Housing slump "worst in decades"

I understand that but have some reservations about the methodology for mortgage stress. Mortgage stress is very subjective. I know some people are at max borrowing capacity and that some families are suffering mortgage stress. My feeling is that the numbers are overstated.

 

The issue here is distribution, most of this cash belongs to Baby boomers, not the ones who need buy house for their family or are repaying a mortgage (between 20 to 50yo).That makes these figures meaningless

 

Of course you have proof that your claim is not entirely made up.

 

Yes, about 2/3 of wealth belongs to 20% population, and 1% people own more than 70% population - well known numbers. Most of them already have premium houses, huge income and don't need RE investments. On the other side, there are many poor people with deposits and income not sufficient for investments. They keep money for rainy days or for other future expenses (cars, travel, medical, etc). Also lots of cash belong to temporary visitors, including those participating in money laundering schemes - see the latest investigations for CBA

So the investment potential of that $1T is not high as many think.

 

These numbers are not accurate.
Wealthiest 20% of Australian households owned 63% of total household wealth in 2015–16. By comparison, the lowest 20% of households owned less than 1% of all household wealth.

However you need not take out that of context. It’s like newspaper headline that picks just one sentence and blows it out of proportion.

The lowest 20% of households, in terms of net worth, had a mean net worth of $36,500. In comparison, the mean net worth of the wealthiest 20% of households was more than 70 times that of the lowest 20% of households, at $2,906,400.

So even the poorest of poorest. Still have a net worth of thousands of dollars.

 

What makes you think those with savings are interested in buying houses?

I’m a believer of “if it was going to happen, it would have”.

I honestly don’t think many have been saving for a rainy day and will all rush out and buy houses.

People with savings in banks tend to be conservative. So to be honest I think they are least likely to catch the falling knife.

None of that has stats. Just my opinion.

 

So true. Not everyone wants to be a property investor. Plenty of wealthy people have never invested in property, and will never for obvious reasons.

 

So your statement is more accurate than ABS statistics? It doesn’t matter if people are saving for a rainy day, new car, a house, a Flying Spaghetti Monster temple. Who cares. End point they are saving and have money. The world is not ending.

That’s right. Just because we think something is right doesn’t make it a fact.

 

And statistics are like a bikini. What they reveal is interesting, but what they conceal is vital.

 

Just because they are saving and have money does not mean it will help the property market.

 

At the end of the day, people need to leave somewhere. At then end of the day they will spend money either to rent or to buy. At the end of the day, unless they run out of money (that could be due to various reasons) there is unlikely to be a major shock to the housing market.

 

Ok. I’m not sure what your current or original point is anymore. Outside of people live in houses. Which I can confirm without statistics. I can also confirm people live in houses that cost less in other places. In other bear markets, I think people have continued to live in houses too.

 

but one thing we do know is when it comes to down turn and crashed and leverage, there is no logic to madness of men, things happen for no logical reasons and that what you have be prepared for.

Stock market and housing are not the same comparison but it can give you some hindsight into
the madness of things.

Checked out last week on the S&P200 , for seven straight session it is a relentless sell down, it came out of no where, people try to find reason to justified it, but no one knows for sure, after 3 down session people think you beauty let go get some bargain but alas no relief for you guys the sell down continue, each day bring a bit more fear and panic and it kept going all the way into Saturday, future predicted Monday 8th session going to be nasty, be another sell down then miracle happened it stage a recovered but still knocked off a couple months worth of gains in a week, fear still lingers and it just holding pattern but have not fully recovery to the start of the sell down

BHP got sold down hard even it about to hit XD, normally coming up to XD there is price support
no not this time everyone want out, they don't care about the dividend, it defined logic in normal time to let your stock go a day or two out of dividend, on the other side in August CBA when thing was happy and joyful it got a nice price run up to its XD day

I can tell you with leverage and down turn it is very un-nerving stuff, you watch your equity vaporize, you think you can handle it but seriously you don't know until the times come.

and going back 10 years, on November 2008, ASX hits 12th session of loss and wiped out all gains since 2004, no logic just sell sell sell, 4 years of gain gone faster than your holiday.

WTF happen to Syd market, I thought we are envy of the world and house price cant come down, and now it has started the down turn, no one knows when it end and how long and how large the damage going to be and that is a fact.

Housing is a slow moving beast so you will wont see fast and furious but a slow drag out process that can go on for years, each year those on leverage see their properties declines and wipe 5-10% off their price, their equity start to evapurize

 

Unfortunately the vast majority of the banks disagree,and APRA, the banks even put up interest rates.

This article was written last month by Elliot Clarke, Senior Economist at Westpac

Westpac: Falling deposits to keep bank funding costs elevated - MacroBusiness
FYI.
"Put simply, if (in dollar terms) retail deposits increase at a lesser rate than credit, then Australian lenders’ reliance on wholesale funding must increase. This looks likely over the remainder of 2018 and 2019 if, as we anticipate, national and household income growth remain soft, led by weak wages growth; a downturn in employment growth; and the terms of trade. Consumer saving and investing decisions are unlikely to provide a meaningful boost to deposit growth absent a shock because consumers already favour deposits (and super) over other asset types"

"Drivers of elevated short-term interest rates are plentiful:"
"Australian short-term wholesale interest rates have been a point of debate throughout 2018. Into March quarter end, the move higher in the Australian 90 day BBSW spread to OIS mirrored the move in the US’ LIBOR spread to OIS. However, going into June quarter end, Australian funding spreads exhibited another spike higher as LIBOR eased back. Attention then turned to potential domestic factors."

And some more here.

"Growth in super fund deposits face additional challenges because of households’ reduced capacity to make voluntary contributions and super funds’ allocation out of domestic cash in favour of offshore investments. Each of these factors are also likely to have a lasting effect."


Here is another excerpt

"Regarding financing, the switch from interest only to principal & interest repayments will, at the margin, detract from households’ deposit accrual. Though principal & interest loans come with a lower interest rate, the total repayment is much greater than the interest cost alone. While this switch sees debt repaid more quickly, all else equal, it also slows deposit growth."

For Westpac, deposits peaked last year and then started decreasing as did the amount of gross loans, but deposits were falling faster then loans and crossed over , which meant more money had to be sourced from somewhere else ,and as more are pushed from IO to PI loans that figure will get worse as investors start to eat into their savings.

As a country we are still borrowing more than we are saving and are becoming more reliant on wholesale funding , which in turn causes rates to go up as households deplete more and more of their savings, all at the same time as many investors are being pushed into P&I loans and the US are aggressively lifting their rates, which in turn makes the USD a lot more attractive against the AUD for institutions and super funds.

 

We have just been through a prolonged downturn in Perth. Almost everyone I know has been saving up to buy a house for years waiting for the right deal. 9 out of 10 of them bought in the last 2 years.

It is not my opinion that people save a deposit then at some time buy a house. It's a simple fact.

 

To buy a house, you need a deposit - true. But if you have a deposit, that doesn't mean you'll buy a house. It's not simple cause-effect relationship.

Similarly smart people read a lot, and many of them have problems with vision, wearing glasses. However, to be smart, it's not enough to wear the glasses.

I have many friends with hundreds $K deposits and household income >$200K, but they don't buy houses and don't consider to do that in the future.

I estimate only 10-20% of that $1T can be converted to RE purchase. There are many many many other reasons why people save. E.g top 20% segment with 2/3 wealth already has houses including investments. They save to diversify. When you have $$$M, you don't put everything into one basket, you buy houses, buy shares, buy gold, businesses... and leave a huge amount of cash (in multiple currencies) in your bank. And when poor people save... they save not to buy a house.

 

I agree and I have not stated otherwise. I have just been addressing an argument that there will no borrowing capacity in Australia for more than 4 years. I don't agree and I feel I should be able to express this view.

I don't know if that is accurate or not but lets say it is accurate. How much loan funds can 10-20% of $1T leverage? We don't know the answer but it's certainly not nothing as has been claimed.

Did you read the article that started this "debate"?

Australia's housing downturn could turn into the 'longest and deepest in modern history'

It seems reasonable to me. Do you disagree?

 

Two points.

1. All your friends did nothing to help Perth property prices.
2. All mine been saving. They in Melbourne. Nobody is buying. They might down the track but not currently. Even if they do. Drop in the ocean.

 

And? My point was that people save a deposit and buy a house. I doubt that's in dispute. And I disagree that people buying did nothing to prices. Because people are buying in Perth, property prices have stopped falling at the rate they were previously. That's not nothing.

And? Did I say your friends buying will cause the next boom in Melbourne? This is getting ridiculous now.

You also just contradicted your previous point.

Your friends in Melbourne won't buy houses down the track. If they were going to, they already would have according to you.

 

@mues All I'm really arguing is that while the Sydney and Melbourne housing markets are in a downturn now, the downturn won't last forever.

You are arguing with me, so what I have got wrong?

The Sydney and Melbourne markets are not in a downturn? I would like to see evidence for that because my understanding is that those housing markets are in a downturn.

The downturn will last forever? While I guess this is possible, it's extremely unlikely. I would be interested to see your reasoning that the downturn will last forever.

I feel a mixture of bemusement and disgust that I have to defend my position that a housing market downturn won't last forever. This is a property investment forum after all. I feel like a property investor should have the right to express the view that a property market will recover after a downturn.