One said to the other that he was surprised to see his land had gone down in value over the year.  The other agreed, saying that he had read in the papers forecasts of houses being worth millions of dollars in 20 years, or some such stuff.

I do actually recall the forecasting that was mentioned – its a bit misleading, but many people do believe whats written in the newspaper.

Consider the following (it is past of a newsletter I send to my clients every month and was written about a month ago).

The House Price Saga.

 This seems to be the number topic again, so I will chip in for my 2 cents worth – again.

 This year we are again in a time when first home owners will not again be able to afford a new home – last year they could, but not this year.

 An article appeared in the Sunday Mail on February 21 in the Smart Money Section regarding home prices.

 I have done a table below that summarizes some of the salient points of the article:

What does this mean – well in 1960, the average house was 3.38 times the average income, now it is 8.34 times. 

 Or if you like to look at it this way, house prices have increased since 1960 at 8.83% per annum and wages have increased at 6.88% per annum since 1960 – this is not a cause for alarm, however since 2000, house prices have increased by 15.84% – more than twice the 50 year average, while wages have increased by 4.11% – less than half the 50 year average.

 Interestingly interest rates were at their lowest over that time in 1960 – at 5%.  We are at the second lowest level now at 6.64% (although not for much longer) and repayments are at 29% of income – the only time they were higher was during the recession we had to have when house prices were at 3.56 times annual earnings.

 Does this matter to you – well given that nearly all Australians have their wealth concentrated in their houses, yes it does matter.

 Affordability is not an issue so long as rates stay low – rates stay low when the economy is not performing.

 What are our headlines saying at the moment? That we have dodged the recession bullet, interest rates will rise and prosperity is on the way.

 Also the other question is can house prices keep increasing at the rates they have in the past 10 years, or will they revert to normal – or dare I say it, less than the long run return.

 Its possible that returns will be lower in the longer term as we do have a rapidly ageing population – in short more old people than young people – young people buy more houses than older people.  With less young people (unless we have rapid increases in migration) demand for housing will probably subside, as a result prices will decrease also.

What will support the growth in housing returns – shortage of supply – although I can’t see that happening.  A rapid increase in wages – not if the Reserve Bank have their way.  Or finally an asset bubble where prices are artificially increased through measures such as the first home owners grant.

 I am not sure, perhaps you have a view, I am willing to listen to any thoughts you may have.

 But what I will say is that coupled with the inadequate level of savings that many Australians have (and that is all savings) and the increasing taxes or decreasing level of services our governments will be able to provide as a result of the money spent on preventing our recession that forgot to turn up, there are going to be a lot of Australians that hit retirement – the longest holiday of your life with very little money – hope they all have a contingency plan.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

A useless fact no doubt – but those over 65 cost more to keep alive than those under 5, and generally neither of those age groups are working.  Although for all those 5 years old out there, given our increasing medical costs, they may find themselves back in the salt mines or cleaning chimneys.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Of the retiring baby boomers 50% will spend at least 25 years in retirement .

People are now retiring younger, living longer and want more options. This change in attitude, coupled with recent super legislation transformation, makes it more important than ever to be pro-active to ensure income needs in retirement are addressed.

Modern retirement is now about enjoying a long, healthy and active period of time. With boomers living longer, some opting to retire early and others remaining employed beyond age 65, many of the traditional financial assumptions regarding retirement need to be re-examined.

While you need to plan for the 20 plus years of your retirement that you’ll be active and healthy, you also need to prepare to be financially secure for the later years in retirement. Despite some people’s thoughts that later retirement means less money, almost the opposite is true. Hip replacements, quality aged care and a decent hearing aid all cost money.

And now because the superannuation industry has just gone through one of its biggest reforms ever, Australians have the opportunity to optimise their retirement savings.

ASFA Clare, R ‘A less than super future’ 2005.

Australian Life Tables 2003-2005, Australian Bureau of Statistics