3 ms·

Not sure if it's different in the US, but in Australia rental incomes for residential property are a tiny percentage of the value of the investment and most of

Not sure if it's different in the US, but in Australia rental incomes for residential property are a tiny percentage of the value of the investment and most of the money is made through leveraged capital gains. For example, I pay $24k a year on a house worth around $1.4m. This gives a return of around 1.7%, which is nothing compared to cap notes (5%) or dividends (~4%). However, someone buying our house would only need to put down 20% up front, and could reasonably expect to see the price raise by 5-10% a year if trends continue. So that $280k deposit could theoretically return $500k+ over the course of 5 years because of the high leverage. The rental return over that period would only be $120k - not even enough to cover the interest repayments on the loan. Of course, that's assuming trends continue. If prices started falling by 5-10% per year, that $280k deposit would turn into a $500k+ loss and the investors would be absolutely fucked.

_carbyau_ 4y ago
I agree with you but to add another point, if house prices were to decrease significantly then loan margins would kick in for homeowners too. And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could". It seems like: - house prices up, investors win. - house prices down, homeowners lose. It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.
- AussieWog93 4y ago
  Theoretically, the market going up or down shouldn't make any difference at all to most owner-occupiers. If they hold onto the house, short-term fluctuations don't affect the eventual sale price. If they buy a new property in a similar market after selling the old one, then the "losses" on the old house are made up for by the "savings" on the new property. It's only people who downsize or leave the property market altogether that would be affected by a short-term dip. (The caveat being, of course, that this completely handwaves away human psychology! Being "underwater" on the mortgage would definitely make a lot of people stressed and anxious.)

_carbyau_ 4y ago

I agree with you but to add another point, if house prices were to decrease significantly then loan margins would kick in for homeowners too. And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could". It seems like: - house prices up, investors win. - house prices down, homeowners lose. It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.

AussieWog93 4y ago
Theoretically, the market going up or down shouldn't make any difference at all to most owner-occupiers. If they hold onto the house, short-term fluctuations don't affect the eventual sale price. If they buy a new property in a similar market after selling the old one, then the "losses" on the old house are made up for by the "savings" on the new property. It's only people who downsize or leave the property market altogether that would be affected by a short-term dip. (The caveat being, of course, that this completely handwaves away human psychology! Being "underwater" on the mortgage would definitely make a lot of people stressed and anxious.)