# Mortgage, have you changed your stance?



## clowboy (4 August 2006)

In response to the recession thread and Smurf's post regarding consumer sentiment I thought it would be good to have a poll on what people are doing in relation to their mortgages at the moment.


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## Knobby22 (5 August 2006)

My option is not there.
Reducing shareholdings to reduce mortgage.


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## sam76 (5 August 2006)

What about "waiting for higher interest rates so that property will become more affordable then I'll get a mortgage" option..


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## tech/a (5 August 2006)

My veiw always has been that rates could go to 10% and as such gearing is based upon that possible high.

There is a time both in stocks and Property to be highly geared and time not to be.

Those that have no choice must either lock in or have enough sence to keep their exposure managable with a sensible buffer.


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## wayneL (5 August 2006)

tech/a said:
			
		

> My veiw always has been that rates could go to 10% and as such gearing is based upon that possible high.
> 
> There is a time both in stocks and Property to be highly geared and time not to be.
> 
> Those that have no choice must either lock in or have enough sence to keep their exposure managable with a sensible buffer.




Those that did or are doing as you say: :bowdown:

Those that aren't :  :screwy:


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## markrmau (6 August 2006)

What worries me is that we have never had such a disparity between what is causing inflation - global oil prices, capacity restraint due to mining boom...etc, and the people who will be most affected by the REMEDY (increasing interest rates) - ie people with home loans. 

Raising interest rates by even 2% will not really choke off inflation, but will destroy overstretched home borrowers. This is not a good situation.

Central banks may have to rethink thier aversion to using interest rates to target asset bubbles.


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## Buster (6 August 2006)

clowboy said:
			
		

> In response to the recession thread and Smurf's post regarding consumer sentiment I thought it would be good to have a poll on what people are doing in relation to their mortgages at the moment.



My option is not there either.. No mortgage.. Own my own home in WA and and investment property interstate..

I am watching and waiting though, gearing up to pick up a bargain or two when the 'feeding frenzy' here in Perth corrects.. The interest rate at the moment is absolutely of no concern.. over the last twenty years I've had to pay an average rate of about 10%, and use that figure as a general rule of thumb..

IMHO, anyone who has bought in the WA market within the last twelve months has rocks in their head.. but I've been wrong many many times before.. 

Cheers,

Buster


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## wayneL (6 August 2006)

Buster said:
			
		

> over the last twenty years I've had to pay an average rate of about 10%, and use that figure as a general rule of thumb..




....wise



			
				Buster said:
			
		

> IMHO, anyone who has bought in the WA market within the last twelve months has rocks in their head.. but I've been wrong many many times before..
> 
> Cheers,
> 
> Buster




I don't think you're wrong this time


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## Bronte (6 August 2006)

"Perth house prices have soared an astonishing 37 per cent in the past year."
Quote from front page of last Wednesdays 'The West Australian'


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## wayneL (6 August 2006)

Bronte said:
			
		

> "Perth house prices have soared an astonishing 37 per cent in the past year."
> Quote from last front page of Wednesdays 'The West Australian'




"_Value is a matter of opinion, however, debt is real_"

Mervyn King - Governor, Bank of England


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## Bronte (6 August 2006)

+ 37% in one year.
Time to take some profit


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## wayneL (6 August 2006)

Bronte said:
			
		

> + 37% in one year.
> Time to take some profit




Yeah a blow-off top IMO


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## Bronte (6 August 2006)

Hi Wayne, didn't you say the same thing last year?


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## wayneL (6 August 2006)

Bronte said:
			
		

> Hi Wayne, didn't you say the same thing last year?




Probably, but for the rest of Australia, it proved to be correct.

I have also stated numerous times, that WA lags the rest of Aus.

But when people start "panic" buying, as they have been in WA, who knows when it will end. 

How is never a question, only when.


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## Bronte (6 August 2006)

That's fair enough Wayne


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## Smurf1976 (6 August 2006)

markrmau said:
			
		

> What worries me is that we have never had such a disparity between what is causing inflation - global oil prices, capacity restraint due to mining boom...etc, and the people who will be most affected by the REMEDY (increasing interest rates) - ie people with home loans.
> 
> Raising interest rates by even 2% will not really choke off inflation, but will destroy overstretched home borrowers. This is not a good situation.
> 
> Central banks may have to rethink thier aversion to using interest rates to target asset bubbles.



I would add the rise in house prices to the list of things that's _about_ to cause inflation as measured by the CPI. 

Workers, unions and increasingly employers are well aware that wages have failed to keep pace with rising house prices, something that won't last indefinately. Likewise landlords won't tolerate unacceptably low yields forever. The seeds of inflation are thus not only sown, but starting to sprout.

History shows that most lose from a bubble. They buy too late and fail to sell at the top. They would literally have done better in cash. (Various studies show this in relation to shares). I expect this time to be no different. As usual, most of the losers won't realise until it's too late. 

As for interest rates, if apparent attitudes of "if expenses rise then just borrow more" as reported widely in the media continue then 0.25% just isn't going to do it. Realistically, I wouldn't be surprised to see some sort of well publicised angry outburst from the RBA in an attempt to shock consumers into stopping borrowing. Either that or they raise rates 2 or 3 times in a fairly short period of time and then say "it ain't over yet" (when it actually is over, at least for the moment).


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## karmatik (7 August 2006)

Having been brought up and lived in another country, I have a question (Im not going to say which country but the nation considers its people to be second wealthiest in the world, see if you can guess)?

Do any of you consider that the rising property prices in the likes of Melbourne are in fact reflecting the true value of the property and have been undervalued up until now i.e. they are now reflecting their true value?

If not, what should we be using as a yardstick to measure an Australian propertys true value?


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## Tim (7 August 2006)

karmatik said:
			
		

> If not, what should we be using as a yardstick to measure an Australian propertys true value?



Property is as expensive as people want to pay. There is no "exact value" of any property, it all comes down to who wants it. A semi-well-known Australian actor recently sold a piece of property in Melbourne for what he said was _"twice what it was worth and then some"_, simply because the buyer wanted the property (or more importantly, the land).

It amuses me how people constantly say "property is unaffordable". But let me ask you something, do you drive around all of these "unaffordable areas" and see empty houses everywhere? Are these properties _so_ expensive that _no-one_ can afford to live in them? Of course not. 

Four million Victorians probably want to live in Toorak, but if four million people _did_ live in Toorak, no one would probably want to live there (think about it for a second). Property/land prices are affected by all sorts of factors, not just interest rates. 

Property in Melbourne is certainly not cheap, but as I've already said, _someone_ can afford it, because at any one point in time, all of the real estate is owned by somebody. Property prices in an ideal world would probably rise at a fairly consistent rate, but human emotion (and various other factors) cause more of a "stair-case effect".

Not enough land, too many people. It's a simple equation.

Tim

_"If you think it's expensive now, wait 10 years."

"Don't wait to buy property, buy property and wait."_


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## pepperoni (7 August 2006)

Yes, but Ive gone with another option "sell the house for top dollar, rent in mosman for $260 per week and invest in cash".

Interest rates up -> total borrowing ability down + equity down (ie PPR and IPs values down + stock market weaker) -> property prices down.


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## Smurf1976 (7 August 2006)

Tim said:
			
		

> It amuses me how people constantly say "property is unaffordable". But let me ask you something, do you drive around all of these "unaffordable areas" and see empty houses everywhere? Are these properties _so_ expensive that _no-one_ can afford to live in them?



Just looking around my local area, the answer is increasingly "yes". Plenty of houses owned by the bank and occupied by nobody. At least it makes the "for sale" photos nice and clear with no furniture to clutter the picture.


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## bowser (7 August 2006)

karmatik said:
			
		

> Having been brought up and lived in another country, I have a question (Im not going to say which country but the nation considers its people to be second wealthiest in the world, see if you can guess)?




Equatorial Guinea??


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## karmatik (7 August 2006)

bowser said:
			
		

> Equatorial Guinea??




Nope, its in Europe....


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## wayneL (7 August 2006)

karmatik said:
			
		

> Nope, its in Europe....




Norway or Denmark


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## bowser (7 August 2006)

Ireland


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## wayneL (7 August 2006)

karmatik said:
			
		

> Having been brought up and lived in another country, I have a question (Im not going to say which country but the nation considers its people to be second wealthiest in the world, see if you can guess)?
> 
> Do any of you consider that the rising property prices in the likes of Melbourne are in fact reflecting the true value of the property and have been undervalued up until now i.e. they are now reflecting their true value?




In most places, not at all.



			
				karmatik said:
			
		

> If not, what should we be using as a yardstick to measure an Australian propertys true value?




There are a number of valid measures, a couple of which are:

rentable value
wages/house price ratio

By any sensible measure, housing is historically way over the top... greater than 2 sigma.






​


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## karmatik (8 August 2006)

bowser said:
			
		

> Ireland




Bowser is the winner! 

Hard to believe isnt it, 30,000 millionaires in a population of 4M? Some would say that the progress in Ireland is intense but its actually really bad. The road and transport system is cripled, the medical system is about to implode and property prices are twice what they are here.

Its all going to come crashing down on them.


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## pepperoni (8 August 2006)

karmatik said:
			
		

> Bowser is the winner!
> 
> Hard to believe isnt it, 30,000 millionaires in a population of 4M? Some would say that the progress in Ireland is intense but its actually really bad. The road and transport system is cripled, the medical system is about to implode and property prices are twice what they are here.
> 
> Its all going to come crashing down on them.





God help us! The only thing worse than highjacking a thread is suggesting that ireland is wealthy  

Their "wealth" is no doubt more fictional that australian "wealth" and based solely on their "on paper" PPR equity increase caused by ....... a worst housing bubble than in aus!

Id say that perceived rather than actual wealth is the main reason for people borrowing more and hence the vicious cycle of housing inflation - more borrowing against equity - housing inflation.  If only people would wake up to themselves.


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