too much debt we have now?

this thread is for @Ald but all discussions welcome including @larrylarry
How the housing boom is changing the way Australians live

 

Interesting article but we have yet to read the book by @Ald that will improve our quality of life. I'm sure he's something to say here and not in Newcastle thread. Here's your opportunity @Ald

 

I must admit I found that article disturbing. I'm generally optimistic in nature but our record debt ratios based on housing debt I think is our economies Achilles heal.

 

I agree. It is not so much investment debt that worries me, it is record levels of personal household debt.

 

Well what I say will make sense to you all in a few years time when you all realise that China's debt to the USA is paid off quickly by the yuan no longer being artificially devalued. Then the US dollar will also be strong and the US economy very strong with high interest rates in the US causing ours to go up by 2% - 3 % for every 1% the US rates go up. Off course our country will be in practical debt slavery then to the US, because we will be paying off the record debt Australians have accumulated on the largely unproductive asset of housing speculation. Probably taking on more.

there will be plenty of properties for sale, cheap rentals and fire sales then.

If Novocastrians can't learn from the mistakes of places like Gladstone and Perth, where property prices are back at 2008 levels, they sure are not going to learn it from me.

Realise that in China there are universities where just software is developed and these universities are as big as Newcastle city, filled with software people developing stuff that Australia has not even imagined yet. China is on the verge of taking over software development in the same way it took over manufacturing. I can already name several international software companies that have taken their entire development to China.

Once China can rely on its internal economy plus investment income from other countries where it has bought all the money making assets today and does not require sales to other countries. Then Australia will see just how far ahead they were thinking. Next 5 years will leave a few people gobsmacked.

The next big thing is the race for artificial intelligence, quantum computing and efficient solar power. These too will belong to somebody else then Australia. Not enough ambition. Desire to remain shackled.

 

Great post. Not so great for Australia. All we can think of is perpetuating our ponzi scheme.

 

Looks remarkably similar. How long can the debt train continue for?

 

When you adjust graphs like that to account for interest rates been low (i.e. % of income servicing debt) then they are remarkably flat (varies by only 5% from the mean from memory).
Which I believe is due to people feeling comfortable spending x % of household income on housing/debt.

Biggest current effect I can see is not housing affordability but inability to repay the debt in an accelerated time frame - i.e. when someone increases their repayments by say 5% it has a relatively small effect on the life of the loan compared to when interest rates were higher. Further compounded by low wage growth.

Also a 1% increase in rates would be much greater - around 20-25%Vs 10% when rates were at 10%. So rate rises will potentially give people more pain than in the past.

What this all means for the future I have no idea, which is why I try to avoid making predictions. I'll just say that I think as predictions get more extreme 10%, 20%, 30% boom or bust etc, I think they get less likely.

 

Me too. Carrying big housing debt now because I don't know much about where else to invest

 

Should have the latest graph. RBA latest pack come out this month.
http://www.rba.gov.au/chart-pack/household-sector.html#5

 

Exactly. All good and well fpr China to be the worlds future economic overlords and I dont doubt they will be.

Heres the thing, China has hypocritical (non-reciprocal) investment rules for foreign investors in THEIR country. This is a smart move. I.e. take advantage of global markets (houses / infrastructure / businesses / farms etc.) Who will let them buy their stuff (i.e. AU, NZ, a plethora of African and South American countries) BUT of course not allow these same countries to buy stuff in China! Add to this that Chinese Government owns/controls many of these Chinese 'private' corporations and that is a big problem for us, rconomically. Basically, China is buying the worlds 'goodies', is making their own goodies, and selling back to the world the junk that it doesnt car for (basically, endless products that are mostly hurting mother nature/earth).

The smart countries are the resource rich ones who refuse to bow down economically to China, and as such refuse to allpw China tp buy their stuff that matters (Oil, food, minerals - not houses and apartments). Think Norway and countries like this.

 

Six reasons it's nuts to invest in property right now

 

How many Chinese are there who will want to buy a property in Australia?

I guess the Goverment wants to see Sydney and Melbourne become Singapore mini me. So these will become Chinese cities.

So previously the price of property stopped growing when the male went to work and the maximum income could be squeezed out of him. Then they got all the women working so that property prices could double. Then they figured that the kids should be working so they took the 13 year olds and shoved them into woolies and maccas and Coles. Then the property prices could grow no more so they figured let's find cheaper money and the Australian banks went to the Americans for cheaper money than the RBA could give it to them and property prices peaked. The global economy crashed so they figured what do we do now? So they figured well let's let the Chinese buy it and so know that has caused a boom in two places I guess the price of Sydney will stop growing when Beijing and Sydney are equivalent in price of living. I thinks it's close.

At least the food courts will become interesting in the Chinese metropolis of Sydney and Melbourne. The other Australian capitals will be filled with the cashed up Sydneysiders and melbournians who sold up to the Chinese and left.

Can't wait till we have a Chinese president.
Maybe they will get the republic happening and get the economic debt down.

 

@Ald. I can't take your writing as being serious after this comment:

 

Definitely.
With such high debt levels people will have to rely on this low inflation environment. If interest rates rise without the associated wages growth it will get ugly. Mortgage arrears are currently low, but they are rising nationwide.
Australians are falling behind on their home loans

The Fed wants to raise interest rates later on in the year, but whether that happens is unknown. As for Australia the continued trend of full-time job losses and growing part-time employment has many economists jawboning that interest rates could fall again.

 

This is actually reverse to economic logic. AUD is no longer fixed to USD since 80's.
If an economy is booming as you predict the US will, I/R's are increased to slow the economy and prevent hyperinflation - think wheelbarrows of money.
If the AUS economy is weaker than the US then I/r's are decreasing relative to US to stimulate spending and make credit cheaper and reduce saving.
An extreme example is think of Europe with negative interest rates in some circumstances. But that is impacted by many different economies trying to fix to one currency - another discussion.
For AUD I/r's to increase 2 or 3x US, the AUD would be booming aka a mining boom or similar example when a lot of wealth is flowing to Australia and incomes are also booming requiring brakes to be put on the economy.
I/r differentials can also be a factor (but not the only) that influence exchange rates to also make exports more expensive or cheaper to further slow down / stimulate the domestic economy.

As to the future forecast - ?????

 

Not sure why? Please explain?

The best Universities and schools in Australia apart from ANU are in Melbourne and Sydney. There is no cap on foreign university places. Fees are high and Australia has just created a new visa category for school kids as young as 6 to come pay and study at Australian schools. The private elite schools also want some of the Chinese action.

Nearly every house that's sold in Melbourne or Sydney is to a foreigner usually Chinese. The old Australians are moving out and making space for the new Chinese Australians. The new Chinese Australians are at least ten times smarter then any Aussie as evidenced by the results of the predominantly Chinese students at schools like James Ruse.

Fast forward 50 years with the ever richer and richer Chinese foreigner buying the Aussie homes in the Chinese enclaves of Sydney and Melbourne and propping up property Prices and you end up with a Chinese city like Singapore in Sydney or Melbourne.

If the Chinese were interested in living outside of an Chinese enclave they would go to Perth now and Perth would be booming. Same time zone as Asia, closer, much cheaper and better value and far greater business opportunities then in Sydney. Perths chinafication will also arrive but the Chinese are a cultured nation and Perth is not yet.
At the moment the Chinese are interested in dominating the intellectual and business and education capitals.

Take note , record low interest rates, an entire state full of the richest resources, endless cheap and much better quality housing then the eastern states and massive tracts of farming land and space to create anything in Western Australia and yet the Chinese are flocking to Sydney and Melbourne and causing a boom there and ignoring Perth.

Who else wants to ignore the obvious?

 

Who cares what the AUD is to the USD if you are an Australian bank that is borrowing endless money from an American bank at 0.6 - 0.9% and giving it to Australian so called investors at 4.5% where the Australian Goverment is protecting the potential for Australian bank failures with taxpayers money to repay American banks?

Why do you think the Australian Goverment doesn't worry about the Australian personal debt? They love the stamp duty and the inflow of foreign income. They create the housing supply shortage by limiting infrastructure and land releas development and letting the flood gates open to immigrants.

It's only the ignorant who can't see that the piece of wooden rubbish that's 60 years old and sitting on wooden piers and called a house is not worth $1000000 when it was only worth $200000 ten years ago. But with a majority of really crazy dumb dumbs floating around buying housing with loans only because credit is cheap and not thinking about what it means to their lives and their kids lives to not finish paying for a mortgage by the time retirement comes and some aged care care corporations starts emptying their pockets and taking the family home.

If people in this country were smart they would start their lives by calculating backwards from their deaths, starting with their funeral, preceded by their aged care costs, preceded by their retirement living and helping their aged kids, preceded by their working life.

These chumps don't realise the degree to which they are being rorted.

Let me tell you something. If you cannot afford to buy a house today in Australia with a 80% deposit in cash and the rest in a 20 year mortgage, you can't afford it. Don't get fooled by the banks, they are devil spawn.

 

I saw a t shirt today that explained why the house I inspected today that was valued at $310000 less than 5 years ago and too expensive then was valued at $580000 today and had 20 people inspecting to buy it.

The t shirt read.

"I have the right to remain stupid, every good advice you provide will be ignored,.....

I smiled I realised that the more people there are at home opens madly rushing to buy houses, the better off I will be in a few years time.

Such is life , this is Australia.

I dont look forward with cheer to buying your house from you in a few years time for cash at about $150000 less then you paid for it and after you have blown $20k on stamp duty and $70k in interest and have renovated it for me for about $50k. But that's what will happen. I have seen it before, done it before multiple times and it's happening again this time in Sydney to Newcastle and Melbourne. I feel sorry for you but you have to learn.

Never buy a house after a boom with low interest rates using banks money when everyone is buying and selling. The time to buy is when interest rates are high and houses are flat lining and agents can't get sales after you have paid down pre existing loans and saved cash.

 

In Newcastle?