AMP sees 20pc fall in Sydney, Melbourne

The question is how far will the govt/banks allow property prices to fall before they intervene to stabilise the market? 20%? 30%?, if they do decide to intervene what actions can they take? Extend loan terms from 30 yrs to 40 years? Loosen foreign investment rules to allow more overseas money to support the market like Rudd did back in 2008? Surely the govt/banks are not going to just idle and watch the property market crash and burn the economy into a deep recession?

 

Rules set by govt/regulators?

Its not their game but they certainly have skin in the game. Picture this:
average sydney house bought for 1m 2 years ago with 20% deposit (200k deposit/ 800k loan) no LMI.

House prices fall 30%, owner/bank forced to sell (IO expiry, interest go up etc) same house is now worth 700K (loss of 100K to the bank (on 800k Loan).
now times this by 1k, 10k,100k owners/homes forced to sell under these conditions and the losses are really going to hurt the bank.

100k loss x 100k homes = 10 billion loss.

 

I personally feel that the government should only intervene in the economy if there is major ethical issues. If the government always steps in we lose the moral hazard to prevent bad behavior.

So I’d rather they intervened early on IO loans or high debts than let it run, explode and then intervene to fix it.

 

Wait for the market to bottom then buy?

 

Current situation is a result of regulatory intervention. There was no issue with banks lending else we would have seen higher arrears. If Sydney market is left to pure forces of supply and demand including letting banks decide their own risk, you will see Sydney median jump 50% higher in a very short time.

 

How do you know when the market has bottomed out?

Prices in Perth continue to fall but I reckon there were better deals last year for what I am interested in.

 

Yeh agree. Read closer to my original post. I prefer when intervention is early and preventative rather than after the problem and restorative.

We waited too long to tighten credit and created a bubble. Should have limited IO earlier and reduced negative gearing benefits.

However that ship has sales so I prefer the market takes its medicine now and corrects without government intervention.

 

It not a question of ethics..its a question of risks...risk mitigation.
the whole economy is intertwined with property, businesses, jobs, consumer spending. If property is allowed to crash and burn, it will spread through the whole economy like a cancer and almost impossible to contain later. Hence govt intervention is needed early (cant let it run and explode like IO). Its no secret that prices have dropped at least 10%-15% across the board, some areas have dropped 20% to 25%. The data the media rely on is prob at least 6 months behind whats happening on the ground.

I see govt intervention coming early next year, together with the Haynes recommendations or right after it.

 

It’s just a feel intervention does not fix problems. It kicks the can down the road and removes the moral hazard for the future.

 

It depends what the purpose of that intervention is and what the Risk V Benefits are. Kick the can down the road/moral Issue Versus Property Crash leading to severe recession that could takes decades to recover? What is worst?

 

our economy need not be in recession(job wise) even if the fall is 25% in Syd/Melb,
IR is at all time low, so OO masses or those with low debt will not feel the pinch,

Its only high leveraged Investors with IO loans and OTP speculators will face most of the heat.
APRA strategy is a targeted attack at the froth without adversely impacting majority of OO's and low debt investors LT investors.

Sustained conservative credit environment will further de-risk the system and add to financial systems stability.

 

The government might want the bubble to pop so future economic stimulus doesn’t go directly into real estate. Isn’t the obsession with real estate only 30 years old? I don’t think Australia has always been this way. I heard something about John Howard kicking this thing off with negative gearing and cgt discounts and now the government is looking at ending these.

 

OO and those with low debt are not immune. Anyone with a house, whether highly leveraged, paid off, half paid will be affected. No one has the confidence to do anything when they see prices fall 20% and the amount they can borrow reduced by 50%. Not to mention the fear of losing deposit before settlement if lending tightens again.

And if economy turns to shet, everyone will hurt, it doesn’t descriminate between OO, highly leveraged or those with low debt. All will hurt.

Interest rates can’t stay low while the feds are aggressively increasing interest rates. I don’t see the current lending environment as conservative, I see it as destructive and likely to de stabilise the whole economy. The tightening should have been staggered and controlled, scalpel and not chainsaw approach. What would the market look like now if for example the lending tightened by 10% a year over 5 years? Instead of 50% in one year. You would have an orderly unwinding of property and debt, maybe 5% drop a year, not a sudden 20% drop at the start of a down turn which will prob last a decade.

 

Sure....but govts don't want stagflation/drop in the economy and it's easy for them to unwind.

Not sure if you saw but there was a big push in China on Friday to re-inflate their stock market (eg $BABA up 4%), and Trump is talking about mid-wage tax cuts in December.

At some stage next year the FED will 'pause' raising rates every qtr which will cause the USA to realize that growth is not the end of the world.

The RBA has plenty of dry powder to lower rates if they wanted to, but at the moment they don't see the need as better to let the fed take pressure off them by raising every quarter-which makes the $A more competitive, which helps our exports.

Lol our problem on property chat is that we are just to greedy. Go take up golf, go spend some time doing other stuff, our assets/investments are just fine and no need to flip/borrow more.

Just enjoy other people going to work and doing the daily grind at their 40 hour weeks to pay their rent and help us save for our retirements nicely. If you can save a little more than the average then pay down your debt faster to take advantage of the higher rates and get ahead.

 

Parts of Perth have dropped 30%. Borrowing caps have been smashed. People are still buying. People are still investing. Prices are still a bit iffy but it's not the end of the world.

 

Boring. No thanks! Every year I spend 20% of what I earn... after tax. Guess where the rest goes

I don't do it because I'm greedy. I do it because I like it. My last project was a DIY renovation that took over a year. We pulled a horrid house apart and put it back together. Some great projects during that reno. It was great!

My current project is a built that has been equal parts fascinating and irritating! I have previously worked in business process engineering so I paid a lot of attention to the builder's business processes. They were terrible! I did learn a lot along the way though.

 

Nah...not many people want to move overseas....

To be serious, it is a pain just to move state, moving to Tas may as well be a move to another country,

Lot of people are moving to inland regions, and of course to SE QLD, many migrants were moving to Melb outer suburbs, not sure if that is still in full swing.