Discussion in 'Property Market Economics' started by TheSackedWiggle, 6th Feb, 2019.
Are you still in school?
How so? I'm just sharing what I have experienced and hope to add some value...
@Redom They do deal with Pepper but not Liberty or Bluestone. Do all three in your experience have the same borrowing capacity calculator outcome give or take?
Pepper is certainly far more generous than most, but Liberty and bluestone are just that 10 or 15% more generous than Pepper, broadly speaking . Obviously it varies by scenario, but that’s about where things sit. But you’ll pay a pretty handsome premium for access to the liberty and bluestone “actual” policies , especially if you own multiple properties and want IO. I’d probably only consider them for quite strong cash flow purchases.... purchasing vanilla yielding properties using these calcs has the potential to put you in a very difficult position when the sugar fix of IO wears off in 5 years....
Interesting and thanks for that!
Arrears amongst those who wait till expiry is high
this from RBA's review in Oct-18, bit dated and I think arrears amongst these group may have gone even worse now, will wait for RBA next release in April 19
I have long maintained those who could-have would-have already switched from IO to PI due to penalising IO rates so far, Those who are still holding IO loans till expiry(2019/20/21) are most at risk.
In-spite of preemptive IO2PI rollovers, there is still 230+bn IO reset due for 2019 and 2020 (and additional 100bn? more for 2021).
It will indeed be a very interesting next 2 year.
Can falling valuations and/or inability to extract equity to fund extra repayments would compound the issue more?
not sure if this is a valid strategy to sustain extra repayment by couple of years more.
Thanks for posting - great data and insights.
You do have often have a different interpretation to most of the IO2P&I data that I see @TheSackedWiggle, but I do love the charts!
That chart & the Oct FSB report in general note that the issue is marginal and most borrowers have options and very contained increase in arrears associated from IO rollovers. It also goes on to note that most of Aussie arrears is actually in the Perth market, slow economy driven (largely by unemployment being high).
Also, the chart shows arrears rates at ~1-1.25%? Thats incredibly low, amongst the lowest in the developed world, and doesn't really signal anything other than an overwhelmingly healthy mortgage origination market. You can even double it (unlikely to happen without an economic shock) and it'd still reflect a broadly healthy mortgage market where credit has been allocated well by risk takers (lending institutions).
its bit dated, that arrears are for switches before oct 2017, much has changed after that,
besides many would sell it before arrears becomes a reality and hit their credit record,
safe lots may have already switched and whats left are riskier lots for this year and next.
230bn expiry for two years is lot of expiry to deal with.
Thats true - to be seen how it'll play out with regards to forced sales I guess. So far so good in terms of arrears and forced sales (macro wise, non existent so far/drop in the ocean at best).
Nonetheless, IMO the debt issue itself has played a bigger role on price declines in 2018 than directly attributed for (didn't even make a mention in Lowe's speech today reasoning whats going on and what happened). 15-% of all mortgages reverting to P&I inside 18 months seems like a pretty massive shift in fundamentals of housing credit to me!
Any updates on this? Curious to see how people may have changed their thoughts.
It was one of the busiest threads not too long ago
We just saw the worst retail figures since the last recession. NSW and Victoria were the worst 2 states despite them doing the best in terms of employment and house price growth currently. The fact they had by far the biggest proportion of IO loans that are now switching is the obvious factor that sets them apart. When repayments increase the first thing people do is stop spending.
It's clearly having an impact the question is how big the impact will be. The problem is that we're already in a per capita recession and the private sector is already in recession so we don't have much to absorb the reduction in consumer spending. The issue is likely to get worse as those who bought later (2015-2017) and are still to transition will have less equity in their homes so refinancing will become more and more difficult.
Can anybody come up with a sector of the economy that's going to outperform over the next 12-24 months and prop up growth because retail and construction which are massive employers look absolutely dire.
@TheSackedWiggle seems rather quite lately. No post since middle of Sept. Maybe he got his gig back ?
The dialogue was more to do with people losing their homes. Massive increase in defaults, property prices to plunge as a consequence.
Has the wiggle changed his view??
Yeah the idea of mass defaults immediately was silly. Everyone who bought in 2012-2014 has gained equity so at worst refinancing was always going to be an option.
Also in a property crash mortgage defaults are one of the last things to occur as everyone does everything they can to keep their homes (even property investors who are by definition bullish about property normally try desperately not to sell). In previous property crashes around the world it's always started with a big drop in retail especially large items like cars and a crash in construction after prices stop rising. Then you get a massive spike in unemployment as these 2 areas cut staff. It's only then you get a big increase in mortgage arrears, a crash in prices and mortgage defaults. The question is whether Australia's current retail and construction downturn leads to massive job losses and a crash or whether another part of the economy can pick up the slack and help us muddle through. I don't know the answer to that but mortgage defaults are always the last step in the process not the first.
I think we're probably at the peak of this issue. The IO restrictions started around mid 2015. Most IO loans have ever only been for 5 years, so most IO loans written under the old pre-APRA rules have already reverted to P&I.
My observation is that most people simply cope with it. Over 5 years they've had some increases in personal & rental income. Most weren't that far stretched in the first place. I have had a few people extend to 30 year loan terms and one or two struggle with it, but from my problem it's not a systemic problem.
We have been dealing with vocal posters predicting an imminent and catastrophic crash since 2014. It didn't happen but it still could. Any. Day. Now.
Seriously though, when the IO to P&I "cliff" was predicted I don't think anyone could forsee that the interest rate would be 0.75%. In fact, if I remember correctly, the same posters promoting the cliff were predicting interest rates would increase. That would have made things worse but didn't.
What are the "cliffies" doing now I wonder?
But anyone who was predicting a house price collapse and the RBA lifting rates simultaneously was an idiot. The first thing the RBA was going to do was drop rates at any sign of significant economic weakness. The question was always whether the RBA could prevent an economic slowdown not that they would add to it. It's a question that still hasn't been answered either way.
Another classic example of how macroeconomics never follows logic..if it did, investing would be void of risks and subsequently returns and economists would be wealthier than surgeons
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