Article from the ABC about a housing crash

Finally, some rational discussion from the other side


What does a housing slump actually look like? (Hint: it's not good)

 

""Mr Eslake said he put the chance of a major American, Irish or Spanish-style property bust in Australia happening in the next year or two at less than one in five.
"I'm not saying it can't happen, but I would still not say that it is the most likely scenario. Particularly in the near-term," he said. ""
Very interesting coming from Eslake considering how bearish he was on OZ property!

 

We watched "The Big Short" on the weekend. TBH I cant see something of that scale happening in OZ, surely it is not possible given all the differences between Australian banking and US banking. The article discusses a few reasons why a property collapse would also mean several other negative effects on the economy, all of which the govt and the Reserve Bank would be trying to prevent.

 

I agree. Usa didn't anticipate that crash coming. Their policy makers were not prepared at all. But here is australia policy makers and banks are cautious from the very beginning as well as the economist are. Sydney can see some flow stagnantion/correction in the coming months/yrs. i think Australian banks and govt likes to keep the property market stable avoiding any crash, as it will adversely affect countrys economy.

 

Did you like the way Margot Robbie explained CDOs?

 

At the casino? Yep.

 

I suspect we will see a slow deflating of "the bubble" back to a more flat-line state.

 

Crazy headlines... 40% discounts after a huge boom...
"At Parramatta, mortagees accepted $541,500 for an unrenovated house that fetched $736,000 when it was sold as a deceased estate. The bank lent $580,000"

"A THREE-BEDROOM brick-veneer house in St Clair sold for just $260,000 at the weekend - down about 42 per cent from its last sale at $450,000"

"Lethbridge Park, near Penrith, recorded the second highest fall, when a townhouse that sold for $257,000 in 2003 was resold by mortgagees for $156,500, reflecting a roughly 40 per cent fall."

Housing crash puts sellers in debt crisis - National - smh.com.au
Article from 2006

 

That stclair place probably didnt get back to 450k until after 2010.

 

Seems Philip soos has a different opinion of the bust occurring to his business partner Lindsay David(author of boom to bust who has said the bust will occur by the end of this year).
Seems I miss judged Philip. And for the first time ever the abc did not refer him as an economist. Seems times are changing?
@Perthguy

Mr Soos said while there was no denying there was a housing bubble, there was no indication that it would end anytime soon.

"My position has been as long as household debt keeps growing the bubble will keep on growing and once household debt takes a dive, then that's the end of the housing bubble. But it's simply impossible to predict," he said.

"All I'll say is by my definition, there is a housing bubble, it's historically and internationally large, but I simply cannot predict when it will peak and burst."

 

People often focus on the bad things associated with a housing crash, and they shouldn't. The crash after a bubble isn't the damage. The bubble is the damage.

A bubble distorts the market, flooding it with inexperienced investors who have no idea what they're doing, and who make it very hard for decent investors. Extreme prices cause people not to be able to afford to buy so they don't spend. People who would never have invested in housing pour in and buy crappy city fringe assets and poorly built apartments. This causes far too much money to concentrate in houses and to shun company investment which makes businesses struggle. People spending less also makes businesses struggle, so they don't hire enough people, so people don't have money and don't spend. You also get too many people employed in construction which, when prices stall, means a lot of these unskilled people have no other job because business has been doing so badly for so long.

Bubbles are terrible for economies. The main problem is the debt pile, mostly held by inexperienced investors and new home buyers, who are going to be the most vulnerable because they tried to jump on a gravy train that was already slowing down, expecting to just get rich. Good investors put a lot of damn work into what they do, it's almost a full time job. But in bubbles the market becomes saturated with, basically, greedy noobs.

How many very recent buyers are going to suffer if prices even stall let alone drop? We've got soon-to-retire people who've been snapping up properties, negatively geared, completely dependent on growth. We've got new families thinking they'll somehow service $1m loans for life. We've got brand new wannabe investors asking "should I buy this house and land package two hours from the CBD it's all I can afford but will it double in value soon?" and just trying generally to accumulate assets as quickly as possible as their only plan.

Australia will recover (this is an advanced economy so we'll probably do it pretty quickly, probably in only 5-10 years), and good investors who know what they're doing usually have solid contingency plans in place and know markets correct. I doubt many here are flying into a potential crash blind. I saw a lot of good investors do very well out of Ireland's crash because they saw it coming a mile away and got ready. In the end, the economy needs to stop living under this bubble though, or we're not going to see a return to decent growth.

Our problem is that too many people have taken on debts they can't afford. If some of those people go bankrupt in a housing crash, was the crash really their problem, or was it the insane debt they took on, and their blind reliance on capital growth as if it's the only vehicle for making money? I doubt most people reading this are that silly.

I don't think most people here need to fear the bubble. If it bursts, it bursts. That's what bubbles do. But they don't burst in a uniform way, and are far worse for the peak buyers who jumped in without a clue. If you've got a diverse portfolio, in good suburbs, carefully chosen, and you've avoided or offloaded your oversupplied assets, then all you need to do is not panic.

 

A really excellent post!

 

Yes @highlighter, that is true. A bubble formed in my area for development sites. It lasted 2 to 3 years, ending in Dec 15. Prices got so high that people stopped buying. Some of those that bought at the peak have lost money. The market has collapsed and not recovered. Its good for people buying now but not good for people who bought at the peak.

 

a massive housing crash which will happen at some stage will be a great thing for this country. Never has the times been more worrying, the signs are starting to show....

 

Bang on. The best educated property investors who built their portfolio in a way which takes risk into account on a few fronts, has good diversification, bought at decent times of the property clock, bought with add value potential and then added value, bought in high demand areas mostly in major cities - will be least affected by any downturn. If anything, they should be in a good position to buy up in areas they see massive value after a 'bust'. We have what we call a 'snap up' fund, basically an amount of money allocated in an offset account for the specific use of snapping up bargains when markets correct and value is evident.

 

I should add Perth is high on our list. As soon as we are comfortable enough and see value for us, we will start snapping.

 

absolutely scary . I am a broad minded

 

Reviving this thread as 4 Corners - 8.30pm this Monday night (21 Aug 17) is about the Australian property market - Betting on the House

Betting on the House - Four Corners

Betting on the house: Australia's real estate obsession driving us to the brink.

"I think it's a powder keg." Investment consultant

The statistics are startling. Australians are carrying more personal debt than ever before. For every one dollar earned, on average, Australians have nearly two dollars of debt. We hold the dubious position of having the second highest level of household debt in the world. Much of this stems from our obsession with buying real estate.

"Housing has never been rational. In Australia, it's probably more akin to a religion or a cult so it's all about faith. You're either a believer in property or you're not." Former banker

On Monday, Four Corners investigates the forces driving our debt fuelled housing boom and the risks it poses for the nation.

"I've been studying the market here for a good number of years and I have never seen this perfect storm of issues coming together." Financial analyst

The program draws together key experts to map the danger zones in the housing market and will reveal the Australian suburbs currently experiencing the highest levels of mortgage stress.

"It's the nightmare that you live with all the time. You wake up in the morning and you think, 'How much longer will we be living here?' Constantly." Mortgage holder

Experts are warning that a wave of home owners and property investors will be unable to cope if there's an increase in interest rates or a change in their personal circumstances.

"You're effectively toast if you lose your job or the main breadwinner does. That's the point of fragility that we're at now." Investment consultant

Regulators have been tightening the screws on lending requirements but there are concerns it's too little too late.

"All bubbles really depend on loose credit, that's one of the things that's really fuelled the Australian housing market. Anyone with a pulse could essentially get a mortgage." Economist and investment fund adviser

The program investigates the lending practices that have driven the boom in residential lending, and asks, 10 years on from the global financial crisis, if the banks are prepared for a potential crash landing.

"If there's a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector. The banks could in fact experience higher losses because households are more indebted." Ratings agency analyst

Betting on the house, reported by Michael Brissenden and presented by Sarah Ferguson, goes to air on Monday 21st August at 8.30pm. It is replayed on Tuesday 22nd August at 10.00am and Wednesday 23rd at 11pm. It can also be seen on ABC NEWS channel on Saturday at 8.10pm AEST, ABC iview and at abc.net.au/4corners.

 

There are certainly structual differences between the two markets. The use of teaser rate and ninja loans that ignited the fire, but also the leveraged use of derivatives used by those that knew it was coming really set it a blaze.

But one similarity is the misconception perpetrated of housing being a fail safe investment.

 

Similar to the mantra, a paper loss is not a loss unless you sell, get this also with shares, same delusional mindset