4 ms·

> If you need to borrow $750K AUD (the median mortgage in Australia) to purchase a property, then something is terribly wrong with the market and you probably s

> If you need to borrow $750K AUD (the median mortgage in Australia) to purchase a property, then something is terribly wrong with the market and you probably shouldn't be doing that. Why? Why does borrowing money for a home indicate something is terribly wrong? Homes are inherently extremely valuable assets that take a lot of time, effort, and capital to construct. Home prices may be inflated now, but their cost being so high that you must borrow to afford one is nothing new and not at all unhealthy.

ostenning 4y ago
There is nothing inherently wrong with borrowing money to buy an asset. The problem is that most people don't have the money and they likely never will, passing on their debt to their children, but they want the asset anyway - so we have created a debt driven culture. The issue is that everyone believes they are entitled to a home, even if they cant afford it, they take out large mortgages to purchase these properties pushing up prices even further whilst alienating the next generation of buyers to enter the market. The reality of being squeezed out of the market is very very real in Australia, and the general sentiment is that the earlier you are into the market, the better. The personal debt to income ratio within Australia is some of the highest in the OECD - meaning that every day people who have bought into the "Australian dream" have sacrificed their quality of life for an asset (or perhaps a liability), which creates an atmosphere of increased competition and stress. The recently outed liberal government had relaxed borrowing regulations. Hence, we have people flipping houses for 30-40% more than they paid, in just a period of a couple of years. Most new people entering the market have no concept that in the 1980s interest rates were upward of 18%, if interest rates hit 5%, (which could be a plausible figure considering inflationary pressures), the yearly repayments to service the average mortgage is now $37500. People haven't had a pay rise in years, and now their "prized asset" costs them a near minimum full-time wage to service. This is the hard reality that many people who have entered into the market in the last 5 years face. My personal conclusion is that housing in Australia has become a toxic asset class. Housing is a human right, it shouldn't be used a highly speculative asset. I have no problem with appreciation of the value of property over a long-term timeframe, but what we have seen in recent years is nothing short of insanity. Having left the country many years ago to live in Europe, I think I might save myself from a debt encumbered existence and buy a plot of land in Portugal for €10K instead.
armatav 4y ago
Because there’s no return aside from the change in price of the asset over time. Instead, you’re betting that the home will appreciate faster than the interest kills you. Which means now it’s tied to factors outside your control.
- CodeSgt 4y ago
  The return is having a home to live in. You're still not explaining why this is bad.

ostenning 4y ago

There is nothing inherently wrong with borrowing money to buy an asset. The problem is that most people don't have the money and they likely never will, passing on their debt to their children, but they want the asset anyway - so we have created a debt driven culture. The issue is that everyone believes they are entitled to a home, even if they cant afford it, they take out large mortgages to purchase these properties pushing up prices even further whilst alienating the next generation of buyers to enter the market. The reality of being squeezed out of the market is very very real in Australia, and the general sentiment is that the earlier you are into the market, the better. The personal debt to income ratio within Australia is some of the highest in the OECD - meaning that every day people who have bought into the "Australian dream" have sacrificed their quality of life for an asset (or perhaps a liability), which creates an atmosphere of increased competition and stress. The recently outed liberal government had relaxed borrowing regulations. Hence, we have people flipping houses for 30-40% more than they paid, in just a period of a couple of years. Most new people entering the market have no concept that in the 1980s interest rates were upward of 18%, if interest rates hit 5%, (which could be a plausible figure considering inflationary pressures), the yearly repayments to service the average mortgage is now $37500. People haven't had a pay rise in years, and now their "prized asset" costs them a near minimum full-time wage to service. This is the hard reality that many people who have entered into the market in the last 5 years face. My personal conclusion is that housing in Australia has become a toxic asset class. Housing is a human right, it shouldn't be used a highly speculative asset. I have no problem with appreciation of the value of property over a long-term timeframe, but what we have seen in recent years is nothing short of insanity. Having left the country many years ago to live in Europe, I think I might save myself from a debt encumbered existence and buy a plot of land in Portugal for €10K instead.

armatav 4y ago

Because there’s no return aside from the change in price of the asset over time. Instead, you’re betting that the home will appreciate faster than the interest kills you. Which means now it’s tied to factors outside your control.

CodeSgt 4y ago
The return is having a home to live in. You're still not explaining why this is bad.