Economic Armageddon, ten myths

If today the Tasmanian government announced a $20000 property tax on vacant properties in Hobart you will immediately get a massive increase in rental availability.

 

Thanks for that. It is commercial loans which are completely different to resi ones. And it is during GFC so not a big suprise here. I thought we are talking about resi loans.

 

Can you again provide a proof for this? How many vacant properties in Hobart? Where is the $20k number from?

 

You know what I find very annoying and I have only encountered this in Australia. It’s not about the specific example below but it’s the same narrative every time on nearly everything.

When you tell somebody property prices drop. They will say property prices never drop or property prices go up every 7 years.

Then when you show somebody an example like WA, they then come back and say well that’s WA that’s a mining bust or some other excuse, here it’s different. Then you say well there was a property drop here also, then they say no there has not and treat you with disdain. Then you pull out the data and you show them and they just say “ooh sure there are periods where they drop but they always go right back up again.” so You say “but you said property prices never drop. “ and round and round in circles you go.

So here let me give another article of examples of where the banks have foreclosed on people ruthlessly despite them making payments and having great histories with them.

Farmers in crisis as the banks close in

And yes, yes, it’s farm loans that’s completely different to home loans, and you know what you are probably correct,.......until you are not.

 

there IS correlation between prices and rent. It was studied multiple times in many countries for many markets (residential, commercial, etc). The conclusion from the studies is that it's time-delayed... in many cases over 3 years period.

For example, when prices dropped in Ireland, the rent dropped as well.

And it's easy to prove that correlation knowing that rent to price ratio is called rental yeild. And when rental yeild is relatively stable over the long term and we noticed significant changes in property prices/rent over the same period, it means rent / price metrics are highly correlated. Note that correlation is not dependency, it's complex set of rules, causes and effects.

For Sydney / Melbourne the rental yeild is within 3.5%-4.5% range over the last 15 years.

When an investor sells a property, it doesn't necessarily increase rental demand, simply because
- the property can be bought by another investor (either a new one or existing who thinks it's a bargain)
- the property can be bought by FHB - this event actually reduces rental demand

your generalisation that everyone doesn't have a buffer is wrong, it was reported by RBA/ABS

 

The $20k is hypothetical.

IF a Tassie government were to do this, THEN you would see a high number of properties suddenly appear as rentals.

How am I supposed to know how many vacant properties there are in Hobart and which are not in the rental market due to the owners choice? Many are holiday homes. What I do know is that the state government of Tasmania is worrying far more about making huge money from stamp duty by home sales then they are worrying about the homeless people sleeping on the streets because of tourism driven demands causing rental stock to be converted into Airbnb and from people in Sydney and Melbourne selling up to the Chinese buyers and buying cheaper places in Hobart and retiring early plus the investors that then want a piece of the action and get in to further exacerbate the problem.

I am an ethical property investor , a very different and rare breed. I don’t create problems or burdens for others. Nor will I defend the indefensible even if 25 million others do.

 

Do you know what caused the GFC? I get the impression that the GFC is being used as a catch all phrase to excuse everything.

My private super annuation broker tried that on me when he lost my fortune despite being paid to manage it while I was occupied with other personal issues. He said to me, “ did you not hear that there was a GFC? I said to him “how long were you going to watch it go down and loose value? “ what was I paying you management fees for. Give me the management fees back.” Do you think he took responsibility? Nope.

I have the flu today, we’ll blame the GFC?

 

Personally, I would like to see examples of residential loans where the owner is in negative equity but up to date with repayments and the bank went ahead and foreclosed anyway. I am not saying it can't happen because banks can snd will do anything they want. My question is how common is the really? What is the real risk of this happening?

A lot of Perth homes are in negative equity. Is the forclosure rate in Perth higher than nomal? And if the loans being forclosed, how many of those borrowers are up to date with payments?

I would say it is uncommon for a bank to foreclose a residential property loan with no missed or late payments.

 

Love your posts @Ald

 

if theoretically all the investors sell all their properties and no other new investors, it means the price will drop till the level when everyone who live in rental property can buy, simply because "no investors" = "no renters", most renters will be converted to home owners. Only renters that would be left are new migrants, students and whose who doesn't have much cash or job. Having just these categories of renters, the rent won't rise too much... it will just stop migration & education.

otherwise, who will buy the investor's properties when they all decide to sell?

 

That’s basic economics. You might want to qualify it with ceteris paribus... otherwise you will be eaten alive here by both economists and those who don’t know what supply and demand is.

 

The only intrinsic value a house has is that somebody may plant some vegetable assuming they have a garden and collect some water from it and have some shelter to sleep in. It only has that value if somebody else is around to buy it.

Otherwise a house is a completely unproductive asset less so than your average established business.

The only reason house prices in Australia are going up is because state governments have lobbied for foreign investors to be let in, what is a crime against your young people, and which would cause a revolution in other countries, and the fed government is spending like a drunken sailor from its bond sales to the tune of $500 billion and blowing it on infrastructure and bringing in foreigners with some money. There is no economic productive fundamentals driving it. It is all cheap credit fed. No new products are being produced except the new homes being built and providing jobs on the infrastructure build. It’s a government that is using the future wealth taken away from the young people of Australia to keep their incompetence of decades ago hidden.

This credit fuelled bubble will collapse because nothing has changed since 2008 except even more credit being printed and mortgages are still being packaged up and sold as they were before the last crash and the risky loans are still being handed out.

Cheap money seeks out places like Australia, no recourse home loans, superannuation funds forced to buy stocks every month, house prices buoyed up by governments and banks readily bailed out, its a great place for global capital to invest. But it comes in early and leaves early after taking some profits.
It’s the. Australians that are left with the bill to pay.

There is no intrinsic value in a property when a market is saturated with cheap and easy credit and that’s why interest rates are so low. It’s because there is an incredible amount of money around seeking a productive asset but it can’t find one and so more money must be supplied until it does. The government however has controlled that all that free credit available to the common man is flowing to housing and not to productive businesses or start ups.

 

It is good to have debate but your posts sound too aggresive. For example, you cannot judge other people that easily with your ethical statement. I will stop here.

 

Even if that’s the case, that it’s not common , it’s in your mortgage documents and if the banks become insolvent for the 4th time in nearly 40 years, they could be securing themselves with your equity.

This was an eye opener when I read it recently.

Furthermore you don’t have the money to pay the politicians to get the politicians to bail out banks, but the banks do and they have done so, what the banks also have is the ability to pay to ensure you can’t fight them easily.

 

You should see how aggressive the real estate lobby and banks will become when their cheap credit starts to wind up and they can’t show profits anymore.

You should see how aggressive the young will get when they start a job at $100k the highest salaries in the world and that can’t buy them a dog kennel while all they see is endless land and filthy rich baby boomers and politicians that rigged the system against them. Then you will know what aggression is and you will look back at my posts and see that it was me looking out for everyone and what you mistook and chose to see as aggression was just a compassioned plea to wake the chickens up as the Fox is in the house

 

Now whyd ya have to go against tha scaremongering crew....bad boy you.

 

If cautioning people about the crooks they will encounter on their property investment journey is being called scaremongering, then I am guilty.

Right now if I were to invest anywhere, and I won’t be because for me it’s just too delicate at the moment and things are just far too expensive both stocks and property when you look at the salaries, then I would be investing in the good areas of PERTH. I suspect within 10 years time I am going to be making an absolute fortune from buying cheap assets in Nsw.

 

It's dreamin mate. Pure dreamin. 10 years from now many areas in NSW will be more expensive than today and or a new cycle would be underway.

 

Yes you are totally 1000% right.

But the house has some value because of the shelter. My point is there is nothing in all that that you should have increases of more than inflation