Keen warns Australia headed for sub-prime crisis

[Prospector]

If Australian housing is rightly priced, why do federal and state governments need first home grants and various incentives from different states?

If first home buyers can't afford housing, doesn't that tell us it's over priced? Why is the need to manipulate the price? Why not let the market decide? .

No, its because the States continue to charge outrageous fees that were supposed to be dropped when the GST came in. Like stamp duties on mortgages and purchases. So not only do FHB have to afford the cost of the house, for a property of $300,000 with a mortgage of around $270,000 they have to afford another $13,000 - for bureacratic nonsense!

 

[Lucky_Country]

More like 2 years.

2 Years based on what theory ?

I say 12 months due to being the height of the recession intrest rates at there lows and property prices bottoming out.

No exact science but just my theory.

 

[Wysiwyg]

Whoa, nice assumptions there. Our IP costs us far more than we could ever charge in rent, thanks to Land Tax, Body Corporate, Council rates etc.

Hi there, do tax deductions for rental properties mean anything to your i.p.

Expenses for which you may be entitled to an immediate deduction include the costs of advertising for tenants, council rates, water charges, land tax, insurance, agent’s fees, repairs and maintenance and any other immediate expenses you incur while the property is being rented or available for rent.

Buy a property and get the tenants to pay it off is easy money isn`t it?


*apologies from before to any landlord fatties.

 

[MrBurns]

2 Years based on what theory ?

I say 12 months due to being the height of the recession intrest rates at there lows and property prices bottoming out.

No exact science but just my theory.

It takes while to really kick in, been there .....seen it before.

 

[Lucky_Country]

It takes while to really kick in, been there .....seen it before.

We have yet to see the real downward pressure kick in yet so will it really be that bad ?

 

[Smurf1976]

PS: Who says that just because someone is a FHB that they are "low paid" anyway? That's the whole basis of his opinion in that article.

1. FHB's are by nature predominantly younger people.

2. I have never worked anywhere that did not, on average, pay 20 year olds less than 50 y.o. workers. The reason for that simply being the types of jobs normally occupied by younger workers are the lower paying ones - 20 year old senior managers are rare, for example, as are 50 year old office juniors. No doubt there are exceptions, but that is the norm in society.

 

[MrBurns]

We have yet to see the real downward pressure kick in yet so will it really be that bad ?

I think so, there's too many downward pressures for it to resist for too much longer.

The banks have decided not to allow the FHBG to be included in the calculations for eligibility for loans so that will make a big difference fairly soon.

The mid range is being propped up by the FHBG which will be reduced in June and that also will have an effect.

The upper end is already badly effected.

 

[Smurf1976]

No, its because the States continue to charge outrageous fees that were supposed to be dropped when the GST came in. Like stamp duties on mortgages and purchases. So not only do FHB have to afford the cost of the house, for a property of $300,000 with a mortgage of around $270,000 they have to afford another $13,000 - for bureacratic nonsense!

But if the stamp duties were dropped, wouldn't house sellers just increase prices to compensate?

Don't forget that FHB's aren't thinking in terms of "how much will I have to pay for this house". They're thinking in terms of "how much house can I get for the amount the bank will lend me?".

Simple inflation here. The size of the bank loan is whatever they will lend and that's not going to change if stamp duties are cut. Reduce one expense and that frees up more money to go toward the rest. Increasing money supply, static supply of properties = classic inflationary situation.

It would be different if the reduction in stamp duties resulted in smaller mortgages. But try telling the average FHB to do anything other than borrow the maximum the bank will lend and they'll think you're from another planet. Been there, tried that - even bank staff think you're wierd if you aren't asking "what's the maximum I can borrow" and basing your purchase on that amount. Changing that is a fundamental culture change - something that will happen someday but not without a lot of pain along the way. And when it does happen, well that's probably the market bottom...

 

[Lucky_Country]

I think so, there's too many downward pressures for it to resist for too much longer.

The banks have decided not to allow the FHBG to be included in the calculations for eligibility for loans so that will make a big difference fairly soon.

The mid range is being propped up by the FHBG which will be reduced in June and that also will have an effect.

The upper end is already badly effected.

OK well what about the lack of housing supply its been tight for years ?
If it does drop by how much will it really be a US style 30% drop?

 

[MrBurns]

OK well what about the lack of housing supply its been tight for years ?
If it does drop by how much will it really be a US style 30% drop?

The demand might be there but the ability will be seriously impaired.

Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.

Might be different this time but I cant think why.

 

[Glen48]

We need suckers to buy homes and others to be in debt so the banks can charge interest and survive so the myth of doubling every 10 yrs keeps sucking other victims in to the Ponzi scheme any thing else like this would be banned for false advertising and a fraud.

 

[MrBurns]

We need suckers to buy homes and others to be in debt so the banks can charge interest and survive so the myth of doubling every 10 yrs keeps sucking other victims in to the Ponzi scheme any thing else like this would be banned for false advertising and a fraud.

This is the bubble of all bubbles, when it pops it will be ugly.

 

[nunthewiser]

Might be different this time but I cant think why.

Its always "different this time"

pretty sure i heard a few spruiking that in regards to the stock market too

time tells all

p.s a quick look at japans property and stock market long term charts are rather intresting

i think it was "different " there too

 

[Lucky_Country]

A few commentators have been saying house prices are going to tumble for some time now yet Im still waiting !!

I see intrest rates so low and think now is the time to get in but on the other hand unemployment still has to kick into the economey.

Ill wait and see I dont think I will need to race in thats for sure.

30% fall that would be nice for buyers but some will be ruined !!

 

[Wysiwyg]

The demand might be there but the ability will be seriously impaired.

Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.

Might be different this time but I cant think why.

It`s a bit like the approaching stock market drop off from last year.We could see the correction coming and the reasons behind it but the severity was always the unknown factor for us 95% ers.

 

[MrBurns]

A few commentators have been saying house prices are going to tumble for some time now yet Im still waiting !!

I see intrest rates so low and think now is the time to get in but on the other hand unemployment still has to kick into the economey.

Ill wait and see I dont think I will need to race in thats for sure.

30% fall that would be nice for buyers but some will be ruined !!

Well I cant see prices going up so I would wait til this plays itself out a bit more.

You've got nothing to lose.

 

[Wysiwyg]

30% fall that would be nice for buyers but some will be ruined !!

The main course is humble pie and a lesson for all involved.

 

[MrBurns]

When I bought my house in 1988, I spoke with the agent and we both agreed the market was due for a fall and it did, the circumstances of this bubble make the last one look like a pup.

I bought because I'd already sold elsewhere so had to go somewhere and 2 small kids etc, was touch and go for the next 5 years though I can tell you that, refinanced the Merc a few times to keep going, the bank at one stage knocked back a cheque for $50 to the post office because I just went over my OD limit, real bastards, I went to a different financier and everything was ok from then on but at the time it was a nail biter thats why I see this looming and worry for others that may be vulnerable.

 

[Beej]

The demand might be there but the ability will be seriously impaired.

Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.

Might be different this time but I cant think why.

The late 80s "bubble" makes the current situation pale into insignificance! Between 1986 and 1989 house price more than doubled - 105% increase in median prices in fact in Sydney. The price falls through 1990 were a direct response to that massive and rapid price inflation followed by recessionary factors. In Sydney the median price in fact fell in 1990 by 15% which meant prices were still 75% higher than in 1986 - only 4 years earlier. (See attached article for proof of this data).

Right now - especially in Sydney which is the largest, broadest, and most important market for residential property in AU, prices have been essentially flat since 2004. The conditions simply do not exist for magical price falls of the magnitude you are predicting. There has to be a reason for price falls, we just don't have enough reasons for that happen here right now and the down pressure that does exist is balanced by the pent up demand that we see coming through right now.

I think the property price doom and gloomers only hope was if we had a genuine full blown credit squeeze here last year, where borrowers, no matter how keen, how employed, and how many FHOG $$$ they had, just could not borrow funds from the banks. If you added to this an inability of the RBA to get interest rates reduced to retail borrowers you would have had the perfect storm - ie what we saw in the UK and the US. So the problem is that this scenario DID NOT HAPPEN HERE. That part of the crisis, that risk, is now gone from our local economy, so unless you can come up with a new "black swan" trigger that will crash the market, it won't happen. Rising unemployment won't cut it by the way - we have been there many times before and often price RISE as unemployment goes up - as they did through 1992/93. Go figure!

I'm not saying prices are going to dramatically rise this year - in many area's they will continue to fall. In some area's they will rise though (some already have this year). Many other area's will remain pretty stable, but I expect price growth to continue come 2010/11 and onwards. It will take off again quite hard and catch all the bears by complete surprise when it does (as usual).

Beej

 

[MrBurns]

The late 80s "bubble" makes the current situation pale into insignificance! Between 1986 and 1989 house price more than doubled - 105% increase in median prices in fact in Sydney. The price falls through 1990 were a direct response to that massive and rapid price inflation followed by recessionary factors.

Prices have gone through the roof because interest rates have been at historic lows for the last 10 years, what you say above is exactly whats happened now only worse.

Doom and gloomers ? Get real you're locked into a mindset of perpetual growth for property and cant see the wood for the trees.

I know of a number of ex property developers who thought just as you do now and went spectacularly bust.