The future of Australian property prices

[over9k]

Low interest rates change the required P/E. Dump the rates and the price will be bid up until the P/E has changed the same proportion. This is finance 101 stuff guys.

 

[sptrawler]

@basilio I'm wondering how a housing collapse is good for the banks.
Obviously some have better understanding of Bank solvency than I do, maybe you can enlighten me

 

[satanoperca]

@basilio I'm wondering how a housing collapse is good for the banks.
Obviously some have better understanding of Bank solvency than I do, maybe you can enlighten me

Simply, it wouldn't.

Banks have maintained a long term average of 200 basis point spreads between RBA and retail IR.

RBA has no room to move, okay maybe they can drop it to -0.1, maybe. But there is a reason why it is at 0.1 and not 0. Once it is 0, the public realizes the economy is f---kd, as negative means everything that the general public understand about financial instruments like IR goes out the door. The game played by central banks and economists is EXPOSED, for all to see.

It is similar but not the same as pricing product A @$1.99 as it is perceived to be cheaper than $2, but in today's world it is the same.

So, the banks are not in the business of owning homes, they are in the business of loaning money and have a contract that they own the home until you pay the money, fear.

Maybe Gartely's, predictions are correct, elliot wave is an interesting lens to view things, may he/she is wrong, but one thing is certain, the RBA and all central banks are out of ammo and even wall street has been exposed with Gamestop.

Interesting times for all.

All I can say is smile (cost you nothing) and say hello to strangers, collectively it can change how we all will deal with the changes that are upon us.

 

[sptrawler]

Thats what I thought @satanoperca , I was just wondering why Bas a couple of posts back, would think the Banks would be happy.
I think the banks will be wad punching their undies, but I guess most people think the banks are there to be screwed, when in reality everyone is screwed if the banks are.
They go under and then the overseas money lenders take over the mortages, I dont think they would have any trouble finding people to buy the properties, they just might not be aussies.?

 

[Warr87]

@basilio I'm wondering how a housing collapse is good for the banks.
Obviously some have better understanding of Bank solvency than I do, maybe you can enlighten me

Only thing I can think of is the fact is that its too big to fail. 2008 saw a lot of financial institutions receive handouts. But who knows. I don't know how it would work when the cards collapse.

Its also why I dont like winding back any responsible lending practices. Don't need more room for more leverage. Im not in the property market but it certainly won't be good for anyone.

 

[basilio]

I don't think a housing collapse would be "good" for banks. My point was that I think many homeowners with mortgages could be under pressure if this house of cards gets tipped over.

Obviously banks don't want to end up with a string of houses on their books. That is why they, theoretically, do everything they can to ensure their loan can be covered in the event of default. 20% deposit and so on.

IMV the banks have been one of the architects behind the boom in housing prices over the past 20 years. Can you remember the 105% loans given to people in the early 2000's ? The easy encouragement of allowing people to buy a second investment property using the built up equity of their first home ? The loan applications that were hugely fudged by mortgage brokers and still passed by banks to keep the game alive ? The unwillingness to explore the wider debts of aspiring home owners - Credit Cards, personal loans, Harvey Norman loans ?

The critical point is the leverage on 2% loans. As has been pointed out a simple 1% increase represents a 50% jump in interest costs. When loans were 10% it would take a 5% increase in interest to reach that outcome. Even at 5% loans which seems only yesterday (less than 18months ago) it would take a 2.5% increase to have such an effect.

People often quote the ratcheting of interest rates to 17% in the late 80's as the spark that caused the collapse of property prices in the early 90's .. However mortgage rates were around 13% before this squeeze so, in fact, the rise was much less than 50%.

For some perspective check this out. The rest of the story is also worth a read.

History of RBA Cash Rate in Australia | InfoChoice

The Reserve Bank of Australia's (RBA) cash rate target in-part determines interest rates on financial products.

www.infochoice.com.au

 

[Smurf1976]

i feel sorry for whatever government is in power when rates rise.

Agreed although it'll be outside their control when it does occur.

No politician will utter the words, lest it becomes their signature quote that's still aired 30 years later, but it'll be "the mortgage crisis we had to have".

My thinking is that at some point inflation rises and gains enough momentum to ultimately force the RBA's hand.

What I think everyone needs to be aware of is the risk of government using the financial resources of those who are prudent to bail out those who are foolish. That's a real risk in my view and there's lots of ways it could be done.

 

[qldfrog]

Only thing I can think of is the fact is that its too big to fail. 2008 saw a lot of financial institutions receive handouts. But who knows. I don't know how it would work when the cards collapse.

Its also why I dont like winding back any responsible lending practices. Don't need more room for more leverage. Im not in the property market but it certainly won't be good for anyone.

Pay your PPOR ASAP, unload any investment property then who cares if prices jump or fall, you can slwaus change and swap areas etc at relatively similar amount of dollars.
When it hurts is when thete are new huge differences between areascurrently overpriced sydney Melbourne and some peripheral areas Byron Bay, Noosa for the places 8 know.usually, a free market would tend to level these differences and keep economics ruling.
In our new universal income/jobkeeper workd you earn the same in Sydney Melbourne or Gympie Eden...that is bad news for Sydney Melbourne and very good news for previously cheap areas.
And so very very bad news for negative gearing IP investors...
This is happening now.

 

[over9k]

Alternatively, the migration, "foreign student" (citizenship buyers), and foreign "investment" (capital flight) floodgates are deregulated (opened) to simultaneously increase demand from population increase as well as get cashed up foreigners to keep bidding the prices up when aussies no longer have enough money to do so:


People forget that aus is actually a tiny country. You don't need much migration and "foreign investment" to drive housing demand up significantly. Australia is 3% of china's population alone.

Allow significant numbers of cashed up chinamen to buy the existing housing stock or significant numbers of cashed up foreign students to rent them and watch what happens. Then imagine what happens if (when) we allow both.

The reserve bank might be out of ammo, but the politicians sure aren't.



No disrespect meant: I think you guys are focusing on the wrong thing here.

 

[over9k]

i really don't think people understand how uncomfortable its going to get when rates eventually rise in the future. like you it gives me the willies to see it so low.

on another note, I wish I could borrow $500,000 @ 2% for trading, though apparently 'too risky' lol.

They won't raise rates. They'll fudge the inflation calculations (change the way inflation is measured) before they do that. Not to say that actual inflation (living costs) might mean that people can't borrow as much and house prices might (might) come down that way, but the interest rate itself won't change.

I hear you about the inability to borrow, but I believe a lot of it is actually legal - commbank wouldn't even give me an overdraft without a proper PAYG income. Like hey, I've got 500k in one of your other accounts but you won't let me overdraw 500 bucks on my everyday account if I see a cheap car part or something come up that I want to buy? Nope.


I don't know the specifics behind it all (any loans officers on this board?) but I wouldn't be surprised if they're actually legally prevented from lending you the money even if they wanted to. The only ones that will give me anything are the loan sharks or very close to it, and those contracts have all kinds of traps in them like missing a single payment adding 20% to your interest bill and all kinds of nasty stuff like that. A single dip in the market that you don't want to sell on/make a loan payment with can therefore wipe you out, so I won't go near them.

 

[againsthegrain]

They won't raise rates. They'll fudge the inflation calculations (change the way inflation is measured) before they do that. Not to say that actual inflation (living costs) might mean that people can't borrow as much and house prices might (might) come down that way, but the interest rate itself won't change.

I hear you about the inability to borrow, but I believe a lot of it is actually legal - commbank wouldn't even give me an overdraft without a proper PAYG income. Like hey, I've got 500k in one of your other accounts but you won't let me overdraw 500 bucks on my everyday account if I see a cheap car part or something come up that I want to buy? Nope.


I don't know the specifics behind it all (any loans officers on this board?) but I wouldn't be surprised if they're actually legally prevented from lending you the money even if they wanted to. The only ones that will give me anything are the loan sharks or very close to it, and those contracts have all kinds of traps in them like missing a single payment adding 20% to your interest bill and all kinds of nasty stuff like that. A single dip in the market that you don't want to sell on/make a loan payment with can therefore wipe you out, so I won't go near them.

Sounds a bit to me like you just might have a bias in the re market, you didn't happen to buy a ip recently?

 

[qldfrog]

Sounds a bit to me like you just might have a bias in the re market, you didn't happen to buy a ip recently?

not sure if you were replying to me, or one of my ignored list.No: I did not bought an ip recently and offloaded 2 in the last few years, only have kept one seaside apartment for my old days.abysmal ROI

 

[qldfrog]

Pay your PPOR ASAP, unload any investment property then who cares if prices jump or fall, you can slwaus change and swap areas etc at relatively similar amount of dollars.
When it hurts is when thete are new huge differences between areascurrently overpriced sydney Melbourne and some peripheral areas Byron Bay, Noosa for the places 8 know.usually, a free market would tend to level these differences and keep economics ruling.
In our new universal income/jobkeeper workd you earn the same in Sydney Melbourne or Gympie Eden...that is bad news for Sydney Melbourne and very good news for previously cheap areas.
And so very very bad news for negative gearing IP investors...
This is happening now.

apologies for abysmal typing, phone keyboard is too small

 

[againsthegrain]

not sure if you were replying to me, or one of my ignored list.No: I did not bought an ip recently and offloaded 2 in the last few years, only have kept one seaside apartment for my old days.abysmal ROI

no I was replying to over9k...must be on your ignore

 

[satanoperca]

Dire warning for Aussie housing market

When outsiders think about Australian culture, they might think of laid back people defined by sun, sand and backyard barbecues.

www.news.com.au

The Morrison government committed to $507 billion in stimulus policies, encompassing the JobKeeper program and JobSeeker supplement, among others.

At the same time the Reserve Bank (RBA) committed to up to $200 billion in near free (0.10 per cent interest) funding for the banks at a time when bank funding costs were spiking due to rising risks in financial markets.

To put these measures into perspective the entire Rudd-Gillard Global Financial Crisis era stimulus package was $51 billion spread over four years.

Explains it all, Libs will bankrupt the country before they allow property price to even decline a little bit, let alone crash.

 

[over9k]

Sounds a bit to me like you just might have a bias in the re market, you didn't happen to buy a ip recently?

Nope? Not sure where you're getting the bias bit from at all actually?

Like I've said before, there's two politicians in the country that don't own an investment property. Two. Fill in the blanks from there.

 

[sptrawler]

Dire warning for Aussie housing market

When outsiders think about Australian culture, they might think of laid back people defined by sun, sand and backyard barbecues.

www.news.com.au

Explains it all, Libs will bankrupt the country before they allow property price to even decline a little bit, let alone crash.

Im sure if it was in the best interest of most Australians, for a property collapse a Government would bring it about.
In Perth the property market is just coming out of the doldrums, after 8 years of property price losses.
Oh but I forgot there are only two places in Australia that property prices matter, Sydney and Melbourne, who gives a $hit about the rest of Australia.
Do people really care about property prices, or is it that the most vocal, want to get on board the Sydney ,Melbourne ponzi scheme, for personal gain.

 

[satanoperca]

Im sure if it was in the best interest of most Australians, for a property collapse a Government would bring it about.

Are you serious, do you think our elected officials give a rats arse about you or me, they are only interested in their own requirements to survive, for their property investments to keep going up in value.

Simple, the govnuts will bankrupt this country to keep property prices rising, they are not interested in invovations, manufacturing, service based industries, just one asset class that they all invest in property.

 

[againsthegrain]

Are you serious, do you think our elected officials give a rats arse about you or me, they are only interested in their own requirements to survive, for their property investments to keep going up in value.

Simple, the govnuts will bankrupt this country to keep property prices rising, they are not interested in invovations, manufacturing, service based industries, just one asset class that they all invest in property.

1% landlords 99% renters.. sunshine and lollipops

 

[sptrawler]

Well IMO a lot of the problem Australia has is highlighted by the response to the quarantine guy in Perth, many are saying they should increase the pay, so they dont have to have a second job driving Uber.
I bet if you tripled their pay, they would still do a second job, if time allowed.
The problem is most Aussies have become lazy, the people who come from real underpriviliged countries can see the opportunity and will jump at it.
Eventually they will leapfrog the Aussies, so who is wrong?
Just my opinion.