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It must be nice to pick up a copy of the local paper, read it, and believe 100% of what is written. Maybe I’m just too cynical.

I read an article today about the Victorian state government buying 10,000 hectares of grassland, with an additional 50,000 hectares being considered. The land is being purchased “to compensate for rare grasslands lost with the expansion of Melbourne’s urban boundary”.

So land that the government sold off years ago for a song, now is being purchased back by the government at top dollar no doubt. When everyone is told that there is a “shortage of land”, clearly having the government buy it from the developers is just going to create a greater shortage, right? Either that or the government are trying to encourage a shortage – dare I say, to prop up the housing prices?

If your intentions are just to keep house prices high, it makes sense I suppose. Encourage population growth, limit new land developments, and force people to cram into the cities – it will force land prices to stay high.

Our good friend Obama plans similar things. Fifty cities like Detroit, Philadelphia and Baltimore, once industrial boom towns, are now abandoned by business with no future employment in sight, and as a result most residents have followed suit. The neighborhoods are now filled with abandoned homes, and some low income families.

Decaying houses are bulldozed, and with the removal of existing residents, entire neighborhoods will be levelled, returning the land to nature. There’s not much information on how the displaced families are compensated for losing their house in this process!

I just can’t see information like this without ulterior motives staring me right in the face. The way I see it:

• Either there is a huge surplus in land (which it’s alleged that there isn’t) so it is ok to reclaim the land for nature, or
• Property values are far too high, and a shortage needs to be created to prop up these values.

I’m all for “greening the earth”, just not when it is an underhanded attempt to keep a bubble inflated.

Every Australian knows what a first-home buyer is entitled to by now. A heap of free money! But is there really such a thing as free money?

According to a recent report by market research firm Brandmanagement, young home buyers’ loans have jumped an unsustainable $52,000 (23%!) in the past two years.

From February 2008 to February 2009, first-home buyers have flooded the market, up 9.6% now comprising 26.9% of the market. It’s almost as though there’s something they don’t know!

Here we essentially have a boom within a boom. The increased madness of first-home buyers rushing to get into the property market before they lose their “free money” or “before the next boom” has pushed prices up, despite times of economic doom and gloom. This “mini-boom” in itself gives first-home buyers more reason to commit earlier than they should. In the belief that property will only increase in value, they want to enter the market as early as they can at any cost.

Andrew Inwood, from Brandmanagement is quoted saying:

“What the government incentives appear to have done is transfer the money from the people who are borrowing money to buy their first homes into the pockets of those who are selling at a more attractive price.”

The issue for me is the short sightedness of this whole situation. Anyone who has taken the time to do the research knows that Australia is not in a sustainable economic situation right now, and propping up the bubble with grants like these is just prolonging the inevitable. Why give people a false sense of security and then screw them over?

It’s hard to make a comparison, and this example is probably a little extreme, but during a war what would you prefer? To have your country bombed and suffer considerable damage in an instant, and then have the attacking country leave? Or to have troops attacking nearby, tormenting the families and fighting for five or ten years? The way I see it, instant annihilation, while hard for everyone, allows the country to be rebuilt immediately. People will realise what is actually important in life, and pull together to reconstruct their homes, hospitals, and so on.

It’s amazing how this whole situation is only centered around money, not life or death, and yet people still want to believe that everything is peachy, while all they are really believing in is a slow and painful death of the market.

I had some mates over on Saturday night, and the topic of property came up. I was half pissed at the time and lost my cool at one of my mates who decided to antagonise me over my opinion about house prices and the oversupply of housing in Australia.

You know those debates that you just can’t win? I don’t cope when having them. It frustrates me how you just talk to a brick wall and there is no give in their argument whatsoever. This particular argument was with someone who has never taken an interest in property or economics, and bases all of his opinions off of what his family has done in the property world (another speculator family).

The issue is, people rely on statistics and charts and newspaper articles to believe everything nowadays. From a statistical point of view, in 2006 (the last Australian census) 10% of Australia’s dwellings were unoccupied. The stats prove my point in a very basic sense, but are they really unequivocal?

When I go anywhere I see for sale signs all over the place – houses, cars, even things like sofas sitting on the foot path! I think garage sales have gone through the roof, and on the whole people are trying to free up their cash. Times are tough for a lot of people. If you are one of the lucky ones who has escaped the bad times, good luck to you, but make no mistake that there are a lot of people are out there hurting very bad.

Talking to friends in real life, or reading forums – people ARE losing their jobs. Some are working part-time now instead of full time, others just suffered a few grand pay cut. Statistics don’t prove this that well, and when you need to take averages into account, it’s often very hard to prove a lot of the things that you argue for.

…in 2006, 10% of Australia’s dwellings were unoccupied.

When you suggest to someone that there is an oversupply of housing in Australia, they absolutely scoff at the idea. It’s hard to get your head around something that goes against everything that everyone had told you when it comes to investing.

The most direct situation is when a tenant loses their job, another tenant will move into their house. As far as the landlord is concerned, there couldn’t be an oversupply in the market, otherwise he wouldn’t be able to fill his property with another tenant. While this can be true for a lot of people, if you look at it from a “whole of Australia sense”, the number of tenants decrease, while the number of properties stay the same.

When in dire straits, people will lower their standards – maybe sleep two to a room. You might find a family home with 10 people living in it. They split the cost of the rent and in the mean time two other investment properties sit empty.

In a deflationary environment rents can back peddle. After all, if people cannot pay your price, they simply cannot pay your price. It’s not a decision, it’s just blatantly not possible. As rents re-adjust and come back down to a reasonable level, the oversupply problem eases and people start to rent on their own again rather than sharing. It’s a very similar situation with the house values themselves.

When faced with this oversupply argument, most people just say that it’s not possible. When you link it to a house price crash, it’s just disregarded as a conspiracy theory or something along those lines.

As always, I just ask for people to consider the fact that I (and the others hundreds of thousands of people), may be on to something here. I don’t have a crystal ball, and I don’t need people to take my word as gospel, I just want to see my friends and family consider it and do their own research, before committing to a rather large uneducated decision.

You’re 27. Settling down with your girlfriend and thinking about marriage. You have both just moved into your first home that is a great investment for the future. Property is safe, and with the help of the First Home Owners Grant that the government offers, you have managed to get a $26,000 deposit after paying your stamp duty and other fees. Not bad on a $300,000 house! It’s a relatively small loan by today’s standards, with just $274000 owing to the bank.

I’ve been harping on about the house price crash for a long time now and basically the only people that believe me are my beautiful fiancee and my future brother-in-law. I think he does anyway..

You don’t have the believe me, but just consider the possibilities after buying your house:

1. You lose your job almost immediately. Don’t say it can’t happen. Private enterprise is on average firing 10 to 15 per cent of their staff. While production line workers are losing their jobs, many high income earners are too. Lawyers, finance workers, those of us in IT. No skill-set is exempt, although some are more resilient than others.If you lose your job, what happens next? Do you have enough in the bank to make your next repayment? Banks are less lenient with renegotiating loans at the moment. Non-performing loans affect the banks’ credit rating, so they aren’t going to scratch your back if you’re not scratching theirs.Then what? You can sell up, and you may lose $10,000 as you have to sell quickly. Things could be worse though…
2. It’s the end of 2010 – house prices crashed over the last year and a half. You and your now wife worked hard to pay your loan down and the principal is sitting at $267,000. Only problem is that your “$300,000 property” is now worth $240,000. The full value of the government grant has been lost (and then some), and it looks like things will get worse with future house price values dropping in the future. If you keep your job it’s not ideal – you’re paying off a loan that is bigger than your property is worth. Don’t say it doesn’t happen – 1 in 5 home owners in New Zealand with a mortgage are in this situation.
3. The crash has happened, but now you’ve lost your job. You and your wife have no choice but to move back in with your family and the house has to go. It’s sold for less than the market value at $215,000 as a quick sale is needed. You now owe the bank $52,000 and have nothing to show for it. Many others are declaring bankruptcy. It’s a hard decision to make though.

Now while all of this might be a complete farce, it might be entirely possible.

On the flip side, what is the worst case scenario about waiting to buy a house? House prices may not crash (although I don’t believe this), and you probably won’t lose your job, but unless you have nowhere to live, there is no benefit of buying the house early. Prices won’t go up unless there is a new First Home Owners Scheme and it is bigger than in the past (which I doubt, as the Government will just run out of money, and as soon as they do there will just be a bigger crash), so you aren’t going to ever “miss out”. Now is the peak of the market.

I realised a few years ago that I like to be well insulated. By that I mean I like to avoid possible issues or conflicts, and I do this by planning around these situations. While my fiancee and I bought land a few years ago, if I knew what I knew now we never would have. I was one of the sheep who listened to our parents and it seemed like a great idea at the time. The property is acreage, and we will live there one day, but for the mean time we are happy to live with my family and pay off as much of the loan as possible. After two years we expect to have paid 90% off of the principal.

My only suggestion is for others to do the same. Stay away from debt when you can see the storm coming. Don’t buy high and sell low, do the opposite. Now is the time to save and do your planning. When the storm passes, be ready to get out there and use your preparation to set yourself up.

Aside from your family and close friends, nobody cares about you in this world. Don’t let yourself be burned by the media, government, real estate agents and so on. Do your own research, don’t dismiss people like me who tell you to look at your options, and make an educated decision. Take care in your decisions and insulate yourself from being burned during this recession. After all, if you make the wrong decision, you are the one that will be wearing it!

Out parents love us, right? Albeit frustrating to spend time with mine the majority of the time, I know they have the best of intentions. I’ve been reading a lot on the differences between the generations lately and it’s pretty interesting stuff.

To a lot of people, us Gen Y’s are just plain annoying. I’ve read about how Gen X’s are probably the most sour about everything. They are a generation with the biggest mortgages, transport and living costs. As it stands, they have the most to gain from Australia’s economic “slowdown”. (Makes me laugh when they use the term slowdown). Falling interest rates and petrol prices are set to benefit the Gen X’s the most. Essentially, they have had a “hard life”. They’ve worked hard to get nowhere in their eyes, while the Baby Boomers get rich from specufesting (speculation investing), and the Gen Y’s seem to get all of the good jobs while treating their employers terribly.

What the majorities don’t realise though, is that the Gen Y’s are both the Baby Boomers’ only hope to retire on a healthy sum of money, and the best way to keep the Gen X’s in a property that is actually worth something at the end of the day.

Unfortunately what most also don’t realise is that in Australia, the Gen Y’s are the equivalent to a subprime investment. The majority have a huge HECS debt, credit card debt, have little to no savings as they haven’t been earning for long at all (due to studying), are quick to sign any contract (car, laptop, mobile, internet, pay-tv) and so on. Financially… woeful!

Work is becoming harder and harder to find for a lot of Gen Y’s. I know very intelligent people who have attained high grades in university, and some two years after finishing uni are still working casual at a pub. If you’ve got a job, great, but if you don’t, times are already tough.

Now granted these are generalizations.. I also know a lot of Gen Y’s that are good savers, have very safe jobs, and are financially “on track” (whatever their path may be). I also know a lot aren’t though.

None of this really concerns me. What is the big deal about having a twenty grand debt? Sure, to me it seems like a waste of money to me, paying interest on that money, but it’s not a massive amount of money and it doesn’t affect me directly if someone else wants to do that.

What does concern me is this big juicy First Home Owners Scheme (I imagine they don’t call it a scheme for a reason). $7000 FHOG, $7000 “Boost”, $4000 from the SA Government (different schemes in different states), and an extra $7000 if you build. $25000 in free money!

“House and Land Packages from $300,000. Take advantage of the First Home Owners Grant and low interest rates. Rent money is dead money!”

Although loans are becoming harder to get, things haven’t hit home in Aus yet. Notice how there’s a for sale sign in just about every street of the country? They are the smart people. Well they are the people that are smarter than most. The really smart people sold up at the peak a while back, but these ones are happy to cut their losses and get out now before anything worse happens. The Baby Boomers are selling. The Gen Y’s are buying (and allowing the BB’s to retire early).

The FHOG is keeping the housing market afloat in Australia. Practically every Baby Boomer in the country is telling their kids to buy. Interest rates this, FHOG that. Despite their kids only having a few grand in savings, and a job that they have only worked for 8 months. “Get in before the next boom”. After all, “house prices don’t fall, they double every ten years in Australia”……

Now believe me or not, I’m going to say this. From an economic point of view, it is widely accepted that house prices will fall in Australia. It’s happened in history (as above), it’s happened all over the world, and it happens in any other investment market. A LOT of people have something to lose by this happening, hence the naysayers. I won’t go into the specifics because that is a massive rant in itself, but if you want to do some reading check out bubblepedia.net.au.

So we’re going on hypotheticals, because you’re probably skeptical that this will never happen, but lets just say it does…

The Gen Y’s all buy up on housing from the “smart” Baby Boomers. The BB’s are selling their investment properties due to a looming house price crash. First Home Owners Grant and all, Gen Y’s are buying up big, their parents are oh so proud, and celebrations are in order. Then as it happens, the “slowdown” that Australia was having turns out to be a “depression” after all. Whoops, who saw that coming? Unemployment is rife, with the Gen Y’s to go first since they have had no job loyalty in the past, and really they are just an annoying eccentric kid, right Gen X’s? They try to keep above the water for a while, try to keep paying off their loan. Maybe renegotiate with the bank and take an interest only loan for a few months while they find a new job. Rent out the house even? Unfortunately the rental market is at an all time low due to a housing surplus too (not a housing shortage as all of the developers will have you believe… coincidence?), plus all of the other unemployed people are moving back in with their parents or sharing with others.

Time for the subprime of Australia to start declaring bankruptcy. What a nice start to life Gen Y’s. Good luck getting a loan in the future with your credit status now.

But mum and dad love you, it’s a big mean world out there. It’s not your fault things didn’t go your way, nobody saw it coming. Nobody except all of the people that tried to tell you not to buy before you did.