Steve keen latest update. 2017 recession, 20-70% drop in house prices

he's actually apparently a decent economist. forecasting future house prices(which he's obviously terrible at) doesn't discount his capabilities in other areas and probably counts for a pretty small % of a lot of economists' work. it's just that in a country as obsessed with property prices as ours it naturally is one of the few times we would hear what an economist thinks

 

hope he's considered potential tax implications, it's all well and good paying cash assuming that in future he can borrow against the property should there be a need for future investments but with lending climate constantly changing I'd be more inclined to buy the PPOR with a loan and putting the equivalent amount in an offset account

 

The media didn't help either, most just ran with the dramatic "walk of shame" narrative. Robertson added the caveats and Keen walked right into it. Should have focused on macroeconomics instead of making dramatic predictions of property corrections.

A monkey off my back

 

I must admit and know its not fair but really find it hard to take anything Keen says seriously after being so spectacularly wrong.

 

Yeah, just seems like a joke that they would still give him air time.

 

He is better of doing an 80% loan and then offsetting it with remainder of funds.

That way if he rented the property in the future he would have deductable debt as he would have preserved the principle 100% if on IO or a large chunk remaining if on P&I.

He will also retain most of the windfall in a transaction / offset account for easy access or future use. Become the bank so to speak.

Disclaimer: the above applies only if you are disciplined with finances and this is easily determined in most cases by a glance at an A&L (asset & liability).

 

Or is he better off paying cash for the property and borrowing up to 80% against it to invest?

 

Depends on his short, medium and longer term goals so best to keep options open and apply some debt recycling if he wants to invest.

 

Yes, I agree. It depends on the circumstances. But starting off with a 80% IO loan fully offset may not be a good idea.

one way to have your cake and eat it too is to do something similar to:
Tax Tip 13: Simple Loan Structuring Strategy Tax Tip 13: Simple Loan Structuring Strategy

e.g. if the property price is $500,000 and 80% is $400,000 then perhaps structure like this
A $100,000
B $100,000
C $100,000
D $50,000
E $50,000

All with own offset accounts and all fully offset.

The client sits tight for a while and then decides to invest $50,000 into shares. They simply pay $50,000 into loan E and borow $50,000 to invest. Now the interest on loan E is fully deductible (assuming income producing shares) and
1. there was no need for new loan applications and
2. no need to deal with mixing and
3. no need to change loan type.

 

I like that type of thinking ^^^^^ and would really come down to where the applicant is at in their mind and understanding.

That could also be done post settlement with the right lenders.

 

Someone like Westpac could split easily after settlement - but I am not sure how they are with multiple offset accounts.

Suncorp would be good as would AMP.

 

Majority of lenders allow multiple offset but may charge a fee for more than one ala ANZ or ole mate CBA who cover unlimited offsets under the MAV / WEALTH package annual fee.

I think Suncorp cap out at 10 offsets per package?

 

Yes, I think suncorp has a max of 10.

Can't say I have ever had a client with more than 2 offsets at once, but it could be needed if structuring such as my example above.

 

Yep, the most offset I can think for one person is 4. Got a refinance / restructure deal just approved for a high income earner (1 mill+ / annum) that may need 6+ due to "cash at hand" and future business earnings.

 

Going back quite some time ago on SS I actually put together 4 well known gurus/property analysts/economists forecasts/predictions over 5 years period ? and they all got it wrong.

Moral of the story, predictions are just that, need to watch for the signs and only jump in when we have clear evidence

MTR

 

And some got it more wrong than others. Like this guy I'm sure.

 

We should have a thread on something like this - guru predictions.

 

What is really interesting at the time when Keen was reporting an Australian property market crash around 2007/8, Melbourne property market was actually booming, I was buying in this market. Keen actually spooked many investors into not buying. Tell me he resides in Sydney he could be half forgiven....hehe

 

We do have something:
Guru area predictions

 

What a dingus.
He sold saying the market was going to crash - and it went up!