The Psychology of Declining Markets....

Discussion in 'Investor Psychology & Mindset' started by sash, 28th Jan, 2016.

Join Australia's most dynamic and respected property investment community
  1. melbournian

    melbournian Well-Known Member

    Joined:
    2nd Sep, 2015
    Posts:
    3,038
    Location:
    melbourne
    i agree it was realtively easy to renew IO with bankwest last year and when i got pre-approval for auction they listed 1-10 year option.
     
  2. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,547
    Location:
    Sydney
    Maybe...depends how many years you have to play with....you need to have an exit strategy. Otherwise.......you might find yourself in a pickle.
     
  3. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    1,445
    Location:
    Melbourne
    I think/hope your probably right on this one.
     
  4. timetoact

    timetoact Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    422
    Location:
    Sydney
    Good points.
    Re servicing, am I right in thinking that part of the servicing calc is being done assuming more normal interest rates (~7%). So once rates are back to a more normal level I would assume that this part of the policy will be relaxed. Of course servicing will have been restricted by the rates anyway.

    But let's say this happens, policies are relaxed, credit is under control due to more normal IRs another economic blip comes around, rates drop, APRA are slow to react (again) and the same process unfolds until APRA catch up and re-instate policies...

    Also with I/O tightening, will banks not find a away around this by offering more competitive LOC loans?
     
  5. zed_kid

    zed_kid Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    232
    Location:
    Melbourne
  6. 2FAST4U

    2FAST4U Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    2,304
    Location:
    Democratic People's Republic of Australia
    I’m expecting OOs to get hit the hardest. Currently it looks like future interest rate rises are going to be the biggest threat, particularly if this low inflation/low wage growth environment continues. Add the precarious labour environment that we’re in (permanent full-time jobs are increasingly becoming a relic of the past) and there is a possibility that it could get ugly. The hardest hit will be the low to middle income earners. Investors should fare better, but people that are highly leveraged on moderate incomes could get hit hard if they don’t have buffers in place to cover any unforeseen vacancies or non-paying tenants.
     
    zed_kid likes this.
  7. larrylarry

    larrylarry Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,386
    Location:
    Sydney
    Here we go! BTW what earnings fall into middle income?
     
  8. zed_kid

    zed_kid Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    232
    Location:
    Melbourne
    I think it’s 60k pa per person, so 120-100k household. Not sure though haven’t checked.
     
  9. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,122
    Location:
    The beautiful Hills District, Sydney Australia

    RE Servicing - Buffers will very likely remain, so if the rate to borrower rises to 7% , assessment rate buffers will quite likely move to 9% or 9.5%. Maybe they wont, but all the APRA rhetoric around assessment rates points towards a permanent change in this "policy" as they want all loans assessed with a "what if" buffer in place, moving forward... ie what if rates jumped 2% . But if rates do reach relatively high levels, perhaps APRA may relax this policy... doubtful based on everything they have said about it so far, though....

    Your second point on this is correct - even if they allowed banks to return to "actuals" , if your actual rate is 7 or 8%, your borrowing capacity would be diminished significantly anyway when compared to what banks would offer you using the "actuals" of the last 3 years or so...

    RE LOC facilities. Doesnt really matter whether it's a LOC, Offset or anything else... there's a speed limit on the amount of I/O debt the banks are able to write, no matter which loan product they use as the vehicle to deliver the debt. 10% annual growth to I/O volumes delivered via variable rates or fixed rates or split loans, is the same as 10% annual growth to I/O volumes made up of LOC's.
     
    Perthguy and Tyler Durden like this.
  10. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,122
    Location:
    The beautiful Hills District, Sydney Australia

    There's every chance that if you are on a P&I schedule, you'll be increasingly rewarded with some of the lowest rates ever... the banks will effectively subsidise P&I with I/O , in order to keep the whole house of cards together and profitable...
     
  11. wogitalia

    wogitalia Well-Known Member

    Joined:
    28th Oct, 2015
    Posts:
    872
    Location:
    Perth
    Your stats are closer to Monaco than Australia... The median household income in Australia is $998 per week after tax (per 2014 which is the last report published, should get 2015 soon, probably about 3% higher). So your per person rate is basically the gross household income.

    Only 10% of the entire population are above $80k gross income.

    With the average mortgage in Australia now at 443k (2014, again awaiting 2015 stats) that's not leaving a lot of wiggle room if rates were to go up. Realistically there is nothing in the economy to suggest rates are going up any time soon though so it's probably not a major factor. That said, a 3% rates jump would probably destroy the property market. Perth would be stuffed in general with our unemployment, falling wages and economy in general, Sydney and Melbourne would be in massive trouble with the income to mortgage ratios already stretched at current rates.
     
  12. larrylarry

    larrylarry Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,386
    Location:
    Sydney
    really? Is this Australia you're talking about?
     
  13. timetoact

    timetoact Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    422
    Location:
    Sydney
    From ABS -
    "The Full-Time Adult Average Weekly Total Earnings in May 2015 was $1,545.60, a rise of 1.8% from the same time last year."
    Which correlates into an average annual wage of $80k.

    The "All employees average weekly total earnings" is $1136.60 or $59k per year

    So average household would be ~$100k.
     
    2FAST4U and Perthguy like this.
  14. wogitalia

    wogitalia Well-Known Member

    Joined:
    28th Oct, 2015
    Posts:
    872
    Location:
    Perth
    The only important part of that stat is the average weekly earnings, which includes all the part time workers. Average salary is 59k, that's the average. The Median is about 49,000.

    In 2011 89k was the 15th percentile of taxable incomes (so before tax income), that stat doesn't include the ~6 million adults who didn't lodge tax returns. So 89k puts you in the 15th percentile of roughly 65% of the population with probably 99% of that balancing 35% below that level.

    In 2014, the 90th percentile of taxable incomes was $102,000 with a similar percentage not completing tax returns.
     
  15. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,693
    Location:
    Victoria
    3% rates would destroy any market in the world.
     
  16. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,122
    Location:
    The beautiful Hills District, Sydney Australia
    Do you mean 3% rate rises, or 3% rates? I would think 3% rates would make forum members overjoyed :)
     
  17. jins13

    jins13 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,355
    Location:
    Sydney
    I would love a 3% rates!
     
  18. melbournian

    melbournian Well-Known Member

    Joined:
    2nd Sep, 2015
    Posts:
    3,038
    Location:
    melbourne
    Yup all those Singaporeans are currently using 0.99% of 1.99%.
     
  19. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city

    Is that you digging your grave on the left there ? :)