Keen warns Australia headed for sub-prime crisis

Smurf1976 said:

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...

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WTF?! I do not know of any first home buyers with that attitude. Personally, I could have afforded a loan amount or almost DOUBLE what I borrowed. However the majority of us DO consider things like "what happens if I lose my job?" and "can I still afford this if interest rates increase". Besides, even in the best case scenario where none of that happens, I don't know anyone who would be happy barely being able to meet the minimum payments, and take 30yrs to pay off the PPOR

MrBurns said:

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.

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Yes, I agree with you Mr Burns. I first entered the property market in the 90's. I saved up a 25% deposit for my first house. I even felt that I was still borrowing too much. I could easily service the debt though, and I was in a safe profession.

These days, as I see just a few posts ago, people seem to borrow right up to what the Bank will lend them, not allowing any margin for error. That is where we have problems, let me say it again, no margin for error. I think property will go sideways for 10 years. It needs to take a breather from here. It has been a spectaculor rise based on climbing excessive household debt. It will fall as the Banks continue to have stricter lending criteria.

It will be the lack of capital, and rising unemployment which will be your black swan event. That is all you need.

So if they extend the first home owners grant and intrest rates drop again that will save the property market right ?

Rudd seems determinded to prop up the market dont know why he would be more popular if it was all alot cheaper imo.

Mr. B you forgot to mention Gold going up as well in 88 I ordered some Sov's from England but Gold kept rising so the Pom on the other end decide to keep my Coins...my luck has been down hill since.
Paid $ 27.500 with 10 k deposit for a house in Garbutt.

I find this "pent up demand" argument that gets touted every so often quite humorous when it's used to support an opinion.

A spurious statement that can neither be quantified, documented nor justified yet it is perceived to exist and is apparently one of the fundamentals that will go a long way towards providing a floor under current market prices as we move forwards into this current downturn.

What I find amazing however is the "pent up supply" that's come out of the woodwork and onto the market over the last 6 months... currently just sitting out there in limbo... waiting to be snapped up... by a frenzied buyer... who's frothing at the mouth... with cheap credit burning a hole in their pocket... because apparently there's never been a better time to buy... and they'll miss the boat if they don't get in quick...

There's certainly no argument that the lower rungs of the property ladder are seeing some action of late due to the Government stimulus and the historically low interest rates but that seems to be where the "pent up demand" stops dead in it's tracks.

Nothing is moving further up the ladder where there is bucket loads of supply because in this current economic climate there is no "pent up demand" outwith FHB's and people looking to reduce their debt by downgrading.

What is happening now and what will continue to happen into the near future (aside from the direct effects of the deteriorating economic conditions - job losses, etc) is that the over supply that currently exists in this sector is what will influence vendors in lowering their price expectations if they want to make a sale at the end of the day.

Prices certainly aren't going to be "driven" down 40% like Keen declares, but as has been seen by market watchers who have been keeping an eye on the proceedings for the last year or so, the gradual decline in prices has certainly been apparent for properties that have been sitting on the market for 2 months or more.... and this continued gradual decline in prices is what will eventually add up to what could be considered as a significant drop in prices.

No dramatic black swan event required, just the natural atrophy of an economy in decline.

Lucky_Country said:

So if they extend the first home owners grant and intrest rates drop again that will save the property market right ?

Rudd seems determinded to prop up the market dont know why he would be more popular if it was all alot cheaper imo.

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I dont think he will extend the grant, even the banks can see the danger in that now.

Interest rates will drop again so it will be interesting to see where it all goes.

The property bulls wil be taught a very hard lesson again as they are every generation and will be researching ways to erase statements made in this thread, can you get broadband in a caravan ?

depends whom one listens to....

Housing shortfall, prices 'to skyrocket'Susanna Dunkerley
March 11, 2009
There's plenty of land to build upon but that's unlikely to stop housing shortfalls and prices from skyrocketing in the next 20 years, a new report shows.

In a report commissioned by the federal government, the National Housing Supply Council has confirmed there is plenty of land available for development on the fringes of Australia's major cities.

But without significant government and industry intervention the nation's housing crisis could increase tenfold by 2028, the report said.

In 2008, the housing shortfall was about 85,000 dwellings.

In three years' time the number was expected to reach 203,000 and hit 431,000 by 2028.

The forecasts were based on recent housing development and government funding trends.

But if these trends slowed, the predicted shortfall could top 800,000, the report warned.

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http://news.theage.com.au/breaking-...rtfall-prices-to-skyrocket-20090311-8uz1.html

The eight members of the National Housing Supply Council will be:

Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
Ms Sue Holliday, former Director General of Planning NSW.(???)
Mr Chris Lamont, HIA Chief Executive - Policy.(Housing industry boor and tosser)
Mr Marcus Spiller, Director SGS Economics. (???)
Ms Marion Thompson, WA Urban Development Coordinator.(public servant ignoramus)
Mr Stuart Wilson, Managing Director of Wilson Homes.(ROFL)
Ms Judy Yates, one of Australia's pre-eminent housing researchers.(academic high on latte's and committee meetings)

MrBurns said:

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

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It will also *stink* to hi-heaven.

I suspect an awful lot of b-a-a-a-d news & rattling skeletons are being hidden away under mountains of panic driven, creative company accounting - only to be unleashed in a veritable tidal wave of gloom onto the poor, unsuspecting, cheering, partying, Oz hoi-poloi when the full, un-expurgated end-of-financial-year accounts are finally laid to rest in the flaming bonfire of failed businesses.

Party on, dudes....

Well the next 12 months will be interesting to say the least.

Unemployment will be the key doesnt matter how cheap house are if you havent got a job to pay the mortgage you cant buy or retain that property.

No ones knows the future. I do agree with the previous comment that MOST home buyers do ask "what is the maximum I can borrow" simply because the maximum normally is about $300,000 give or take (especially for young people - it takes a very long time to save up 20% nowdays on an average job with living expenses compared to even 10 years ago).

Most people think that housing is overvalued, and the people that look at it objectively see that the young have a higher burden to pay off a house than previous generations did. I have a lot of older people disagreeing with this comment that young people have it harder - typically they own one house and one invetment property and they have average wages or slightly lower. All I say to them is this - if all your assets were stripped away and you had to start over do you think you would ever to repay your first house before the 25 years or at least as quickly as you did before? Most of them go silent at this point. It takes a lot more education and/or a lot more work to be comparable to previous generations of home owners.

In Sydney where I live I would say that this is due to the good land being used already and the buildup of population growth over the years. Housing is overvalued but owners collectively have pricing power if they act in unison - the Australian dream keeps supply down when prices fall even the slightest amount. It's almost cartel behaviour, and it keeps price high.

With the aging population in a few years the young will be the main ones working and paying taxes. I don't think it is fair on them in the long run for their taxes to prop up the housing market at their expense. Almost like their money is taken off them by the Government and used against them.

I think people should look at their circumstances. A home is more than an asset. If you can afford it great. But if you think prices are not rising for awhile isn't it better to save and get interest rather than paying the bank interest?

Growth above inflation means that in real terms the burden is rising. The real price for houses has risen - lowering interest rates just makes it more affordable in the short term but after a lag prices rise again to adjust. Almost like a dog chasing its tail. The only difference is of course is that newer people borrow more, and get less return on their savings to save for a deposit the lower interest rates go making it harder to start off.

MrBurns said:

The eight members of the National Housing Supply Council will be:

Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
Ms Sue Holliday, former Director General of Planning NSW.(???)
Mr Chris Lamont, HIA Chief Executive - Policy.(Housing industry boor and tosser)
Mr Marcus Spiller, Director SGS Economics. (???)
Ms Marion Thompson, WA Urban Development Coordinator.(public servant ignoramus)
Mr Stuart Wilson, Managing Director of Wilson Homes.(ROFL)
Ms Judy Yates, one of Australia's pre-eminent housing researchers.(academic high on latte's and committee meetings)

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dont you love the ease of research on the net burnsie..? lol . i bet government doesnt. wonder why they havent attempted to scensor the internet yet...? (he says facetiously)

.

Those renting will be the winners over the next few years because they won't be paying Rates/Insurance/repairs on some thing which is depreciating or going no where.
The renters could be $20-30K ahead.

metric said:

dont you love the ease of research on the net burnsie..? lol . i bet government doesnt. wonder why they havent attempted to scensor the internet yet...? (he says facetiously)

.

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Yes it all sounds so important till you see who's behind it.......

aleckara said:

Most people think that housing is overvalued

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Overvalued or expensive? If just over-valued easy, don't buy it! If expensive but you still want/need it, well then that's just called a reality check.....

In Sydney where I live I would say that this is due to the good land being used already and the buildup of population growth over the years. Housing is overvalued but owners collectively have pricing power if they act in unison - the Australian dream keeps supply down when prices fall even the slightest amount. It's almost cartel behaviour, and it keeps price high.

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Or that could just be described as a "market". In markets, supply and demand rules. Prices go up and down in line with buying/selling pressure. You are basically just enunciating the fact about the R/E market that so many deny here and that is that there is more demand than there is supply and that's why prices stay high - especially the case in Sydney.

I think people should look at their circumstances. A home is more than an asset. If you can afford it great. But if you think prices are not rising for awhile isn't it better to save and get interest rather than paying the bank interest?

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It might be, it might not be. Personal choice and to each their own! Don't forget to factor in the rent you otherwise pay and the costs of having to move all the time, especially if you have a family. And don't forget that the rent you pay only goes up while over time the interest yo pay on a mortgage goes down as you (hopefully aggressively) pay off the principle.

Mr Burns said:

The eight members of the National Housing Supply Council will be:

Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
Ms Sue Holliday, former Director General of Planning NSW.(???)
Mr Chris Lamont, HIA Chief Executive - Policy.(Housing industry boor and tosser)
Mr Marcus Spiller, Director SGS Economics. (???)
Ms Marion Thompson, WA Urban Development Coordinator.(public servant ignoramus)
Mr Stuart Wilson, Managing Director of Wilson Homes.(ROFL)
Ms Judy Yates, one of Australia's pre-eminent housing researchers.(academic high on latte's and committee meetings)

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LOL - love it. So who else would you put on a National Housing Supply Council?? FOREX traders? Taxi drivers? I know you say they are "biased" but others might argue they are actually experts in their fields and might know a few things that you don't....

Cheers,

Beej

Beej said:

LOL - love it. So who else would you put on a National Housing Supply Council?? FOREX traders? Taxi drivers? I know you say they are "biased" but others might argue they are actually experts in their fields and might know a few things that you don't....

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A trumped up committee of boors and weasels trying to either enhace their CV or line their own pockets by creating from their own dull minds the concept that housing is in short supply to encourage people to buy, I see plenty out there for sale dont you ?

Never heard anyone say they didnt buy because there was nothing for sale.

And no they dont know more than I do.

FWIW, there seems to be a whole lot of anxiety surrounding the continuance of the increased FBH (particularly from RE agencies)... this to me signifies the housing industry is on shaky ground and I'm not willing to bet either way.

I'm eligible for the FBH but in the current environment I'm more inclined to wait and see what happens and 'miss out' on the additional 7K... somehow I think I'll be better off.

I'm open to critique on this view... I'd genuinely like to know how increasing my debt in the midst of the GFC is a smart move.

Beej said:

Or that could just be described as a "market". In markets, supply and demand rules. Prices go up and down in line with buying/selling pressure. You are basically just enunciating the fact about the R/E market that so many deny here and that is that there is more demand than there is supply and that's why prices stay high - especially the case in Sydney.

It might be, it might not be. Personal choice and to each their own! Don't forget to factor in the rent you otherwise pay and the costs of having to move all the time, especially if you have a family. And don't forget that the rent you pay only goes up while over time the interest yo pay on a mortgage goes down as you (hopefully aggressively) pay off the principle.

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If prices don't go up renting is cheaper than buying most of the time. Capital appreciation and inflation is the main reason why what you are saying above is correct.

And in a sense you are right about it being a "market". Australia's market however is very different to other markets. We do not panic sell when it comes to property. We all act in unison and hold on. Most markets do not follow this pattern; only cartel markets. It's makes it hard to prices to go down - all that occurs is that volumes fall hard as sellers are not willing to match buyers. The sellers know that housing is a need and eventually people have no choice but to capitulate. Almost similar to what happened with Voltswagen shares in Germany, where Porsche made a motza because even though the company was overvalued they knew that the short sellers would need the supply eventually. Price does not equal value and the market only dictates price. My point is that there will always be more demand than supply if their is almost cartel like system - supply goes down almost instantly when demand drops shown in volume indicators. Their is pent up supply as well as demand however the investors have time on their side as long as they can keep their mortgages. The businesses in this situation that need the volume, not just the price (construction, r/e agents and so on) are most affected by this behaviour. The price isn't allowed to adjust to competitive market forces.

Housing is more expensive - glad you agree. Overvalued, well your right there too in that it depends on how you look at it. I just think that it's more of a sacrifice to buy a house for the young FHB that has no assets yet than it was for previous generations, and so they will get less value for what they are paying. I would hate to see that trend continue where future generations are getting less value for the debt they take on. I would like the average wage to be able to afford the most basic home. Same amount of work for the same amount of value - fair I think.

whats with all this frenzied discussion....not all houses are priced at 300k or 500k...
sounds more like the game of follow the leader....but who is your leader ???
careful he does not lead you all over the cliff...
if you need mentoring...you need a mentor who can show you how...and has a track record of success...to back up his claims...
keen at 55 years old...and still renting.....thats some record

I wanted to share with you some advice that a very successful friend of mine gave me is (incidentally he did make his money from property but that is not the point).

He said that if he had listened to all of the people who gave him financial advice he would be broke right now - 'why should I take advice from someone whos net worth is 500K or even a million? Show me the guy who is worth 10mil because thats the guy I want to be speaking to and seeking advice from!'

I wonder how much Keen is worth...