Did APRA work??

#technosocialism will be a thing. According to some....

 

Let's take an individual earning $100K to keep the numbers easy. Four times that would equate to a loan of $400K, and after tax they'd be getting about $75K.

At 7.5% (which I believe is the assessment rate), the $400K loan would cost $30K per year interest only, and $34K principal and interest over 30 years or $36K over 25.

There's a debate whether mortgage stress occurs at 30% of gross or net income (I suspect that the banks push the former to muddy the waters), but an interest only loan of four times at 7.5% hits that threshold for the pre-tax figure.

At 4%, a thirty year P&I load is $23K. That's 30% of net income.

UBS's suggestion of a four times income limit strikes me as sensible. In fact, it might even be worth going lower.

 

People still need houses to live. Maybe we'll finally heard in the direction of US property markets, low CG and 10% yields.

 

Here's a very generic set of statitsics that make DIR's of 4 x income, frightening.

Sydney's median price is of over $1 Million

a DIR of 4 would require a median income of over 250K.

Todays median household income is $1750 per week , or $91,000 per annum

Todays median family income is $1988 per week, or $103,376 per annum


2016 Census QuickStats: Greater Sydney


So to reach a 250K median we would need to see incomes increase by 240% - 275% .

By this measure, there would be no prospects for growth in Sydney's median for many many decades.

Of course, we know not everyone has mortgages, and those that do will generally be on higher median incomes, and those those don't will be more likely to be renters.... but still. Frightening what a DIR of 4 would do.

 

Unfortunately its just a by-product of government kicking the can down the road.
And lots of people buying property all based around the repayments of the interest only component of their loan.

 

I reckon we will end up with a baseline /preferred model of @ 6x income.... but banks will be allowed to go as high as 7 or 8 x income by exception. They might be allowed to do 10 or 15% that way, for example....

But it doesnt really matter Its still a massive reduction in what they have been allowed to do for 30 years. See, even if they were allowed to go to 10 x income , its still going to mean that there just isnt going to be any expansion in borrowing capacity until people pay down debt.

So at 6 or 7 or 8 x income....Sydney and Melbourne should ( broadly speaking) expect many years of blah... less expensive/ more affordable areas ( Adelaide, Perth, regionals) will see whatever action there will be ( and there probably wont be an awful lot...but there will be some ) over the next decade. But they are really the only places where there's even a chance of borrowing capacity supporting growth.

 

Yes, this will turbocharge particularly Sydney, get in now !

 

In 10,12, 15 years maybe

You know, if you are considering a PPOR in Sydney and its a 15-20 year home, there's no issue with buying now.

if you are an investor looking at Sydney as a place to make a quick 40% or 50% in 5,6,7 years it's probably going to disappoint in most ( if not all ) locations.

Sydney's median is sitting a little bit above 9 x income , so do the math

Melbourne's numbers arent much different ....

Yes we still have a lot of immigration into both cities so that's going to help put a floor under things, but I dont care how many people move here - if they can only borrow 6 or 7 x their income, they can only borrow 6 or 7 x their income.

 

Not all properties in Melbourne are priced the same...stock can be found sub $500k. These more affordable properties still have plenty of growth that can be supported by borrowing capacity.

 

Hmm...some of this stock is showing stress with prices dropping in older stock, even renovated. I do not see the growth you talk about.

 

Downtrends have trickle-down effect,
if in a year or two, the current 1.2mn houses becomes 1mn
then the current 1mn will go for 850k and so on it trickles down.

who knows 500k then may buy you a house which is currently going for 600/650k.

 

I been saying ad nauseum for long time Syd was no good for most leveraged investors for a while....way before APRA

Mel was still ok a couple of years ago where I looked....

But all could come unwound slowly.

Then you still have a clown or two saying Sydney is booming in places, holding would be best assesment, not boom CG, apart from maybe the odd dev block possibly.

We will have too see when the dust settles....and that may be a while.....

Lets see how it is going by mid summer......

 

Wayne Byres’ surprise: APRA declares mortgage crackdown ‘largely done’

Really?

 

Well it's certainly stuffed me up. I'm having trouble refinancing the one property I'm going to keep post-divorce. One bank already said no

 

in 2025 When this house is $2,000,000 we can all call the @TheSackedWiggle and complain that he said it was supposed to be $650K......


hahahahah

 

What is your questions?

As I understand it in really simple terms.

The article states that APRAs rules are working and no more are necessary for now.
The banks can keep working at it we see how we go.


But the rules and limitations APRA set are their.


Good news is when APRA will removes some of the rules set in place.

 

Please re-read my quoted post, best to read without blinkers.

Where did I say, what you say I said?


Let me underline the context of what I was implying in my reply,
In case of Sydney/Melbourne,
which is/would be in housing price downturn,
A house bought at peak in 2017 let say for 1.2 mn,
I won't be surprised to see it drop and sold at 1mn in a year or two (not 650k as you misquoted),
so that's more or less around 2020 July.

Ignoring the misquote,
Are you implying, this 1.2mn house (bought in 2017 syd/melb) will be 2mn by 2025?
and at that point you are encouraging everyone to call me

ps:
I better write a voice enabled bot to answers all those calls, as you seem very confident of it.

 

60,70,80% growth by 2025 from $1mil + properties in Melbourne or Sydney under these credit conditions?

Never say never...but

 

Apra did its job ....killed the property market

Anyone feeling the pain?