The future of Australian property prices

[sinner]

It's interesting. On one hand, if real-estate agents tell people to hold, it will tighten supply and put pressure on prices to at least stay the same.

That is simply not how it works.

Those "holding out" for todays prices will end up selling for much less when they finally capitulate IMHO.

 

[Glen48]

Your kids will never see house prices this high again , you need to go and get some ad's from agents to show your kids what easy credit can do to wreck an economy.
The house price you see to day will be the last at that price the next one will be down.
Once the general public become aware House prices are going the same way as USA they will be panic and this will force prices down quicker as every one wants to bail it.

 

[satanoperca]

No irresponsible lending in Oz.

The share of home loans with a maximum LVR of 95 per cent or more made up 62 per cent of all home loans in June, up from 54 per cent in January, according to RateCity's database of 2500 home loans on offer in Australia

And then this pearl of wisdom

“High LVR home loans need to be considered very carefully and while it's better value to save for a bigger deposit, if you do choose a high LVR home loan, make sure you accelerate your repayments and look at refinancing in a year or two when your equity has grown,” said Mr Smith.

http://www.theage.com.au/business/banks-offer-bigger-loans-to-homebuyers-20110603-1fjvn.html

Have a great day

 

[KurwaJegoMac]

No irresponsible lending in Oz.

The share of home loans with a maximum LVR of 95 per cent or more made up 62 per cent of all home loans in June, up from 54 per cent in January, according to RateCity's database of 2500 home loans on offer in Australia

This does not necessarily construe irresponsible lending. This cleverly written 'shock' line has an interesting bit at the end:

"...according to RateCity's database of 2500 home loans on offer in Australia"

On offer =/= loans taken.

Just because the offer is there for a high LVR loan, does not mean it's being taken up, nor accounts for a large proportion of existing loans/loans taken out.

It'd be good if one could see the number of high LVR loans taken out in a given month relative to regular LVR loans to get a much better feel of how the market is acting. Offering is one thing, taking up is another.

 

[wayneL]

Just a tidbit from across the ditch:

Quarter of estate agents walk out
By Michael Dickison
5:30 AM Tuesday Jun 7, 2011

A quarter of New Zealand real estate agents - almost 5000 - have deserted the industry in the past year during a bleak period of low sales.

Real Estate Agents Authority figures show almost 2000 Auckland agents have suspended their licences or let them lapse in the past 12 months.

Ray White agency chief executive Carey Smith said the slow real estate market had "pulverised" the sales force, who depended on commissions for their income.

"Sales are down, particularly in rural, and that had people seeking other employment," Mr Smith said.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10730634

 

[Mr Z]

This does not necessarily construe irresponsible lending.

Yeah 95% LVR does IMO....

 

[Greg]

I think you need to consider as well, who trusts realestate agents? there worse than used car salesmen. I mean i think people are smart enough to make there own decision and not just take what the realestate agent says as gospel lol

I am currently selling my home (in Melbourne's eastern suburbs) and was convinced to go to auction at the end of May. My property was passed in with no bidders - that was a bit humiliating. Since then, I am now up for sale and I am taking all of this as a sign of a softening market I suppose. In fact local results would suggest that "first homes" are still moving OK, but "ready to move into" homes like mine have solwed a little and the "luxury" end of the market seems to be where good savings can be made (% savings are relative I guess).
I had an open mind about real estate agents at the start of this process, but since he has now argued around 2 of his primary "differentiators" that were offered before I signed him up, I have to understand why people think they are a bunch of "shonks". They don't do themselves any favours with their behaviours and their "fast-talking" which is probably meant to confuse the punter, soon falls apart when you point out a counter argument they offered just 2 weeks prior. (Tip: If you're going to tell lies, at least be consistent).
I remain phylosophical about selling my home (it will sell eventually, for a fair price, I am sure) and I am lucky to be able to wait for that to happen, but in fairness to everyone, unless someone sees your property, falls in love with one or more of its features and is ready to buy, it's all very open to raw emotions, the building of false hopes and media speculation/fear-mongering.
Apart from doing all the obvious things like fixing up the house, taking it to market properly and being patient, ther's really not much else a vendor can do.
Thanks

 

[KurwaJegoMac]

Yeah 95% LVR does IMO....

The % of LVR has no bearing on whether lending is irresponsible or not - it comes down to the borrow's capacity to repay.

If a family earns $200K per year and they take out a $400K loan at 95% LVR does that make the lender irresponsible? Certainly not. If a family earns $60k per year and take out a 95% LVR does that make the lender irresponsible? Fairly probable.

One has to look at the facts - who is borrowing at 95% LVR and how much do they earn per year. Simply saying that 95% LVR is irresponsible is not justified.

 

[KurwaJegoMac]

but in fairness to everyone, unless someone sees your property, falls in love with one or more of its features and is ready to buy, it's all very open to raw emotions, the building of false hopes and media speculation/fear-mongering.
Apart from doing all the obvious things like fixing up the house, taking it to market properly and being patient, ther's really not much else a vendor can do.
Thanks

Quite true - especially in a climate like the one we have now where prices have 'softened' and even RE agents are feeling a bit down.

 

[Mr Z]

The % of LVR has no bearing on whether lending is irresponsible or not - it comes down to the borrow's capacity to repay.

No, no it doesn't IMO 95% LVR is just not prudent in any way shape or form. There is no fat there at all, that is pricing for perfection which as far as a policy for a bank goes is madness.

 

[sinner]

One has to look at the facts - who is borrowing at 95% LVR and how much do they earn per year. Simply saying that 95% LVR is irresponsible is not justified.

Capacity to repay is not static, it is a dynamic variable in a broader equation and the value of that variable can change massively over time. Relying on such measures is a bit of what got us into this mess in the first place, and is why people like the RBA DepGov can continue to say "everything is fine, nothing to see here".

The loans which are most likely to become impaired are those which have a high % LVR and a sudden "unexpected" change in capacity to repay.

A perfect contemporary example would be all those people who were earning $200k at the peak of the tech bubble, you claim that lending $400k to those people was most probably responsible just because they had a couple of bank statements showing dollar signs?

Thus, lending at high % LVR just because the borrower has capacity to repay today, does not make the lending responsible!

 

[KurwaJegoMac]

No, no it doesn't IMO 95% LVR is just not prudent in any way shape or form. There is no fat there at all, that is pricing for perfection which as far as a policy for a bank goes is madness.

It comes down to being a calculated risk. If the borrower has the earnings capacity and/or assets backing them up then there is no reason why the lender can't offer such a product. If the asset falls in the short term to less than the loan amount and the bank forecloses - bad luck to the borrower. They'll still have to pay back the difference to the lender so the bank gets its' money all the same.

By that token, should we start calling all car manufacturers irresponsible? After all - they allow cars to hit top speeds well in excess of our highest speed limits.

 

[sinner]

It comes down to being a calculated risk

I think I finally get you Kurwa. You are a logical reductionist! Everything always comes down to something for you.

The truth of the matter is, everything is far more complicated than that, you are claiming against idealistic rules that were abandoned by all players of this game long ago so you simply can't reduce the discussion to those simplicities and expect it to hold up against the real world!

 

[trainspotter]

What if their earning capacity goes the other way? As in it actually increases? Not everyone is going to die and stop paying their mortgages?? Usual home loan would be man and woman as joint tenants. Admittedly 50% of income is possible to be lost due to unexpected pregnancy perhaps. Other possibles is losing capacity to pay due to retrenchment as well as partnership breakdown (she squeezes the toothpaste from the top of the tube and he leaves his jocks on the bathroom floor).

There are plenty of reasons as to WHY they might not be able to pay. There is also many valid reasons as to WHY they might be able to pay more as well. Pay increases are on the Unions agenda atm. Possible that pay rises due to extra shifts or even promotions/expansion as well.

So why is everyone so quick to take the negative? Unemployment is low, rates are steady, prices are stagnant, Real Estate Agents are leaving the industry in droves across the Ditch, Banks are making record profits AND offering money at under 8% for a 10 year fixed period.

95% loans have been around for nearly 20 years BTW. I somehow think that they are no longer 95% LVR's any more !

 

[KurwaJegoMac]

I think I finally get you Kurwa. You are a logical reductionist! Everything always comes down to something for you.

The truth of the matter is, everything is far more complicated than that, you are claiming against idealistic rules that were abandoned by all players of this game long ago so you simply can't reduce the discussion to those simplicities and expect it to hold up against the real world!

Hahaha can't say I disagree with you on that point. I am a logical reductionist. But i do acknowledge that everything is far, far, far more complicated in the 'real world'.

But can one even hope to ever completely understand the complexities and nature of this market and every other market in the real world? I think not or we'd all be millionaires. The truth is that it's infinitely more complex then you or I can hope to comprehend and analyse.

My approach serves me well, I break down a system into logical chunks and reduce it to a manageable chunk i.e. such things as for house prices to drop significantly we need to see supply outsrip demand heavily. What factors affect supply: factor a, b, c, etc.

The benefit of this approach is that it allows me to make an investment based on the facts currently available to me, in an emotionless way. Nobody here or anywhere in the planet can divine the future of property prices or stocks or whatever. The best we can do is take a calculated risk on our beliefs in how the asset will perform in the future and to adjust our position and risk as the future unfolds.

I'm happy to 'over simplify' things that 'don't hold up in the real world' to help me make decisions because at the end of the day it helps me make a decision and act on it rather than sit in a forum and argue semantics and attempt to prophesise.

To me, I don't see any of my points having been 'abandoned by all players of this game long ago'. The more demand exceeds supply the higher prices go - this hasn't changed. Demand can be temporary (FHBs with 20% reduced stamp duty) or long term (PPORs, investors) but while demand exists prices will not fall. Currently auction results are worsening, people are being scared by news headlines - demand is falling and so are prices. No surprises there.

I love my simple little world.

 

[awg]

No, no it doesn't IMO 95% LVR is just not prudent in any way shape or form. There is no fat there at all, that is pricing for perfection which as far as a policy for a bank goes is madness.

Agreed

Out of interest, what do you think of 90%?

Perhaps it is a naive oversimplification, but arent banks effectivly geared to that ratio?

 

[KurwaJegoMac]

Agreed

Out of interest, what do you think of 90%?

Perhaps it is a naive oversimplification, but arent banks effectivly geared to that ratio?

Depending on how you define the gearing, then yes. Banks require about 10% capital to cover risks.

 

[ginar]

No, no it doesn't IMO 95% LVR is just not prudent in any way shape or form. There is no fat there at all, that is pricing for perfection which as far as a policy for a bank goes is madness.

anyone with less than 20% down is forced to pay insurance to provide the banks with cover against the risks of having " no fat " to take up market price fluctuations

 

[banco]

I am currently selling my home (in Melbourne's eastern suburbs) and was convinced to go to auction at the end of May. My property was passed in with no bidders - that was a bit humiliating. Since then, I am now up for sale and I am taking all of this as a sign of a softening market I suppose. In fact local results would suggest that "first homes" are still moving OK, but "ready to move into" homes like mine have solwed a little and the "luxury" end of the market seems to be where good savings can be made (% savings are relative I guess).
I had an open mind about real estate agents at the start of this process, but since he has now argued around 2 of his primary "differentiators" that were offered before I signed him up, I have to understand why people think they are a bunch of "shonks". They don't do themselves any favours with their behaviours and their "fast-talking" which is probably meant to confuse the punter, soon falls apart when you point out a counter argument they offered just 2 weeks prior. (Tip: If you're going to tell lies, at least be consistent).
I remain phylosophical about selling my home (it will sell eventually, for a fair price, I am sure) and I am lucky to be able to wait for that to happen, but in fairness to everyone, unless someone sees your property, falls in love with one or more of its features and is ready to buy, it's all very open to raw emotions, the building of false hopes and media speculation/fear-mongering.
Apart from doing all the obvious things like fixing up the house, taking it to market properly and being patient, ther's really not much else a vendor can do.
Thanks

While there are good arguments for going to auction in a bull market for property (most of the record high prices for houses in a given suburb seem to come from auction sales) I don't think there's much point in going to auction from the seller's point of view when the market is weak. Can be win/win for the agent though. In a soft market either they sell it on the day or a failed auction is a strong signal to the seller to drop their expectations.

 

[Mr Z]

Agreed

Out of interest, what do you think of 90%?

Perhaps it is a naive oversimplification, but arent banks effectivly geared to that ratio?

I believe that we have no enforceable reserve ratio, as incredible as that sounds. The banks can go nuts I must admit I kinda like the idea of controlling liquidity via a reserve ratio, it is a slightly subtler tool than the old interest rate hike IMO. The Chinese seem to put it to good use.

I guess we are over simplifying this but as a rule I'd like to see 80% LVR at the worst. If someone qualifies on an income basis but cannot manage to save 20% then I'd be wary of them period. If they are offering other assets as security... well then that is not a 95% LVR is it!

At 80% LVR a 50K deposit will get you into a 250K house, at 95% LVR the same 50K will get you into a 1M dollar house.... down here that 50K will not even cover stamp duty. I am with Steve Keen on this, LVR's like this are the reason we have over priced housing. These market price levels are purely a function of the available credit and the more leverage the worse the story ends. When I first went for a loan I'm sure the required LVR was around the 70% level and I don't think that is such a bad thing.

As for comparing car finance to housing finance... hmmmm... well aside from all the obvious differences in the way the loan books are run and considering that I believe we have been generally irresponsible with finance in this country you will get no argument from me if you call various other lenders irresponsible. I guess insane bank lending does not occur in isolation does it?