House prices to keep falling for years

[tech/a]

Sir John Templeton: Keep a cautious watch
"Prices of houses in all nations for centuries have fluctuated above and below cost of reproduction. In the United States now, in most major cities, homes can be sold for far higher prices than reproduction costs. Several times in my lifetime, house prices have been far below reproduction costs, and such cycles are likely to continue."

As they were in the late 90's early 2000's interest rates at all time lows.
Practically impossible to buy a home and negatively gear it!

And yes the cycles will continue.
So next time make sure you recognise it and do something about it!!!

 

[chops_a_must]

As they were in the late 90's early 2000's interest rates at all time lows.
Practically impossible to buy a home and negatively gear it!

And yes the cycles will continue.
So next time make sure you recognise it and do something about it!!!

The problem is though Tech, there are often a confluence of factors that lead to such circumstances, that make it not amenable to most people.

I remember the Mum was wanting to buy a new house in this period, and rent the old one out. The rent would far and away have covered all costs comfortably. Despite having personal contacts, good and secure income, no-one was interested in financing it.

Move on 3-4 years and she can borrow as much as she wants. When in actual fact, the returns are far lower and the risks far greater for the lenders down the track.

Things are not always as simple as they seem.

 

[lioness]

Those with high paying jobs will be kings in this deflationary episode.

They will have huge cashflow and be able to borrow from banks and buy cheap assets. Others wont be able to even if they have large assets.

 

[tech/a]

The problem is though Tech, there are often a confluence of factors that lead to such circumstances, that make it not amenable to most people.

I remember the Mum was wanting to buy a new house in this period, and rent the old one out. The rent would far and away have covered all costs comfortably. Despite having personal contacts, good and secure income, no-one was interested in financing it.

Move on 3-4 years and she can borrow as much as she wants. When in actual fact, the returns are far lower and the risks far greater for the lenders down the track.

Things are not always as simple as they seem.

Chops.
My EX rang me in 1999 the house she was renting came up for sale.
She wanted to know what I thought.
I told her to simply buy it.
She was a high risk case and had only returned to the work force for 14 mths.
Being a lovely guy I made up the difference between yes and no by the bank.
(5k at the time).
Happy EX's are worth more than a house in my view!!

I cant understand why your case was refused.
Its either collateral or serviceability seems on face value she had both.

lioness is right serviceability will be king.

 

[chops_a_must]

I cant understand why your case was refused.
Its either collateral or serviceability seems on face value she had both.

It came down to being on contract. Even though her employability was not a problem. Was the head of a prestigious private school at the time.

Now it doesn't seem to matter, so long as you have a job, as basically everyone is on contract. And now she has 4 properties, but has acquired them when her circumstances haven't really changed much. I guess the point being, a lot of it comes down to the circumstances of the time, not necessarily people's intentions, plans, or potential solvency.

 

[Mofra]

Now it doesn't seem to matter, so long as you have a job, as basically everyone is on contract. And now she has 4 properties, but has acquired them when her circumstances haven't really changed much. I guess the point being, a lot of it comes down to the circumstances of the time, not necessarily people's intentions, plans, or potential solvency.

Absolutely true, LMIs had tightened lending provisions last year in terms of max amounts insurable at high LVRs, after having relaxed provisions previously (including employment conditions). It is surprising how much economic circumstances reflect themselves in lending practices; nowhere near as much as the US though, where there were two main requirements to obtain a loan:
a. A Pulse
b. Ability to sign a contract

 

[Passive]

What does not seem to come up for discussion much was the Governments Consumer Credit Code in Australia which does not allow homeowners to be lent beyond what they can afford. Whilst bulky and cumbersome admittedly has served the homeowner well in that banks etc could not lend willy nilly.

Does not protect the commercial or property investor though.

In hindsight our regulators have learnt a thing or two more than the USA.

 

[gfresh]

ANZ has come out with their official loan changes:

- 80% max LVR on loans $1M-2.5M
- 90% max LVR on loans under $1M

So: $240k deposit required for say $1.2M loan and well, and back to the ol' real 10% deposit for the cheaper stuff.

LVR for lo-doc is now 60% and 70% respectively. No liar loans for the self-employed - minimum of 2 years paperwork required.

The credit restrictions are beginning folks.. enjoy!

 

[CamKawa]

ANZ has today come out with their official loan changes:

- 80% max LVR on properties $1M-2.5M
- 90% max LVR on properties under $1M

So: $240k deposit required for say $1.2M and well, and back to the ol' real 10% deposit for the cheaper stuff.

LVR for lo-doc is now 70% and 60% respectively. No liar loans for the self-employed - minimum of 2 years paperwork required.

The credit restrictions are beginning folks.. enjoy!

Have you got a link for that?

 

[gfresh]

Have you got a link for that?

Actually think it was announced Friday, but here are the details:

http://ratesonline.propertyfinda.com.au/australian-homeloan/product/equity-manager/anz or

http://www.infochoice.com.au/loans/...ArticleTypeId=2&MajorCategoryIds=1,22,24,3,37

A few of the other mortgage aggregate sites have the updated info as well.

 

[MrBurns]

ANZ has today come out with their official loan changes:

- 80% max LVR on properties $1M-2.5M
- 90% max LVR on properties under $1M

So: $240k deposit required for say $1.2M and well, and back to the ol' real 10% deposit for the cheaper stuff.

LVR for lo-doc is now 70% and 60% respectively. No liar loans for the self-employed - minimum of 2 years paperwork required.

The credit restrictions are beginning folks.. enjoy!

Yes they'll put lower valuations on the properties than what was paid for them plus the income test will be brutal, they dont want to be caught in whats to come.

Whats this kiddies ??? Thats right its a credit squeeze !

 

[Passive]

Yes they'll put lower valuations on the properties than what was paid for them plus the income test will be brutal, they dont want to be caught in whats to come.

Whats this kiddies ??? Thats right its a credit squeeze !

Hardly a credit squeeze! 20% for a loan was common sensible practice for decades- many schemes out there to help homebuyers in and rates and prices down somewhat - just watch the money that will be thrown at potential buyers. 10% dep is generous.
Where is all the cash going - where are all the super redemptions and payments going? More like a glut of cash that needs to be lent to sensible buyers and generally homes don't all go to first homeowner. Second tier buyers have huge deposits as do many property investors have huge equity even allowing for the decline. More and more of these people will start positioning themselves soon to invest in a more reliable asset class.

 

[Beej]

ANZ has come out with their official loan changes:

- 80% max LVR on loans $1M-2.5M
- 90% max LVR on loans under $1M

So: $240k deposit required for say $1.2M loan and well, and back to the ol' real 10% deposit for the cheaper stuff.

LVR for lo-doc is now 60% and 70% respectively. No liar loans for the self-employed - minimum of 2 years paperwork required.

The credit restrictions are beginning folks.. enjoy!

All looks quite sensible to me. Even if valuations used by the banks are overly conservative, it's no bad thing. FHBs who want to borrow 95-100% (ie no savings) are the most effected by these so-called changes (or rather a return to normality as I see it). That actually should put a floor under potential increases in default rates over the next year or two, as those already up-to-the-hilt have relief due to lower interest rates, and those entering the market fresh won't be able to borrow to-the-hilt.

Eg a FHB buying a $400k house will need a deposit of $40k. In NSW they pay $0 stamp duty, plus get $14k from the FHB grant, so need to have saved $26k - let's call it $30k to cover legal and moving costs etc. Anyone who can't save a $30k deposit for a first house has no business buying one anyway, unless we really DO want to follow the US into a sub-prime style crisis over here. Repayments on the $360k loan would be ~$500/week, which would be not much more (maybe 25% higher) than the cost of renting the type of house or unit that money would buy, and about 30% of average household income of $80k/year. All quite doable and sensible really! Hardly a credit crunch.....Plus of course if $400k is too much, there are plenty of houses to be had in Sydney for $300k-ish, even better!

And of course the 80-90% of people buying property who are not FHBs shouldn't have any issue with these lending guidelines at all either?

Cheers,

Beej

 

[MrBurns]

All looks quite sensible to me. Even if valuations used by the banks are overly conservative, it's no bad thing. FHBs who want to borrow 95-100% (ie no savings) are the most effected by these so-called changes (or rather a return to normality as I see it). That actually should put a floor under potential increases in default rates over the next year or two, as those already up-to-the-hilt have relief due to lower interest rates, and those entering the market fresh won't be able to borrow to-the-hilt.

Eg a FHB buying a $400k house will need a deposit of $40k. In NSW they pay $0 stamp duty, plus get $14k from the FHB grant, so need to have saved $26k - let's call it $30k to cover legal and moving costs etc. Anyone who can't save a $30k deposit for a first house has no business buying one anyway, unless we really DO want to follow the US into a sub-prime style crisis over here. Repayments on the $360k loan would be ~$500/week, which would be not much more (maybe 25% higher) than the cost of renting the type of house or unit that money would buy, and about 30% of average household income of $80k/year. All quite doable and sensible really! Hardly a credit crunch.....Plus of course if $400k is too much, there are plenty of houses to be had in Sydney for $300k-ish, even better!

And of course the 80-90% of people buying property who are not FHBs shouldn't have any issue with these lending guidelines at all either? So where exactly is there a credit crunch again??

Cheers,

Beej

Yes this is more like it, hope it sticks, think it will for a while as the market softens the banks dont want to be caught.

 

[robots]

hello,

you have always had to supply 2 yrs financials for self-employed, probably 10% reduction of lvr only,

but look at this:

http://www.theaustralian.news.com.au/business/story/0,28124,24670201-5018001,00.html

paradise for the money renters coming up brothers, petrol down (not that the pushie uses any) and IR's down this is it,

yet many here keep carrying on as though you fool if you have debt, man every month it is costing me less and less, nirvana

hope everyone having a great day out there,

thankyou
robots

 

[awg]

I dunno, if I was a new buyer, I would still be holding out.

prices falling right across Sydney, Brisbane, Perth, and Newcastle (my HT)

except some very isolated pockets

I agree there will be some good rental yields, very soon

but i reckon prices still to drop in most locations

I would be really surprised if St Kilda showed a rise NEXT quarter

no offence, robots!...hope Im wrong!

 

[Beej]

I dunno, if I was a new buyer, I would still be holding out.

prices falling right across Sydney, Brisbane, Perth, and Newcastle (my HT)

except some very isolated pockets

I agree there will be some good rental yields, very soon

but i reckon prices still to drop in most locations

I would be really surprised if St Kilda showed a rise NEXT quarter

no offence, robots!...hope Im wrong!

Rents also rising across Sydney STILL, (on the news tonight Ch9) - up an average of 3.2% in the last quarter! Strangely, the biggest rent rises are occuring in the cheapest suburbs (eg Bankstown), and rents have even fallen in some more expensive suburbs?? (Eg, Randwick). Regardless, the stars seem to be aligning for FHBs who have been waiting on the sidelines - in Sydney at least...... low/lowering interest rates, softened house prices (lower prices ranges ie < $500k are stable to rising in Sydney actually right now after years of falls/stagnation - wait for this quarters numbers), $0 stamp duty and $14k - $21k FHB grant, + increasing rents and low vacancy rates..... I remain unconvinced it will get too much better than this in that lower price segment IN SYDNEY = opportunity of the decade. SEQ/Perth, another story, I would definetly be holding off if I was a FHB in those area's, (unless the numbers stacked up and I wanted to get into my home for mainly lifestyle rather than purely financial reasons).

Beej

 

[juddy]

I agree there will be some good rental yields

I see people refer to this often as a form of protection during market downturns, low capital growth etc. I'd like to know from people here who owned rentals during the last recession, what their experiences were in collecting rent from people who were unemployed. Unless you own high quality property chances are you may face this situation in years to come. How do you plan to deal with it? Landlord's insurance was difficult to get just 10 years ago, now any and all companies offer it. When the risk starts to get greater, it is likely we'll see companies cut back or raise premiums heavily.

I must say, I see significant risks in purchasing investment properties at this time. If you purchased ten years ago, fine, but not now ( as a new investor).

Awaiting to be enlightened.

 

[Pommiegranite]

It seems clear from this thread that buyers think its the best buyers market this decade. On the flip side, has anyone been selling at the moment that has had a good "fast sale at a good price" selling experience?????

Excellent point Spek. It highlights the fact that property bulls will always convince themselves that things are in their favour until......"I don't understand...what went wrong?" Then they will try to comfort themselves that 7 years after buying, their property will have double in value.

I met some clown yesterday who bought in Willoughby last year (North Shore NSW I believe), who told me that his property had increased 15% in value and that ALL properties on the North Shore have always had a 15% average annual increase. He also went on to tell me that you could take ANY 2 years, 7 years apart and property prices would show a doubling.

This is what we are dealing with. Pure stupidness.

 

[Beej]

Excellent point Spek. It highlights the fact that property bulls will always convince themselves that things are in their favour until......"I don't understand...what went wrong?" Then they will try to comfort themselves that 7 years after buying, their property will have double in value.

I met some clown yesterday who bought in Willoughby last year (North Shore NSW I believe), who told me that his property had increased 15% in value and that ALL properties on the North Shore have always had a 15% average annual increase. He also went on to tell me that you could take ANY 2 years, 7 years apart and property prices would show a doubling.

This is what we are dealing with. Pure stupidness.

I don't where that guy got his figures from - but you are right that is BS. Willoughby (NSW) has probably doubled over the past 8 years or so, but that is not the norm as we all know. FYI Willoughby has one of the 3 Sydney Porsche dealerships located within it, plus it is where the TCN 9 studios are based (although they are moving and have sold the land to developers I believe). My brother-in-law actually bought into Willoughby a few years back and just sold a few months ago for a nice profit. Your "clown", however naive, in the long term will still end up doing very well from his Willoughby purchase I would expect - especially if he renovates cleverly, as it is a bit of an up and coming area on the north side of Sydney right now.

Having said that, any Sydney North Shore property will always be solid over the long term (and will AT LEAST beat the inflation rate for sure), as that area is full of some of the most desirable suburbs and homes that high income earning professionals (doctors, lawyers/judges, executives, business owners etc) will always want to live in. It is also well established and there is little/no new supply, and all the best schools, infrastructure (train line, parks, bushland, middle harbour and so on) etc are around there. The north shore types like to leave the Eastern Suburbs to the "nouvea riche" - drug dealers, media types, advertising executives etc etc

Cheers,

Beej