Australian (ASX) Stock Market Forum

House prices to keep falling for years

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georgey said:
Hi all, this may have been raised before but what are yr thoughts about the future
of interest rates and whether one on a 8.3% fixed mortgage for 3 more years should pay the 5k cost
to refix at a rate 2% lower for 6 months. It would be a no brainer to do so IF one could be
sure that rates would stay down or lower further over the next 3-5 years.
But there is talk about how all the financial stimulus can eventually create inflation which
usually indicates higher interest rates also.
Would not be nice to pay the cost to change and be caught high and dry if rates decided to
soar - I remember +20% in the eighties. I am in NZ by the way.
Thanks
Georgey
Click to expand...

It depends entirely on how much you have got owing - and to some extent the possible degree of loss of value of the property over coming months / years if RE values in general continue to decline (presumably RE in NZ will follow the same trajectory as Oz?)

If you owe $500,000 then the logic to switch will obviously be far greater than if you only have $100,000 owing, since the relative interest payment on the higher debt will be far greater on the 8.3% rate than 6.3% rate.

Apart from the above, there is also potential strategic benefit in being in a shorter fixed term loan given current financial market volatility. Global conditions are in upheaval and COULD change at the drop of a hat. Many countries are approaching 0% in official rates and there is only one way to go after that. Consequently, at some undefined point in the future (short, medium or long term?) interest rates could easily climb as fast as they have fallen. There is no binding Law Of Rates that says they can't!

Personally though, I'd be tempted to take the opportunity to go to a full variable ATM and only fix when the financial climate looks like a rise is inevitable. IMO there is further IR downside for now.

It's all up to you. Good luck with your decision.

aj
 
100% On Topic....

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Time bomb for home buyers
The Age, Natalie Craig
December 12, 2008

ABOUT 300,000 Australian households could face "negative equity" next year — owing more money to lenders than their house is worth — if prices fall by 10 per cent as predicted.

Modelling by RMIT's Housing and Urban Research Institute suggests that about 4 per cent of Australia's 8.5 million households could next year see the value of their property fall below what they owe on it.

"We could face a situation like the UK," said research head Professor Gavin Wood. "Rapid price falls there have meant a rapid increase in foreclosures … people who have already leveraged up to very high levels of debt now own nothing."

The median Melbourne house price fell 3.3 per cent to $435,000 in the three months to September, and economists from AMP, Morgan Stanley and Australian Property Monitors and are predicting price declines of at least 10 per cent in the next year.

British house prices have fallen about 15 per cent this year, and about a quarter of a million householders owe more than their home is worth.

In the United States, prices have fallen about 20 per cent since their peak in 2006, and about 12 million home owners are thought to be in negative equity.

Professor Wood said monitoring of the borrowing practices of about 20,000 Australians since 2001 showed that a large proportion were now at risk of negative equity. A 10 per cent drop could push 300,000 households into negative equity, while a 15 per cent drop would affect 400,000.

That tallies with the latest data on mortgage stress from Fujitsu, which found about 363,000 were in "severe stress".

The western suburbs of Sydney and Melbourne's outer north have been identified as some of the areas most at risk of falling into negative equity.

Professor Wood said it was not just newer home buyers who had little equity, but also those who had taken advantage of more flexible redraw or "line-of-credit" facilities provided as part of their home loan.

"It's not just first home purchasers who have been taking out very high loans — it's also people who are already home owners, still youngish, but who have decided to tap into their housing wealth."

Contrary to marketing that suggested people extended their mortgages to fund luxury purchases such as holidays or a new car, many were drawing on their equity to cope with personal changes such as pregnancy, separation or job loss.

Professor Wood said many people were using the equity in their homes as a kind of "personal welfare", and could soon be forced to find other means of support.

"The sort of people we've identified at risk are younger people, families rather than singles, and also those who are recently separated or divorced.

"These are people who have been reliant on tapping their housing wealth to meet urgent spending needs. Those people are going to have to turn to more expensive forms of debt, or who could be forced to sell their homes."

Nicole Rich of the Consumer Action Law Centre said impending house price falls meant lenders should be discouraged from offering products that allowed people to "use their home like an ATM".

"It's not that they just make redraw available, they promote it," Ms Rich said. "Some people are going to take advantage of the maximum 90 per cent redraw when they're in difficulty.

"So by its nature it's a product that appeals to people that are struggling a bit."

While the Commonwealth Bank has removed its 100 per cent home loan, NAB will still lend 100 per cent of the purchase price of a property, less about 3 per cent mortgage insurance, to desirable borrowers.

Other borrowers with "equity loans" can draw on up to 90 per cent of the value of their home.

----------------

I can't believe in the current economic climate that these Oz bank majors are still willing (or allowed) to potentially torch the finances of so many vulnerable Australians by offering tantalising "90-100% of purchase price" loans to "desirable" borrowers.

Are "desirable" borrowers the ones who will default the fastest so the bank can foreclose early and get mortgage over the now-trashed borrower's "asset" at a dirt cheap firesale price? :rolleyes:
 
numbercruncher said:
But they told us there was a monumental shortage and RE would boom forever providing us with a lifestyle of the rich and famous !!

What happened?? :)
Click to expand...

Who wants to live rural? To far from facilities and work.

Also no houses on these blocks by the sound of it, just empty land and kangaroos.
 
Aussiejeff said:
100% On Topic....

----------------------

Time bomb for home buyers
The Age, Natalie Craig
December 12, 2008

ABOUT 300,000 Australian households could face "negative equity" next year ”” owing more money to lenders than their house is worth ”” if prices fall by 10 per cent as predicted.

Modelling by RMIT's Housing and Urban Research Institute suggests that about 4 per cent of Australia's 8.5 million households could next year see the value of their property fall below what they owe on it.

....

Professor Wood said monitoring of the borrowing practices of about 20,000 Australians since 2001 showed that a large proportion were now at risk of negative equity. A 10 per cent drop could push 300,000 households into negative equity, while a 15 per cent drop would affect 400,000.

That tallies with the latest data on mortgage stress from Fujitsu, which found about 363,000 were in "severe stress".
Click to expand...

The above does not make sense; someone being in a negative equity position has no bearing whatsoever on whether they might be in "mortgage stress" or not? Mortgage stress is about HOW MUCH someone owes, what their income is and what the costs of servicing their loan is. The value of the underlying asset has no bearing on this equation at all......

So really just a bunch of further alarmist fluff there mostly. All based on conjecture about further price falls that have not yet happened. "Experts" predicted AU/US $ parity a few months ago too - how wrong they were! Plenty of other examples. Some things are not worth worrying too much about until/if they actually happen, and even then let's worry about the right thing!

Oh and PS - 300,000 households = 3.5% of total households.....wow, disaster...and most of them probably don't care anyway as they only recently bought their home and are still enjoying it along with low interest rates. And we are not even anywhere near these numbers yet anyway. With Sydney pretty much bouncing around the bottom I don't see it happening either.

Cheers,

Beej
 
With Sydney pretty much bouncing around the bottom I don't see it happening either.
Click to expand...


And thats why your called a Permabull :)


Plenty of people played that same strategy all the way down with stocks this year :D
 
Beej said:
The value of the underlying asset has no bearing on this equation at all......

So really just a bunch of further alarmist fluff there mostly. All based on conjecture about further price falls that have not yet happened. "Experts" predicted AU/US $ parity a few months ago too - how wrong they were! Plenty of other examples. Some things are not worth worrying too much about until/if they actually happen, and even then let's worry about the right thing!

Oh and PS - 300,000 households = 3.5% of total households.....wow, disaster...and most of them probably don't care anyway as they only recently bought their home and are still enjoying it along with low interest rates. And we are not even anywhere near these numbers yet anyway. With Sydney pretty much bouncing around the bottom I don't see it happening either.

Cheers,

Beej
Click to expand...

Will they enjoy their home when they realised they paid too much for it? When they are still paying off a loan and they can see that they asset has gone down they will cut back. It will dent sentiment, causing possibly more price falls.

Btw 3.5% for an illiquid market is very high. We are not talking shares here; the liquidity isn't there to support the bailout of even 2% of people I would think if there are no buyers. House prices trends are more known to the average Australian. If everyone knows the trend is down no one will buy. The fact that people can wait to buy a house now just shows how much of a shortage there is - these people still have roofs over their head right now.
 
aleckara said:
Will they enjoy their home when they realised they paid too much for it? When they are still paying off a loan and they can see that they asset has gone down they will cut back. It will dent sentiment, causing possibly more price falls.
Click to expand...

Well yes why wouldn't they? If you rent do you get upset each year at all the money you have spent on rent with no possible return from that money at all, ever again???

People with houses will just say, "oh well, at least I'm not paying rent" (and at low interest rates their mortgage is probably about the same as the rent they would otherwise be paying). Plus they know that in the long term their house WILL still increase in value, so their mortgage is not dead money in the way rent is as the mortgage is at least giving the prospect of some security and financial return on the long run.

Btw 3.5% for an illiquid market is very high. We are not talking shares here; the liquidity isn't there to support the bailout of even 2% of people I would think if there are no buyers. House prices trends are more known to the average Australian. If everyone knows the trend is down no one will buy. The fact that people can wait to buy a house now just shows how much of a shortage there is - these people still have roofs over their head right now.
Click to expand...

What makes you think all these people, who can quite comfortably keep paying their mortgage as it is costing 2/3 now of what it was only a few months ago, would suddenly all want to sell their house and start renting again? It's just NOT going to happen. Most "average" people when it comes to their PPOR couldn't really give a stuff about the value of their house in the short term, unless they are planning to sell and upgrade soon. All they care about is the cost of their interest payments and the price of petrol!

As for people waiting to buy, good on them - no one is forcing anyone to buy a house! If you are happy to pay rent then keep on renting! Will only force rents higher over time and benefit investors the longer that goes on for.......Having said that, waiting longer may work out to be a wise choice for some, and perhaps more so in some areas of Australia over others. But I'm betting in a couple of years most people with a negative view will have waited too long, and will suddenly realise they missed the opportunity - again ;)

Cheers,

Beej
 
aleckara said:
The fact that people can wait to buy a house now just shows how much of a shortage there is - these people still have roofs over their head right now.
Click to expand...

If parents started turfing their leaching children out from under their skirts into the realworld you would soon see how much of a shortage there is.
 
Beej said:
Oh and PS - 300,000 households = 3.5% of total households.....wow, disaster...and most of them probably don't care anyway as they only recently bought their home and are still enjoying it along with low interest rates. And we are not even anywhere near these numbers yet anyway. With Sydney pretty much bouncing around the bottom I don't see it happening either.

Cheers,

Beej
Click to expand...

Here is a default graph, US compared to Australia

See the difference anyone?
 

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Lancelot said:
If parents started turfing their leaching children out from under their skirts into the realworld you would soon see how much of a shortage there is.
Click to expand...


Once all the temporary visa holders and students go home you will see just how much oversupply there really is ...
 
Lancelot said:
Here is a default graph, US compared to Australia

See the difference anyone?
Click to expand...

I see de fault with the timelines. I'd like to see the graph timelines extended to include the current data following the worst of the financial crisis to date? Some of those graphs end at beginning of 2008. The mortgage delinquencies graph for Oz finishes at end 2007!


aj
 
Lancelot said:
Why would they go OS, a lot more expensive to go OS now, AUD has dropped dontcha know
Click to expand...

You dont get paid in AUD if your working/living overseas, so therefore the only time the AUD is relevant is relocation costs
 
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