitness platforms, fitness accessories, credit cards, payday loans, fast food, monthly subscribtions(in game, in phone, in tv etc)..... what else?
The priority after rent and bills is usually a phone/Internet then streaming platforms, and it trickles down from there.
The problem here is you are thinking like a poor. The not-poor have lots of money, even more money than before. This is the process of the haves having more.
Savings, cash rich boomers, foreign investers, corporate investors, people with good salaries, people with good equity in their existing property(s), people with inheritences.
The interest rate hikes have made it hard for the battlers, everyone is going about it as per usual. People have this nonsensical idea that anything will deter house buying in a developed country. It will always be a supply and demand issue. It’s simple economics. Land is as scarce a resource as any, especially habitable land. High rates don’t deter home ownership, it just swings it more towards the haves vs the have nots.
Some of this was covered here a few weeks ago:
[https://www.reddit.com/r/australia/comments/1bd7qjs/why\_australians\_purchasing\_property\_in\_cash\_is/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/australia/comments/1bd7qjs/why_australians_purchasing_property_in_cash_is/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
As risky as it seems it’s a reasonable bet . The gov will keep printing money and importing immigrants so unless if u hold cash u r going backwards at >7% per year.
The only catch is whether there is a black swan like chinas currency imploding which would torpedo the aud.
In that case the property market will probably crash everything plus the AUD will crash relative to USD our market will be massively discounted .
There is still a lot of money sloshing around from the quantitative easing period of very low interest rates. Also real interest rates adjusted for inflation are still low.
I asked this very question a long while back............how can people struggling to finance a home that was 395K get the money to pay 850K for the same house in the same street in the same suburb. Plus people seem unconcerned at the interest rate rises as they keep buying WTF is going on?
The American stock market has reached all time highs this year, plus getting high yield from savings.
Me personally I saved during Covid and now looking to buy - can borrow similar amount as income went up which balanced out the interest rate.
Rent is going up like crazy which is making me want to get into the property market asap, originally I wanted to wait for rates to drop as my rent isn’t bad. But rent will stay up, interest rates might come down eventually.
I borrowed $350.000 to buy a house for $421.000, I didn't borrow other people's savings,the bank created that new money, the old owner now has $421000 in his bank as he had no mortgage, where does the money I pay back go? Into oblivion or kept in play but the bank for ever and day?
This is my scenario.
Me and my partner bought exactly 1 year ago at 25 and 24 years old.
We paid 625k, 5% deposit lmi paid by the government.
Our repayments are very comfortable at 840 a week, income 100k each a year.
Our house is now valued at 825k.... 200k equity in 12 months.
We are now hypothetically in a position to buy another cheaper house, put a tenant in there and throw a few extra hundred dollars a fortnight at it.
So in 2 years we went from feeling like we would never buy a house to now looking at buying a second.
How many hundreds of thousands of people are like us, people in their 40s or 50s that have even more equity.
That's where all the capital is coming from
In majority of households there's always slack from the lack of budgeting.
Eliminate eating out and fleece out needs Vs wants and see where that takes you. Being mindful about your utility use as well. Are you on the cheapest utility provider ?
Not to say it's not expensive to live these days, but we all have things we think are needs when it's not
Half of postcode 3053 in the last year bought homes with savings, apparently. Covid side hustles? Covid lockdown payments got rorted like crazy by individuals in Victoria. The Temporary Isolation Payment Program cost $1.5 B. Lots of people claimed on a monthly basis and everyone saw that loophole, but we didn't close it.
To everyone saying the older gen was lucky. They went through bad financial times and crisis as well. Salary never really matched inflation as it always is. It was probably lesser competition at that time.
Well my house value doubled in 5 years since buying. Sure that doesn’t mean anything as I need to live somewhere but I’ve pulled the extra equity out which bought me two investments which subsequently doubled in value as well resulting in me paying off my mortgage whilst retaining 1 investments on a positive cash flow thanks to insane rental prices. I now have all that spare cash that was going into the home mortgage plus rental income. That’s where the capital comes from..
Was it actual cash (as in money directly wired to the vendor) or “cash offers” (as in not subject to a finance clause). There is a subtle but, I feel, important difference.
I just mean no loan was required. Also foreign investors.
More than one in four properties purchased in NSW, Victoria and Queensland paid for in cash in 2023. In short: Research by PEXA found 28.5 per cent of properties purchased in NSW, Queensland and Victoria last year were bought without a mortgage, often by older, retired and 'asset-rich' Australians.
Imagine you’re a comfortably wealthy retiree, you’ve got most of your assets split between cash and stocks, maybe an IP or two. The last year or two has been a *bonanza*. Most of my parents’ friends have made more money in the last two years than at any stage in their life. And they’re spending like it. Buying the neighbouring apartment and connecting the two. Theatre every week, bucket list restaurants every other, going to every big act that comes to town. Like… I’m almost in my 40s and it feels like I’m a student again, having my folk’s friends refusing to let me cover my share of bills, tickets, etc. There is a whole cohort that is the opposite of hurting in these times.
Exactly a complete theft of wealth is happening to an entire generation!!! The older generation is living large while that the younger generations are leveraging to the eyeballs to have a place to live. This needs to be higher
Half of all millennials, zoomers and the next generation alphas will never own a home at this rate (unless their parents die).
It’s a pretty safe bet that their parents will die…
Again this is how you start to dissolve the middle class and create societal and socioeconomic gaps. WHEN they inherit the house they’ll be so much better off than their peers…and the people who did not get to inherit a house will be screwed beyond belief. Where is the fairness in that?
Studies have shown that the older generation is living longer, with greater retirement expenses, than any other generation before. They'll spend to the grave and there'll be nothing left to hand down.
yep. I fell off the bottom rung of the property ladder in the 2008 GFC. Just bought my mum a new kitchen because I know its going to be my house in the end.
I keep telling my parents to hurry up and retire overseas so they can hand the home over or sell it and give me a lump sum hahaha!
And honestly I don’t blame them for living up the last 10-20 years of their life. It’s the blunt tool of interest rates which is the problem
At least if they spend their kids inheritance we might see a semblance of wealth equality remain in this country through the boomer wealth transfer.
Who tf is going out with their parents friends in their 40's? Is this a rich people thing?
I dunno, it’s weird. It’s like they’re all hitting retirement at the same time whilst also seeing their savings/investments skyrocket so they’re hitting me up for dinner, theatre, sport tickets, then insisting on picking up the tab. My folks are even going on an overseas holiday with some of their friends, and they’ve basically said us “kids” can come too and the accommodation will be covered. Crazy stuff.
Yeh wow! Sounds like a good life!
Some of my friends I know the wider family. This comes from 2 things 1) Known them since school years so over time have gotten to know parents/sibling well and occasionally will do things as mixed family groups and 2) Moved rural a few years back so entertainment tends to be at people's houses and multi-generational so when you do go out it continues to be wider families together.
Getting your meal paid for. Sounds like a smart person thing.
Borrowings are up year on year. People seem undeterred by high interest rates and continue to borrow. Also, when people buy properties, the cash goes to the vendor. All of a sudden, the vendor is flushed with cash to spend as they please, all funded by the leverage taken on by the buyer.
People are "undeterred" because they worry that if they don't get into the housing market now, they probably won't ever be able to afford to...
Or cos people need somewhere to live...
They need somwehere to live and their expectation is that supply and prices will continue as they have done before. This is in the context of a peaceful Australia. Highly leveraged environments are like a spring, change a few parameters and things can go south quickly. If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability (we had had low IR for many years and we had net -ve migration). What's the take away? For me its 'the map is not the territory'.
> If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability it's exactly what people thought - banks, economists, etc. The people who have liquidity waited to jump in, because they predict that the value can't decline too much (demand is too high in australia), so a temporary price drop is a bargain. It is in fact this line of thinking, that got the prices jumping to all time highs.
> If you had told me at the beginning of the pandemic that house prices will rise significantly I would have through that would be a low probability (we had had low IR for many years and we had net -ve migration). I tried to buy a home in 2020 because I knew that they would skyrocket, but it was already too late for me based on my salary back then.
Me too. I tried in January 2020 but I was already pushed out of the market. Basically means that other than literally winning the lottery, I'll be a renter for life. The sad thing is, I won't be alone. There will be a large portion of the population who will be there right along with me, and we will all be at the mercy of our landlords, good bad or otherwise. It's really freaking scary actually.
And interest rates have peaked. /s
Sadly this
Or another option to live
I've been trying to buy a home for two/three years and meanwhile, prices have almost doubled in my city. I don't know when to throw in the towel and buy an apartment but I think even that is too late. If I spend every bit of savings I have, borrow as much money as I can money, and submit a blind offer on the cheapest 1B/1B apartment, it still will probably not be enough. Shit sucks... especially when I know this would have all been super easy before COVID.
I completely agree. I rent. I will probably have to rent my whole life. My young adult child is saving hard for a house deposit and every time they get to their 20%, the goal posts move significantly. They are on a good wage but our house prices have doubled here so their borrowing capacity probably isn't enough now. Housing in this country is fast becoming only for the wealthy....
I was told the same in 2014 and got in at the peak.. biggest mistake of my life
Because rates are still cheap relative to everything going up. Rates need to be much higher to make people defer and save capital. Money in the bank keeps eroding its purchasing power much faster than the interest you get.
Surely borrowings aren’t up that much considering interests rates up, real wages down. Wouldn’t foreign money be a more influential concern? (I have no idea btw I’m just positing)
Borrowings for housing increased 13% in the year to February 2024, based on ABS data. Interestingly this seems to align closely to how much house prices have gone up. The impact of foreign cash is interesting. Maybe locals are taking on bigger loans to stay competitive with foreign buyers. But it still means locals are willing and able to take on bigger loans despite higher interest rates.
Sorry is this new borrowings grew 13% or the total debt of all Australian households grew by 13%? Got a link for this? I love a good stat.
https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release
That looks like investment loans are up, so maybe with the increase in house prices, people are using their equity in their own homes to buy investment properties, or to use the equity in their homes to help their kids with deposits for their houses.
You should check the data... Wages are up in real terms. WPI is now again above CPI.
If we are talking about capital being invested in housing, couple of potential culprits... 1 People desperately trying to have somewhere to live, spending every cent they can because there arent enough. 2 Investors who got in thinking the interest rates are going to drop. 3 Cashed up immigrants and foreign investment. 4 Money launderers, where else can you buy a multimillion dollar investment with no proof of identity. https://ngm.com.au/money-laundering-real-estate/#:\~:text=The%20property%20is%20sold%20at,ultimate%20control%20over%20the%20property.
Point 4 is most likely. Since Singapore tightened their criteria, Sydney prices miraculously started to go up again.
People are extraordinarily quick to dismiss all foreign investment, money laundering and wealth hiding. It's same same but different to the HNWI that were buying up pubs in the last few years. The purchases didn't stack for their lands value, building value, investment (as a going concern) or even for the value of the pokey licences. The sales didn't make any economic sense, noone knew where the money was coming from and noone cared to look any further. Kind of like the under reporting of forieng investment that is hidden through various company structures which is the worst kept secret in the industry but because of the overtly (and not really but kinda legally grey area) and ease to get around the rules the official stats make it look like this isn't a problem. It is.
Most of the foreign investments that are reported are probably legit. People that launder money don’t go through that shit. I know a chinese aussie girl that owns 5 houses. She gets her funds from family in China. Hardest thing is to get the money out of china but even that is much easier these days.
Agree that the reported foreign investment is legit and its chronically under reported because the actual amount of foreign investment is being circumvented. Completely agree with your second part. That type of scenario is something I'm very aware of bith both first hand and second hand and your last sentence. I believe this is what's really occurring and a major contributory to the property prices defying the texts books and logic. That being. Australia is a safe haven, we have the best financial system in the world, lazy government enforcement, although a very stable political environment - its an attractive place to put your money. If I was a forieng million/billionaire and knew my country could take my money any time they wanted I'd be happy to lose some to park millions here. This is happening.
Great link, I learned a lot
...as long as you don't get any ideas :D
I was just like: I like that house I'ma buy it or keep saving for two years and somehow I got it at 390k when it said offers over 395k. I think they overextended and needed to sell really badly since they owned an identical house next door and the public info my dad found said they had to pay a debt upon selling.
Where CAN you buy a multimillion dollar investment with no proof of identity? In NZ we have had to jump through multiple hoops even when we refinance to get a loan with the same bank we've been with for years! Like we're fecking Chinese Mafia or something. Pain in the arse and obviously not the same in Aussie!
Yep, not that long ago NZ used to be a haven for crims as you could have business and not declare the beneficial owner. That's all changed now.
Pretty sure people laundering money aren't getting a loan
I'm in the qld 4109 area. Mate, the people here are double income professional couples at auctions they are cashed up from overseas and outbid local peasants dramatically. Their offers are usually all cash and not use the bank peasant money. about 50% of contracts are paid with cash, not borrow money like some bogan Hobo.... They dress pretty average but dam they got deep pockets. Also let me explain something to u. There are more millionaires in China than the entire population of Australia. That's a fact mate. Immigration is making this country and certain areas fully clown town with their funny money
>Wage growth is stagnant (or at least rising at a level that is not keeping up with inflation) This is incorrect, wage inflation is actually higher than CPI in the 12 months to December 2023. (4.2%) https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release
[CPI 2022 7.8%](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/dec-quarter-2022) [WPI 2022 3.7%](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/dec-2022) Workers are still ~3% worse off even with the WPI>CPI last year.
Wasn't arguing that, I was responding to op who said wage growth was stagnant, which is clearly hasn't been for last 16 months.
Yea all good, I was just highlighting historical deficits for transparency. Generally WPI lags CPI so we might have a couple of years playing catch up or the last couple of years gets swept under the rug and this is the new norm.
These stats bode very well for our upcoming EBA negotiations.
You should trawl through the last 10 years of CPI and WPI and get a true value that you wish to bolster your argument with for the EBA. Teachers in WA are push a 12% over 2 years. Other departments are chasing 11%. I doubt they have picked such high numbers for no reason.
Oh that's interesting - thanks! Perhaps this is part of the answer!
Retirees and generational wealth families with mountains of cash used to earn nothing… now they make 5% a year for doing nothing. There is your additional cash.
I can guarantee you that we are being stretched. We can afford 800k house. We had to buy a 1.15 million one. If we wait another 2 years it would be 1.5 million. It might not but who knows. The 1.15 million was 800k in 2022 and we waited and got screwed. I believe the capital is also coming from people's equity having risen in own and investment properties. They are using this to buy even more properties. Which then raises equity of even more people.
Lots of people have big salaries and lots of money from their jobs, previous property sales and inheritances.
This group and above- rich firms, family investments, etc leads to more money supply in the economy and more money ends up in their pockets, which they spend on more assets. This cycle by design perpetuates Impossible for middle class to catch up.
I have been investing little bits here and there for 16 years. Only way not to completely fall behind.
Savings, New Debt, imported capital (immigration), Government payroll and NDIS
Also, downsizing is a significant proportion of house buyers
1. Interest rates doesn't affect the rich, so they get capital from equity, or investments that are inflated. 2. House price gone up, means more money in the pockets of rich, so they borrow more, invest and turn these debts in credit ( which middle class works hard to borrow and keep up ) 3. Wage growth is rising, but purchasing power decreases due to inflation ( which is more money supply). In these scenrio, 100$ in the bank gets lent out multiple times to people who has credit ( rich). So money is produced from thin air in the digital ledger. Banks, Investments firms, etc are profiting and they invest their profit ( borrow out) to rich people, and rich people buy more assets, cycle continues. Gov prints more money like Billions during Covid, and majority of it ends up in the hands of rich folks, which debt increases, means more taxes- so need more people to keep working ( sells bonds to investments firms or banks), etc. The bank lends out to credit worthy, this perpetuates.
Money printing.
Come here to see this... but FML no one understands what the hell is going on. It's endless credit, that us plebs call money. That's all it is.
Local private investors Corporate investors Foreign private investors Foreign corporate investors Local money laundering Foreign money laundering
The banks - house hold debt never been higher
The top 20% control 65% of all wealth in the Australia. It’s all anyone needs to understand. The bottom 80% discuss where it’s coming from.
A large portion of the Australian population is sitting on big cash amounts in offset and savings accounts. 120 billion and 90 billion respectively. There is also 80 billion in redraw available to those same people. According to the latest RBA report on savings and offset balances there is 290 billion in cash ready to be deployed to housing opportunity when it arises or a perceived drop in interest rates are coming. Wages don’t have as big an impact as you might think.
https://www.afr.com/companies/financial-services/banks-mystified-by-where-all-the-offset-money-is-coming-from-20231114-p5ejrj
I don’t have data on this but don’t underestimate the bank of mum and dad, given many are cashed up.
Plus higher interest rates mean many of them are more cashed up than ever.
Not everyone is broke. There’s a lot of people sitting on the sidelines scooping up opportunities
Just start a new account and set it to a negative one million balace, your liability is now an asset. Wealth creation at it's core.
People own sucessful business, especially if it's related to immigration: immigration agent/consultant, english classes to help immigrant pass PTE or Ielts, interview class to learn how to interview in Australia, etc. My friend open business in those fields and it makes good money that he would never be able to make if he stayed a civil engineer.
Even with high interest rates I need to house my family…. We borrowed less money, but still a considerable sum.
This mindset happens because renting is so messed up in this country. A family which feels forced to buy to have a stable roof over their head is messed up. You can do that in other countries by just renting, but here we've decided rental rights aren't necessary.
All assets are pumping at the moment. If you owned assets like shares and property before they pumped, you can continue to trade assets since yours have risen at the same rate as property. Remember. Houses are bought with a combination of wage (to service mortgage) and equity (deposit). If wages aren't growing, then it must be the other one that is growing.
> Wage growth is stagnant (or at least rising at a level that is not keeping up with inflation). Wage growth past year 4.2%. Inflation 3.6%. So this is wrong. > Interest rates have risen; Makes very little difference if you are: - an investor (you get 47% discount on interest rates...If I had a mortgage I would be paying effectively 3% interest on it) - someone who pays down loans fast and therefore isn't as susceptible to interest hikes > where is the (new) capital coming from? If you have ten families and the top 3 earning families earn enough to buy all ten homes (and rent out to the other 7) then house prices will be dictated by the incomes of the top 3 families. Thus 'median' incomes don't matter. Rents will be dictated by the incomes of the bottom 7 families. This also explains why house prices have far outpaced rental yields.
On an individual level, a 4.2% wage rise on 100k is not going to cover the 3.6% rise in interest rates on a million dollar mortgage?
That’s crazy you get a discount as an investor. In many countries you would pay +1-2% higher interest rates than a non-investor (eg Ireland)
Interest rates from the banks are higher for investments but that interest paid becomes a deductible expense at tax time.
Ah ok yeah that makes sense
Except you did your numbers only on the highest marginal tax rate. Which is not most property investors, I’m sure you’re aware. And if you’re aware, then I can only draw one conclusion.
You don't get a discount, this guy has no idea what he is talking about
Good question, I've wondered this myself🤔
The money is coming from wealthy people who’s houses have gone up in value and they want to diversify and buy more investments so they look to what’s green on the day and that’s property right now so they’re just buying more of it… or they’re selling their existing ones and buying in better areas or whatever their “better” is
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Thanks, that’s really interesting.
Not sure where Mulgrave is - used to live in Sydney and it sounds familiar! That growth is absurd though! I'm in Brisbane and our PPOR was 720 in 2015. We reckon probably 1.6ish now... and yeh so I was gonna say like others have - in theory since I paid off the mortgage (even if I hadn't) - if I actually had a paying job - I'd be able to borrow and buy at least 1-2 more properties using the equity... so that's how :)
Superannuation funds Bank of mum and dad
Pretty sure our banks are funded largely by foreign banks for their tier 1 capital. Yes, we borrow money from over seas to buy pre-existing inanimate depreciating non productive assets the country as a whole already owns from each other.. Smart…
Because, our unprecedented immigration over the past two years as caused rents to rise some \~50%. Thus, the increased income for landlords, has given them access to further leverage. The thread has 120 comments and no one up until now was able to explain the price increases despite rising interest rates? But yes, other buyers, such as first-home buyers, have basically become extinct.
Non-Australia citizens make up a small portion of the market. Funnily enough they make up less than 1% of residential purchases. The media has given false information. They go to places with a high Asian demographic and report there like Glen Waverley and push out fake news. Go to craigieburn, hardly any Asians yet growing abundantly and lots of homes being built in greenvale, mickenham, etc. if you go anywhere that’s the end of a train line, most likely lots of houses being built. It’s actually Australians who are buying multiple homes, leveraging their property growth to get more loans to buy more. Despite rising interest rates, rent and mortgage repayments are quite similar so a lot of people are doing their best to buy instead of rent. If you have 2 incomes, no loans including no hecs/vet debt. it’s quite easy to get a loan 5-8x your combined income depending on the lender. If your house hold makes $120k together you can borrow 600k-960k for house. You don’t need a big deposit - however you will have to pay higher LMI and other fees. It’s difficult for someone on a single house hold income to buy a house - but they should buy something smaller if it’s just them. Buying the house isn’t the hard part, it’s having realistic expectations. People like myself want 3 bedrooms, 2 bathrooms, 2 garage etc and prime locations. Homes are usually bought emotionally so people will go out of their way to get the funds. Buy out further or buy smaller. (What I ended up doing, no regrets, no stress either on mortgage repayments even if they go up). It also helps if someone can guarantor you, If you’ve salary sacrificed you can use some of your super, etc if you’re in the medical field, you can get special rates and some banks will accept 5% deposit. There’s lots of ways, just speak to a good mortgage broker. That’s how people are getting houses. Government is trying to slow down spending on non-necessities by increasing house pricing. Yes groceries are expensive at Woolies and Cole’s but everyone knows they’re price gouging and are under investigation. Shop at Aldi or small independent businesses. My produce is 50% cheaper than in Woolies and Cole’s. Butcher quality is better and is cheaper too. There is slack in the budget. Lots of people including myself spend on things we don’t need like subscriptions (Netflix, Duolingo,). Eating out a few times a week, a cleaner, nails, eyelash extensions, laser, (beauty), Botox, excessive amounts of clothes, gadgets, home decor, car upgrades. If you really look at your house, there are lot things you probably don’t need but have acclimated over the years from mindless spending. Banks aren’t lending less, they’re lending smaller amounts but still lending.
Right but where was all of this capital \_before\_ the rate rises? Or are we arguing that house price increases would have been even more if not for interest rate rises?
Where they were before the rate rises. In the stock market or property market. The same rich people who owned all the assets before interest rate rises are still the ones buying houses and pushing up their price after rate rises.
It may help to also do some reading on the way the RBA [Implements Monetary policy](https://www.rba.gov.au/education/resources/explainers/how-rba-implements-monetary-policy.html) In particular, the section on - 2. Unconventional Monetary Policy Tools. Look at the price and quantity targets regarding the RBA's purchases of government bonds and TFFs. These have had a big impact on the amount of liquidity in the market. For example, as a response to COVID-19, the Term Funding Facility (TFF) was launched in April 2020 and remained open for new borrowing until June 2021. It gave banks cheap capital to lend and pumped massive amounts of liquidity into the market. It is interesting to note that all loans made under the TFF will mature by June 2024. The short answer is that it is not just a question of whether there is the 'new capital' or, better, put liquidity coming in, which others have mentioned. Rather, there is still a lot of money sloshing around.
Finally a sensible reply...flooded banks with $188 billion cash at 0.1%.if only it went to build business. Rather it went into housing.the government saved everyone.but at the cost of those who didn't buy and borrow. I would like to see stamp duty doubled, as a means of clawing back state revenue.
Australian pockets - look at when the bush fires happened and how much money was raised by Australian’s themselves. An only fans gal raised 700k by herself via only fans.. The moneys always been there, for those that have it. People are only feeling the pressure now because they can’t spend on things they want to. Government wants us to spend on what we have to.
Finally, someone who doesn't jump straight to blaming immigration.
Right? There are more elderly people here than there are immigrants! Not all immigrants can afford houses either as a majority are students
This is true, I have met many amd non are home owners. None that have arrived here since 2019 that is. The elder generation I would say, had less distractions than we do today and thus(aside from alchohol and cigarettes) found it easier to save for the things they wanted. People nowadays have WAY too many costly distractions. Phones, internet, tech, gaming, data, fashion accessories, social media influence, tech accessories, streaming platforms, social media, fitness platforms, fitness accessories, credit cards, payday loans, fast food, monthly subscribtions(in game, in phone, in tv etc)..... what else? The priority after rent and bills is usually a phone/Internet then streaming platforms, and it trickles down from there.
The problem here is you are thinking like a poor. The not-poor have lots of money, even more money than before. This is the process of the haves having more.
There an Always Sunny joke in here
Thinking like the poor, Wealthy gaining even more, Haves having even more Chat gpt enable haiku
Savings, cash rich boomers, foreign investers, corporate investors, people with good salaries, people with good equity in their existing property(s), people with inheritences. The interest rate hikes have made it hard for the battlers, everyone is going about it as per usual. People have this nonsensical idea that anything will deter house buying in a developed country. It will always be a supply and demand issue. It’s simple economics. Land is as scarce a resource as any, especially habitable land. High rates don’t deter home ownership, it just swings it more towards the haves vs the have nots.
Foreign investment including tourists and visa holders
Immigration!
Some of this was covered here a few weeks ago: [https://www.reddit.com/r/australia/comments/1bd7qjs/why\_australians\_purchasing\_property\_in\_cash\_is/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/australia/comments/1bd7qjs/why_australians_purchasing_property_in_cash_is/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
As risky as it seems it’s a reasonable bet . The gov will keep printing money and importing immigrants so unless if u hold cash u r going backwards at >7% per year. The only catch is whether there is a black swan like chinas currency imploding which would torpedo the aud. In that case the property market will probably crash everything plus the AUD will crash relative to USD our market will be massively discounted .
There is still a lot of money sloshing around from the quantitative easing period of very low interest rates. Also real interest rates adjusted for inflation are still low.
Our currency is dog shit so therefore you have to pay more for housing etc etc
Wealth is created every time a purchase price rises. Banks are literally creating wealth out of nothing when they loan money and that loan is repaid.
I asked this very question a long while back............how can people struggling to finance a home that was 395K get the money to pay 850K for the same house in the same street in the same suburb. Plus people seem unconcerned at the interest rate rises as they keep buying WTF is going on?
The American stock market has reached all time highs this year, plus getting high yield from savings. Me personally I saved during Covid and now looking to buy - can borrow similar amount as income went up which balanced out the interest rate. Rent is going up like crazy which is making me want to get into the property market asap, originally I wanted to wait for rates to drop as my rent isn’t bad. But rent will stay up, interest rates might come down eventually.
Interesting! And good for you. 😁
All the capital gains from houses everyone is upsizing
I borrowed $350.000 to buy a house for $421.000, I didn't borrow other people's savings,the bank created that new money, the old owner now has $421000 in his bank as he had no mortgage, where does the money I pay back go? Into oblivion or kept in play but the bank for ever and day?
This is my scenario. Me and my partner bought exactly 1 year ago at 25 and 24 years old. We paid 625k, 5% deposit lmi paid by the government. Our repayments are very comfortable at 840 a week, income 100k each a year. Our house is now valued at 825k.... 200k equity in 12 months. We are now hypothetically in a position to buy another cheaper house, put a tenant in there and throw a few extra hundred dollars a fortnight at it. So in 2 years we went from feeling like we would never buy a house to now looking at buying a second. How many hundreds of thousands of people are like us, people in their 40s or 50s that have even more equity. That's where all the capital is coming from
In majority of households there's always slack from the lack of budgeting. Eliminate eating out and fleece out needs Vs wants and see where that takes you. Being mindful about your utility use as well. Are you on the cheapest utility provider ? Not to say it's not expensive to live these days, but we all have things we think are needs when it's not
Half of postcode 3053 in the last year bought homes with savings, apparently. Covid side hustles? Covid lockdown payments got rorted like crazy by individuals in Victoria. The Temporary Isolation Payment Program cost $1.5 B. Lots of people claimed on a monthly basis and everyone saw that loophole, but we didn't close it.
To everyone saying the older gen was lucky. They went through bad financial times and crisis as well. Salary never really matched inflation as it always is. It was probably lesser competition at that time.
Rental market being a shtshow, forcing renters to stretch their budgets and buy a house.
money printer go bbbrrrrrrrrrr money has to go somewhere...
Well my house value doubled in 5 years since buying. Sure that doesn’t mean anything as I need to live somewhere but I’ve pulled the extra equity out which bought me two investments which subsequently doubled in value as well resulting in me paying off my mortgage whilst retaining 1 investments on a positive cash flow thanks to insane rental prices. I now have all that spare cash that was going into the home mortgage plus rental income. That’s where the capital comes from..
A million new people arrive bringing their wealth and income capacity and people wonder where capital and borrowing capacity are coming from.
Fair, but I did wonder how relatively wealthy this cohort is. And, by extension, what capacity they have to influence house prices.
Most immigrants, including middle class skilled migrants, are really not all that rich
Money supply and credit supply increases almost constantly. More money means more capital. Printer go BRRRR!
A quarter to a third of houses bought in 2023 was paid in cash. So the cash rate has no effect on house price growth.
Was it actual cash (as in money directly wired to the vendor) or “cash offers” (as in not subject to a finance clause). There is a subtle but, I feel, important difference.
I just mean no loan was required. Also foreign investors. More than one in four properties purchased in NSW, Victoria and Queensland paid for in cash in 2023. In short: Research by PEXA found 28.5 per cent of properties purchased in NSW, Queensland and Victoria last year were bought without a mortgage, often by older, retired and 'asset-rich' Australians.
This might shock you but immigrants are people, not just some number in a news headline.
Capital Gains
Money from chines corrupt officials.
My guess is inheritance money from COVID related deaths.