10 reasons why house prices won't crash...

Great article to read for property investors ...

10 reasons why I don’t worry about a house price crash

Cheers,

 

Great article? , I thought its was more of wishing and hoping

He has discounted/ignored all possible headwinds in next two/three years.

He has mentioned BIS prediction of 10-15% in bold even though we are already close to it now and the movies has not even reached its half time yet, we still have till 2021 for this to play out.

The core of his argument is the rise in wage and being employed will stop the falls.
Its funny that whilst we had close to 5 years of huge price rise in Sydney the fundamental argument of wage out of whack with price was just brushed off, but now suddenly the minor rise in wage is used as defence for 'bottom is in' argument.

here's from same BIS on wage rise
Strong jobs growth won’t translate to higher wages: BIS Oxford Economics


He conveniently ignored the role of Credit availability and its impact on rise and fall.
Price of credit is a part of equation but availability of credit is at the very core of house price booms. One cannot use fundamentals of wage/employment to support sustenance of leveraged asset. For fundamental to work, asset has to deleverage in absence of ever growing credit.

Question is, has the Frothy segments deleveraged enough for fundamental argument to kick in?

 

@TheSackedWiggle, as you know there has been much written about the dreaded IO cliff. When they first started writing about it, all my loans were IO and due to roll over in 2020, the year predicted to be the year of peak forced roll overs. Well, as of Friday, I have zero IO loans. They have all been switched to P&I. There are reports of other home buyers doing the same. We don't know how much IO credit is going to be left by the time 2020 and 2021 roll around.

 

This feller is out of touch. House prices are pretty much already in crash territory. Whatever you want to label it, Melb and Sydney are undebatabley in the midst of their biggest downturn in 30 years.

Via the ever optimistic Shane Oliver:

Shane Oliver‏ @ShaneOliverAMP
Prelim Domain auction results. Syd 44% (=final ~39%,last wks final was 43%). Melb 42% (=final ~38%,last wks final was 44%). Low vols due to Melb Cup wkend but stil a yr ago was 67%! Looking bleak:tighter credit, rising supply, FOMO->FONGO, fears re tax chgs all impacting #ausecon

 

I think it's debatable.

Auction clearance rates are not prices.

Yes there has been strong correlations over the years and sometimes inverted but still..less than 30% of houses in Sydney/Mel are sold in auction?

 

Well you can look at the data for the price falls too, that's definitely not debatable.

Australian house prices drop 3.5pc, heading for 'deepest downturn in modern history'

Sydney and Melbourne home prices fell again in early November

 

Hi @Perthguy, you are an switched-on investor, who was able to plan and action to mitigate risk. I consider your kind to be exception and not the majority of IO holders.

I think the rate and extent of fall so far has more to it then just normal part of cycle argument.


In current lending env,

• Serviceability calcs has gotten increasing tightened
• Newer bank valuations getting increasingly pessimists especially in frothy segments
• Extracting equity is becoming more and more difficult.
• Closer scrutiny of actual expense is effecting quite a lot of borrowers as the extent of people massively understating their real expense is just coming to front.
  So extending IO loans wont be easy and not everyone has the cashflow to be able to afford to switch even if they want to, I don't have a figure of many of IO loans fall in this category.
  
  I would be very interested to know how much of 360bn IO loans set to expire in next three years have already been expired. I have asked this to few poster and outside but have not got any clarity on this.
  
  I was just reading ANZ minutes and even though they had more then 4bn more of IO expiry preempted in last six month in addition to pre-planned 9bn for last six months. their pre-planned future expiry figures hasn't come down much and is still same as that declared before ie. 9bn IO switch every six months for next three yrs.

Its just a hunch and I don't have any proof to defend my line of thinking yet so I could be totally wrong on this and indeed many of IO loans would have been switched by now and forced sales may not pan out.

 

Clutching at straws

 

I would like to see the numbers on IO rollovers as well. It's a bit of a moving feast as the number is getting smaller weekly. If I get a chance I will see if I can find the data.

Otherwise @petewargent might know.

 

Do you think those percentages equate to a crash? People have been using the word "crash" since 2014 but I don't think there is an accepted definition of "crash". So calling a property market crash is an opinion, not a fact.

 

Would be helpful if he defined “crash” - 40% fall nationwide? Unlikely. 40% fall in Melbourne and Sydney? Quite possible.

 

@TheSackedWiggle this is a good start

https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html

 

Okay, shall we call it the worst sideways relaxing negative growth in 30 years? It would take a miracle to stop Syd/Melb declines before -%20, which I would class as a crash. Ymmv.

The article reeks of desperation, IMO.

 

Why not just call it a correction, which is what it is.

All this bubble/crash nonsense was invented to sell books.

 

The naming convention you adhere to is meaningless, but data is fact.

 

I don't agree that terminology is meaningless. Why do the headlines scream bubble, crash, bloodbath and not boom, correction, pain if terminology is meaningless? My opinion is that terminology is very important in conveying meaning accurately.

I don't dispute that data is fact and I am not disputing the data. I am disputing the way the data is being spun to create a narrative that is not supported by the data. Watch 60 minutes "bricks and slaughter" if you want an example.

 

Stop press, news reports sensationalist. About everything. That's the world we live in.

Typically news regarding housing and financial markets will be accompanied by data. (Esp if you don't get it from 60 minutes) Simple enough to sort the wheat from the chaff.

 

Lot of negativity in the media regarding property market(bust/balloon bla bla). I think Peter S has made decent effort to put positive side in front of everyone (which I personally think is great without ignoring the facts).

Also, anyone who has been part of previous cycles will know how much of BS media publishes ...

Few of the points from the article which I thought were great -
1) The Aussie economy is actually growing faster than 3% and when that happens, unemployment falls. Even the IMF thinks we have two years of 3% plus growth ahead. If people don’t lose their jobs, then they should be able to pay off their home loans. And as growth leads to more jobs, this should create more buyers at auctions and open houses. - Australia by far is doing better than the most of the western economies ..

2) There’s a lot of scary stories around about people going off interest only loans and being forced into principal and interest loans but my research shows that these loan rates are actually lower than interest only loans and the monthly repayments can be lower! That shocked me and we don’t know how many people are involved and it isn’t likely they’ll be kicked off their interest only loan all in one go. And the RBA, who should know about this, aren’t stressed about this. - Statement is true (interest rates are lower for P & I). And repayments lower too in some cases..

3) The RBA’s Assistant Governor said this five days ago: “Australian banks are well capitalised and profitable, and have sound lending standards and plenty of liquid assets. The major banks are already very close to meeting the Australian Prudential Regulation Authority's unquestionably strong capital benchmarks. This is good for the resilience of the banking sector in the face of any downturn.” If the banks looked dodgy, that could be a trigger for a house price problem but the RBA says the opposite is the case. - Another great point and kind of hints towards we past the worst of lending restrictions..

Half glass full and empty situation ... Prefer half glass full (without ignoring the facts) .. Not sure why so much coverage on property bust/bubble.

Depending upon where you located, in some cases prices have close to doubled and if they drop by 10-20%, what's the deal??

Yes, agree ppl who bought in last year or so will carry negative equity for little while but if they can hold, this is just another damn cycle..

 

Why he never mentions is that over half of our seemingly impressive GDP growth is actually the result of dumb population growth. And our immigration fuelled population growth is actually bad for unemployment and jobs growth so his formula goes out the window. A lot of other western economies have far lower unemployment than we do.