Real Estate Market or not, I am a long-term student of the real estate market. Here, I reflect on the 80s, which was an exciting and interesting time. In my view, I think that it could help us to shed light on what might happen in the future.
By the way, I published this article on Linked In.
REAL ESTATE MARKET AND RESEARCH.
During my casual reading time I came upon this article:
“Today’s housing crisis is worse than the 17pc home loans of the 1980s”
February 24, 2017 — 2.23pm
Oh yes, the article is a bit out-of-date, but then again, I am myself much in the same order. So don’t lose too much sweat on that.
I don’t think that Caitlin has quite got the point. Apologies Caitlin, but the real problem for buyers at that time was the fact that there were two things happening simultaneously.
1. The interest rates kept climbing.
2. The house prices kept climbing.
It was extraordinary. It kept happening year after year for 8 years.
REAL ESTATE MARKET – IT GETS HARDER.
Caitlin says it is harder now and she says those guys back in the 80s had it a bit easier. Look at what she says:
“But we paid 17 per cent interest on our mortgage!”
This line is often wheeled out by older generations to explain why younger people don’t really have it tough in today’s housing market.
It’s rubbish.
It’s quite true that interest rates rose rapidly in the late 1980s. The advertised rate for home loans hit 17 per cent in June 1989 and stayed there until March 1990, according to Reserve Bank records. It’s also true they were in the double digits for most of the 1980s.”
This boom made a lot of money for some people and brought a lot of heartache for others. I suppose that it depends on “who exactly” you are talking about. I will come back to that.
REAL ESTATE MARKET AND BACKGROUND.
In 1977 I was selling houses in the Boronia and foothills area. The biggest single outstanding feature of that area was the existence of close to a thousand finished (and yet unsold) spec homes in the Regency Park area. I do not think that since that time builders have gone down this pathway. Long memories?
As far as sales went, we had a very good year but the builders who built those houses did not.
I shifted to Mt Evelyn in February 1978. The first thing that I learned was that a lot of owners (our vendors) wanted too much. Actually, in March 1978 I personally visited 66 vendors and told them that if they wanted to sell they would have to reduce their price expectations. Over 60 of them did so, and we sold the homes quite soon thereafter. The other 6 went to see a better agent and their properties sat on the market for months.
Things in Mt Evelyn proceeded quite well and just when things seemed to be really going great guns, Malcolm Fraser helped us out with a change to the grant.
I wrote a little book about this bonus and I advertised it on Channel 9. The book was called, “How to buy a house with $2500 and a little help from your friends.”
REAL ESTATE MARKET AND MALCOLM FRASER.
You may be curious. What did Malcolm do? This is an excerpt from his speech in 1980
“further improvements to the Home Savings Grants Scheme, involving a full year cost of $25 million and to apply from 1 October 1980, include: — a family bonus of $500 for families with one dependent child and $1,000 for families with two or more dependent children. This would increase the maximum grant to $2,500 for families with one child and to $3,000 for families with two or more children. — an increase in the value of homes on which the maximum grant is obtainable to $60,000 reducing to nil grant at a value of $70,000. — widening of the forms of savings acceptable for the grant.”
Now I do not want anyone to think that the bit of success that we had was due solely to Malcolm’s efforts. Not at all.
REAL ESTATE MARKET AND SUCCESS.
It may be that we were good at our job and it is a possibility that our builder friends were more than fair on pricing. It may have been the fact that there was a large, untapped supply of cheap vacant land, or even the boast that I had fantastic design skills.
And let us all consider that our business spent a heap of dough and we advertised on television channels 7, 9, and 10 simultaneously – for a period. We kept up with the advertising for some 25 years and maybe would have done it again but not without Gus R.I.P. You see we used the fabulous and oh-so-distinctive voice of the late and great Gus Mercurio. Response to our first Friday night ad was overwhelming with some 200 customers turning up on the Saturday.
When we started to really shift houses, the price for a 3BR home in MT Evelyn was about $30,000. Within 8 years it had climbed to around $120,000. That is a staggering increase, roughly four-fold.
This was the type of home sold for $30,000 in 1980 and then again in 1988 for $120,000.
And this happened despite the fact that interest rates kept climbing…….and climbing. I remember when we hit double digits and thinking wow! But then, in 1988, some people were borrowing money at 18%.
I knew a guy who borrowed money to buy a cattle station. It has been reported to me that Elders helped him out at 22%. He went broke and I understand that in his bitterness his last act as station owner was to deny the incoming new owner the benefit of a host of his “lost” cattle. The “retiree” went and shot as many as he could. I can imagine his grief.
At the same time, and probably because I was a bit Gung-ho, I bought a Mercedes 560 SEL from Lanes Motors. The dealers got the 10% deposit from the sales guy’s bank account, but that is another story. I must recount that story. Anyway, the interest that I paid was legendary.
I do not regret it one bit as it was a wonderful car. Yes, it may have been extravagant but what is the purpose of life?
Back to what I say about what Caitlin said.
There is a big difference between those who bought at $30,000 and had to contend with interest rate hikes…………….and some others.
What about those who kept trying to buy, but couldn’t quite make it. They saw the prices soaring and just couldn’t do a damn thing about it.
And perhaps the worst off; what about those poor suckers who bought close to the end at $120,000 and then had to resell a few years later at $90,000. There were a few of them.
In my opinion, the deal for buyers today might be tough. But let’s not deny that it sure was tough for a lot of people in the 80s. on that point, interesting article but……………….
What to do in 1989.
1989 was on the horizon. I knew that the gravy train was leaving. I knew that the market could not continue as it was. I knew that prices would slump. I had 24 houses and I thought it was best to sell them. For a starter, I owed $2,000,000 and I was paying 15% on an overdraft.
Why I didn’t immediately sell them is another story but I knew what to do and what I wanted to do. Another day, perhaps.
I knew enough to know: Sell!
What I didn’t know was that the prices would continue to gradually retract for four years. 1989. 1980. 1991. 1992.
Hey, in 1992 the lease was up on my Mercedes. Oh boy, what joy!
So let it be for Caesar.
Caitlin says,
“Even if mortgage repayments happened to be precisely the same proportion of your income, I would argue it’s better to pay 17 per cent on a smaller debt than 3-4 per cent on a large debt.”
Tell that to the people who bought a house for $120,000, borrowed 90% of the purchase price at 16% interest and then had to sell four years later for $90,000.
Really, I think the point is more about being able to hold on.
From my personal point of view. I did not see many of the people who bought from us forced out due to the higher payments. We had a particular sales strategy and we used to sell a house based on the client obtaining a loan that they were quite comfortable with. Whereas I can say that many competitors got their sales by wowing buyers with the wow factor and then talking them into buying same with a very large loan and high repayments.
I think people held on because they could see their equity increasing, they had a little bit of slack, and it was worth it to sacrifice for a while.
Perhaps not for those who bought late in 1988?
One point that Caitlin misses.
There is one final thing that does not get said often enough. That is that people can be their own worst enemies.
I sold a 3BR house in Commercial Road Mt Evelyn in 1978 for $31,000. It was on stumps, with a timber frame clad in WRC (Western Red Cedar), and comprised 3BR and 1 Bathroom. It had a nice shady verandah, but the entire house was small: only 100 m2.
What about the land? The block was on an unmade road, had a fair bit of slope, and there was no real place for your car parking, let alone a carport or garage.
This was typical. That is what the people bought.
Is it the same today? I hear that people want four bedrooms and two-and-a-half baths. Have to have a double garage of course. Could you live with less? A lot of folks in the 80s did.
Hope.
But the last bit of my reflection is a message of hope. I sold some of the houses and I kept some of the houses and I sold them over the period 2005-2010 for an average of something like $450,000.
These homes now approach the million dollar mark…………….. And then hesitate, briefly, as if reflecting on my reflections. Then it seems…………………
All comes to he who waits!
You must be able to stay the course. In case you do not know what I mean, I refer you to the following:
“In this context ‘stay’ refers to the ropes or guys and sheets that hold the ‘course’ (mainsail) in a fixed position appropriate to the heading.”
In a rather long-winded way, I am saying you have to be careful and determined.
By the way, we did not only market small cedar homes.
You also have to be patient and strong.
cheers Leighton