Calling all prophets - Where will the market be in...?

Something that's coming off a really low base might.
Bu where is it that's coming off a low base?

 

Good question.

 

Depends what you call a low base?

 

Banks were making up their own internal risk assessments that coincidentally allowed them to lend more and more.

ASIC found serious problems with I/O loans: http://www.smh.com.au/business/bank...-interestonly-home-loans-20150819-gj39fj.html

Interest-only loans account for $479 billion in mortgages, 37 per cent of home loans held by banks, building societies and credit unions, and have been growing rapidly.

In findings it described as "troubling," ASIC identified instances where lenders' practices may be putting customers at risk, in turn falling short of responsible lending obligations.

A review of 140 customer files found that in 40 per cent of cases, lenders wrongly calculated how much time borrowers had to repay the principal when the interest-only period of the loan ended, assuming they had more time than was actually the case.

In more than 30 per cent of files, there was no evidence the banks had properly considered whether an interest-only loan was appropriate for the borrower.

And in more than a fifth of cases, the lender had not properly assessed the borrower's living expenses.

The report said a "high" proportion of interest-only home loans were written by mortgage brokers, some of whom may have an incentive to write interest-only loans because it could lead to a larger trailing commission payment.

CLSA banking analyst Brian Johnson said the report was a further sign credit standards were not as high as banks had previously said.

He said it also raised the risk that contracts were not enforceable if a lender had not followed responsible lending obligations.

 

I'll only do the ones I follow. Sorry Darwin, Adelaide and Tassie

Here is my guess...

Now - December:
Perth will continue to soften
Brisbane will increase
Melbourne will increase
Sydney will continue to soften

January - June 2016:
Perth will continue to soften
Brisbane will continue to increase
Melbourne will slow
Sydney will continue to soften

July onwards:
Perth will hopefully flatten
Brisbane will continue to increase
Melbourne will soften
Sydney will continue to soften

 

There are certainly examples of reckless lending in Australia, whether it is the loan applicant committing fraud, the mortgage broker committing fraud or the bank simply lending money to people they shouldn't. What is not know is the extent of these loans. It is certain these practices are not as widespread as sub-prime in the US. It is likely that these dodgy loans will not be a problem until there are a couple of interest rate rises. It is unknown what impact these will have on the market when the borrowers start to default (if ever). I have seen some people guess that it will collapse the market, but without real evidence, this position is only a guess.

The other issue is that we don't know how much buffer cash investors have squirreled away in the background. I know an investor couple who basically have nearly $200k cash equivalent in various liquid investment vehicles (some of which I have no idea about). But that does mean that if things go wrong, they have cash to throw at the problem. Unless the sharemarket crashes at the same time I guess

 

I believe in the short term for Melbourne property will be fine. Long term I have no idea. I do remember prior to 08 I had my Essendon property valued at 1.1mil, after the gfc, revalued in 2010 and came back at 750k. Now back to 1.1 or 1.2ish, who nows what will happen later?. Those additional oversupply of apartments in the CBD may give you very good buying power around 2017. Moonee ponds and ascot vale are pretty close to the city, if it's a house may not affect the rental returns.

 

I'll admit my lender advised me he could have his friend that owned a real estate agency to write up some fake receipts, showing I was receiving rental income from my family home ppor. I'm not living there, but I have family staying there. Said it would cost 500 to do. This was because my serviceability for the additional 300k came up short.
Told him I felt uncomfortable doing that and wasn't interested. Had to swap relationship manager. This was extremely difficult to do also.

So I'm guessing it does happen sometimes. Wonder how many more he has done this too.

 

Lots of creative ways to increase servicability. I know an investor not on PC who fakes company income.

There are some dodgy mortgage brokers, none on PC.

then again some investors don't mind going dodgy if it means you get the deal/finance over the line

MTR

 

Billions lost through capital gains tax

 

Just don't read the comments, it will make your brain explode with the level of stupidity!

 

Always pays to read everything,once a group of people like this start throwing around numbers
who can only invest within their circle of competence,then it pays to keep an open mind..

 

I think people are a little bit too optimistic about Brisbane. I live here and I felt that the market has soften a fair bit compare to six month ago (talking about suburbs like aspley, chermside, mt gravatt, sunnybank hills ect), the full effect of the APRA change won't be seen till May I recon. Note that most statistics on price are also lagging indicators and trends can take 2-3 months to show.
On macro economics,
commodity prices are predicted to keep staying low
cooling off of newly built houses = less construction jobs
softening Chinese economy = less foreign investment
APRA rule change = less borrowing power

These factors apply to all major cities, some more than others.

 

Brisbane still shows the best yields as a whole though which makes it the target for those who can invest, I think all those things you mention make it less likely we see multiple markets all going off together again anytime soon but there will still be an attractive market where the remainders in all those groups will flock, Brisbane makes more sense than anywhere as that market.

 

Its all time frames I guess but looking @petewargent 's recent posts, long term housing growth is still looking pretty good. Although, I do wonder if Perth's population growth is extrapolated from the mining boom influx and if calculated now would show much more benign growth.

Pete Wargent blog

 

Would have to think you're correct on the Perth growth being based on the mining boom period where we had positive net interstate migration which is now negative. We're basically reliant on natural increase for most of our population growth at the moment which makes that figure seem unlikely. Of course I guess it's possible there is another boom or two over the next 45 years so might not be unreasonable!

 

The Sydney Morning Herald published an article on borrowing limits falling earlier this week. The point made was that the borrowing capacity for a couple earning $60K apiece has now dropped by $65K to $80K, about 10% to 15%.

If you reduce the amount that buyers can pay then it's going to have an impact on selling prices. This will probably be more marked at the bottom end of the market, where buyers have no equity.

The SMH also reported that the RBA held investors responsible for the recent boom. The APRA changes will have taken some heat out of the market there.

I'd also like to comment on the population chart, above. I'm always nervous about long term predictions of exponential growth because things can change.

A decade ago, the Conservative party in the UK came across as a bit bigoted for using an election slogan, "It's not racist to be concerned about immigration." A decade later it's a hot political issue, with the electorate increasingly opposed to it.

There are rumblings of discontent about Australia's immigration policy in some corners. Granted it might be fringe thinkers on Macrobusiness, but it's the sort of thing that could gain traction. I wouldn't be surprised if the country runs a smaller programme in future years.

Of course that could be neutral for house prices, or even positive. If the benefits of a resource boom are shared amongst a smaller population then people would be relatively richer.

 

Perth - the place to buy in second half of 2016 calendar year.

 

Or maybe early 2017 for sure.

 

January - June 2016 - nationwide decrease of 5%+
July - December 2016 - 2016 ends with a loss of at least 10% (nationwide as per RP Corelogic indicators, all capital cities combined).