A prosperous or bleak future?

[LeeM]

 @Arnage wanted to be educated on the financial future from another thread, so here ya go.

 If you have any opinions or financial advice for forum members, please discuss here 👍

[Arnage]

Nice one Lee.

[Lucky Phil]

Please only post here if you do actually possess a crystal ball and have the "really, yes really, it's true, I have seen it" advice.  

[LeeM]

 My crystal ball says "You're broke"

 Very accurate these crystal balls 

[Raven]

Flux capacitor  in the Long hood 

 

[sleazius]

Disclaimer: Not financial / investment advice.

If the median house price in Sydney is $1.027M, and the median weekly household income in Sydney (2016) is $2099 -> $109148, and even though that data is 3 years old, there has been limited wages growth so ... Houston, we have a problem. What is more likely, 150% wages growth in a very short amount of time, or a proper correction in house prices?

If the boomers own the majority of the assets (this ones not up for debate, they do), and the chinese aren't buying, who exactly are boomers going to sell to? Given that is the median household income, I'm willing to bet that Gen X and younger largely fall on the wrong side of that.

Its not rocket science. Boomers have driven up asset prices across every class in one almighty bubble, and now they're hitting retirement and want to deleverage who do they sell to?

This change is being driven by demographics, nothing else. The oldest boomers are 73 right now. By and large they own the majority of the assets, not just here, but worldwide. Give it another 5-7 years and they'll start moving into aged care en mass.

I'm in the health field, I can tell you there isn't enough aged care to cope with the coming tsunami, nor is there enough people to provide care for them all unless wages in the field are dramatically increased. We effectively need to double the amount of beds across the country in the next 7 years. For people my age and younger, one of the biggest opportunities heading our way is investment into companies who are catering to this market. Preferably those that cater to the high end. Either care in the home, or gold plated aged care facilities.

If I had to guess, I'm also betting on some form of death tax being introduced. Either indirectly by ratcheting up the cost of aged care, or directly with a raft of new taxes around asset transfers. There just won't be enough tax payers to support all the oldies.

Its not doom and gloom, its just a demographic change. I'm also not saying that *all boomers will get caught out* but if I was at the tail end of the boomer cohort I'd seriously be taking a good look at my investment strategy over the coming decade.

Your mileage may vary, and some will do better than others because of chance or other factors. But if your investment strategy is '3 houses 50km from the city' like so many people I know, yeah, might want to change that up.

[Rick V]

I act for many boomers & very few of them are selling their property holdings, or ever intend to..... at their stage of life, asset value is much less important to them than income is, and they are having no problem consistently renting their properties.

It is income that pays the bills, funds the lifestyle, etc.......most of their assets, including their property holdings will simply be left to their families.  

We are already seeing this occurring- a large part of my practice is assisting with inter-generational wealth transfer.

Whilst the adult children of these baby-boomers may inherit assets which may have come off of their highest market values, I can assure you that they are still happily receiving them!

Some are residing in these inherited  homes, some are simply continuing to rent them, and yes, some are selling them.

Whilst I agree that the gap between house prices growth and wages growth is not sustainable,  & will most likely lead to a slowing of property values (as wages catch up), I’m not convinced that there is going to be a major ‘sell-off’ by baby boomers.

 

 

[Arnage]

It's interesting for me to understand in more detail what you said earlier. Thanks for explaining.

[LeeM]

 

34 minutes ago, sleazius said:

Disclaimer: Not financial / investment advice.

If the median house price in Sydney is $1.027M, and the median weekly household income in Sydney (2016) is $2099 -> $109148

  How can a couple afford to pay that sort of mortgage, rates, utility bills, transport costs, food, entertainment etc and not be in serious financial shit? That just does not make any financial sense to me.

With my extreme lack of financial knowledge (aka stupid), what I see nowadays is all these younger couples over committing themselves by buying big houses, filling them with the very best furniture etc, having the latest cars at $30-40-80k, yet they scrimp and scrape by every week because they don't earn enough. All this just to keep up with the Joneses?

 I've watched some shows on tv recently about some couples pushing their financial limits just to buy in the right area (I'm talking Sydney here), and they have to rent out a room just to cover the mortgage payments, yet are also planning a family in the future. Why would you do that? 

[cafe_racer]

I feel the boomer population effect is overstated in Australia as per below.  

Now compare this to Japan which has a real demographic problem on its hands.

 

[Arnage]

24 minutes ago, LeeM said:

 

  How can a couple afford to pay that sort of mortgage, rates, utility bills, transport costs, food, entertainment etc and not be in serious financial shit? That just does not make any financial sense to me.

With my extreme lack of financial knowledge (aka stupid), what I see nowadays is all these younger couples over committing themselves by buying big houses, filling them with the very best furniture etc, having the latest cars at $30-40-80k, yet they scrimp and scrape by every week because they don't earn enough. All this just to keep up with the Joneses?

 I've watched some shows on tv recently about some couples pushing their financial limits just to buy in the right area (I'm talking Sydney here), and they have to rent out a room just to cover the mortgage payments, yet are also planning a family in the future. Why would you do that? 

The figures Sleazious used would mean that the median house hold income alone would require a mortgage multiplier of 5x to buy a median house in Sydney, firstly no bank today would offer that multiplayer today, also banks now look at all your living/lifestyle expenses & deduct these prior to using any multiplayer for a loan it's all about your ability to pay/service the loan. The days of rocking up with just your payslips are long gone. I think this is roughly correct.

[Coastr]

Looking at medians can be very misleading.  The obvious answer is that the median incomes don’t own the median houses.  But houses can be inherited or many other ways.  I’m shocked in the area where my house is over 50% have no mortgage at all.  
but whenever you want to do too much analysis on averages - the average human has one ball and one breast.

[LeeM]

 That's one way of looking at it I s'pose 😁

 

 

[DJM]

I am in the custom home business.  We saw the market slow down late 2018 and into early 2019 but post election, post finance rules loosening a bit and interest rates falling, demand is rising again.  No shortage of people self funding large homes and don't discount the Chinese, Singaporean and other Asian markets.  Gone are the days of frenzied Chinese outbidding each other.  Changes in rules made it harder and more expensive for them to invest here BUT they remain quite active presumably because they still see good value.  And it's a "safe" market in which to park their cash even if it costs them more than it used to.  In any case, many are Australian resident Chinese who are not affected by rules that target true off shore investors. We are dealing with plenty of these clients and obviously they can't build a new home unless they first buy land to build it on.  

I get that property here is VERY expensive but to simply compare median income and median house price is not an accurate predictor.  You only have to look at median income in Toorak to know that it misrepresents true incomes (median income $142k, median house price $3.4M).  I dare say anyone on that money does not live in Toorak.  That place is dripping in wealth, some would earn the median income every week so why is the ATO data way off?  People use business structures, trusts etc to manage income tax.  Businesses may reinvest profits and until such time as cash is pulled out via dividends, it's not taxed at the personal level.  So Mr Toorak might make $5M in his business and reinvest it all and/or pay tax on those profits in the company but retain the earnings and he only takes a $140k salary for the year which is taxable.  That's entirely legal but it skews the data massively....on paper he can't afford the house he lives in.  In reality, he probably makes enough in one year to buy a median house with change to buy a new GT3 and a new Cayenne Turbo without needing any finance.   Have you seen the size of Porsche Brighton lately.  Or BMW Doncaster - they sell thousands  of cars.

As a business, we're not investing as heavily in property as we used to, mainly because the prices seem too high to make the numbers stack up and I'm not expecting huge growth going forward.  But it's not because of a fear of a looming crash.  

But the news today might suggest I am being overly conservative!

https://www.theage.com.au/business/the-economy/sydney-and-melbourne-house-prices-will-soon-be-growing-at-double-digit-rates-20191018-p531z3.html

[Lucky Phil]

Bottom line here is the crystal ball has not yet made an appearance.  I bought a crystal ball and I do not think it functions perfectly but what it did say is:

The baby boomer theory, suggesting doom and gloom, does not compute as the majority of these "boomers" will die over the next 20 years and their wealth will pass on to the next generation who are already living the high life based on their well paying jobs which they spend every week having fun, because they know that down the track they will inherit their parents house and investments. 

The baby boomers were really great savers and most now own their home and many have a healthy super and maybe an investment property etc, and they are not spending all their wealth so the next generation is already funded to have a prosperous life.  It's the grandkids that are the real worry here.   In 40 years that is when there will be a big problem as the Gen Y kids will have spent all their inheritance on having a good time and as they are not great savers like their parents were, so they will have less to pass on to their kids and as such their kids will be in real trouble.

My crystal ball did predict though that the wise investor should invest in health and aged care to cater for all these Boomers that are getting old.

[cafe_racer]

The aged care play I believe is overstated, refer the demographics above.  

[firstone]

Plus.

 

The mortgage marketeers, real estate agents along with tv reno shows have been selling the, get it all at once theme so long now you can't help people see reason any other way.

Plus we've bred have it now greedy fuchers.

Perfect storm.

[Coastr]

1 hour ago, cafe_racer said:

The aged care play I believe is overstated, refer the demographics above.  

Plus it is rife with government interference.  

[Stephen Tinker]

There are lies, damned lies and then there are statistics...

Regarding all of the above views, just bear with me a moment: you cannot blame the boomer demographic for the current situation as some of you suggest.

1) I'm one of those evil 'boomers, who grew up with parents scarred financially by the second world war & lived through tough economic times where every penny counted. No holidays, no car and jobs that were questionably poorly paid. House prices reflected this austerity as the market prices barely changed until the 60's and early 70's.

2) In the late 1970's when my wife and I bought our first home, the banks literally grilled you (and your employer) before honouring you with a loan - and then charged 10% interest for the privilege. Then in the 1980's, the interest got as high as 18% - again, capping rapid house price rises. Gentle annual rises yes, but not huge.

3) Two major occurrences started happening in the '90's - interest rates dropped and young professional married women entered the workforce, making many households dual income. And expenditure goes up with income, especially when your wife's salary can pay the extra mortgage payments. That alone sparked rapid increases as the "we can afford that" kicked in.

4)  As sleazius noted above, health care will be the next big thing - although at a cost. There are some baby boomer children that are going to be bitterly disappointed with their inheritance after mum and dad have spent xxx years in an old age home before falling off the perch. 

5) And not all older Australians are wealthy - many, many don't have much Super, and if a divorce has happened, even less equity in a still mortgaged home.

LeeM, the 2019 crystal ball is just as cloudy as the 1980, 1990 and 2000 versions before it - just be thankful that we are living in Australia and not in any of the other 98%  portions of the world...

[Coastr]

The problem with aged care to me is that it’s difficult to direct invest- you have a lot of nonprofit in the real estate side, and in the provider side a lot of healthcare related, which is hard to understand for an outsider.   Investing in managed real estate seems to be more complicated than direct investment. 

With the Aussie dollar low and not showing strength, it would seem to me that domestic costed but export priced businesses seem to have promise of upside.  
 

And buying real assets with fake money is always a long term chicanery avoiding winner.  John Law, an Englishman who made (and subsequently lost) a fortune in Paris by convincing the government to issue paper money and shares in the mississipi company knew what was up and busily converted the paper into buildings.

luckily for us collector cars have intrinsic value (even though they aren’t investments) and have a partially useful role as preserving wealth over time.  Unfortunately though, they’re only valuable to the generation that covets them, so it’s not like a 500yo lump of gold.

so like your investment advisor says, a balanced portfolio is needed.  Some real assets, some growth assets, and some classic cars.

[sleazius]

I never said boomers were evil I just want to point out! Just that there is a global demographic change heading our way.

I'll just address a couple of things, if nothing else at least my post got people thinking!

Re: the "the next generation will inherit" this is simply not true. I don't know how many of you have had a parent in aged care yet, but it gets expensive fast. My father-in-law is spending $200k a year as we speak. If he lasts as long as my grandmother did (15 years) there will be no estate left (she also died with no estate). How many boomers are retiring with $200k+ in passive income a year? I wouldn't think more than a few percent. Thankfully I neither need the money or care what happens to it as it isn't mine. The point is, the majority of my generation have no savings, and are relying on an inheritance, an inheritance that may likely never materialise.

I used median precisely because it isn't skewed like averages are, it is the middle score, not an average. That said, I was playing slightly fast and loose with the stats, given that median income and median mortgages aren't directly correlated (some on median incomes might have owned a home for 15 years, others might be starting out and have an $850k mortgage), however it is a simplistic illustration of the problem at hand, and there is a problem.

Comparing Australia to Japan is silly. That is like saying "well their house burnt down and we only lost half of ours so we're better off". We're both worse off in that scenario. Japan is facing a demographic catastrophe, thankfully we're better placed.

The numbers in the population pyramid don't lie, we'll have twice as many people in aged care in approx 7 years as we do now, and double again 5 years after that. Here  is a great website to check it out with actual numbers of people.

https://www.populationpyramid.net/australia/2019/

 

[wilson59]

17 minutes ago, sleazius said:

I never said boomers were evil I just want to point out! Just that there is a global demographic change heading our way.

I'll just address a couple of things, if nothing else at least my post got people thinking!

Re: the "the next generation will inherit" this is simply not true. I don't know how many of you have had a parent in aged care yet, but it gets expensive fast. My father-in-law is spending $200k a year as we speak. If he lasts as long as my grandmother did (15 years) there will be no estate left (she also died with no estate). How many boomers are retiring with $200k+ in passive income a year? I wouldn't think more than a few percent. Thankfully I neither need the money or care what happens to it as it isn't mine. The point is, the majority of my generation have no savings, and are relying on an inheritance, an inheritance that may likely never materialise.

I used median precisely because it isn't skewed like averages are, it is the middle score, not an average. That said, I was playing slightly fast and loose with the stats, given that median income and median mortgages aren't directly correlated (some on median incomes might have owned a home for 15 years, others might be starting out and have an $850k mortgage), however it is a simplistic illustration of the problem at hand, and there is a problem.

Comparing Australia to Japan is silly. That is like saying "well their house burnt down and we only lost half of ours so we're better off". We're both worse off in that scenario. Japan is facing a demographic catastrophe, thankfully we're better placed.

The numbers in the population pyramid don't lie, we'll have twice as many people in aged care in approx 7 years as we do now, and double again 5 years after that. Here  is a great website to check it out with actual numbers of people.

https://www.populationpyramid.net/australia/2019/

 

If you know anyone that needs to be looked after I will do it for $180,000 a year . I am not washing them and they need to be toilet trained .

[sleazius]

2 hours ago, wilson59 said:

If you know anyone that needs to be looked after I will do it for $180,000 a year . I am not washing them and they need to be toilet trained .

Start your own business doing it. Unfortunately you'll need to wash them, and they will likely crap themselves.

The rates are currently $1100 a day per person (not a nurse, two 12 hour shifts - 24hrs) for in home care in Sydney. 1.5x on Sunday, and double time on public holidays. That is if you can find anyone to do it (good luck). Took us 3 months to find anyone who had the staff to do it.

FYI, if the patient is immobile, most services consider you a 2 assist, which means $2200 a day.

[Coastr]

That’s pricey.  Could nearly run a Porsche for that.   As long as you went easy on the clutch.

[LeeM]

4 hours ago, wilson59 said:

If you know anyone that needs to be looked after I will do it for $180,000 a year . I am not washing them and they need to be toilet trained .

 My missus is a mentor/support worker for the intellectually disabled, and I can guarantee she isn't on $180k per year mate, so I'd say you might be out of luck there 😁

 They are looking for people if you're keen though 😁

 @Stephen Tinker I smashed my crystal ball years ago mate. It was never telling me what I wanted to hear 🙄 I am fortunate to be living in the best country in the world 👍