Will falling house prices trigger the next Aussie recession?

Will falling house prices trigger the next Aussie recession?

------------ As reported in yahoo news ------------------


House prices are falling, auction clearance rates continue to drop and there is a such sharp lift in the number of properties for sale that, for the moment, no one is willing to buy at the given asking price.

Potential house buyers who have held off taking the plunge in the hope of falling prices seem to be staying away, perhaps hoping for further price falls. But also influential factors forcing buyers away is the extra difficulty getting loans approved as banks tighten credit standards, then there are concerns about job security and associated awareness of probable cash flow difficulties given the weakness in wages growth.

It is remarkably obvious that house prices will continue to fall and this poses a range of risks to the economy.

... read more

 

Company tax rates have been reduced, increases to Super are constantly on the never never, tax rates on PAYG are decreasing for the majority with the flattening of the tax scale also years away, gst reform for the states, removal of ridiculously high penalty rates for hospitality/retail, reduction in payroll tax.....what more reform so you need?

 

I voted 10-20% drop...a 10% drop on a $500k house is $50k, which is often a low-ball offer in normal times, but if times get a bit tougher; they will be accepted by a larger group of people if the buyers dry up.

 

Depends where and by how much it overshot in the boom ... I recently read that some areas of Sydney (even inner suburbs) have a rental vacancy rate of 4-7% with even more high rise housing near completing and added to the saturated pool.

Reminds me of Docklands, Melbourne in 2004. Going, going ... - Business - www.theage.com.au

Oversupply will get absorbed eventually, but might take 5-10 years - just in time for the next cycle

 

Yeah, I read that this morning. The thought crossed my mind since when have individuals taken decisions about investing, or home ownership, with the national interest in mind?

In any event the story is a little insulting as there does seem to be an assumption that ALL those who have taken out IO are dumb and don't know what they are doing nor have a way of coping. Maybe they do, maybe they don't. In any event it doesn't address the question of who set the policy in the first place by allowing such arrangements.

Yep, I reckon occasionally it's the policy makers who are the dummies and tend not to always act in the national interest.

 

W.A, NT etc have already been in recession?

 

The one good thing to come out of it was that interest rates were falling or hit rock bottom at the same time.
You would hate to think what would happen in somewhere like Sydney if house prices started to drop, at the same time as the rental market became saturated with new properties and saw some decent falls, all happening as interest rates started to move in an upwards direction, and banks tightening their lending criteria.
I wonder how all those exit plans would work if everyone tried it around the same time.

 

Yeah perhaps..My gross understanding is that interest rates may rise as banks get 30% of their lending from overseas and some of that again from US funds but this is hedged as well, so its not a direct correlation.

The RBA will increase rates if they see wage inflation. This is a good thing. More people have more money to spend.

House prices and serviceability are kind of different beasts. As has been seen in WA and QLD, after the mining boom, delinquencies are higher than national average but not crushingly so. People in general seem to do whatever they can to jeep paying mortgages regardless of the house price. WA has almost done a mini Japan and had a lost decade with regards to house prices but the world certainly didn't end.

Rental markets do get 'saturated; but still there is this unrelenting almost insidious 1,000 net new people every day in Australia. All looking eventually for a place to live and work.

 

Quote from the bloke from DFA

"His modelling suggested $120 billion of interest-only loans would fail tighter lending criteria over the next three years; about two in three of those loans would be able to accommodate a switch to paying the principal, while one in three would be forced to sell."

According to the article, the modelling does not stack up to real world data. I am referring to comments by Christopher Kent and James Keillor.

It's unsurprising. "Analysis" by DFA has been posted before and the claims made did not stand up to scrutiny.

The other flaw with the article is that assumes sub-prime lending caused the GFC. That is not correct The subprime mortgage crisis wasn't about subprime mortgages

 

The bloke from DFA claims that one in three people with IO loans will have to sell because his "model" predicts this outcome. One in three is extraordinarily high. I don't know why people take predictions like this seriously.

 

Martin North/DFA is a fav of Macrobusiness..take it with a grain of salt

 

The sky is falling.

A price correction will not lead to a recession, we've lost the knowledge and skill to have one, an entire generation has missed out.

We'll need something more cataclysmic than just residential property to go backwards - business is firmly kicking along, interest rates are still low, the AUD is in the target range etc.

If anything, lower prices will spur more investment.

 

Not in Sydney, at least not judging by the sheer number of people tapping their cards at the local shopping center
You would think they were spending other peoples money

 

I find the whole "OMG recession" thing weird in Australia. They happen every 5-10 years or so in most parts of the world. They're not the zombie apocalypse.

 

This is what was said in investsmart as well ....but tapping doesn't necessarily mean credit?

i would imagine many people have their debit cards set up as tap and go as well??

 

That's what I thought - no one does cash anymore. Personally I tap everything - claim the reward points in Bunnings vouchers - and pay the cards off every month so don't incur any interest

 

In Australia a recession represents nothing less than a complete failure of our entire political system

 

Yes, what I meant was it is still spendings
Equals not saving, or disposable income
So many people spend everthing they earn each week

When my parents visit from Geelong the are gobsmacked at the sheer number of people spending in the food court and general complex at Miranda Fair (by comparison to Market Square or Waurn Ponds).

I don't see many boats for sale on the side of the road in Sydney yet

 

And so has much of regional Qld