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asian_stallion

Australian Housing bubbles. Any thoughts? Lived through the US Housing crisis and it was really bad

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kane666

Certainly hasn't hit rock bottom yet but there would need to be some event that would trigger a US style housing crisis. I expect post May events to put further pressure on prices. China could also tighten up money outflows further which would affect the demand from Chinese buyers who are a significant chunk of the market. Overall on the housing and general economic side there is nothing to get excited about for some time yet. One of the reasons our dollar is poo.

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Johnnyquid

Foreigners may not know this but if you wanted to start an argument in Australia for the last 20 years you only just had to mention 2 words - real estate.

This thread should be pleasant.... Just try to ignore that people will likely only argue the future outlook that serves their self interest.

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Mr Wombat

Why would an american care whats happening in the  australian property market. It is all swings and roundabouts.

Some years it goes up some years it goes down. But we have all got to live somewhere, and most australians want to live near the coast. 

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keepitfun

I think it depends on your location and timeframe.

if all your retirement savings are tied up in same same apartments and you want to retire in the next few years....maybe an issue.  If you live in your house and intend doing so for a while no big deal.

while the recent banking royal commission uncovered some marginal practices among lenders, it is not as rampant across the market as my understanding of the US situation.  Combine that with our ever  increasing population feeding demand...should be just a blip.

 

me...I’m happy to hold on tight....got gold, got cash, got property and got shares...should be ok on balance.

Edited by keepitfun
Bloody auto correct

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talung66
23 minutes ago, asian_stallion said:

http://amp.abc.net.au/article/10343364

 

seems like if you can get out it’s a good time to get the heck out.

There is no crisis prices are just getting back to reality.

Few to many paying too much with  low interest rate that gave some states a boom 

If you haven't over extended on your loan no problem 

 

 

Edited by talung66

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boingo

Doom and gloomers talk it down. 30-40% fall in house prices means the economy is totally in the toilet with mass unemployment and the cries for first home buyers to get better prices will mean naught as they won't have a job. Real estate brokers talk it up to keep selling and the banks have too much invested to let it slide too far. Interest rates still very low but with tightened credit approvals the feasting that was the Sydney and Melbourne markets is over so we are seeing a price correction. Some bargains to be had over the next 12-18 months in those markets but other areas should hold up ok.

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asian_stallion
13 minutes ago, Mr Wombat said:

Why would an american care whats happening in the  australian property market. It is all swings and roundabouts.

Some years it goes up some years it goes down. But we have all got to live somewhere, and most australians want to live near the coast. 

Because of how intertwined the financial market has become. The high end market in Sydney and Melbourne seems dependent on Foreign  Chinese buyers who are getting constrained by capital outflow restrictions back home. Seems like those 2 market could experience more price reduction. 

Now a day can not be sure where the trigger for financial black swans will come from. 

Can Never know what event  would  or could trigger a crisis. For example who would have thought that a Serbian National Gavrilo Princip can start WW1?

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Mr Wombat
18 minutes ago, asian_stallion said:

The high end market in Sydney and Melbourne seems dependent on Foreign  Chinese buyers who are getting constrained by capital outflow restrictions back home. Seems like those 2 market could experience more price reduction. 

Now a day can not be sure where the trigger for financial black swans will come from. 

 

The main reason for the down turn is australian banks not lending money as freely as before. The government wrapped them over the knuckles for lending money to anyone with a Pulse and instigated a royal commission. That is all done and dusted now and they got off very lightly, so you can expect after we have an election in a few months everything will be back to normal.

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talung66
24 minutes ago, Mr Wombat said:

The main reason for the down turn is australian banks not lending money as freely as before. The government wrapped them over the knuckles for lending money to anyone with a Pulse and instigated a royal commission. That is all done and dusted now and they got off very lightly, so you can expect after we have an election in a few months everything will be back to normal.

I have been through some issues with the Australian banks with trailing commissions and sales tactics.

But compared to Thai banks for the average jo blow customer  Australian banks are Angels for every day basic banking.

Can you just imagine the uproar of  how thing would be if we got sold insurance and  charged to open an account and to deposit or withdraw from another branch over the counter.

We wouldn't have any staff that can handle the position for the amount of shit we would give them. But due to saving face in thailand they seem to do it with a smile and are ok with being charged for nothing.

Edited by talung66

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bfinkay

Getting out now is too late

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Atlas

I played the game for 30yrs... No more.. The media has a lot to answer for, they spread doom and gloom and then people eventually start to believe it... 

If you buy & sell in the same market it really makes no difference... 

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bfinkay

Diversification is key, of you keep all your eggs in one basket well you can't complain

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ocka

A basic house in Australia used to cost three years of the average wage.

Now it costs 6 years except in Sydney and Melbourne where a crumbling, termite ridden shitbox will cost you 15 years wages,  assuming you can service the mortgage.

Economic mismanagement.  Gotta love it.

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talung66
7 hours ago, ocka said:

A basic house in Australia used to cost three years of the average wage.

Now it costs 6 years except in Sydney and Melbourne where a crumbling, termite ridden shitbox will cost you 15 years wages,  assuming you can service the mortgage.

Economic mismanagement.  Gotta love it.

Are you working on the the average wage at 85k your should find something decent for 1.275  in outer sydney 

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ocka
4 hours ago, talung66 said:

Are you working on the the average wage at 85k your should find something decent for 1.275  in outer sydney

That is Australia's national shame.

"Something decent in outer Sydney" ought to cost no more than $250k.

 

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ocka

If I was the dictator of Australia I would implement the following.

  1. Immediately ban all non-citizens from owning residential property.
  2. Notify all non-citizens who own residential property that it must be sold to an Australian citizen within 5 years or the property will be confiscated.
  3. Immediately fund construction of public housing at $40 billion per year, to continue for the next ten years.
  4. Each time a new immigrant is admitted to Australia, add $100,000 to the public housing budget.  No exceptions.
  5. Each time a foreign guest worker is admitted to Australia on a 457 visa, add $100,000 to the public housing budget.
  6. Immediately abolish the capital gains tax discount on residential investment properties, and return to paying capital gains tax at full rate on the indexed gain.
  7. Forbid any mortgagee from foreclosing on any owner-occupied home,  provided that the owner continues to make payments of at least 30% of their net income.

If all of the above were implemented,  a basic family home would be back to the average price of 3 years average wage within 10 years,  and young working class people would be able to buy a home,  just like they could 30 years ago.

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INTJ_Cynic
1 hour ago, ocka said:

If I was the dictator of Australia I would implement the following.

  1. Immediately ban all non-citizens from owning residential property.
  2. Notify all non-citizens who own residential property that it must be sold to an Australian citizen within 5 years or the property will be confiscated. 
  3. Immediately fund construction of public housing at $40 billion per year, to continue for the next ten years. 
  4. Each time a new immigrant is admitted to Australia, add $100,000 to the public housing budget.  No exceptions.
  5. Each time a foreign guest worker is admitted to Australia on a 457 visa, add $100,000 to the public housing budget.
  6. Immediately abolish the capital gains tax discount on residential investment properties, and return to paying capital gains tax at full rate on the indexed gain. 
  7. Forbid any mortgagee from foreclosing on any owner-occupied home,  provided that the owner continues to make payments of at least 30% of their net income. 

If all of the above were implemented,  a basic family home would be back to the average price of 3 years average wage within 10 years,  and young working class people would be able to buy a home,  just like they could 30 years ago.

Assuming the main reason prices are too high is a lack of supply (i.e. more demand for housing chasing a fixed or very limited supply) all of the above are not bad ideas on their merits as they would either increase supply--by constructing new housing--and/or decrease demand (by discouraging purchases by speculators, buy-to-let landlords, and affluent foreigners/permanent residents looking for a safe asset to stash some wealth in even if they have zero intention of living in said property).

With that said, wouldn't # 2 seriously run afoul of the law? I know American law is different than Australian or British law but since they all came from English common law there are bound to be certain similarities. The law in the US is that while they (the Federal, state, or local government) can seize one's property under eminent domain for public purposes they do have to pay a fair market price for said property. Simply saying to people "sell in X number of years of else we'll confiscate your property and give you zilch for it" would run afoul of our Constitution and Bill of Rights. Surely Australia has something similar? Even if not, sezing property without compensations sounds kind of like something out of North Korea or a 3rd world failed state, not a modern, developed, and (relatively) free country like Australia.

Also, give that within a few years your plan would doubtless lead to housing prices falling severely (which again, is kind of the point...as you yourself stated "If all of the above were implemented,  a basic family home would be back to the average price of 3 years average wage within 10 years,  and young working class people would be able to buy a home,  just like they could 30 years ago) which is great for new buyers but what about the people it would throw underwater who had bought at the current prices (today's high prices)? The way I see it there are three options in this case (and none of them are good):

One, the underwater-on-their-mortgages borrowers take the hit themselves. This unfortunately means that either they are trapped in place and cannot sell, thus hurting economic mobility because they cannot move to a place with better jobs, or that they sell and get hit with a deficiency judgment and spend the rest of their lives as wage-garnished debt slaves (this is what happened in Spain and a few other countries after the 2008-09 real estate market crash...the borrowers got stuck with the debt even if they sold the house or got foreclosed on; the bankruptcy laws of these countries even forbade discharge of this debt in many of these cases! ) which in addition to being cruel to the borrowers also would seriously harm the economy through the channel of reduced consumer demand (because people are still stuck with heavy debt burdens for a property that is underwater and which they may no longer even own).

Two, the banks take the hit. If the house is short sold or foreclosed upon then the bank gets any equity left after the sale but if there is no equity (say, a $1,000,000 mortgage remaining on a house that is now worth $400,000) then the bank's shareholders and if necessary bondholders eat the losses. This seems a fair solution; both the bank and the borrower shoulder some losses--the borrower through being foreclosed on and losing his house and the bank though having to eat the difference between the mortgage and current value of the house...or at least the difference between the current mortgage payment and the 30% of the borrower's net income as per 8 above which would presumably be less than said mortgage payment. The issue here is that if the banks aren't well-capitalized enough then the losses could overwhelm their balance sheets and the government--essentially meaning the taxpaying public--could end up having to bail them out (like in the US, Ireland, Britain, Germany, etc post-2008).

Three, the government just bails out the banks and/or the homeowners directly; same result in the end as #2 above--taxpayers stuck with the losses; this could also happen if option 2 above was feasible (banks well-capitalized enough that their capital structure could afford to take the hit) but the FIRE sector has enough political pull (like in the US) to force the government to bail them out anyway; this means that losses that should have been borne by making the common and preferred stock of the banks worthless and forcing the bondholders to become the new stockholders (at as a significant haircut to the value of the bonds as needed in order to make the bank financially sound again) would instead be shifted to the shoulders of Mr. and Ms. Australian taxpayer.

Just some things to consider.

 

 

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ocka

@INTJ_Cynic Thank you for a very reasonable and interesting reply.

48 minutes ago, INTJ_Cynic said:

Simply saying to people "sell in X number of years of else we'll confiscate your property and give you zilch for it" would run afoul of our Constitution and Bill of Rights. Surely Australia has something similar?

You are probably right on this.  There was a reason I said "dictator" and not "prime minister".  A prime minister couldn't easily make such a decision.  I am not a lawyer, but I understand that in such cases,  the government takes the hit.  That would mean the implementation cost would be spread across the nations taxpayers.   As a taxpayer myself,  I would accept this if necessary.

52 minutes ago, INTJ_Cynic said:

the people it would throw underwater who had bought at the current prices (today's high prices)

item 7 is intended to ensure that owner occupiers don't take the hit if they lose their job or income.  Of course they should still make the payments they agreed to when signing the mortgage,  and they will still own the same house at the end, so they have lost nothing that they did not already agree to spend.  

For geared property investors, it's tough luck.   They chose to use their wealth to profit from the misery of others in an overpriced market.  Their gamble didn't pay off.  Tough titty.  Some of them might declare bankruptcy, and if so,  the banks take a hit.  As a bank shareholder, I can live with that to resolve the desperately unfair situation that we presently have.

1 hour ago, INTJ_Cynic said:

Three, the government just bails out the banks and/or the homeowners directly; same result in the end as #2 above--taxpayers stuck with the losses

Taxpayers are going to take a bit of a haircut anyway in this scenario,  because they will need to fund 40 billion a year to bring the public housing stock up to match the last 20 years of unfunded immigration.  We have added about 4 million immigrants to the country since public housing was de-funded in the 1990s.  That's nearly a 20% rise in the population, with no attempt to provide them with anywhere to live.  It's not surprising that prices are high.

Personally, if all this was done and my house fell to one third of its value, I would still be OK with that.  I only bought it to live in.  When I die, I like the idea that some young family could buy it at a reasonable price, instead of it going to a rich Chinese speculator.

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yobbo
5 hours ago, ocka said:

If I was the dictator of Australia I would implement the following.

  1. Immediately ban all non-citizens from owning residential property.
  2. Notify all non-citizens who own residential property that it must be sold to an Australian citizen within 5 years or the property will be confiscated.
  3. Immediately fund construction of public housing at $40 billion per year, to continue for the next ten years.
  4. Each time a new immigrant is admitted to Australia, add $100,000 to the public housing budget.  No exceptions.
  5. Each time a foreign guest worker is admitted to Australia on a 457 visa, add $100,000 to the public housing budget.
  6. Immediately abolish the capital gains tax discount on residential investment properties, and return to paying capital gains tax at full rate on the indexed gain.
  7. Forbid any mortgagee from foreclosing on any owner-occupied home,  provided that the owner continues to make payments of at least 30% of their net income.

If all of the above were implemented,  a basic family home would be back to the average price of 3 years average wage within 10 years,  and young working class people would be able to buy a home,  just like they could 30 years ago.

I would also get rid of negative gearing on property. And get rid of the CGT discount.

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Mr Wombat
16 minutes ago, yobbo said:

I would also get rid of negative gearing on property. And get rid of the CGT discount.

You may have your wish soon at the next election.

Negative gearing is only offsetting your costs against profit from the investment - same as any other business in australia. I dont see how they can do it.

If I invest in a bakery I make a profit on turnover and then offset my costs against that. If gross profit exceeds costs i pay tax on that. If I make a loss I can offset it against other income. Whats the difference with property investment

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yobbo
2 minutes ago, Mr Wombat said:

You may have your wish soon at the next election.

Negative gearing is only offsetting your costs against profit from the investment - same as any other business in australia. I dont see how they can do it.

If I invest in a bakery I make a profit on turnover and then offset my costs against that. If gross profit exceeds costs i pay tax on that. If I make a loss I can offset it against other income. Whats the difference with property investment

Exactly, against an investment. You can't use a loss on shares to get a tax deduction on your normal income, why should an investment in housing be any different.

A bakery is not an investment. It's a business.

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Mr Wombat
2 minutes ago, yobbo said:

Exactly, against an investment. You can't use a loss on shares to get a tax deduction on your normal income, why should an investment in housing be any different.

A bakery is not an investment. It's a business.

If you borrowed money to buy shares you get a tax deduction, same same property.

If you are in the property investment game then that is your business, same same a bakery.

It is not as cut and dried as you think. There are way smarter people than me that are already working their way around the implications from cuts in negative gearing

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yobbo
4 minutes ago, Mr Wombat said:

If you borrowed money to buy shares you get a tax deduction, same same property.

If you are in the property investment game then that is your business, same same a bakery.

It is not as cut and dried as you think. There are way smarter people than me that are already working their way around the implications from cuts in negative gearing

Wow. Negative gearing is not the same between shares and property. Yes you get to deduct the interest you are paying on the loan used to buy shares. But if you lose money on the shares, you cannot deduct that against your normal income. It is not same same property.

Getting rid of negative gearing on property all together would be one of the best things they could do to help bring house prices back to normal levels.

Edited by yobbo

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Mr Wombat
1 minute ago, yobbo said:

Wow. Negative gearing is not the same between shares and property. Yes you get to deduct the interest you are paying on the loan used to buy shares. But if you lose money on the shares, you cannot deduct that against your normal income. It is not same same property.

Getting rid of negative gearing on property all together would be one of the best things they could do to help bring house prices back to normal levels.

Ok we are not getting anywhere going this way. Lets go the other way. When You left school and rented, who do you think owned that property. An investor. If the government cuts all the negative gearing incentives for investors eventually there will be no properties for rent unless the rent is higher than the mortgage cost.

Yes some people will be able to get into the property market at a cheaper level but supply will dry up for rentals as investors will walk away. They have shares, bonds, increase super, many other options to park their money. Alot of people are just never able to afford their own homes no matter how cheap they get, they will be screwed as they are stuck on the rental merry go round.

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