Want a house at a 60% reduction? Just wait...

[EzyStyles (Eric)]

yepp im one of those. Had to lease out my property as I was struggling with the mortage repayments due to high interest rates. At lease my home didnt get taken away unlike some poor buggers out there. Personally, i don't think we will follow the American trend. We have too high demand for property and not enough land. Not sure about other states but in Melbourne, population is growing at 1000+ people a week!

[Glenhuon (Bill)]

I'm in agreement with KG8 on this one. The bubble WILL burst, nothing is forever and the resources boom will peter out sooner or later. I'm nw retired and my income has reduced considerably, but I still get these things from banks etc. offering me ridiculous amounts of credit. They go in the recycling, mostly unopened.
I was fortunate inasmuch I built my house just before the silly season started and sold it a couple of years ago for 3 times the price. If I had been greedy I could have held out for another 50K and got it, had I been prepared to hold on a couple of months.
RE is overpriced by a huge amount, people are taking out loans that they will struggle for many years to pay, if ever. My mother used to reckon (in Scotland), that buying a house was putting a millstone around your neck, at the moment her words ring very true, and its not the way it should be.
I let my place go to what I thought was a young couple looking for a home, they were instead speculators who bought it, planted some more grass around the yard and resold it, probably at a nice profit. These are the people who have driven up the prices, not the lack of homes. Had I known, the deal would never have gone through.
Just my opinion.

Bill
Who puts social conscience before profit

[GrahamL]

THE nation's heavily geared homebuyers could be hit hard by any shock to the economy, Reserve Bank governor Ian Macfarlane has warned.
Mr Macfarlane said the big change in Australian household borrowing had been among the over-40s, who were going into debt again rather than paying off their home loans. "The biggest single contribution to the increase in debt is actually people in the 40-50 and 50-60 age

yeah thats so true .. the tax haven that residential housing has become
is to big a carrot to ignore ..I think borrowers see the short term in that you buy an investment property and you can gain substantial tax releif in regard ..the downside for many imo.. is that in so doing many have effectively halfed any equity they had.. bump up interest rates .. and remove the tax consessions .. which is a possibility/reality and this guys words WERE a pretty fair observation of the way things are likely to pan out ..I'd agree have with his coments to on the banks being fairly secure with there bottom line ..any good look at a full cycle of lending would probably show they lose a bit ..make a lot .
Bit like owning a casino and being able to lock the doors

[Stephen65]

The last paragraph states plainly that we have followed the US model. But here we call them low-doc loans, not subprime.

No we don't. A low doc loan is a type of loan designed for self-employed persons who can't prove a high enough or consistent income. The nearest equivalent we have to a US subprime loan is a non-conforming loan - a loan designed for those who don't qualify for regular loans because they have bad credit history. The proportion of non-conforming loans in Australia is much lower than subprime loans in the USA and the default rates are also lower.

What the governor is talking about is neither type, he's talking about Australian banks reducing risk by creating securitised products to sell to other banks or investors.

[KG8]

Originally Posted by Stephen65

The proportion of non-conforming loans in Australia is much lower than subprime loans in the USA and the default rates are also lower.

Well of course they are Stephen, our housing prices haven't begun to crash yet. When they do all the wannabee millionares will begin putting their investment properties up for a quick sale and then the market will really tank. Then you will see some non-performing data coming out enmass.

The comments about subprime were mine BTW, the RBA governor was discussing other matters. He was warning Australians NOT to buy investment properties. If you did, you will be screwed.


It's going to happen everywhere BTW. The whole western world nearly has seen a house price bubble
Britain faces worse housing crash than US

Wednesday, March 19, 2008

Britain could follow the US into severe economic slowdown – and see an even worse house price crash, experts have warned.
Parallels between consumer spending in the two countries are 'disturbing', said the respected financial forecaster Capital Economics.
A main cause of the US slump has been falling house prices, which are now being seen here too – but the British market is even more vulnerable and could fall more sharply, it added

http://www.metro.co.uk/news/article....&in_page_id=34

[[1ponders] (Paul)]

While I don't pretend to understand the banking system at all, except that it is not setup to benefit anyone except the banks (cynicism reigns supreme) there is one thing I heard the other day on the ABC radio (from a high level finance/banking something or other) regarding the difference between Australian housing loans and American housing loans that will make a huge difference in the economies.

Apparently in the states if you are unable to meet your mortgage repayment you can simply go to the bank, hand over the keys to the house and walk away. You don't have anything to show for it but you are released from you debt.

Here in Aus even if you hand over the key you are still responsible for the debt. ie the banks get the house and you still have to pay it off. Now that is going to make a huge difference to the economy. People who can afford their mortgages won't be able to get out of them. They will still have to pay for them.

At least that is how I understood what was being said.

[PCH (Paul)]

That's exactly right Paul, the way the default is handled by both the defaulter and the bank is entirely different here compared to the US.

It is as you've said.

But still others in this thread have likened our lo-docs and no-docs to the US sub-prime type loan, and in truth they are not at all similar.

Here, although proof of income is not required, other qualities have to stack up. For instance, you need to have equity of some sort against which to secure the (bulk of the) loan.

In the US, these subprime loans have becoma known as 'NINJA' loans - meaning No Income, No Jobs or Assetts. This amusing acronym speaks volumes about the way in which the money was handed out to totally uncreditworthy customers.

Here, our no-doc and lo-doc loans are far more secure than the US Ninja loan, and we also have only about 2% of the total loan book written as this type of loan. Versus their approx 20%.

So, im(humble)o, I see a flattening off because we've had a rapid rise in some parts of the country, - but not a collapse as over there.

And finally, of course we could expect the Banks (Ian McFarlane in this case as RBA spokesman) to tell us not to invest with a view to looking after ourselves in our retirements. It's not in the Banks' interests to have us use THEIR money to make money for ourselves is it? They HAVE to perpetuate a system whereby we get told to save save save and put our money in the Bank for next to no return, while they use it to make mega-bucks from loans and the overnight money-markets etc. Aren't we always complaining about how much the banks make? Well, they really really really want it to stay that way.

My two penneth

Cheers,

Originally Posted by [1ponders]

While I don't pretend to understand the banking system at all, except that it is not setup to benefit anyone except the banks (cynicism reigns supreme) there is one thing I heard the other day on the ABC radio (from a high level finance/banking something or other) regarding the difference between Australian housing loans and American housing loans that will make a huge difference in the economies.

Apparently in the states if you are unable to meet your mortgage repayment you can simply go to the bank, hand over the keys to the house and walk away. You don't have anything to show for it but you are released from you debt.

Here in Aus even if you hand over the key you are still responsible for the debt. ie the banks get the house and you still have to pay it off. Now that is going to make a huge difference to the economy. People who can afford their mortgages won't be able to get out of them. They will still have to pay for them.

At least that is how I understood what was being said.

[KG8]

Originally Posted by [1ponders]

While I don't pretend to understand the banking system at all, except that it is not setup to benefit anyone except the banks (cynicism reigns supreme)

That is the truth.

Is it better to buy, or to rent. Will RE prices always go up? Well a lot of the big players are selling out, it's a real trend and I assume in the following example the ongoing sales are being foisted onto super funds.


Tuesday, 1 August 2006
St.George continues branch sale and leaseback program


St.George Bank today announced it will auction ten of branches located in Queensland, New South Wales and Victoria on a sale and leaseback basis. The properties to be offered are two in Queensland; Queen Street Mall in Brisbane and Griffiths Street in Coolangatta, five in NSW; Belmont, Broken Hill, Muswellbrook, North Sydney and Richmond, and three in Victoria; Hamilton, Horsham and Shepparton. Jones Lang LaSalle have been appointed to manage the campaign.


http://www.stgeorge.com.au/media_cen...ive.asp?id=159

If property is such a good investment, why would a bank sell it's own?

[Zuts]

Originally Posted by KG8

If property is such a good investment, why would a bank sell it's own?

There are many reasons why any person or institution would sell property.

Of course one could be they have decided to take the profit. Are you saying that people who buy investment properties should never sell them? I thought that was the idea, you buy an investment property and then sell it when the selling is good.

Paul

[Zuts]

Hi,

Will house prices always go up? While we have inflation, high demand and under supply, yes they will.

Will house prices go down? Yes, it's called the housing cycle. In the short term house prices can suffer a correction?

Will I lose money if house prices fall? No, only if you have to sell.

Have any other countries suffered large corrections? Yes, England and Hong Kong suffered major corrections. Have house prices recovered in those countries? Yes, they have.

Given that the share market and housing market can suffer large corrections from time to time is it a good idea to invest? Yes, of course it is. These things come in cycles, if you are carefull and dont overextend then you will make money in the long term, like any other investor in the last two centuries.

Paul

[KG8]

I agree with a lot of what you say Paul, but not "you will make money in the long term like any other investor in the last two centuries".

In the last 2 centuries many small investors have been screwed over. In the precious metals crash of 1980's, those who bought gold and silver near the top lost as these metals fell and didn't recover for 20 years. Now they have recovered but inflation has stripped any gains. In the .com crash in 2000, those that bought in near the peak, or halfway up lost and will never recover that capital. A lot of the companies don't exist anymore and the nas index is still in the toilet. And in housing? Yes, anyne who bought RE in the 1920's for example saw values fall for decades. It wasn't until 1950 that prices recovered. That's a long time to wait to sell an asset and many investors back then who counted on the money for retirement, grew old and died before they saw any gains.

Every now and then long cycles come into play and economies retract, asset prices collapse. We have just lived through 60 years of constantly appreciating asset mini-cycles, all fueled by ever increasing levels of compounding interest debt. It has to end someday, the debt has to be cleaned so we can start the debt supercycle again.

That I believe is why the smart money was selling their RE holdings in the past few years. Getting out of these assets at the top, putting them into weaker hands so when the collapse comes thet can be taken back at cheaper prices and the debt written off the books in a foreclosure process.


Housing prices take years to rise, and just as many to fall. It will be a slow motion train wreck. But don't take my word on it...

http://www.iceinspace.com.au/forum/
http://sunday.ninemsn.com.au/share/img/hd_v10/9logo.gif


November 6, 2005
Reporter :Graham Davis
Producer : Ann Buchner

Safe as houses
http://sunday.ninemsn.com.au/sunday/...611_house1.jpgGet out of the real estate market now. That's the blunt warning to Australians with investment properties from the country's most respected lender, "Aussie John" Symond of Aussie Home Loans.

Mr Symond predicts a further fall in property prices on the eastern seaboard on top the ten per cent correction in Sydney — the biggest market — since the height of the boom. He tells Sunday reporter Graham Davis: "Anyone who thinks this softening of the real estate market is about to turn around quickly is in for a shock because this gradual decline, I believe, will go on for several years." Mr Symond urges those with investment properties especially to bail out as soon as they can: "I would be putting it on the market because I reckon the price you are going to get today will be higher than what it will be tomorrow."

With some $20 billion funneled to homebuyers and mum and dad investors, Aussie John is the biggest non-bank lender to middle Australia. His comments will cause a stir because at the same time he urges investors to sell, he says ordinary Australians should refrain from buying in the current market: "The only time I would buy is if I am an owner-occupier and need somewhere to live. For anything else, I would wait because I believe prices will continue to come off."

Mr Symond says the prospect of interest rate rises next year are "deeply worrying", particularly for first home buyers. Commenting on the prediction by property forecaster BIS Shrapnel of a one percent rise in the variable rate by the end of next year, the Aussie Home Loans chief said: "People would hurt and we would start to see defaults. The segment most at risk are first home buyers because if they bought at the top of the market, they would today have negative equity."

http://sunday.ninemsn.com.au/sunday/...611_house2.jpgHe warns that thousands of properties could suddenly flood the market as borrowers default on their loans or cut their losses and run: " I think we will see more and more forced sales and that's why I'm saying to people there's no rush, we are going to have a wider selection of properties to choose from at probably a lower price."

Symond's comments have stunned the real estate industry. "John is highly influential and from the consumer's point of view, he is very credible," said top Sydney agent John McGrath of McGrath Partners. "What he's said will definitely have an impact on the market." Louis Christopher of Australian Property Monitors commended Mr Symond for speaking out: "Obviously a comment like that wouldn't help his own business so he is calling it as he really sees it and all credence to him because not many people do that."

[Stephen65]

If property is such a good investment, why would a bank sell it's own?

Many reasons. One would be to lock in the tax free capital gain on a pre-CGT asset (anything bought before 1986). Another would be the tax advantage of sale and leaseback - if the bank owns the land it can only depreciate the cost of the building, but if it leases the land it can claim the entirety of the rent and all costs as an immediate tax deduction.

[fringe_dweller]

I remember the crash in the '80's, that was also really because of banks lending practices getting very dodgy during a world boom, just like now, remember allan bond?
When you make a blanket statement that ALL houses in EVERY region/area will drop by 60%, that is the title of this thread, are we talking typically sydney/east coast centric stuff as usual? I know that it is hard to see beyond the dividing range sometimes, but australia is actually quite a bit larger than nsw! well some places prices did get VERY silly, but not everywhere did, the recources boom areas are a little different to sydney? oh so a 2 million dollar property drops to 1.8 mill somewhere, geeez, well thats hardly mainstream is it, the cheap places didnt get silly and giddy.
on top of that the cost of building a new place materials and labour/tradies wise continues to go thru the roof! how does this bring house prices down?

[Kokatha man]

I've got to confess that although I've got a mortgage I have not really fathomed the depths of all these financial factors, national and international. Not that I'm not interested or involved; some of it is overwhelming to me at times.

Maybe it's the artist in me, that basically reacts to much of it with cynicism: I can remember talking to a brother in law many years ago whence I made the claim that a significant amount of share buying and selling on the stock exchanges was fuelled, or more correctly stoked, by rampant euphoria or depression; depending upon what "chinese whispering" held currency! (pardon my pun) He was totally dismissive of this appraisal (incidently he now lectures on economics in China) but I have noted of late that certain financial observers have voiced similar opinions of certain stock exchange phenomena.

I know this has stuff-all to do with sub primes etc; but as fringe_dweller notes, it seems that the really silly over-inflated housing purchases and subsequent sell-ups have been on the East Coast of Oz.

But talking of whether properties will continue to rise in price/value or not - an interesting report doing the airwaves at the moment is the expected massive rises in rental prices: how does this feed into the equations?

All in all I've found this thread and peoples' comments very interesting, cheers, Darryl.

[KG8]

Originally Posted by Kokatha man

But talking of whether properties will continue to rise in price/value or not - an interesting report doing the airwaves at the moment is the expected massive rises in rental prices: how does this feed into the equations?

A lot of the information on RE comes into the mainstream media directly from the REIA. It is an organization funded by real estate agents is it not? run by the real estate industry. The real estate agents wants to sell houses, if they don't, they starve or go back to driving cabs and working in factories. At current rents, current prices and current interest rates it makes no sense to invest in residential property. But if rents are going to double? Well now, that is hope for the future. And if I really really hock myself, eat catfood, walk to work and cut off my home phone, then I can get on the property ladder before it's too late! Before home prices double again to an average of a million dollars in ten years time.

http://patrick.net/housing/crash.html

[gman (Grant)]

Property never really falls in price by much.
Its a cycle of plateau and rise.
I have paid out my mortgage - one of the lucky ones and invested in commercial property. No maintenance - Tax benefits
All the work is done by my accountant

[Alchemy (Clive)]

An issue very much in debate everywhere at the moment, i dont pretend to understand all the financial movings at the moment but i do know its possible for anything to happen, in the past large financial crashes have happenned suddenly, wars such as world war 2 ... although the british prime minister came back from germany saying peace in our time they were at war 2 weeks later.

So will we suffer as discussed in previous posts.... i dont know.... BUT i was always told by my parents if you cant afford it dont have it, live within your means... i have a mortgage and thats about it, 2 10 yr old vehicles owned outright, no credit card and live modestly...... id like to buy a ccd camera but will have to wait and save for it even though i could probably have one tommorrow on credit.

i think most of the posts have some merit in them but ultimately history will show the results... just live sensibly.

No matter what might happen there will always be opposing arguments take global warming for example. Just have a plan if it all goes pear shaped.

[KG8]

Yes, thats the guts of it Alchemy. I think for a lot of australians it wont matter what happens to the prices because they are established and have the mortgage fixed. But for those who are just now thinking of buying as FHB's, or for those who bought near the top in the recent boom and are counting on their investment to fund their old age, for that group there is the risk of substantial losses. There are are lot of folks in the US now suffering a lot of pain because they were told by the "experts" that the prices could never retract meaningfully. They were lied to.

[Kokatha man]

Originally Posted by KG8

A lot of the information on RE comes into the mainstream media directly from the REIA. It is an organization funded by real estate agents is it not? run by the real estate industry. The real estate agents wants to sell houses, if they don't, they starve or go back to driving cabs and working in factories. At current rents, current prices and current interest rates it makes no sense to invest in residential property. But if rents are going to double? Well now, that is hope for the future. And if I really really hock myself, eat catfood, walk to work and cut off my home phone, then I can get on the property ladder before it's too late! Before home prices double again to an average of a million dollars in ten years time.

http://patrick.net/housing/crash.html

I appreciate your cynicism KG8 - and by that I mean I share it! - but notwithstanding the self-serving spin of the REIA etc, rental prices are definitely escalating over here, and very markedly. One of my sons has needed to move twice in 2 years due to leases running out and landlords selling, and each time the rental rises for equivalent accomodation have been very high.

Says something about public housing availability, and full-on laissez-faire market philosophies to me as well.

[Zuts]

Originally Posted by Kokatha man

I appreciate your cynicism KG8 - and by that I mean I share it! - but notwithstanding the self-serving spin of the REIA etc, rental prices are definitely escalating over here, and very markedly. One of my sons has needed to move twice in 2 years due to leases running out and landlords selling, and each time the rental rises for equivalent accomodation have been very high.

Says something about public housing availability, and full-on laissez-faire market philosophies to me as well.

I don't usually agree with Darryl, because it's more fun not to , but in this case, it would imply a conspiracy involving the REIA, tax dept and many others on a grand scale were this misreporting found to be true.

Paul