What will stop the BOOM in Sydney and Melbourne

we will...and I'm with you on this @ dabbler . I dont see 8% rates any time soon, unless Trumpenomics unleashed massive inflation worldwide through a reckless , unlimited , throw money at it , infrastructure program.

I think its much more likely we will see very modest rate activity in the next couple of years . Up 25 or 50 or 75 bpts, or just sideways ..... even if the RBA doesnt move, I expect additional cost of funds increases from Basel IV .

But I also see lots of investors being forced over to P&I across the next 2,3,4 years.

 

Sounds like a solid strategy to me.

 

and from day dot I agreed with you....

"In your case, with the buffers in place - thats smart. More people should be working towards that"

 

I agree that interest rate rises are a risk. I can fix all my debt at 3.97% for 5 years. That is a very attractive rate IMO to provide certainty over the next 5 years. The downside of course is a lack of flexibility. I have had fixed rate loans before, so I know how inflexible they are. I am wondering if I can manage the downsides and lock in that low rate. Tempting.

 

Actually in my experience, it had more to do with oversupply. Rate rises played a role, don't get me wrong, but I feel what stalled the market was there being far too much on the market.

On the popcorn, honestly I find that comment both unsavoury and naive, and I think you need to get over yourself. You're not the first person to suspect a correction is on the way. The world bank suspects it. The IMF suspects it. Major banks suspect it. Plenty of economists suspect it. Congratulations on reading the news, but there's no need to put such a over-the-top doomsday slant on it. You don't know what sort of preparations others have taken. On a property investment forum, the answer is probably quite a few.

Furthermore, you might feel your life is just grand right now, but wait till there's a recession. I don't know your personal situation but all sorts of inconvenience could befall you. You could lose your job. You could face rising rents - these were squeezed pretty quickly after the crash in Ireland, because after the correction failed developments and overbuilt apartments often turned derelict. Midway through the crash (so 2 years in) there was a very sharp inflationary swing and goods started to get real expensive real fast - prices of food, fuel, everything, which effected everyone. Retirement savings suffered, the government passed austerity policies.

I doubt you'll escape the knock-on effects, so I wouldn't crow too loudly if I were you.

 

You can always add additional debt as a new loan split later on, if you have the equity and the borrowing capacity to do so.

 

I have and I can do it, but it would require work. From 10k to 22k a month would be hard. Fingers crossed hey

 

Anyway, back to discussing the Melbourne market. @MTR, you might be interested to know my parents are listing their house for sale in Ringwood North and it has development potential! I had no idea. Should go well for them I hope. I hear that area is still moving. Is that somewhere you follow?

 

That is absolutely brilliant, Ringwood is extremely hot.
Have they also looked at the option of DA, regardless they will make money, but just wondering.

 

They are not looking at the DA options. They are selling quite quickly and don't want to hold up the sale.

 

Do not know, I do not ask these sorts of personal things, it is offered up by many people, it would have been pre APRA and pre these lowest rates come to think of it.

This is what I know about some of them. They were all buying Mcmansions, and as one get's one, the others follow, then after you get all that sorted and you have your mortgage, then you need to do all the little things to finish off, like landscaping etc, then when you have a new largish house, you need to fill it with all the latest mod cons, then as you see many around you have new cars, you need to upgrade and buy new cars too. Of course the latest computers, phones, fastest internet etc is reqd.

Not hard to see how you could be painted into a corner.

 

I dont hold oversupply concerns per se. Thats a temporary issue at worst . I hold under settlement concerns. Thats a far more serious problem.

3 potential risks

1. If a large percentage of OTP apartments were purchased by Chinese non residents, and they cant settle - this might be a problem

2. If a large percentage of local/domestic buyers can't get the necessary borrowing capacity in the post APRA era - this might be a problem

3. even if those first two points are not necessarily as big a problem as people are predicting, what happens if valuers go into backside protection mode and take 100K off all these apartments ? It would almost certainly move many in points 1 or 2 into a danger zone


And if that is how it evolved, the risk transfers from the residential purchaser to the bank...

1. If there are enough crashed settlements, fire sales of the unsettled apartments may be required by banks... this would immediately devalue all new apartments, everywhere . Note - this is also an opportunity for those with cash at the ready
2. If there are enough crashed settlements, and they had to fire sell, commercial write offs for banks would be likely . If they have a lot of exposure and enough of the developers cant pay them back because of settlements falling over, the losses could be significant. This could hurt the banks earnings and their share price and the ASX broadly
3. Points 1 and 2 could then lead to banks credit ratings being downgraded, and their cost of funds would increase...pushing up rates. They may also be forced to lower LVR's to attract buyers for their RMBS. This is where the real risk lies for the broader market.

Series of dominoes at play obviously... and we just wont know the impact on resi property until we know how many of the apartments do or dont settle. But a bad enough apartment market collapse could be a trigger point for a mini Australian credit crunch - especially if the institutional investors who provide all the wholesale debt which we rely on so heavily for propping the whole real estate market up... asked for higher margins and lower LVR

The consequences of that particular worst case scenario are far more frightening than a little bit of oversupply for a couple of years....

 

Look today at my work I was dismissed from employment.

Retrenched as excess due to the pinheads that work up at the top and don't know what I and my team actually do.

I picked up the phone called a mate and have another job waiting just in case. I love my job because it improves the country and quality of life for Australians and it provides jobs.

But what I know and what somebody else does not know is that nobody is going to dismiss me or my team. Everyday I do work that results in hundreds of thousands of dollars of projects based on my recommendations. We calculated that last year a minimum of 40 billion dollars of projects was the direct result of our teams facilitating and recommendations.

Tommorow there will be a phone call from a certain captain of a foreign corporation to a certain minister and after that from the minister to other ministers and from then a certain director and I suspect that the director will have stains on his seat after that, the next thing he will do is unravel the fact that my team was retrenched.

If I don't get the pricks personal apology letter I will walk as I do it for love not for money. I do it so that we can have a prosperous and thriving country.

 

I suspect interest rates in America in December will rise and from then on rise steadily. The US dollars is going up. The Australian dollar is going down. Gold is going down, iron ore is going up, gas is going down, and oil is going up.

In Australia interest rates are going down as soon as interest rates in America are going up. Initially. That's because officially Australia is doing well, but in reality it's in an economic crisis and it's only Perth that is beginning to show signs of strength. The real unemployment figures that I see are shockers. But the banks will hold steady for a several more months before they cannot any longer. Then they will raise. The Australian Goverment will keep interest rates down long enough to get the economy moving but will tighten lending restrictions. Then they will have to go up and they will go high, very high. Because with money pouring into America, Australia will need to do a lot to attract money. It can't really devalue its currency against the Chinese because we no longer manufacture anything and therefore they must keep the currency strong so that we can afford to pay the Chinese for their goods. Manufacturing in Australia is dead and buried at the moment, and everything is made in China, everything.

Once again it will be Perth that will save the country from recession. Perth that's is always forgotten and jeered at. But actually Perth is the dead centre economic powerhouse of this country. Best place to invest in my opinion.

 

Agree on one thing... US is looking positively bullish...


Unemployment is down, job creation is up, and wages growth is accelerating. At the same time, GDP just posted its biggest quarterly gain in 2 years.



general consensus is that President Trump will be either ‘very stimulatory’ or ‘extremely stimulatory’.

If we take some of the big ticket items that seem to be locked in – in the sense that it would be politically difficult to back out now, we can see just what kind of effect they would have.

UBS have modelled these big ticket items – including a huge reduction in taxes (to 15% for corporations) and a big build up in military and infrastructure investment.

Under this scenario, where the government is ramping up its spending, while slashing its income, the government debt explodes – from a current level of 75% of GDP now, to around 105% of GDP in 2026.

 

MTR great post. Great I really like it.

The thing about American debt is that most of it is to themselves.
More specifically its treasury department that sells bonds to social security department that is using people's social security payments from their employers to buy the bonds. In return Americans don't get much social security for which they pay for. They are getting screwed.
Treasury spends this money on military. Trump will spend it on infrastructure. He will increase the debt but the HOPE is that in doing so he creates a faster more efficient economy.

I am of the opinion that if in America you raised the speed limit on their highways to just 30km/h more the country would save so much money due to higher productivity and access to markets by companies. It's the same for Australia,

If there was a staggered modern bullet train between Brisbane and Melbourne via Sydney or a series of hyper loops. Property prices in Sydney would plummet. People would live 300km from Sydney and commute to work there everyday.

But back to America At any stage of the game the social security department can write of some of the debt on the instructions of the Goverment. This has not been done to my knowledge. But it's a debt to themselves.

 

I am having a conversation about my employment status tommorow. I have been told that my situation looks like a dismissal so that I can be fairly hired into a promotion. But it means I have to apply for the promotion. Hmmm let's see.

 

I wondered about going back into consultancy again and being my own business owner again. But the mind numbing bureacracy and red tape is just too much. These days I like coding and am just interested in learning all I can about using artificial intelligence on the stock exchange.

 

Sometimes poison can be dressed up as spice.

 

Sounds terrible for the future. Not sure how the USA is ever going to pull itself out of that debt. China on the other hand doesn't borrow like that.