Household debt , why Australia IS different ....

Not normally a big Andrew Wilson fan , but this article from Michael Yardney is very insightful
and reassuring .

Why are we different .

Well a big reason is that most rentals are owned by individuals , while in most places OS , that function is performed by companies or the government .

They say the key issue is serviceability of that debt , which doesn’t appear to be a major issue and hasn’t changed much .

Cliff

 

Were not different , we have just done the same as most countries did prior to the GFC , we kept on piling on the debt, and now the RBA has been forced to drop IR down to record low levels.
At least the other countries could use the GFC an an excuse, whats really dumb is we watched it unfold and escaped any major damage to the economy, then just done exactly the same , 10 years later.
It took us a few more years to realize wage growth stopped years ago .and now were trying to drive down IR even further to stimulate the economy.
The economy is driven by households spending money , with high debt levels it becomes very problematic as the country is en masse paying of debt , many kids are coming out of uni and tafe with big debts which now has to be paid back as they hit about 50k
Thats even before they start buying property.

 

Home loan arrears 'highest in years'

Mortgage arrears are now at 2010 levels despite record low interest rates. Low rates appear to be the norm now though.

 

Good point. Whilst home ownership in US vs AU is at similar levels at approx 65% United Kingdom Home Ownership Rate | 2019 | Data | Chart | Calendar , in US, over 52% of rental housing is owned by corporations .Mom and Pop Own Fewer Rental Units

 

How risky was the economy in 2010?

The tax rules skew this. Negative gearing and cg discounts makes owning by individual in AU more attractive. No land tax makes large scale ownership by institutions more attractive.

 

The Australian economy was doing much better in 2010. The Australian dollar was worth 90 US cents. GDP was 3.3%, The RBA's cashrate was 4.5% and unemployment was 5.1%. The reason arrears were rising in 2010 was because the RBA was raising interest rates. In 2019 the RBA is cutting interest rates but arrears are still rising.

 

From an individual investment POV ( which is all I care about when I invest) I believe if you have your risk mitigation processes in place, you should be able to weather most 'economic storms'.

 

No one ever went broke from having too much debt, they went broke from failing to manage the cash flow on that debt. Provided you are buffered and understand the risks and have risk mitigation strategies in place, you should be able to get through it. People fail when they don’t consider all possibilities.

“Being different” doesn’t mean immunity.

- Andrew

 

Never seen so many shiny brand new cars SUV's 4WD's.

What an affluent society we have.....or debt ridden?

 

Australia's household debt is the second highest in the world — and it's changing how we live

 

like to hear what the swiss are thinking.

 

From Reddit/Freddie Mac

 

Problem with that pretty gif is it assumes the same base starting point in 2000. Cant tell what the relative prices are.

 

Risk Mitigation?
Location. Location. Location.

 

Short tern risk mitigation? cash buffer.

 

Agree location is huge. But it's definitely not the only factor for me. It's easy to buy in the right location at the wrong price.

 

To get a home loan is more difficult now than in the past but once you have it...credit is just given away.. I had to clear a personal loan (2k), cancel a credit card (6k limit) and clear a car loan (8k) to secure my home loan last December.
The same bank that said i had to clear these debts/liabilities issued me with a 12k limit credit card the week after the home loan was approved.
Now I have two credit cards, one with a 12k and another with a 10k limit (one has a mandatory 6 months interest free for purchases over $250)
Its mind-boggling to me, the amount of people my age (mid twenties) that have 30-50k student debts and 30-50k car loans...paying the minimum to maximise disposable income for weekend activities of course and expecting not to buy a house until their mid thirties or even later..

 

Would you rather buy:

(A) a currently overpriced property in Brisbane; or
(B) a currently overpriced property in Sydney

assuming you have only the above choices, and choosing neither is not an option?

 

Depends on a few things:

1. How much overpriced ( comparatively speaking) are the properties.
2. Location of both properties. Is one at a superior location over the other?
3. Any add value potential on one property over the other.
4. Land size and type of dwellings being compared.
5. Supply and demand.


For me it's never a simple decision as choosing Sydney or Brisbane etc. I need to look at the deal from many angles before determining overall value and risk.

 

I like to pay fair or below value, not so much 'overpriced' property, why?