The future of Australian property prices

[tothemax6]

OK some questions for those older and wiser, since I have know about this bubble for a short while, and it concerns me and makes me edgy about owning shares given what happened in the US. [And lets not even get started on the Chinese real-estate bubble - I have seen videos of those empty cities and the people holding the over-priced estate as 'an investment' and that is FCked up, but anyway]

• 
  Does australia have the kind of securitization of mortgage debt that the US had during the bubble? That is, the packaged tranche-divided debt instruments etc.
• To what extent has australian home equity been borrowed against compared to how it was in the US?
• Are there any instances of negative-amortization lending?
• Does australia have a similar level of government subsidization of home-ownership, as occurred in the US with fannie mae and freddie mac?
• Is there a situation of increasing credit expansion in spite of increasing interest rates, as occurred in the US?

Would be good to know this, since I know very little about the australian real estate market.
Cheers!

 

[basilio]

The housing market really has to be toppy at the moment. The pressure of rising interest rates and in particular the last .4% in November has to cracking a number of households.

The sharp increases in electricity, gas and water costs is going to drain lots of the remaining discretionary income money from peoples pockets. So naturally the economy will flag and jobs will be put on the line.

And overriding the whole picture is the fact that far too many people are deeply in debt and simply cannot spend the money they borrowed last year and the year before. With all these factors in play how we honestly see housing prices hold the ridiculous levels they are at the moment? I think if we are really lucky we'll a 10-15% reduction over... If we are lucky

_________________________________________________
PS

One way out. Throw the market open to wealthy immigrants who can and will pay top dollars. But i don't believe that is a 'good' solution for the rest of us.

 

[TabJockey]

OK some questions for those older and wiser, since I have know about this bubble for a short while, and it concerns me and makes me edgy about owning shares given what happened in the US. [And lets not even get started on the Chinese real-estate bubble - I have seen videos of those empty cities and the people holding the over-priced estate as 'an investment' and that is FCked up, but anyway]

• 
  Does australia have the kind of securitization of mortgage debt that the US had during the bubble? That is, the packaged tranche-divided debt instruments etc.
• To what extent has australian home equity been borrowed against compared to how it was in the US?
• Are there any instances of negative-amortization lending?
• Does australia have a similar level of government subsidization of home-ownership, as occurred in the US with fannie mae and freddie mac?
• Is there a situation of increasing credit expansion in spite of increasing interest rates, as occurred in the US?

Would be good to know this, since I know very little about the australian real estate market.
Cheers!

No to all your questions to the best of my ability.

Before the GFC you still could not:

- Get a home loan without a saved deposit and good credit rating (although you could do it on 5%). You also could not get the loan unless your income covered the payments at least 200%.

- No such thing as "teaser" interest rates

- Rates where pretty high, 9% as opposed to 3? percent in the US.

- We had the first home buyers grant which was government stimulus into housing. Pretty much failed to cover stamp duty on a cheap house.

- Credit was expanding and interest rates rising, but not at a crazy rate. Boom times people borrow more, it happens, but the debt was still serviced for the most part after the GFC so I dont see that coming back with a bite now or soon.

- There is moderate mortgage securitisation, the banks use it to raise money (BOQ is into it more than most so if you dont like it stay away from them). It is highly regulated and the CDO's created are not created out of the "worst of the worst" loans. The lack of smaller home loan lenders and the prudence of the banks means that there are very few "aussie sub prime" loans anyway, certainly not enough to make a CDO out of.

The only thing that would bring about a large number of defaults would be heavy unemployment of the middle class.

 

[sinner]

****ty numbers out for Australia today.

NAB business confidence down from 8 to 6.

QoQ housing starts down from +2.1% to -13.2% (expected -5%).

Hefty drop.

 

[Bigukraine]

****ty numbers out for Australia today.

NAB business confidence down from 8 to 6.

QoQ housing starts down from +2.1% to -13.2% (expected -5%).

Hefty drop.

re housing starts down -13.2% ........ bit hard to pour concrete and lay bricks and even prepare sites/services when you have seen noah's ark float down most streets Australia wide in the last qtr......... will see flow on(pardon the pun)and better figures 2011 qtr re starts.

 

[trainspotter]

The big 4 banks are gearing up to start lending on houseboats if this rain keeps falling.

 

[Platofx]

Hello All,

It seems to me that most Aussies and market commentators are far too focused on the domestic situation (supply and demand, employment, property values to income ratios etc).

It's my view that we will see a sharp and significant property market correction in the third quarter of 2011. Around that time I expect to see the broad Asian currencies come under sustained pressure, which in turn may begin a significant capital flight by Asian property investors as they liquidate "low-end" investment properties in Australian capital cities.

With China's inflation breaking above 5% over the weekend, it is expected they will use fx adjustment to bring corrections, and this will undoubtedly spill over into other Asian investment currencies. I suggest the first 2 quarters of 2011 may be a good time to remain on the sidelines for buyers.

Cheers

(I have no vested interest in the above commentary which simply represents my informed personal opinion).

 

[Trembling Hand]

With China's inflation breaking above 5% over the weekend, it is expected they will use fx adjustment to bring corrections, and this will undoubtedly spill over into other Asian investment currencies. I suggest the first 2 quarters of 2011 may be a good time to remain on the sidelines for buyers.

Cheers

(I have no vested interest in the above commentary which simply represents my informed personal opinion).

Errrr huh?

Ya may want to double check your "informed personal opinion". The pressure is on China to move UP their currency. Have a look at the Taiwan Dollar as a china proxy,

 

[Platofx]

Hello Trembling Hand,

Yes, that's exactly my point. China can hardly reduce rates to contain inflation - it will constrict lending and raise rates. In contrast the US is exerting robust presure for China to lower rates, and the end result will undoubtedly be (significantly) increased fx volatility with negative repercussions for Asia currencies. I expect the raised rates in China will impact quite directly on Chinese property investments in Oz .... I just didn't want to write a 300 word explanation ... I simply wanted to add some informed commentary to the debate that seemed needed, from someone with broad market experience etc ...

Cheers

 

[tothemax6]

Hello Trembling Hand,

Yes, that's exactly my point. China can hardly reduce rates to contain inflation - it will constrict lending and raise rates. In contrast the US is exerting robust presure for China to lower rates, and the end result will undoubtedly be (significantly) increased fx volatility with negative repercussions for Asia currencies. I expect the raised rates in China will impact quite directly on Chinese property investments in Oz .... I just didn't want to write a 300 word explanation ... I simply wanted to add some informed commentary to the debate that seemed needed, from someone with broad market experience etc ...

Cheers

The word 'robust' seems to be getting overused nowadays. 'Exerting robust pressure' just sounds hilarious. The US is also nagging for China to allow the yuan to appreciate, but it doesn't move. I don't see what the US has to pressure china with, so its more or less just noise. Also, I can imagine some pretty epic downturns in Australia if the chinese simply let their housing bubble go unchecked, so perhaps it is best they tighten now.

 

[Platofx]

Hello tothmax6,

The phrase "epic downturns in Australia" seems rather reduntant as well - but I think we are simply using the language of the moment as we type. So let's not seize upon semantics or we digress from subtance.

You are completely correct. Which is exactly my point. I am simply wanting to suggest two points of opinion to help inform the debate and "Mums and Dad's". Firstly, in my view, we are about to enter a period of escalating extremes in fx, and that secondly, in my view this will have direct and adverse implications for the Australian property market. In other words, a severe property market correct driven by external rather than domestic imperitives.

On a broader canvas, we are not yet into the blue sky the politicians love to portray.

Kindly,

 

[explod]

Errrr huh?

Ya may want to double check your "informed personal opinion". The pressure is on China to move UP their currency. Have a look at the Taiwan Dollar as a china proxy,

But they don't want to. Need to keep it pegged to the US$ to support the value of what is owed to them.

Still no reports in the press or on here re weekend property results.
must be bad out there.

Interesting

 

[Platofx]

Hello Explod,

You're quite right - they don't want to. However, with inflation breaking north of 5%, I will be very surprised if China doesn' begin to immediately and progressively adjust the peg to raise rates. The last thing they want is a serious inflation issue on top of the property bubble they're seeing develop.

My concern is that we are already seeing a significant and measurable slowing in the Oz property market, and it won't take much to see the Asian property investment capital start to withdraw, exacerbating the number of low-end investor properties coming onto the market.

Melbourne clearance rate was 61% for the weekend, compared to last year at 81% ....

Regards

 

[Alex Barton]

It's my view that we will see a sharp and significant property market correction in the third quarter of 2011. Around that time I expect to see the broad Asian currencies come under sustained pressure, which in turn may begin a significant capital flight by Asian property investors as they liquidate "low-end" investment properties in Australian capital cities.

That sounds reasonable. Many are predicting a market downturn next year.

 

[GumbyLearner]

Also, I can imagine some pretty epic downturns in Australia if the chinese simply let their housing bubble go unchecked, so perhaps it is best they tighten now.

Jim Chanos shares your concerns tothemax6

Check the vid on this blokes blog

http://www.unconventionaleconomist.com/2010/12/chanos-again-warns-on-chinas-bubble.html

 

[tothemax6]

But they don't want to. Need to keep it pegged to the US$ to support the value of what is owed to them.
Still no reports in the press or on here re weekend property results.
must be bad out there.
Interesting

Well if that is the goal of the chinese then good luck to them. If anyone knows anything about bernanke and his background, you also know that he is quite happy to run the printing presses until they blow up. He sees the current crisis as a copy of what happened following 1929, and he thinks that if he does the opposite of what the central bank did then, then everything will turn out fine.

Originally Posted by Platofx
It's my view that we will see a sharp and significant property market correction in the third quarter of 2011. Around that time I expect to see the broad Asian currencies come under sustained pressure, which in turn may begin a significant capital flight by Asian property investors as they liquidate "low-end" investment properties in Australian capital cities.

Why would the Asian currencies come under sustained pressure?

 

[Agentm]

Australand MD rob pradolin says 30% - 40% of unit developments wont go ahead by the devolpas maate

so all those with cash deposits have to sit out up to 5 years as the sunset clause keeps their cash locked in their greedy hands..

its looking real good now for some sort of a shake up

but as we all know, the usual suspects here will be rallying hard for this bubble to continue and maintain its all good..

imho when the property market corrects, it will impact on the latte drinkin developas and of course will send plenty of cafes broke as their client base can no longer afford to sip lattes all day and be a "developa maate" anymore..

victoria is going great with the falsified weekly auction figures grossly overestimating clearance rates with mysteriously disappearing results never being corrected until friday, long forgotten as everyone believes the false 61% clearance rates touted by the industry desperate to keep this bubble alive

who on earth is going to buy the 50% of the homes not sold at auction these past months?

its curious that the experts in the industry are seeing a different horizon to the rose coloured glass wearing developas, and the supporters of the bubble here on this forum.... in melbourne there are only 33,451 apartment up for sale right now to be built.. thats hardly a problem for the latte sippers i think.. lets see how quickly they clear that stock out..


all good... we will wait and see if 2011 will be a 20% increase in RE value for the developas or will the whole charade fall into a giant hole and a new reality come through for the bubble supporters..

i am tipping a rude awakening beckons..

 

[indeck]

Platofx, glad someone finally has something intelligent to say without attempting to patronise someone with an opposing view.

Is there any data on the amount of foreign investment on houses in Australia from overseas, specifically china? If our housing is in a bubble why would you want to invest in that market when housing in the US is so cheap? Is it a demographic thing? Do Asians want to own here because it’s perceived to be a better place to live? Are they buying to live here or just buy and sell to build wealth? How strongly linked is China's housing to ours? I'm not necessarily looking for an answer from anyone here they're just questions on my mind.

A slowdown in Chinese construction will likely impact our exports quite heavily so I imagine the ramifications for this could be quite large. My opinion was that without a major GFC type event the aus housing market will never pop dramatically, maybe deflate, however China may hold the pin here.

 

[KurwaJegoMac]

Australand MD rob pradolin says 30% - 40% of unit developments wont go ahead by the devolpas maate

so all those with cash deposits have to sit out up to 5 years as the sunset clause keeps their cash locked in their greedy hands..

Wow that's so nice of them to warn us like that! I'm so glad that the developers have our best interests at heart and want to warn little ol' me that about 40% of the apartments originally planned to be developed are no longer going ahead.

EGADS! That means there will be an undersupply of apartments and property because 40% less than planned will be built!!!

Quick everyone! Call your real estate agent! Call your neighbour! Call your cat and dog and tell them to buy buy buy as we're going to hit an undersupply of apartments!!!!!!!!!!!!



Note: Not taking a stab at Agentm - just don't believe the tripe being posted by these developers as they have a vested interest.

 

[Bigukraine]

Australand MD rob pradolin says 30% - 40% of unit developments wont go ahead by the devolpas maate

so all those with cash deposits have to sit out up to 5 years as the sunset clause keeps their cash locked in their greedy hands..

its looking real good now for some sort of a shake up

but as we all know, the usual suspects here will be rallying hard for this bubble to continue and maintain its all good..

imho when the property market corrects, it will impact on the latte drinkin developas and of course will send plenty of cafes broke as their client base can no longer afford to sip lattes all day and be a "developa maate" anymore..

victoria is going great with the falsified weekly auction figures grossly overestimating clearance rates with mysteriously disappearing results never being corrected until friday, long forgotten as everyone believes the false 61% clearance rates touted by the industry desperate to keep this bubble alive

who on earth is going to buy the 50% of the homes not sold at auction these past months?

its curious that the experts in the industry are seeing a different horizon to the rose coloured glass wearing developas, and the supporters of the bubble here on this forum.... in melbourne there are only 33,451 apartment up for sale right now to be built.. thats hardly a problem for the latte sippers i think.. lets see how quickly they clear that stock out..


all good... we will wait and see if 2011 will be a 20% increase in RE value for the developas or will the whole charade fall into a giant hole and a new reality come through for the bubble supporters..

i am tipping a rude awakening beckons..

G,day Agent

I have to say that i agree with a lot that is written on the bear side of opinion and have enjoyed reading peoples informative posts,but i must laugh at the continual ref. to Melbourne and Sydney realestate as examples... of course the prices in area's around the cbd's have hit a critical mass and a correction in what ever form will come and hit hard.

The big question is how are the rest of the non capital cities areas are going to correct... 25-40 % ??? that seems to be the general consensus overall so that being the case a non capital city home purchased now at $280 k will be worth under $200 k ....

My point is that i believe a fall will come but to a level about 4.5 times of average income for what ever demographic you live in and it will be demographic specific.

p.s. 33,451 apartments would sell even in this market as long as they were priced right but as usual a huge community/strata fee on top of council rates and LVR of about 60-70% lend 30-40% deposit is the killer for these developments.. i know i wouldn't buy one .

Think i'll stick to living in country areas as there is not as much pressure on infrastructure,the air is cleaner,and i believe the price for housing is derisked to a degree...
On with the show