Forum Replies Created
- harb wrote:Isn't APF the forum where most of the refugees from Global House Price Crash Forum gather ?
Nah, not the smart and reasonable ones anyway. We have our own quite place now.
mattnz wrote:Confirmation of some of my predictions in the last couple of days: Concerns about banks being able to rely on LMI providers to bail them out. http://www.smh.com.au/business/mortgage-insurers-a-greater-threat-to-banks-fitch-20110517-1eqns.html?rand=1305700251520 Credit downgrades for the big 4 Australian banks as they are highly reliant on overseas funding http://www.smh.com.au/business/moodys-downgrades-ratings-for-big-four-banks-20110518-1eso8.htmlSo, basically, Ozzie mortgages have been bundled more or less like American ones before the subprime hit.
Mortgage insurers think the assets are worth less than what the banks want to think they are worth – meaning its only a matter of time before the banks let homeowners know their houses aren't worth as much as they think they are.
At the same time, all our big 4 banks get credit downgrades. Seems like the world knows more about our banks and housing market than we are willing to admit to ourselves.
What I find interesting about our big 4, though, is the current interplay between them. CBA and Westpac are more leveraged in housing than the other 2, so a moderate housing downturn (say less than 15%) may actually work in NAB/ANZs favour. A larger downturn will be bad for all.
Seems I stand corrected on this – you can have an IP and a FHSA. You can now also add the FHSA money to a PPOR (when the account matures) if you buy a PPOR before the account matures. You can not add the money to an IP loan, however. It's the FHBs grant (7k or whatever it is now) that can not be used if you own or have owned any residential property.
I also have a FHSA – it can only be used on your first ever home purchase. If you buy an IP before it matures, you'll have to leave it for super.
Let it mature – buy an IP with it, move in for 6 mths, move back with your folks, then NG the place. That is the only way you can use a FHSA to end up with an IP.
Or, alternatively, if you have seperate savings, use the FHS account to buy a PPOR then combine the equity on it and your other savings to leverage an IP. Then, after you have lived in the PPOR for 6mths, you have the option of having 2 IPs.
emptyvessel wrote:Interesting. 10 years ago I used to think like you. Now I earn 3 times as much and have 3 kids. I promise your perspective, priorities, planning and level of action as a result will change. Just like mine will 10 years from now. Good news is, renters like you are paying for my financial freedom strategy. Just like I did, for too long, for someone elses. That was until the "lightbulb went on". I am a bit of an idiot, it took about 4 years of contemplation and consideration for that lightbulb to switch on.What year did you buy in?
If someone changes to your mindset now, they will be buying at the peak of a market that has just began to fall – surely not a wise move.
SmartGenY wrote:If I had kids and was looking to provide them some stability I would be looking for a house to buy close to good schools and public transport. But at the moment I am under30 and looking to travel via working and volunteering as much as possible, and will continue to do this while I can still get temporary work visas with ease. That's why I like investments that don't require constant servicing plus my tax isn't too suffocating. I invest most of the difference of renting and a mortgage, not all because whilst I value investing and hard work, I also value my youth and for the time being am enjoying the life of Dorian Gray.In the end, the quality of the life you get to live will be the only investment that matters.
I travelled a lot before I had kids and don't regret it for a moment – I got to see things most others dont and had experiences that amount to quality for me.
I think that the recent preoccupation with sub 30s to buy a house is due to the bubble and ear bashing of PI parents. If prices had been rising comparitive to wages for the last 15 years, then sub 30s would have been less inspired to get on board and more insprired to live their lives. Like you mention, worrying about buying a house makes more sense to those who are committed to children or a partner and are ready to lay down plans for the future. Enjoy your youth, you only get one shot at it:)
Joel0430 wrote:What you everyone else do with their saving until a point where you had enough to invest in property?Short the $AU. Buy gold. Look at shares (requires research and risk to profit).
Savings are safe – so long as you are disciplined enough to grow them, as others mention.
I'm pumping most of mine into a FHSA (until it reaches the 85k maximum) but this means that, so long as I don't flee the country, I have to buy a house with it eventually. I doubt average homes are going to increase by more than 85k in the next 3 tax returns, so I feel it's a safer bet – others may disagree.
fWord wrote:ummester wrote:Well, I've said it many times on this forum and others, a crash is really only going to hurt those that bit of more than they can chew. Either by equity withdrawal for lifestyle spending, of IPs that are too highly leveraged. It won't hurt those that have borrowed or invested sensibly.Haha, call it the culling of the weak, if you'd like.
If weak = stupidly greedy, then yea, that's exactly what it will be.
fWord wrote:ummester wrote:fword,
Yes, maxing out on debt maximises potential in a rising market. But it also maximises the risk. Is the mortgagor truly comfortable and aware of that risk? I'd be very happy for this big crash/ correction to come, because it'd separate the boys from the men…the people who did their thinking and those who didn't. It'd bring all the dirty laundry into public and it'd be wonderfully ugly.I'm looking forward to it.
Well, I've said it many times on this forum and others, a crash is really only going to hurt those that bit of more than they can chew. Either by equity withdrawal for lifestyle spending, of IPs that are too highly leveraged. It won't hurt those that have borrowed or invested sensibly.
fword,
they type of employment (as in wether or not the bank considers the income secure) matters also. One of the reasons ACT house prices grew so much in recent time is that the banks viewed PS wages as a safe place to load up debt.
Just because you are a sensible borrower, doesn't mean that others are or that the banks are sensible lenders. When prices are on the up and up, maxing out your debt maxes out your potential returns, right?
ALF1 wrote:A true collapse in house prices would indeed require some large external shock – a doubling of unemployment or interest rates – to trigger the wave of forced home sales that it would take to provoke house price falls.Here is a recent article on this:
http://macrobusiness.com.au/2011/05/unemployment-and-house-prices/
As the article says, there is inconclusive evidence for a direct correlation, but UE often raises after house prices fall not before.
ALF1 wrote:Finally, those predicting big house price falls should also recall the recent experience during the global financial crisis when policy makers, confronted by an external shock capable of puncturing house prices, acted quickly to cushion the economy with interest rate rises and fiscal stimulus.They may and if they do it will keep prices steady. Flipside is, they are kind of out of money.
ALF1 wrote:The Reserve Bank governor was asked recently whether the prospect of house prices falling kept him awake at night. ''I worry about a lot of things at night,'' the governor confided before admitting that falling house prices were not among them.Could mean he doesn't care or he wants them to fall. He is on record as saying he wants his children to be able to afford their own house.
ALF1 wrote:Because here is the surprising thing: house prices, in Sydney at least, have been falling relative to incomes for some years. The great house price deflation is already happening, just very slowly and in an exceedingly calm manner. That's the slowly deflating hiss of an over pumped air mattress you can hear, not a bubble bursting.Yea, it has been deflating, or trying to deflate , since 2007. With stimulus offerred along the way to stop it deflating faster – on this we totally agree.
There will likely still be a panic satage in the coming year where the average punter/investor realises this and tries to sell – this will seem like a crash for a little while.
And, if it's slowly deflating, why buy? Better to save or invest in other things than a deflating asset class.
angelinsydney wrote:But wait, isn't 2012 the end of the world, the Mayans said so.Oddly, it will probably co-incide the end of the Australian economy, as we know it, also. At least we can claim we survived to the end:)
desilucky is in a position where buying makes more sense – mainly because of the deposit. A buyer with little to no deposit would not be in the same position at all.
I totally agree with the theory that if your interest payments are less than your rent it is right to buy. If you only have 20k, however, you are not going to get your interest payments under the cost of rent on a 450k property.
with deslucky the rent PA would be $23400 and the interest PA @ 6.5% would be around 21k – plus 5-6k of the principle in the first year.
if a buyer only had 20k deposit the rent PA would still be $23400 and interst would be around 28k – meaning they are 4k in front by renting (if they can save the 4k PA).
But, say desilucky can save another 30k over the next 2 years and niether property prices or rents increase, then the loan will have less than 20k of interest payable each year.
desilucky should also consider that if IRs are above 7.5% the break even point is lost.
Its a numbers game, nothing more. Everyone should do their own maths and not rely on continual capital gains or low IRs.
It is prudent to assume an average interest rate of 8% when calculating the right time to buy in.
Ancedotally, my rent PA is 17k and I have less than 100k in the bank. In ACT very little is advertised under 400k and the house I am living in would probably be advertised around that. I still have another 70k to save before I reach my break even point in my area – 170k in the bank and less than 17k PA in interest payments. I'm planning on moving interstate soon, where I believe rental returns are better and prices are cheaper. In this instance, my 100k may be better used on a loan than it could be in ACT.
DWolfe wrote:A couple things with your comment Ummester.
Would you move 1/2 hr drive hr away from your stomping ground just because you could get a bargain. Not many people would.I don't have a stomping ground, so it doesn't really apply to me. I've been moving since my mid 20s and have no desire to return to where I grew up.
But yea, I'd rather save 100k and buy a 5 bedder on a reasonable block for 4-500k than go in with no deposit and get a 2-3 bedder with no land for 3-400k. I guess many others don't see it the same way.
DWolfe wrote:The prices are dropping, but do you ever think that it may be unreasonable to ask $1.2 million for a house that is not even able to be used for firewood? Prices are NOT falling in suburbs that are around the $400-$500k mark which shows that people are still ok with that price.This is a reasonable observation and interests me.
400k is obviously easier to borrow than 1.2 mil. So, if a 1.2 mil place corrects to 6-700k it represents a pretty good deal, even I am in on that. But, why would people buy a townhouse for 300-400k when something much better may be availbale for 600k? Surely it makes more sence to save the LVR required to purchase the better deal than start with what is a bad deal in comparrison?
fWord wrote:ummester wrote:Here are (longer) term IRs and prices. Still not as long as I promised fword but I will find them – just for you:http://static.seekingalpha.com/uploads/2010/9/26/595019-128548078561902-Leith-van-Onselen_origin.jpg
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548185597047-Leith-van-Onselen_origin.jpg
I wont give you the whole article – you wont like it.
Thanks for posting those. The second JPG in particular was very small and I had trouble making out the words in those graphs. Does a larger version exist in the article itself? I think it matters not whether we will like the article or not. All the better if you can post it up here.
mattz found longer term house prices in his thread – I'm looking for just longer term IRs now
article was here
http://seekingalpha.com/article/227083-the-great-australian-housing-bubble
These IRs are a bit longer
http://www.loansense.com.au/historical-rates.html
If you compare them to mattnz long term house prices you can see the pattern just at the end
http://cdn.debtdeflation.com/blogs/wp-content/uploads/2011/04/041011_2142_ThisTimeHad111.png
From the mid 70s to late 80s IRs were higher and house prices were depressed, for example. Irs started to rise in 2007/2008 and house prices bacame a little depressed 2008/2009 then IRs were lowered again.
If I can find IRs further back, it looks more obvious. When one goes up, the other goes down and vice-versa
Oh, I should also mention, another interesting thing with the IRs shown here is the buy in periods they represent. 60s & 70s were when the BBs were FHBs, meaning there was more activity in the market. 80s were when a lot of BBs were buying IPs, again more activity. Demographics drive credit supply. When large groups of people are spending, the economy thrives and banks relax IRs – its a kind of chicken and egg thing but these patterns persist even longer back.
I'm reading this great book ATM – it's called Lord Foul's Bane. It's well crafted work of fiction – total fantasy – but enjoyable to read and inspirational none-the-less:)
mattnz wrote:Here are some fascinating graphs… First, US house prices, inflation adjusted, 1890 to present. http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png Now Australian house prices, inflation adjusted, 1880 to present. http://cdn.debtdeflation.com/blogs/wp-content/uploads/2011/04/041011_2142_ThisTimeHad111.png Note the huge heights of the blue line. Very scary if it reverts to the mean as is currently happening in USA.I'm glad you found these mattnz – I was trying to find them for fword in another thread but only found back to 1970.
Do you also have IRs over a similar term?
The correlation becomes very obvious when you view them together over a long period.
Perhaps mattz is one sided in his outlook but then, by denying the possibility of a crash, you are equally one sided.
I think a crash is the most likely outcome from this point. Doesn't mean it will happen.
I think strong growth is the least likely outcome. Doesn't mean it wont happen.
There is fundamentaliam on both sides of the fence here, not just mattz.
angel,
If IRs come down, it is likely the dollar will also.
On 'your money, your call' (I think that is what the show is called) last night, the RE section was speculating the lenders would lower IRs with or wothout the RBA by the end of the year. That seems like wishful thinking. But, if the RBA does lower, the lenders should follow with some, if not all of the cuts. Lenders have to increase their margins but it makes sense that they pass on something.
