No Need to Speculate - Lets Look at the Facts

Just like everybody was looking for an “external shock” to turn the market and it ends up being an internal investigation into the banks.

 

Actually not as many as u think. Reckon most people think Sydney will just be flat or down just a bit for years before booming again...

Just like most think Brisbane will be next to boom.. Lol..

 

The RC will probably prevent a few people defaulting as the banks recognise their part to play in lending responsibly. I do think that people getting mortgages are also responsible but that is frequently ignored.
I think high personal debt + high casualisation + tightening credit should have an impact.

 

The fixation on an external shock seems to have been quite an Aussie thing (almost like a "it can't happen and if it does it won't be our fault").

The sorts of things usually promised as external shocks or "bubble triggers" here are things that happen well into a bust anyway, to the point where I have to wonder whether some of these economists I've read have ever looked at the actual timelines of past bubbles, especially around the GFC. e.g. the Irish bubble might have ended in layoffs, a huge recession, a spike in defaults, a banking crisis and bailout, but house prices started collapsing in 2006. Nothing you could call an "external shock" happened till almost 2009. Same for the EU countries that experienced busts in that time. Same for USA, where house prices started crashing years before the GFC.

 

Well, without people expecting it, it can't happen. You need that panic reaction or you can't get a negative feedback effect going. Bubbles are a bit like a self-fulfilling prophecy after a point. No one thinks they can possibly crash, and when they do start unwinding, no one thinks it's going to be bad... until everyone wakes up one day and suddenly agrees it's going to be armageddon, and panic sets in. I was never sure Dublin was crashing and thought it would be fine until one day I talked to my mother, who said her whole book club insisted it was the end of bloody days and she wanted to sell her house. She'd always laughed the whole idea of a crash, which had been predicted by the IMF, World Bank, every economist under the sun for years, then one day boom. Everyone decided it was crashing. Like a flock of swallows taking flight. People are weird.

 

The point of "critical threshold". Your in a crowded theater and some one runs for the exit, most people notice but just shrug and keep watching the movie. A minute later 2 people leap from their seats and also run for the exit. The majority are thinking that's wierd, but go about there business. Now 10 people leap from there seats and make a mad dash for the door, at what point do you get concerned?

Before you can rationalise whats going on more than half the theater is making a dash for it, now you spring to your feet and are running like your life depended on it. But you have no idea why!

Market booms and crashes can have an underpininng of sound economic fundamentals. But how far they move is only limited by irrational greed and fear mentality.

 

The only guys that should be worried are the amateur investors who paid 1.5 million for investments in Sydney with yields like 1.5%

If you bought years ago even a 20% drop should not affect you too much. The amount of price drops Vs the amount it increased is still exponentially different. If there is no housing crash (i.e) prices drop > 40% if you bought well there is no need to worry. Your still up by a long mile.

 

It may not affect those who bought before the boom since they might have 100% gains or more but if the investor hasn't sold out near peak late last year and the market tanks and at the same time rates started spiking 1 or 2%(possible), rental drops from oversupply(likely), the investor is negatively geared and policy changes(maybe not so likely), IO can only be renewed as PI(seeing it happen already).

The investor may be 'forced' to sell if their income doesn't allow them to hold the debt.

If the portfolio drops even 20-30%, depending if their portfolio has gone up 50% or 100% this boom, the investor may end up with not much of a gain and even breakeven(maybe even loss with selling costs factored in)?

Whilst these negative factors may not happen altogether, during bad times when market reverses, a lot of these factors can suddenly change and hit the investor at the same time. So an investor with big gains should still be worried if they haven't sold out and capitalised on this boom!

Having said that, most above-average investors on this forum seem to have already sold out of the Sydney boom and have moved their attention to other cities.