Market drops 20% what actually happens to mortgages

Not really... I believe i referenced Unemployment rate which is close to full employment.

Come on WattleIdo - dont you mean, Australia101 get a job buy 5 houses?

 

Yeah, nah.

"After National Australia Bank boss Andrew Thorburn this week singled out tax concessions as a driver of the housing boom, tax office statistics yesterday showed individuals with interests in five or more rental properties jumped 6.3 per cent to 37,213 in 2014-15."

Nocookies

In case the article is paywalled, the title of the article to google is:
ATO says number of landlords with five properties rising

How many people in Australia even invest in property? I tried to google but lost interest before I found the answer

 

Consumer spending dropping drastically is one of the catalyst for price drops and definitely a risk - one the RBA is closely concerned about. They're too smart to go with rapid rate rises, regardless of what headline data tells them to do (e.g inflation pick up). They'll be sensititive to debt levels when adjusting rates.

Other than rate rises though, consumers spend confidently when there experiencing bouyant economic conditions, strong job prospects etc. A very strong economy = stronger confidence = consumer spending holding up.

Also consumption data is very sticky. It doesn't oscillate in a +\- 10% bandwidth and it has a smaller multiplier impact when compared to investment.

Simply, you don't have a 10%+ drop in consumption when there's an economic boom.

IMO, There needs to be an economic shock or at least a downturn in conditions here before there's a sharp corresponding house price fall. Rate rises on its own won't do it I don't think. It will just cause a comtinues lull/stagnation.

 

I would love to be able to share your enthusiasm and confidence in our central bankers to navigate market turbulence

The big fundamental difference and macroeconomic question of 2017 is Why are wages not rising? This might be a slow burn but will eventually flow through to spending.

 

What lost profits?

 

20 % price drop ... Individual properties and Mt Druitt , maybe but a generalized 20 % price drop in Sydney . Nup . GFC didn't come close , so a cooling at the end of a cycle won't do it .

Cliff

 

That's exactly what my old man did in the early 90s. Walked into the bank gave them the keys and told them good luck getting the rest of their money. Many years later the debt was dropped and no bankruptcy recorded.

 

Is the property worth more today than in the 90's ?

 

More than 4x after 2000, skyrocketed.

 

It just goes show we should buy when everyone is selling or returning the keys

 

No one was buying. Tried to sell, but market was going nowhere with 15%+ interest rates..

 

And people think sentiment around Sydney is negative right now

Long way to go!

 

That's not right. The Irish economy was fine until the housing bubble burst. The US "subprime" housing crash preceded and caused the GFC, not followed it. An asset bubble does not require an economic crash to burst. The reverse is true: bursting asset bubbles crash economies...

 

True.

I think we need either an economic downturn here in NSW or lending standards to have been very poor (like in the US) to have this magnitude of price drop in the near future. I personally don't see either happening.

A bustling economy will keep people employed with decent incomes, strong population growth will sustain demand, and jobs will keep people paying their mortgages (even with a few rate rises)...not enough will be forced to sell. Standard sydney market cycle behaviour to follow.

 

You are missing the point. We don't need an economic downturn to cause a drop of this magnitude.

A small drop (say even 5%) could be severely recessionary.

As to catalysts for a 5% drop - take your pick of slight uptick in interest rates, wages growth going nowhere, US fed hiking rates... won't take much.

Such is the reliance on Aus economy if property market falters at all. The ensuing wealth effect and decline in consumer spending will be recessionary, quickly.

You and others seem to make the argument that the property market is 'too big to fail'. The govt will do whatever it takes to prop it up etc..

Externally and offshore this is a laughable statement due to 1) Aus reliance on exports 2) Aus being reliant on offshore lenders for funding 60%

By way of comparison Canada has about 20% offshore funding.

 

Thats your opinion. Not fact. I definitely don't believe a 5% house price fall will cause a NSW based recession or a consumption based crisis that spirals us out of control and leads to massive job losses, etc etc.

I don't think the property market is too big to fail, but i do believe the major banks are. A 50% price drop will indeed cause a recession, I'm with you on that on. Government intervention will occur otherwise they'd be letting the entire financial system to crash. I believe APRA yearly stress testing has them barely surviving this scenario (and a 11%+ unemployment rate associated with the price drop).

My opinion is we do need a downward economic change, at least in NSW. Hence, no housing market crash of 20-50% anytime soon. Until something changes to the NSW economy, i'd remain of the view that a 20-50% drop is very unlikely in median Sydney house prices.

I could certainly be wrong, there's a lot of leading indicators & 'sensitive' points that naysayers can point to swell. Change economic conditions & push up unemployment by 2-3% & i believe there'll be too much stress on the market and you could be right with price movements (definitely not 50% though!).

 

Also part of this lack of price crash is associated to your first question - what is the mechanism for banks to take over peoples houses.

Give the way it works in Australia, people need to be forced to sell by not being able to make repayments. Value changes don't actually do this on its own (has a trickle down impact on the economy), its largely tied to one's ability to earn income. With massive price drops, i think you need people to be forced to sell. That means people who can't make repayments on their loans.

Banks don't just take peoples houses and put them on the market without this part happening.

 

You seem to have a remarkable faith in APRA's stress testing!

I'm sorry, I just can't share your comfort in really non-market participants who are bureaucrats making forecasts about the market.
History has shown again and again, it is not the regulators who can prevent downturns.

People being forced to sell won't require mortgage mechanism (on which brokers have been very quiet).

More it will probably be baby boomers (did you know they own about 57% of Australian property), who are also relatively low on their super balances being VERY HAPPY to cop a 10-20% loss on their properties to aid their retirement rather than think about possibility of further losses.

When the market starts turning, risk averse behaviour escalates VERY quickly. People will be choosing to sell to lock in recent-ish prices.

I remember the popularity of capital-guaranteed equity products post GFC. Of course these products were very expensive and some fell over.

Hindsight now shows that was the best time to take on plenty of equity risk in 2009-10.

Retirees are genuinely risk- averse as it is without having to deal with a 5-10% sticker shock factor...

IMO history shows that significant market changes have generally been disorderly, although while i hope that the regulators, RBA, big 4 banks and politicians can engineer a soft and pleasant landing.... Intellectually it seems unlikely.