Most peoples wealth lies in their home.Their levels of consumption are tied to that presumption
And therein lays the fundamental problem. If you buy a house for 300k and 5 years later it is 'worth' 1 million
you are no more wealthy than you were 5 years before UNLESS you sell and realise that capital gain. Then you need to buy another house in that same elevated market. Unless you move somewhere cheap which people rarely do. The thing people more commonly do is buy a much more expensive house with that collateral...so they may go from 200k mortgage on their 'million dollar' home to a 600k mortgage on a 1.5 million dollar house....plus a boat and a couple of new cars. Yet the are STILL no more wealthy than they were 5 years before in any real sense. They are unlikely to be earning more in real wages increases because there essentially hasn't been any real wage increases since the 70s. People don't realise that because Keating changed the way CPI is calculated in the 80s and cut out food, transport and housing, among other, from the figures.
Many people have bought investment properties (I was until 2004) which is mostly what drove the property boom in SE Qld...people buying investment properties and retirement homes with the increased equity in their primary residences in Sydney and Melbourne. Not to mention their severely skewed idea of values. **** a waterfront house for 400k/500/600k? Cheap!!! it would be 2 million in Sydney!!!!
I have lost count of the number of people I have met who 'own' 20 houses on a fairly minimal wage...a 20 something J* Flight Attendant as just one example. The adds for these types of schemes are STILL running in Australia.
'Buy an investment property for as little as $50/mth using the equity in your home'
When the bubble bursts, as every bubble has in history, the vast majority of those investment properties will become sub-prime and the banks will be phoning those people demanding they increase their liquidity. They will struggle to sell them for anything like what they 'think' they are worth in this market.
I didn't learn all this because I am smarter than others I learned the hard way. 5 years ago I was 1.1 million in debt on about 1.8 million in real estate and earning 185k/annum net. I lost my job and spent a year unemployed and was forced to liquidate before my 'wealth manager' at the bank did it for me. I was very lucky in that I had bought these properties at the beginning of the east coast boom and sold at what I thought was the top in 2004. Properties I purchased went up between 50% and 300% in 2-4 years and I knew then it was a bubble. Imagine my surprise to see property double again since 2004.
This is unsustainable lunacy and all the policies we are seeing from our elected and unelected officials are hell bent on sustaining it. I have been too frightened to get back into real estate in the last few years because I could see the bubble bursting - I did NOT see the debacle we have unfolding in the US but had it not been that it would have been something else.
You can't eat bricks and mortar and you can't sell off bits of your house, unlike shares, to buy 'stuff' with. Unlike a company or commodity (before the last month anyway) it is very difficult to get a true indication on what real estate is worth because the volumes are so small compared to the millions of shares that are traded every day on the stock exchanges. A house is only worth what someone else will pay for it and at the moment foreclosure auctions (those that sell at all) are seeing 50% of what that house was thought to be worth by the owners a short time before. This is happening Australia wide in every major city.
Unlike Americans who 'invest' in the stock market (predominately) Australians predominately 'invest' in real estate. That is why our real estate is so much less affordable than US real estate...average house 7 times average wages rather than 3. Each of the prime properties I bought (3 waterfronts, 1 an apartment at Gold Coast, a house on a canal at Carrara and a great house on 1.5 acres on the bend of a river in Berrima NSW) I payed less than 3 times my wage. In no time flat they became 'worth' 6-7 times. They were consuming about 40% of my wages. Easy...until you don't have a wage anymore.
In case you hadn't noticed unemployment is rising.
A great deal of real estate in Australia is highly leveraged the same way stocks etc were in the US.
If you want to ignore reality then fine...but reality will never ignore you.