What will stop this downturn?

There’s been a lot of threads and discussion about how big the current downturn will be and why this downturn is different to others (i.e. credit crunch vs normal economic factors).

Against that backdrop, I’m interested in a discussion about what might cause the downturn to bottom out and move into the plateau phase.

There are some moving parts at the moment with potential NG reform, rise in funding costs, tightening credit (plus impending full RC report) so views may vary.

Some ideas I’ve seen on the forum:
- Reduction of property prices to a level that is a lower multiple of the median wage
- Relaxation of a bank’s assessed borrowing rate from c. 7.25% to 6%
- RBA cash rate reduction (assuming passed on by banks)
- Wage inflation
- Australian property is doomed and we should all hold cash under the mattress

 

Time.

 

Assuming no recession change in lending standards would bring back boom times. If there is hint of recession due to housing bust affecting rest of the economy trust me the government will intervene and relax lending standards no matter what anyone says.

Today's softer GDP number will definitely start to cause some raised eyebrows at Government and RBA and this is without full impact of softer housing. So expect even lower GDP in following quarters.

Cheers,
Oracle.

 

Every down turn has different causes and the credit crunch is just a normal economic factor IMHO

How far will things fall ?

Well , we've had the credit changes and then we have a looming election of a Labour government who have promised anti property tax changes so I don't expect a quick turn around in Sydney

Sydney may still drop further ( ? another 10 % ) and may well have a long sideways period after that . Peak to peak in last cycle was 2003 - 2017 with most of the rise occuring after mid 2013 . I think talk of a continuation of increases in Sydney in the next 4-5 years are optimistic .

Outside Sydney , Melbourne and Hobart , the other states haven't done much so I'd expect them not to drop that much if any thing . We've sold all our Sydney properties outside PPOR and Weekender . Happy to hold in Brisbane which is where most of our remaining are .

Cliff

 

I think now the question is whether we will still be able to save the rest of the economy. Property market crash will easily get over 20% even if some urgent measures are put in place.

This is what's gonna happen.

RBA and Banks will not do anything until Royal Commission findings are made public next year. It will be years before banks start operating like normal everyday business.

I think this will easily spread to wider economy and the new Govt will have to bail out the economy. Some pretty bad outlook for Australian property, stock market and general economy at the moment.

 

If I can challenge you on this - time is just an allowance for change to occur. My question is - what do you see as being that change to curb the downturn?

I think is a reasonable expectation at some point, but I'm not sure it would be a near-term solution given APRA's push and likely outcome of the RC to improve lending standards (i.e. tighten) in the name of responsible lending. One might say a back-track by APRA on these policies is actually a move towards the irresponsible lending they were trying to combat in the first place.

 

If by March April next year housing falls don't stabilize expect LNP to use ALP abolish negative gearing policy for established housing to their advantage to scare people saying with a ALP government you can expect housing to fall another 20-25%.

Cheers,
Oracle.

 

I agree. I really think a more sensible approach would be for APRA to allow banks to use the same lending criteria at the time of borrowing to allow existing borrowers to re-finance their existing loans from IO to 30 years P&I.

Right now they have completely stuffed the lending market by not letting existing borrowers to either borrow new money (understandable due to the booms in Sydney and Melbourne) or re-finance due to stricter lending standards.

Cheers,
Oracle.

 

It will stop when rental yield reaches the point when holding a property is profitable, not relying on CG, and when that profit is not lower than other traditional investment options

In other words when we have balance of demand & supply

 

For so many reasons @oracle I don't think the banks will be using pre-existing lending standards for any reason. That would create a complete mess.

I think the worst of that will come in the next 1-2 years and be completely played out within 4 years. By that point the interest only loans originated under the older rules will be P&I and people will have learned to deal with it.

That may actually be one of the factors that needs to be considered before the next boom starts.


One of the factors that is making Hobart so hot at the moment is the high rental yield (not a recommendation, I think Hobart is peaking, now might be the worst time to buy there). Future negative gearing policies might create increased rents over the next few years. This could be the trigger for the next boom cycle, but again it would probably take a number of years to get there.

Overall I don't think the downturn and next boom will be a result of a simple event or economic condition. It will probably be a series of small steps, possibly a number of things coming together to create a perfect storm. These things are often hard to see until well after the moment.

 

To a certain extent I agree. The only issue I have is rents cannot increase much until there is real wages growth.Which we have been waiting for a while now. Once real wages grow everything starts to fall in place for next up cycle.

Cheers,
Oracle.

 

Yep, banks should definitely have the discretion to grandfather / use older assessment standards for refinance customers (not new borrowings), providing that the customer is better off overall by the refinance. It is madness to be trapping these existing borrowers, who want to refinance to a lower rate, in an older more expensive loan because they don't meet the new standards. This hurts the borrower, the property market, taxpayers (more interest paid is higher NG tax deductions) and the economy; it only benefits banks.

 

In the long term the banks suffer as well. For any extra money they make by increase in rates knowing their borrowers can't refinance they lose out by some borrowers defaulting because they cannot afford P&I on reduced loan duration.

Cheers,
Oracle.

 

Rents don't have to rise,
A deeper price fall can also make yields attractive.

 

I'd agree with what Peter says .
Historically property investors make money in Australia with Capital growth , where as OS some markets are driven by rental return .

As prices fall or go sideways , as less people invest , rental returns may increase so there may be a shift in cap growth / Rental return as the reward.

One thing that may cause distortion in the market is that neg gearing will still be on new properties , so there may be a boom in building and investing in new properties .

Personally I think that will lead to some severe pain as we'll probably get oversupply in those areas , with resultant poor rental returns , people being unable to hold their properties despite the neg gearing and when they go to sell , no one will want them as the new buyer won't be able to negatively gear , there'll be an over supply with poor rentals and some serious decrease in values.

It may well be the best place to invest will be far away from new properties ... or picking up severely discounted sales from those distressed sellers or off their bank as a mortgages in possession

Cliff

 

I think property markets will be resuming a bull market by late 2019. Here's why:

1) Some relaxation of APRA rules (we have already seen this with the removal of the 10% growth cap on investment lending);

2) We just saw a 35% decline in new construction approvals. And Australia has very high population growth rates, with Sydney able to absorb new supply relatively quickly. So by 2020 we will be neutral in terms of supply,and by 2021 we should be back in shortage territory.

3) The next move in interest rates might surprise you. I read in Bloomberg that the markets are factoring in rate cuts again in 2020. And for those that care, the yield curve inverted yesterday (that is a big deal). I can't see the RBA being able to increase interest rates at all.

I see 2019 as flat more than down, and I see that we have one more year of really good buying opportunities, before what I think will be a very substantial bull market from 2020-2025.

Hold on to your hat.

 

LOL. I was about to say the same thing.

 

It always pays to read twice when See-Change starts to post again ,as there is no such thing as ""money for nothing""..

 

All of this is falling nicely into the LNP hands. I am expecting Joe and Jill Public to become very scared over the next 6 months in the lead up to the next election.

The media has been ramping up the negativity for some tine, with Sydney prices falling 10% and another 10%, 20%, ... on the cards.

The ABC is wipping up hysteria as well. Last night’s 7:30 Report did a (dumb) story on mortgage stress and how it is going to infect the homes of Australia.

If this keeps up, voters stay with the incumbent in times of distress.

ScoMo might even get elected as PM (against all the odds) .

 

Agree lending conditions may not change.

I think the thing that will spark the beginning of the next cycle will be sustained and material increases in rents. Rental market's pretty dire at present with peak supply but the seeds for underbuilding have been sown. Every action has an equal and opposite reaction. My 0.02.