Australia housing bubble

[Raptor]

But is the principal purpose of a house a speculative investment tool or somewhere to live?

I think whatever Canada is doing, such as prioritising communities above developers profits, makes a lot of sense. My visit there has opened my eyes to what sensible policies can achieve. This govt (country?) is nuts.

Compare the stability there vs here and elsewhere;

http://datawrapper.dwcdn.net/2No1H/3...ightmobile=550

[prydey]

Originally Posted by Raptor

But is the principal purpose of a house a speculative investment tool or somewhere to live?

Completely agree.

[Skellibert]

I agree but in my case as mentioned above, the fact that it was a place to live ended up having no bearing on the fact that it basically ruined us.

And of course the fact that my current house is worth twice what we paid for it also has no bearing on our life today in reality - we are not selling any time soon, and if we did, we would have to buy in the same market we are selling in, so where does that leave us?

If we are trusting the market - or even in our government - to give us satisfaction and contentment in this life, we are trusting in the wrong things.

But no matter what happens in our life, we can always move on and do at least reasonably well.

[MITCHAY]

As far as I'm concerned a house is a home. Everyone tells me do this and that but that is what I live by.

I don't think negative gearing should apply unless it is a new house that increases the stock but I don't hate those who take advantage and play the game. But on the flip side you have those who say it would sharply increase rents.

They are saying quite a few interest only loans are coming due and will switch over to P&I and boy that could be a shock to the system when it does.

[Trendseeker]

Yes, there are still so many units under construction that there will be a glut of vacant properties soon if not already. Clearance rates are down, and combined with potential interest rate rises next year, prices could continue to fall, which is good news for buyers. I doubt there will be a crash though; interest rates would have to rise sharply to cause a crash as most owners and investors will just stay put and wait for demand to eventually outstrip supply as it surely will due to the ever-growing population.

[zipping]

One of the reasons the Australian sharemarket underperforms the US is that the impact of the current credit squeeze is gathering momentum.

It’s a credit squeeze without any Australian precedent.

And since the Wentworth by-election, the squeeze’s effects are being multiplied by the fear of ALP policies that were conceived before the squeeze had taken hold. At this stage, the squeeze is restricted to dwelling prices and developers but it’s about to spread to retail and beyond.


Why is the 2018 credit squeeze without precedent?

The first part is fairly straightforward. Bank credit standards have been too low. So the banks have been told they must raise those standards, which effectively cuts at least 20 per cent from what they would loan on a property. But the normal reduction is about one third.

But then comes the unconventional credit clamps. They’re like a cancer growing below the surface, and no one’s talking about them.

Specific areas of the residential property market have been singled out for special attention. For example, it has been made very difficult for investors to gain interest-only loans. That same group of borrowers - who in the boom were more than 60 per cent of the bank housing market - now also pay higher interest rates. And if you happen to be overseas Chinese, then there’s no money for you.

Residential developers have become the lending equivalent of the plague, and are usually told to go to non-bank lenders who can accommodate them but where the rates are higher.

There’s also another, even more sinister aspect to this credit squeeze which is very difficult to quantify: the attack on bank management. The management of our banks has been bad, and I am not excusing it. But when you attack managers at the same time as a credit squeeze a strange new inner fear phenomena develops among bank people at all levels.

Bank regulators are set to walk into banks to check what they are doing. That’s what bank boards are supposed to do. But because they did not do their jobs, their role will be reduced. And then we have a royal commission which will recommend a whole new series of attacks on bank management and practices.

ASIC has correctly been attacked for being too soft on banks. Had ASIC and APRA done their jobs in past years (granted, that’s a hindsight judgement) the property boom would not have got out of hand. Now they are about to show us that they have learned their lesson.

ASIC says that there are around 50 charges, many criminal, that are likely to be laid on banks, their executives and possibly board members.

It’s seeking vast new sums of money to prosecute them. Most of that money may be levied on the banks who will then pay for their own defence. It possible that many bank people will be jailed. That may also be a cost to banks, something like the old days in the Tower of London where the rich paid for their “accommodation”.

Add to that the huge payments set to be made to customers who were wrongly charged. As property falls in the light of the credit squeeze, many of those who borrowed from the bank will sue because the lending to them was “irresponsible”.

It’s true that sometimes high-pressure, commission-driven bank sales people did cajole customers into taking too much debt. But the customers accepted risks for big gains. Nevertheless, litigation lawyers are preparing for a harvest.

I could go on, but each of these actions is part of the same un-coordinated credit squeeze, one which is without precedent.

Out there in borrower land, borrowers and their accountants are dealing with bankers at all levels who have an inner fear that they don’t talk about.

Bankers who are confident enough to exercise sensible discretion are hard to find. So every detail of a transaction must be right, even when security is not an issue. That makes the borrower nervous. Under this sort of indirect attack, the residential property market does not collapse. It just edges lower as each week goes by and auction clearance rates fall.

Now enter Bill Shorten and Chris Bowen with their negative gearing plan. When it was announced many years ago it would have curbed the boom. But its impact would have been muted by the virtually unlimited bank credit that was then flooding the market.

Now what will happen is that an investor will seek to buy a dwelling being built or about to be built for, let’s say, $800,000. The investor will be able to negatively gear interest and depreciate the new property.

But $800,000 is not the worth of the dwelling because, if it is sold, the buyer can’t negatively gear or claim depreciation. Theoretically, banks will take 20 over cent off to determine their loan levels so, to the banker, the $800,000 property is now only worth $640,000. The bank will lend, say, 70 per cent of $640,000, or about $450,000. Those sums are merely indicative. But, in rough terms, bank lending is restricted to around 55 per cent.

To get building going, the value of the property has to fall to a level where there is positive gearing. That will be helped via higher rents as supply is restricted, lower land prices and by state governments and local councils slashing their boom time charges. It will be a very nasty period and the adjustment will be further delayed by Bill Shorten’s higher wages campaign.

And there is a chance that our banks will have lower credit ratings, which puts up interest rates. Some banks may need to lower dividends and/or raise capital.

And remember this is the area that has dominated the Australian sharemarket.

The above scenario may not take place if our uncoordinated regulators wake up in time or the royal commissioner understands the dangers ahead. Banks shares plus AMP have been slashed and if anything that increases the fear factor.

With a federal election about to hit, the competition to bash banks for votes intensifies. This credit squeeze could not have come at a worse time. Hopefully after the election whoever wins will wake up to what is happening. But that will mean going back on the bank bashing promises.

ROBERT GOTTLIEBSENBUSINESS COLUMNIST

[danzvtil]

They are pulling apart the bank system bit by bit. Next to go will be trailing commissions to brokers, “trailing commission” being paid to the broker who sold you your loan is now seen as “under the table” and will be banned. They will have to charge upfront for their services which won’t work, so thousands of Aussies who are small businesses are done. It’s like telling Coles that they must not make profit on groceries they sell, you have to pay $200/week to walk into their store and buy everything at cost. It’s using a sledgehammer to crack a peanut.

[GasoLane]

Originally Posted by danzvtil

They are pulling apart the bank system bit by bit. Next to go will be trailing commissions to brokers, “trailing commission” being paid to the broker who sold you your loan is now seen as “under the table” and will be banned. They will have to charge upfront for their services which won’t work, so thousands of Aussies who are small businesses are done.

But surely the actual loan would be less if his commission isn't added onto it.


(You wouldn't be a broker, would you? )

[danzvtil]

Originally Posted by GasOLane

But surely the actual loan would be less if his commission isn't added onto it.


(You wouldn't be a broker, would you? )

How do you suppose the broker pays to feed their family?. If you went direct to the bank, will they give you the no broker discount? I think not.

[GasoLane]

Originally Posted by danzvtil

How do you suppose the broker pays to feed their family?. If you went direct to the bank, will they give you the no broker discount? I think not.

If a broker could get me a better deal than a bank I'd happily pay a fee for it.

The problem with brokers and commissions would be that whoever pays the best commission would be at the top of his list, even if it's not the best deal for his client.

[danzvtil]

Originally Posted by GasOLane

If a broker could get me a better deal than a bank I'd happily pay a fee for it.

The problem with brokers and commissions would be that whoever pays the best commission would be at the top of his list, even if it's not the best deal for his client.

Fortunately it doesn’t work that way. A broker who stiffs his or her clients doesn’t stay in business for very long, I’ve had the same broker since 2001 and refinanced 8 Times since then, he has access to loan products that I can’t get by phoning a bank.
My point is, the broker market helps homeowners find a better deal, they are part of the solution, not part of the problem.

[zipping]

Another view

In the past 12 months, the median house price has dropped about 4 per cent. After the surge in house prices over recent years it’s been a reasonably orderly retreat.

However, a deep gloom has descended on the housing outlook, with many people claiming the “housing bubble” is about to become a “housing crash”.

One interesting thing about being an Australian is we each are surrounded by 25 million housing experts. Google the phrase “Australian house prices” and in 0.54 of a second you’ll have a billion items on that topic to consider.

In my view, housing, and the economy generally, does not face the full fire of dire times now feared. But prospects are there’ll be a further, noticeable, fall in the median house price (5 to 10 per cent), followed by an elongated slump in house prices.

This will involve real pain for some home owners who purchased at the peak of the cycle, paid over-the-top prices or borrowed too heavily, especially where people lose their jobs or partnerships break up.

We’ve already experienced unbalanced comments. In August last year, a Four Corners program ran a shrill report on the “powder keg” left behind by the last surge in house prices. It was based on comments from an ultra-bearish economist, a bearish London-based investment adviser and a bearish analyst of mortgage stress. Alternative views were not offered.


Last month, Channel Nine’s 60 Minutes broadcast a similar piece, called “Bricks and Slaughter”, claiming Australian housing was about to “fall off a cliff”. Among comments from “real estate and finance experts” was a prediction for a 40 per cent drop in house values with “catastrophic” effects on the economy. Later, a couple of the participants criticised the report for distorting their views — one said the 40 per cent decline in the average house price he predicted was only his 20 per cent probability.

But it won’t be easy to maintain a balanced outlook. Each item of news on the housing market, including weekly auction clearance figures, will be dissected to see what unpleasant news it offers on the housing outlook.

Are things as bad, or even half as bad, as the army of naysayers claim? Are there any shades of grey in the housing outlook?

Traditional concerns for housing — the high level of household debt and mortgage stress — are exaggerated.

But newer worries, such as the impact on bank lending from the revelations of unfair practices by the royal commission and from the likely introduction of changes to negative gearing and capital gains taxes (if the ALP wins government) will push housing prices lower and constrain recovery. Yes, Australian households are now among the world’s most indebted. House mortgages are the equivalent of 130 per cent of household income, and all debt of households stands at 190 per cent of household income.

But plucking a couple of numbers — gross household debt and mortgage debt — from the aggregated balance sheet of Australian households is not enough. These ratios do not include important “buffers” such as offset accounts, redraw facilities and prepayments making household finances more resilient.

Net debt matters more than gross debt, but notice how all the shrill reports only mention gross borrowings. Currently, prepayments equal 18 per cent of mortgages outstanding. That’s nearly three years of scheduled repayments. But the distribution is uneven: one-third of borrowers have more than two years’ worth of prepayments while another third have less than a month’s worth.

“Mortgage stress” also looms large in many predictions of an impending crisis. Mortgage stress is often arbitrarily defined as repayments in excess of 30 per cent of a household’s income. Thanks to low interest rates, the proportion of borrowers with mortgage stress isn’t much higher than it was a decade ago. Of course, with 80 per cent of housing loans carrying variable interest rates, mortgage stress will become more widespread as rates rise. Perhaps there’s some comfort, though, in the prospect that the next cyclical upswing in interest rates — maybe in late 2019 — will turn out to be mild and drawn out.

The Reserve Bank observes: “At present, households in aggregate appear well placed to manage debt repayments. Reliable and relatively timely indicators point to pockets of household financial stress, but this is not widespread.”

Additional concerns for the housing sector have developed recently including side effects of the macroprudential policies introduced as part of monetary policy; responsible lending laws; additional regulation of banks likely to flow from the royal commission; and Labor’s commitments to abolish negative gearing on future investments in housing (except on new dwellings) and to increase by half the capital gains tax payable when investment property is sold.

[Franco Cozzo]

‘We’re heartbroken’: home in same family for 93 years passes in

CHRIS and Brad Kerr say they’re “heartbroken” after the Californian bungalow in their family for 93 years passed in for what seemed a ridiculously low price.

Just two bidders competed for the three-bedroom home on a 757 sqm block at 17 Beresford Ave, Chatswood and agents couldn’t get them to offer even $1000 more than the vendor bid of $1.7 million.

After the gavel fell, Karen Davis, of Standen Estate Agents, said: “Last year our vendors might have got $2.4 million for this but now we’re having to ask them to consider $800,000 less than that.”

Poor Chris and Brad ONLY got $1,700,000 for their inherited house :'(

If Nanna had 'accidentally' gone for a tumble down the stairs 12 months ago they would have got their $2.4M! How inconsiderate of her! Or maybe the doctors should have tried harder to keep her alive for the next realestate boom?

https://www.news.com.au/finance/real...4e715a91cb7102

[Franco Cozzo]

Originally Posted by Franco Cozzo

Poor Chris and Brad ONLY got $1,700,000 for their inherited house :'(

If Nanna had 'accidentally' gone for a tumble down the stairs 12 months ago they would have got their $2.4M! How inconsiderate of her! Or maybe the doctors should have tried harder to keep her alive for the next realestate boom?

https://www.news.com.au/finance/real...4e715a91cb7102

The commentary gets even better from the owners:

After the gavel fell, the agents managed to get the bidder up to $1.67 million, but it was still a way off the $1.75 million reserve.

“Yes we are heartbroken,” Mr Kerr said. “We expected to get something more reasonable than this.

“This is garbage.”

$1.67M 'not reasonable' and 'this is garbage' - the entitlement in those statements

[GasoLane]

Originally Posted by Franco Cozzo

The commentary gets even better from the owners:



$1.67M 'not reasonable' and 'this is garbage' - the entitlement in those statements

The comment I liked best was "“It’s not just the money, it’s the emotional attachment."

And he probably said that with a straight face!

[Franco Cozzo]

Kinda reminds me of taxi license holders in Victoria demanding compensation from government cause Uber came and destroyed an investment scam.

It would be like going to Crown Casino and demanding compensation on your gambling losses.

You played and lost - stiff bukkake!

[Syndrome]

Originally Posted by Franco Cozzo

Kinda reminds me of taxi license holders in Victoria demanding compensation from government cause Uber came and destroyed an investment scam.

It would be like going to Crown Casino and demanding compensation on your gambling losses.

You played and lost - stiff bukkake!

Sorry but I don't agree. The government controlled the amount of taxi licenses which kept the prices high. They should have identified the UBER risk and moved sooner. The problem with governments, regardless of political persuasion, is they too little or too much.

[nuthin' fancy]

Originally Posted by GasOLane

If a broker could get me a better deal than a bank I'd happily pay a fee for it.

The problem with brokers and commissions would be that whoever pays the best commission would be at the top of his list, even if it's not the best deal for his client.

I was a broker for 20 years. Never memorised the commission rates, what was best for the client was best for me.

If I felt the client was more trouble than what the bank would pay me, I would charge them too.

The trailing commission was seen as a payment for ongoing client management, I guess some brokers do provide after sales service, some do not.

The book of trailing commission is also a saleable asset for a broker.

Still, if you can't say to a client, the bank doesn't pay me, I have to charge you and win the deal, you should be working for someone else.

Interstingly, in all the time I was a broker, the average loan I wrote increased from $170,000 to $210,000. Upfront commission typically 0.6%. I worked in regional Victoria.

Sydney brokers could average $2,000,000 per loan and the work is the same for each file, generally speaking.

I spoke with a broker once who contacted members in the BRW rich 200. He wrote two loans from this marketing effort totalling $50m. $300k up front commission, $8k per month in trail.

An instant business in two loans.

[nuthin' fancy]

Originally Posted by Franco Cozzo

Kinda reminds me of taxi license holders in Victoria demanding compensation from government cause Uber came and destroyed an investment scam.

It would be like going to Crown Casino and demanding compensation on your gambling losses.

You played and lost - stiff bukkake!

Not quite, Franco Kurac.

There were three elements:

Industry deregulation by Jeff Kennett saw an open market for licences, the market determined the value and they increased ten fold in 20 years to around $500k (Melbourne).

The industry was awful, old worn-out cabs, old worn-out drivers, no cab ride was a pleasure.

Uber arrived and introduced a new way to travel, the taxi industry was slow to react.

The first one was affected by the Government introduced new and different licence types that reduced the value of existing licences. Action by Governments that reduces the value of privately held assets should be compensated for by Government, the same as the reduction in the value of you house by construction of a freeway is compensated for.

The second and third items were industry risks and this risk should be carried by the owner, no one else.

[Syndrome]

From what I have seen the property bubble has definitely stopped growing.

[XB GS 351 Coupe]

Originally Posted by Syndrome

From what I have seen the property bubble has definitely stopped growing.

Not sure about that, our block has gone from 165K to over 400K in the last four years.

Not that I am complaining, especially since I paid cash for the block and don't owe anyone anything

[MITCHAY]

Brokers disclose their commissions up front and frankly I couldn't care less what they get paid as long as my deal is good. I don't have to pay **** to them.

Funnily enough the banks don't know you exist until you take all your money out then suddenly they are ringing you up asking what they can do for you

[Syndrome]

Originally Posted by XB GS 351 Coupe

Not sure about that, our block has gone from 165K to over 400K in the last four years.

Not that I am complaining, especially since I paid cash for the block and don't owe anyone anything

How much has it's value increased in the last six months?

[.:4:.]

What gets to me when people go on about property values is that unless its an investment property, you dont make money because in a place and sell it, all the houses around have probably gone up and whilst you have paid the mortgage down a bit and can get another loan and move up into a better place, you still are morgaged up to they eyeballs. So its square 1 in a better place. So yes a better house is better, and years of paying off the old place means whatever you sell it for means you can add to that amount by another loan on top, but its not like you can simply sell a house and be able to buy a mansion with just the sale money. I had some very good advice thrown my way when i bought 6 years ago which helped me out. My old man is one of the founders of the mortgage industry association and his advice was out dated but he put me in contact with one of his top loan writers who put to bed the common misconceptions and made it real.

[mike_nofx]

Originally Posted by Syndrome

How much has it's value increased in the last six months?

I don't think people should look at house values in terms of months.

[Syndrome]

Originally Posted by mike_nofx

I don't think people should look at house values in terms of months.

So why does the official Core Logic RP data have daily, monthly and quarterly values?

https://www.corelogic.com.au/research/daily-indices


Nice try but no cigar.

[mike_nofx]

Originally Posted by Syndrome

So why does the official Core Logic RP data have daily, monthly and quarterly values?

https://www.corelogic.com.au/research/daily-indices


Nice try but no cigar.

Not sure what you’re trying to prove. But since people don’t generally buy a house today to sell next month, or even 6 months later, look over a minimum of say 3-5 years for more real life house price data. 5-10 years is even better as it would represent the average home ownership period.

[BENT_8]

Originally Posted by mike_nofx

Not sure what you’re trying to prove. But since people don’t generally buy a house today to sell next month, or even 6 months later, look over a minimum of say 3-5 years for more real life house price data. 5-10 years is even better as it would represent the average home ownership period.

Fair call, lets look back in 10 years time and see how it went in the previous 20..

[mike_nofx]

Originally Posted by BENT_8

Fair call, lets look back in 10 years time and see how it went in the previous 20..

Good idea, what’s your prediction?

[BENT_8]

Originally Posted by mike_nofx

Good idea, what’s your prediction?

Umm, i predict i'll look back in 10 years on the market over the previous 20..