Wake up Australia, we have a debt problem

But had you bought just before the crash/blimp at its peak you would havr waited 5 to 8yrs for growth.

I purchased some low risk shares at its peak
Sold 9 yrs later at 1 % profit

Was livid

 

Just have to ask the question ,if you don't mind ..
1% over 9 years ,was that after all the divs-franking credits ect combined?.

 

Sure. The divs were all reinvested automatically. I also did get franking credits.

Basically i put in $x.
And got back $x +1%
It was actually a share fund. That was recommnede by my family member who had done well the previous years and was low risk...

Oh well

 

Look at the upside,very little tax had to paid,and you still have the start-up funds as a lot never see their money again..
Plus anyone that tells you 100% they know which way the equities markets work and who employ literary and historical references to back it up data wise are like science fiction writers..

I bought into one bank early in feb ,about 50% of the total cash investing float i use ..That number of units is still about 3%lower then when the settlement went through ,the div comes in later this month so it will balance each other out..Could have just left it all at 2.5% safe in the bank ,but it takes all the momentary excitement away once everything turns upwards again as it will..

 

I certainly don't think this will lead to a crash, i don't think the problem is big enough and there are so many solutions available...but i do think it is a problem that the regulators should invest lots of energy into. Between 1990 and today there's been lots and lots of finance related housing problems. They've just had policy responses, etc and solutions come out.

Re economy wide impacts, a large % of borrowers funnelling into either option 1 or 4 post IO maturities all have different economy wide impacts.

Option 1: If everyone with IO maturities sticks with their loan contracts and starts repaying principle - i think we'll have a serious drop of on consumption (and a large savings rate increase) in a short space of time. That'll naturally flow through (Aus is a consumption based economy). There won't be any rate rise if 30-40% of mortgage holders begin saving an extra $900 a month next year.
Option 2: No real impact, it just means banks have allocated capital well.
Option 3: Risk spread to shadow banking sector, may mean more oversight. Marginal impact.
Option 4: Trouble. Crisis times really if a large chunk of borrowers fall into this funnel (which is very unlikely).

Thats just option 2 (a variant), a refi with existing lender. This is lenders allocating capital well.

True, well said.

Don't think it really matters to them. Also large % with Westpac, who allowed longer term IO periods back then without question or punishment.

Definitely agree - America had far more problems and the structure of their financial system excaberated those problems.

Agree, but most borrowers aren't quite as savvy about debt/finance/property as you!

 

Macquarie Bank's research shows that investors are better off with P&I loans.

Interest-only loans now make no financial sense: Macquarie

 

I didn't realise 1987 was in the '90s.

Anyway I thought the topic was real estate crashes?

 

Looks like they haven't included the benefits of paying off the home loan sooner with IO and the savings of non-deductible interest

 

IO loans are the best things that could happen to banks for a long, long time. Put it this way, they have a secure asset they are lending against which will appreciate in value in 5 to 10 years time and meanwhile they have guaranteed income of X amount which isn't going any lower due to the fact that the borrower has paid part of the principal of the money.

So they are going to get their money back entirely in 5 to 10 years time and meanwhile they have guaranteed income of a set amount against a very secure asset.

Now tell me IO loans are good for banks or bad for banks?

We don't have a debt problem

Subprime mortgage crisis started because of how the loans were bundled up and sold overseas and therefore they couldn't tell good debt from bad debt.

We have historically low interest rates, they are here to stay for a very long time.

Property has already stopped growing at the previous rate and wages in the mean time will catch up.


Back in the year 2000 an average family could shop for their entire week of groceries for under $50. Now the same items for the same family will cost up to $500 or in some cases more. You don't see people making posts about it, get on with it.

 

while australia's use and to some extend manipulation of the IO loans/mortgage combined with dodgy representation in the repayment ability is something to worry about.

the subprime loan in usa that was the major factor in the GFC in 2008. people that were offered mortgages in the sates in 08 are unemployed, had zero assets and no savings. a far cry from australia's situation.


that being said.. australia and the world needs less debt

 

In just under 20 years the price of a basket of goods has risen by ten times (or more)?

 

Yes.....
the big short, what a great riveting.....movie

 

@MTR yes very good movie, will become a classic.
@Tenex : Seems like rates are now on the way up and RBA will not be able to do anything about it. Plus with credit tightening, unlikely economy/wages will be able to catch up to house prices, which mean house prices will have to drop once all the speculative sentiment reverses.

 

I can't speak for others but for one investment property I purchased last year, I have managed to get two discounts so far on my IO investment loan with the option to get it even cheaper if I fix it for 2 years (again IO investment). Their justification is that it is Land and it is in Sydney. If it was an apartment and/or anywhere else I probably would have had to pay more based on what they told me.

RBA will be mad to increase the rate, if anything we need the rates to go down not up. The only thing in the mean time that might happen is further tightening. US fed had interest rate down at 0% and look at how they ended up rocking the boat by jacking it up a little and their economy is doing far better than Australia.

House prices dont have to drop. However in the unlikely scenario that house prices do drop then I agree we will have our own version of sub-prime mortgage crisis right across Australia as it will halt consumer confidence, there will be massive lay offs, double digit unemployment, the full shabang.

So dont go around thinking its a good scenario and suddenly you are able to score good properties. We will be the second Greece because unlike United States we dont have the power of printing ourselves out of the economic crisis.

 

Typically...

Borrowers rely on income,
Income relies on employment,
Employment relies on a strong economy,
Strong economy relies on lots of things, including lack of a debt problem / crisis.

So yes, I think it matters. During the boom times, you only need to worry about your own balance sheet, during bad times the balance sheet of others can absolutely have an impact on your personal situation (indirectly).

 

I thought they did have to drop. Isn't that one of the main characteristics of a capitalist economy is that prices surge really high and people make a lot of money and then prices come way down restabilizing the economy.

when was the last time prices went down in Sydney?

And why is this boom different and why is that good thing?

 

What about the wage cycle? Dont you think wages have grown in Australia during the last decade or two? They have always grown and keep growing.

They have their own cycle just like the property. Many lads keep talking about the property cycle but no one talks about the wage cycle...

 

Not just the banks. It was even more of a good thing to equity rich investors due to the low IR environment and many stamp duty free markets.(And no CGT if you are lucky enough to be able to move in...)

 

6302.0 - Average Weekly Earnings, Australia, Feb 2008

In Feb 2008 average weekly earnings were $1124.80 a week.
In Nov 2017 average weekly earnings were $1567.90 a week.

Wages have grown by 39% in 10 years.

To put that in perspective in 2008 Sydney had a median house price of 550k. If house prices had correlated to wage growth the median price of Sydney property should be 765k yet the median is 1.1 million...