Economic Armageddon, ten myths

‘Australians are completely unprepared’

 

I want to believe but have you got a more credible source than news.com.au?

 

Only just watched a repeat of the Big Short last night, it still amazes me how seemingly really intelligent people were completely blindsided by it all ,even as it started to unfold.
But as Dad said to me once , greed will cause people to do stupid things , especially if they have skin in the game, everyone just listens to what they want to hear and will dismiss the rest.
Most are just starting to realize that the banks in Australia have been borrowing out to much money based on peoples incomes and now its time for a haircut.
Does that mean Australian property is overvalued ??,if banks really start looking at peoples actual spending habits and cost of living.
Then you have the trillions of dollars tied up in investor housing loans that are all expecting property to keep on increasing over the next 10 years.
Add to that all the interest only loans that will be moved from IO to PI over the next few years and an economy that is really struggling with consumer spending that has now spread into very weak wage growth
A couple of EM countries are already facing some problems as they have big debts in $US and are suffering from currency devaluations.
Hopefully its not contagious and has flow on effects to other countries, especially as the USD gains in strength and they start aggressively raising their interest rates.
.

 

This guy will eventually be right I suppose. I think he's been going since 2014.

 

Citizens Electoral Council of Australia

well there is an alternative view of the world!

Everybody thinks our bank deposits are safe up to $250k I am not so sure anymore and would like others to comment.


Australians bank deposits are in the trillions while the insurance for those deposits is in the hundred billions so already there is a problem.

I read the fine print on my bank mortgage documentation.

If the bank goes under, they can freeze your accounts including offset accounts, call in the loan immediately and if you cant pay up immediately they can sell your house to the highest bidder.

 

'Who cares what's happening with house prices': RBA board member's interest rate admission

'Who cares what's happening with house prices': RBA board member's interest rate admission

 

I have always said Australia and Ireland have the same banking laws,

if your house price drops and you sell the house for less than what you paid for it, or the house price drops to a value so that there is no more deposit equity in it, banks will make you increase your repayments and they will make you find more cash equity to put into your home loan or they will take away your house and sell it and make you liable for the outstanding balance.

Irelands goverment never stepped in to save its property market fromcrashing and loosing 50% in value/

I would like to remind people that ANZ bank and Westpac did in fact become insolvent in the 1980's and the other banks were also on the brink, only a goverment bail out helped them survive and the hiking of interest rates to eye watering plus 18% for a long time saved the situation.

 

A good example of what can happen when a struggling bank is taken over by another bank is being laid out in the banking RC at the moment , when CBA bought Bankwest from its struggling owner in the aftermath of the GFC.
It went through its business loans , revalued lots of deals and properties, and many lost everything.

 

That is simply not true, but scaremongering is your M.O.

pinkboy

 

Actually, Australian banks were also bailed out in 2008/9, it was just covered up at the time, and would have been kept under wraps if there hadn't been a change in American law regarding openness.

In fact it was still effectively kept quiet by the media here, and excused as taking advantage of the situation. Collapse was very much on the cards without American intervention.

 

Where is the evidence for that?

 

Oh yes it is and in the royal commission hearings that’s exactly what happened to somebody.

It’s happened in other countries also including in ireland

 

I was definitely blindsided by Ireland's crash, despite living in Dublin at the time. I mean we had Morgan Kelly, diligently promising the market would crash, and I kind of thought in 2007 (when it had already peaked over a year before and was already on the way down) that yeah, maybe we'd see a mild correction. But I didn't see it and I think few people really expected it to crash hard. People get used to prices rising and human psychology leads us not to expect the worst.

A soft landing was widely predicted after the crash began too. Crash is a little misleading, though, because it all unfolded painfully slowly. That might have contributed to people feeling blindsided. It was like boiling a frog. The whole thing picked up though once prices dropped about 5% after stagnating the year before. Construction started not going ahead, builders had to discount to offload apartments or lots in estates on the city fringe (these made up most of the crash). It did sort of snowball after a while, but still no one wanted to entertain the idea the market could drop 50%. It just sounded so ridiculous, totally incomprehensible (just bonkers, really), even though people didn't consider prices having rapidly risen in the preceding years at often 20% a year as "ridiculous". In hindsight, yeah it kind of was.

For interest you can watch this, starting about a minute or so in: From 2007 (market peaked in 2006) That music though...

The main warning sign was just investors leaving the market or not being able to buy in. And it crashed despite rapid economic growth, rapid immigration, low unemployment. These turned bad long after the property market did.

I will say the $100,000 deposit guarantee was a huge blessing, as for a year or two the banking system was a mess.

Remember though any bust is very temporary, and is mostly contained to new development areas. Don't buy stupid and don't panic and you'll be fine.

 

ho ho this is an interesting little thread with some interesting little "facts" in it.

 

As an Irish person I can say I don't think you understand Irish banking as well as you seem to think you do. No you don't have to suddenly start paying more because you dipped into negative equity. The government also did a lot to prevent a crash (as much as it could, though arguably it also did a lot to cause it in the first place). It bailed out one of the major banks for a start.

 

I also specifically remember it was an admission made through very quiet channels. The RBA and ASIC accepted it was "temporary in nature" and allowed ANZ to trade out of it.

Triggered the Unlimited Deposit Guarantee policy by KRudd, reduced to $250k in 2011.

This was over 10 years ago now, memory strings are failing me slightly.

 

I was referring to how Australian banks have dealt with this. See the royal commission testimony videos.

If you have a property purchase price of $100000 and have provided $20000 deposit resulting in a $80000 loan. The bank is happy they have $20000 equity in your property and they physically own it for $ 80000 and they will sell it to you for much more but over many years.

If the property price drops to $80000 then The bank has no equity in your property and they are essentially lending you an unsecured $80000. You are essentially in their eyes a toxic debt.irrespective of wether or not you are making repayments.

They will come to you and say, please pay down your home loan by $16000 immediately in order to reinstate the 20% equity for the bank. If you say no. They have the option to foreclose and in Australia they have done so. They can take your house from you and sell it, alternatively they may allow you to rent from them. Or they may ask you to double your repayments and they increase the interest rates while they monitor the situation . Either way you either loose your $20000 equity permanently because once they shut you out you are done for or you preserve it a bit longer and hope the prices rise so you can get your equity back for the bank.

If the property prices drop further to $60000 then you are pure toxic debt to them and they now know they hold an asset valued at $60000 but for which they paid $80000. They will come to you and say please immediately pay down your loan by $20000 plus give them an additional $12000 for 20% security equity they need to hold in order to have a good credit rating with their lenders.

They will freeze your accounts if you have an offset and just take money from there. Without asking.

 

And here is the problem - in general, when prices go down, the rent goes down as well (in some time), so a person may simply stop the repayments when their buffer is exhausted, and they will come after a few warnings. This situation can be considered as delayed margin call. And the number of investors with no or little buffer is known and published

So the property investment is not more secure and safer than stock market when it is highly leveraged with no available cash for rainy days