Australian Property Bubble: 2. Why it WAS better to buy than rent

[AussiePropertyBubble]

Please read the posts below before watching this video. Below is a quote from Phillip Soos report on "Bubbling over". Page 47. Most pertinent is the last 2 sentances RE current direction of interest rates led by the big 4..

From 1991 to 1995, prices tracked the rate of inflation, after the late 1980s bubble deflated. According to the Minsky analysis, this period represents hedge financing, where rental income is sufficient to pay down principle and interest over the life of the mortgage.

[AussiePropertyBubble]

The speculative financing phase may correspond to the period 1996 to 2000, as prices steadily rose but not to the degree where mortgage payments could not be met by rental income. Financial stress may occur, but it is isolated rather than widespread.From 2000 onwards, prices rapidly increased, and the house price to rent ratio likewise moved in step, along with other fundamental indicators.

[AussiePropertyBubble]

This is the phase of Ponzi finance, as rental incomes cannot cover the costs of rising mortgage debt, let alone other associated costs of maintaining a property. Debts are financed only by the rapid escalation of house prices. Eventually, the debt burden becomes so extreme that owner-occupiers and investors experience trouble financing these costs and sell their properties en masse, resulting in a collapse in housing prices. Rising interest rates may be the cause of the imminent downturn.