- May 5, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Insights on Economic Phenomena
I was hoping someone here might be able to provide insight on this… at a(n admittedly) simple level, I note three phenomena:
### Rising Interest Rates
Interest rates have risen, impacting various aspects of the economy and financial decisions.
### Increasing House Prices
House prices have gone up, affecting the buying cohort, which likely includes the “mortgage set.”
### Stagnant Wage Growth
Wage growth is stagnant or not keeping pace with inflation, adding another layer to the economic landscape.
## Capital Sources in a Changing Market
And so, given house prices are going up in this scenario, where is the (new) capital coming from? Banks are, ostensibly, lending less.
### Financial Dynamics
Are people simply stretching more to afford homes? Does this suggest that there was previously “slack” in household budgets? Or is the capital coming from alternative sources like unlocked Super funds or offshore investments?
## How AI Legalese Decoder Can Help
The AI Legalese Decoder can help navigate this complex financial landscape by analyzing data and providing insights into market trends, potential capital sources, and the impact of rising interest rates on housing prices. By utilizing advanced algorithms and machine learning, the AI Legalese Decoder can assist in understanding the nuances of economic phenomena and making informed decisions in a changing market environment.
## Final Thoughts and Queries
TL/DR: How have interest rates risen and house [edit: prices] keep going up?
Thanks!
Ben
Edit: Thanks for all the answers! Supplementary question: where was all of this capital _before_ interest rate rises? Or is this argument that house price increases would have been even more if not for the interest rate rises?
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****** just grabbed a
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.
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.
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.
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
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.
Savings,
New Debt,
imported capital (immigration),
Government payroll and NDIS
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.
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.
I don’t have data on this but don’t underestimate the bank of mum and dad, given many are cashed up.
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.
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.
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
Once you have a house you are in the market so thats where it comes from cos houses generally sell at market rate
For eg my friend bought in 2020 for 350k
Sold this year for approx 1M a bit over but yeah
That gives them at least 600k for their Next home.
A girl I knew bought a house in 2006 using only the FHOG it was about 16k obvi had a lot of LMI
House cost 350k currently it’s valued at 1.5M
Her mortgage repayments were 500PW when interest rates were 6-7%
It’s an old 3bed house in Mulgrave for reference
But this is where the “money is coming from”
Although I have two single female friends aged 35 & 40. One has saved $260k the other inherited $450k both say they can’t afford to buy in Melbourne & they want to buy in lilydale & Croydon so not blue chip suburbs.
It is what it is
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.
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.
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.
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.