House prices fall at fastest rate in 35 years

Discussion in 'Property Market Economics' started by Pete Arendt, 8th Jan, 2019.

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  1. Angel

    Angel Well-Known Member Premium Member

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    As you can see from this chart, there was unprecedented growth from the 1990s until the GFC. During this time, many OOs who had small or nil debt levels were encouraged to take on greater mortgage debt and go spend up big on new cars, travel, extravagant weddings etc.

    My modest household joined the party and in a few years our mortgage went from an almost paid off $17k to about $60k or $70k. At the same time, the value of our home increased by about $200k in just a couple of years. The block of land we purchased for $20k was sold two years later for $80k and paid that debt down again, but gosh we were on a high. The Baby Boomers were using our homes as giant credit cards in the early Naughties. We were very naughty.

    Then along came Steve McKnight, Dymphna B, The Block et all and we thought we could double our money overnight in the property game. The Chinese millionaires who have pushed up prices recently in Sydney and Melbourne were still in school at that time.

    I believe this social headache was easy credit driven before it was iron ore, gas and foreign money driven.



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    Last edited: 9th Jan, 2019
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  2. Angel

    Angel Well-Known Member Premium Member

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    Many years ago I asked Hubby's grandparents what happened during the Great Depression and WW2. They owned a chicken farm just north of Brisbane. With a large veggie garden, they at least had food production to sustain them. As Primary Producers, they were given grants to keep up the food production, such as fuel rations for his small truck which was used by the entire community for all kinds of emergencies - for example as an ambulance and to fight fires. Grandad used to sleep at night in their fox lookout tower with a loaded rifle. Why? Because several times people would rock up with another truck and steal as many chickens as they could get hold of. He didn't mind anyone stealing one or two, but the entire flock.....

    Back on topic. As a young bride I was most concerned about this exact issue - what happens if this occurs again. What did the banks do with all their towns full of repossessed homes given there would be nobody with any means to buy them? Grandma said that at first they were sold off, but then the banks were stuck too. They gave the owners grace periods and held off selling. The householders could restart their repayments once the economy improved and the men were able to get employment again.
     
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  3. TAJ

    TAJ Well-Known Member

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    Thanks for expanding on your thoughts.
    The underlying point I was trying to get through was that people often say they own property when in actual fact they are in huge debt, having paid off a small portion of their mortgage. Owning, and still buying, being very, very different.
    Banks thrive on mortgages.
    Will be interesting to see how things play out in the future, as you say, after the election and the recommendations from the Royal Commission.
    I'm not so sure that lending policy will be relaxed to the extent some feel it will be. The level of household debt also must be of a concern.
     
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  4. Indifference

    Indifference Well-Known Member

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    @Angel that's exactly my point too. Making money from property in the last 30-40 yrs wasn't rocket science but rather a result of very fortunate economics.

    Anyone that understands maths will see the exponential trend over past 40yrs and know that this is not sustainable indefinitely.

    If we revert to the long term historical trend of flat to moderate growth increases, then CG gains will take far longer on average. I can hear the wailing already.... Let's assume then that exponential growth will continue indefinitely so we can use the Rule of 70 to determine growth doubling rate. Ie. 70 / 7% = 10 yrs.

    So if we slowed to 5% growth it'll take 14 yrs to double. At 3%, 23 yrs......
     
  5. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    To think stagnent wages of few years were just cyclical and would reverse course for masses may be misleading.
    Stalling wages are increasingly becoming a function of productivity gains due to automation, which are rapidly gaining momentum.
    Gig economy is real and increasing, it may give a temporary and small boost to income during overlap period, but it will not increase overall family income over long term albiet it will start decreasing as overlap becomes smaller and smaller.
    With every almost sector on the verge of distruption chopping board, Apart from select few and that too very high skill based(with high entry barrier) I don't see many jobs with increasing salaries like we have seen in last three decades.

    To extrapolate what happened in past to predict future is now a even more riskier strategy then it has ever been.
     
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  6. Pete Arendt

    Pete Arendt Well-Known Member

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    It's interesting to see experts here associate our rapidly falling house prices with the great depression. What do you think is the chances of Australia falling into depression?

    As I understand it, Australian household's have the 2nd highest level of household debt in the world - almost 200% of household disposable income. The only reason why we are a "miracle" economy, one that has seen continuous economic expansion for 28 years, is because we have continuously expanded our debt levels. You could say the Australia economy runs on continuous credit expansion. What happens when we run out of credit? What happens when we can borrow anymore?

    I see the BOQ yesterday hiked interest rates. OO P&I mortgages will rise 11 basis points on Friday. Other loans (IO and Investor) will jump 18 basis points. BOQ is citing increased funding pressures.

    With the 2nd highest level of household debt in the world, Australia is likely to be the 2nd worst off economy with rising interest rates.
     
  7. willister

    willister Well-Known Member

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    I've always thought of all the spruikers out there Steve McKnight was the Real McCoy?

    haha does anyone know about the Tulip Mania?

    This was Australia's property boom 1800s style:

    Tulip mania - Wikipedia

    The way I see it people just have a lot of sheep mentality even in the digital age...be it houses, crypto currencies, shares or tulips. Demand vs Supply and the information disseminated I say.
     
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  8. Redom

    Redom Finance Strategist Business Plus Member

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    What are the chances of an asteroid coming and hitting Australia? About that.

    In all seriousness, a depression is chaos. It would require a 40-50% price fall & one of the countries largest institutions to go under, bank runs, etc.

    Also credit can expand if we wanted it too. We would in a 'chaos' scenario.
     
  9. Pete Arendt

    Pete Arendt Well-Known Member

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    But don't we need the means to pay it off? (At a household level, which is where our problem is)

    What happens when interest rates go up, or IO loans turn to P&I.

    I understand 60% of GDP is attributable to domestic consumption.
     
  10. Speede

    Speede Well-Known Member

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    I like these posts about depression and australia....they are as funny as nathan birchs deals.
     
  11. kierank

    kierank Well-Known Member

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    That is easy to say now looking back in time.

    But, as a young chap in the early 1980’s buying my first property, it was bloody scary.

    In fact, every time I bought property, it has been bloody scary. Will I keep my job? Will interest rates go up? Will I find tenants? Will there be another World War? Will there be a recession/depression? Will the sun rise tomorrow? ...

    My last property purchase was in 2 years ago. Yep, I was scared then as well.

    If I was buying today, would I be scared? You betcha!!!

    Would it be more scary today than in the past? Don’t know!!!

    All I know that when I look back and with the comfort of history/time, I feel silly for being so scared.

    I am sure some people are scared today. Some will become “road-kill” (unfortunate but that is life); others will grow and succeed (good on them).

    But others will do absolutely nothing. That is the most scary thing to me.
     
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  12. The Y-man

    The Y-man Moderator Staff Member

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    Is that known as "weed" these days? :cool: I think @datto is familiar with these plants.

    The Y-man
     
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  13. Coxy89

    Coxy89 Well-Known Member

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    We need to be able to pay it off at a household level but if it all went to the dogs Australian government debt is what 40% of GDP. Enough wiggle room there to bail out a few banks etc which is what we'd be talking about at those drops.

    I think the banks will be looking at their servicability calcs for OO to allow average people to get into the market. A lot of people would still rather have their own place and aren't too interested in buying more. With prices dropping lots more interest from people who have been sitting on the sidelines. Investors will still have more scrutiny especially if servicing is tight etc.

    There will still be money to be made in property but it will be a more active pursuit, buy below market, reno hold etc. You will have to do something for your CG rather than just let it get swept up in the rising tide.

    Prices will find a ceiling but there is so much underutilised land in Australia there will always be a way to make some money but it will be more involved than what most people are used to.
     
  14. Angel

    Angel Well-Known Member Premium Member

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    I still believe that Steve is the real McCoy. When I was much younger and didn't know a tenth of what I know now, his books just screamed at me. They made it all seem so easy.

    I took what he taught from his experiences in Victoria and saw that those concepts worked in SEQ. At The Time. Then many years later when we didnt have kids dependant on us, we made the fatal mistake of assuming that history would repeat itself post GFC, in SEQ.

    It hasn't.
     
  15. TMNT

    TMNT Well-Known Member

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    what was the assumption you made?
     
  16. datto

    datto Well-Known Member

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    Most certainly, but we actually call them cash crops. We dispensed with the term "weed" a while ago. Well, it had a negative connotation. It was either something noxious or a surfer type from the beach suburbs of Sydney.
     
  17. Rex

    Rex Well-Known Member

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    Yes a depression in Australia would require a huge economic shock, probably global, plus abject incompetence and inaction at all levels of regulators and government. Our government and regulators aren't perfect, but they aren't anywhere near that useless.
     
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  18. Angel

    Angel Well-Known Member Premium Member

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    That the same growth SEQ had experienced following previous booms in Melbourne and Sydney, would be repeated again. McKnight's books and projects featured outer locations like Ballarat and Bendigo (that's what sticks in my head). I extrapolated that geographically to outer Brisbane like North Lakes and Redcliffe. NL doesn't have any old properties to renovate - it was first developed in 2000. It didn't have express trains to the the CBD, it does now but that hasn't made much difference. WHF?
     
    Last edited: 9th Jan, 2019
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  19. marmot

    marmot Well-Known Member

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    I think all will become a lot clearer once the RC hands down its report in a few weeks that will determine the direction for 2019.
    And that all revolves around responsible lending , and how out of whack the Sydney and Melbourne markets are in relation to income, or not.
    Banks can no longer just assume you are going to get reasonable pay-rises every year and low inflation compounds the problem even more.
    You only need 5-10 % of those being pushed from IO to P&I this year being pushed to sell and that adds more stock of forced sellers like deceased estates and divorces.
    If investors decide en masse to sit it out with owner occupiers and FHB unable fill the void( dont have enough money, cant get finance or a combination of both) then the market may see more significant losses this year.
    The one good outlook with falling property prices , is that those saving for a house may get there quicker than planned
     
  20. KinG3o0o

    KinG3o0o Well-Known Member

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    why ? sometimes in investing doing nothing is the best thing to do...
     
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