The Australian housing bust: Why this time is different

Discussion in 'Property Market Economics' started by Duck1234, 20th Sep, 2018.

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  1. BoatArrival

    BoatArrival Well-Known Member

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  2. Eric Wu

    Eric Wu Well-Known Member Business Member

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    Such a looong article, don't have time to finishing reading it.
     
  3. marmot

    marmot Well-Known Member

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    I dont think it necessary means more money has to be loaned to other areas , just to much has been leant to residential mortgages and needs to restrained, much of it to loss making households.
    I could be wrong, but I think prior to the late 90s ?? most investors went from small losses to small profits depending on interest rates.
    After that the yearly losses just bigger and bigger.
    Then in 2018 were having a discussion that some investors cannot even afford to make P&I repayments, apparently.
     
  4. highlighter

    highlighter Well-Known Member

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    I remember the major ratings agencies affirming Ireland's credit rating right till 2009, long after the downturn started, and only a few months after Anglo Irish collapsed. The housing market was down more than 30% by that time, so the ratings agencies hardly "called it"... I'm not sure it's wise to put too much stock in what agencies like this say. They're private groups highly connected to the banks. They're not even remotely independent and they have a very poor track record of predicting downturns with accuracy. Maybe they've cleaned up their game, but I wouldn't bet the house on it.

    I also think the implication those who think the market might crash are like anti-vax conspiracists is just a little ridiculous. For a start there have been dozens of cities that experienced housing crashes over the last several decades alone. It's not a crazy sky-is-falling scenario. It happens, and refusing to believe it might, or to plan for the possibility, it kinda silly, and so is the idea housing is "safe" or that it's wrong to think housing can't be safe. It's an asset class like any other. It's prone to speculative manias and large corrections every now and then. There's no special quality that makes housing "safe".

    I also find the people with this attitude, according to my impression of people I knew in Ireland at least (limited anecdata though that is) those who kept decrying a serious downturn as "doomsaying", "impossible" etc were the least likely to have done anything whatsoever to prepare for that possibility, so were more likely to be cleaned up. People who recognised the Celtic Tiger wasn't going to go on forever, and accepted a big crash was not some far-out nonsensical idea, were more often prepared for the storm and the opportunities after it.

    Just my impressions.
     
    Last edited: 22nd Sep, 2018
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  5. Player

    Player Well-Known Member

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    ^
    ^
    ^This.......................and, these same ratings agencies also triple "A" rated the CDO's which were ostensibly trashy, stinking sub-prime loans and then on-sold to unsuspecting insto's as investments. Quite a number of Aussie municipal councils bought these :(
     
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  6. hobartchic

    hobartchic Well-Known Member

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    The rating agencies gave good grades to the US market in 2008 a.k.a the GFC too. They lack credibility.

    As for APRA making the banks safer, that' just nonsense. APRA is in deep doo- doo with the Royal Commission for their inaction. If there's a downturn then APRA could be partly responsible. The regulators were also useless at preventing the GFC in the US in 2008.

    Regulators do have power to take over the banks but it won't stop potential bank share losses or a down turn. They will only act when forced to if history is any guide. Look up bail in laws and Australia.
     
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  7. highlighter

    highlighter Well-Known Member

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    I agree. I was thinking back trying to remember when they downgraded Ireland and even I was surprised it wasn't till 2009... I thought surely 2008 at the latest but nope, they went right on affirming that stable AAA and they hung right in there even though the crash was blindingly obvious. For context literally no one thought there was even the remotest possibility Ireland's housing market wasn't crashing by that point. Even the real estate agencies had given up on their hobby of saying the market had definitely turned a corner (bottom spotting was the national sport at that point) every month for the preceding two years.
     
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  8. Duck1234

    Duck1234 Well-Known Member

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    If you compare multiples of AUD banks and overseas banks, they are unreasonably high. The reasons have been because of the wealth management and other stuff in additional to banking.

    This will change after RC. And banks will get re-rated. Banks shares will more likely than not go down. That’s not even to mention other stuff
     
  9. Rozz

    Rozz Well-Known Member

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    Would this typical across the major banks? Can we see the percentage for each bank?
     
    Last edited: 22nd Sep, 2018
  10. marmot

    marmot Well-Known Member

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    I dont know the exact numbers but I think Westpac has a high level of exposure in the home lending market and at one stage 50% of its loans were IO.
    So they might be leading the pack when it comes to raising rates
    Cant remember if it wás NAB or ANZ but one had more of a conservative number and a closer balance between residential and business/other loans.
     
  11. Duck1234

    Duck1234 Well-Known Member

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    CBA has the highest deposit so is safer.
    Westpac is the most risky
     
  12. Rozz

    Rozz Well-Known Member

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    Thank you.

    I'm curious because the broker I nearly used for my remaining IP, apparently organised the loans for several houses currently for sale in the same vacinity, apparently with the same bank, and I know at least two are in financial strife. Im starting to suspect all might be in trouble and are likely to push prices down. I'm interested in one of the properties if iitcomes down further.
     
  13. BoatArrival

    BoatArrival Well-Known Member

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    BTW, it's wasn't AU economy that had AAA rating assigned to it, it was our government debt facilities. That's pretty big difference. Just because AU government can borrow at very low interest rates doesn't mean an individual investor over-leveraged into Sydney property can do the same. Or WBC/CBA/NAB/etc can borrow at lower rates. Did the government bonds yields go up when AAA was downgraded to AAA-. Nope. Did they went down when AAA was restored. Nope. Did 3 months BBSW rates went down on the news ? Nope. Financial markets were out of f..ks to give as far as I can see. I'm not even sure why some posters thought this was important.

    AFAIK, US never lost AAA rating during GFC and yet its financial system almost imploded. I expect the same will be true for AU: government will not lose much if any of borrowing power even if we go into recession and get year after year budget deficits. And even if credit rating gets downgraded interest rates on govies will not move much if at all.
     
  14. 2FAST4U

    2FAST4U Well-Known Member

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    Very comprehensive article.

    "I have long thought that the ultimate trigger for a housing crash would be political - albeit still some time away. The truth is, high house prices are purely a political decision. You could crash the market tomorrow simply by announcing a new annual property tax on homes (or second homes) equal to 2% of the market value of the property. It would literally be that simple. The idea that house prices are some uncontrollable force of nature is nonsense.

    In the past, there has been no political impetus for such a move, because the vast majority of households have owned a house. However, as home ownership levels continue to decline on account of unaffordable housing and growth in wealth inequality, it is only a matter of time before that calculus changes. The trigger point, in my view, would be if home ownership rates fell below 50%. However, we may reach that political tipping point sooner than expected (even if it is not preempted by a regulatorily-mandated tightening in lending standards), and in this respect it is highly notable that discussions around abolishing negative gearing tax allowances in Australia have recently gained some momentum" .

    "All of the above is before mentioning the most powerful force of all that could eventually turn the boom to bust - a shift in investor psychology from greed and FOMO (fear of missing out), to fear. Before we get to fear, denial will persist for quite some time, before progressing through creeping anxiety, outright concern, fear, and then panic, followed by a long period of disinterest. That's how markets work - always have, always will".
     
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  15. Duck1234

    Duck1234 Well-Known Member

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    Westpac plans to 'dump' risky property investors as rates rise and returns fall
     
  16. MikeyBallarat

    MikeyBallarat Well-Known Member

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    Just gives me more reason to vote against the tax happy L*bor Party then!
     
  17. 2FAST4U

    2FAST4U Well-Known Member

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    With the whole Liberal leadership saga it would take a miracle for the Liberal party to win another term in Federal Government. I detest some of the Labor politicians but realise change is coming.
     
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  18. marmot

    marmot Well-Known Member

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    IF you really want to thank someone you could probably look no further than the home affairs minister, the minister for finance and Tony Abbott , with a little help from Murdoch.
    Between them, they have kicked a few own goals.
    Both parties are guilty of it , but over time, in government they start to carry a lot of baggage.
    In the lead up to the next election its probably going to really hurt them .
    You had the debacle with SSM and now you have all the leadership issues that have arisen over the last 6 weeks , they have probably alienated a lot of female voters, and there is nothing to stop Dutton becoming the PM should Sco Mo become unpopular.
    It just gives the opposition so much more firepower , and then you have a general workforce that has not really seen much of a payrise over the last few years .
    Any money saved from lower power bills will go straight into higher interest rates on mortgages.
     
  19. PandS

    PandS Well-Known Member

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    Market pretty much expect a labor government, lot of big ASX business already lobby Labor and wine and dine Bill Shorten
     
  20. MikeyBallarat

    MikeyBallarat Well-Known Member

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    Oh yes. I feel you. I can’t believe this whole leadership ******** happened. I’m so irate.
     

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