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JockinTas

Australian housing bubble

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I agree with the central tenet, but there are two issues I have with their analysis:

1) They imply that interest-only loans indicate a problem, presumably because they assume IO is all people can afford. In actuality, going interest only is a common tax minimisation strategy. People will often have the principal portion of a payment sitting in an offset account.

2) It's not clear that those graphs (primarily the rental income graph) are normalised for inflation. Not doing this would automatically make recent values seem higher than those from the 70s/80s

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I agree with the central tenet, but there are two issues I have with their analysis:

1) They imply that interest-only loans indicate a problem, presumably because they assume IO is all people can afford. In actuality, going interest only is a common tax minimisation strategy. People will often have the principal portion of a payment sitting in an offset account.

2) It's not clear that those graphs (primarily the rental income graph) are normalised for inflation. Not doing this would automatically make recent values seem higher than those from the 70s/80s

 

Interest only is indeed common practice for investor buyers for good tax reasons. But are they now getting rental returns that exceed those interest payments and other costs. And if they are making a profit are they simply putting that into more over-leveraged property.

 

It is the LTV that is the crucial stat as anything higher than 80% leaves property owners exposed to any significant downturn. The market in the UK was massively over-heated in the late 80s when I bought my first flat. I borrowed 90% and the value of the flat halved within 18 months. I knew people at that time who got 110% (yes, 110) as first time buyers. A lot of people got stung at the time. Whether some parts of Australia will see anything similar I don't know. The housing market where I am seems reasonably sane.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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I think it's localised

 

Sydney is silly and quite volatile, but I see a lot of parallels with London - it's quite easy to say on a vast range of indicators that it's overvalued, but as a city it is growing fast, in general faster than supply can keep up, and it is always highly attractive to people coming in. That's in general though, and there are areas of Sydney that have been attractive to investors (in the west) where values have already dropped off fairly smartly since last year. It's not all investment areas - the new ones that are opening up and where there is new infrastructure going in are still highly attractive. It's the investor demand for "cheap" (it's all relative, OK?) houses and units in existing areas that's stopped.

 

I think it has to be likely that the federal govt - whoever it is - will bow to pressure before too long and bite the NG and CGT bullet in respect of property investment, and a good thing too. It is very unhealthy for the Aus economy to have these generous subsidies in place, adding more speculation into a market that already has enough of it. Way too much of the personal wealth of Australians is tied up in bricks and mortar and that's always a risk. The faster they phase out some of this rubbish the better. I expect the likelihood of this is already acting to dampen investor demand

 

There are plenty of places elsewhere which have a very high level of investor activity and these have to be areas where values are most at risk. The Gold Coast seems to be one.....I am amazed at how many of my colleagues have investment property up there.

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It was changes to the MIRAS rules and allowances in the late 80s which triggered the collapse in values across the whole of the UK. And it had to be done as getting tax relief on a mortgage was inequitable and unsustainable much like NG here.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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I wouldn't call it a bubble.

From what I've read lately Sydney and Melbourne are likely to record gains this year of less that 2%, ie less than inflation.

Perth will probably drop another % or 2.

 

Nothing calamitous.


I want it all, and I want it now.

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I wouldn't call it a bubble.

From what I've read lately Sydney and Melbourne are likely to record gains this year of less that 2%, ie less than inflation.

Perth will probably drop another % or 2.

 

Nothing calamitous.

 

 

 

Sydney prices up 10.5% and Melbourne 11% last year which represents a slowdown for Sydney where prices were rising at 18%pa.

 

http://www.abc.net.au/news/2016-02-01/melbourne-overtakes-sydney-as-strongest-housing-market/7129124


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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If anyone's seen the film the big short they'll know what a housing bubble is. As long as people can carry on meeting their repayments then it's not going to be a problem. When a lot of people start defaulting then I could imagine a big correction. Not seen any signs of it yet though. I reckon prices will stabilise and a few areas fall while the really desirable ones keep increasing cos the demand is there. If the government bites the bullet though and changes the negative gearing then there would be a fall as investors look to offload. Can't see a Liberal government doing that though, too many of their rich friends and themselves affected.

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If anyone's seen the film the big short they'll know what a housing bubble is. As long as people can carry on meeting their repayments then it's not going to be a problem. When a lot of people start defaulting then I could imagine a big correction. Not seen any signs of it yet though. I reckon prices will stabilise and a few areas fall while the really desirable ones keep increasing cos the demand is there. If the government bites the bullet though and changes the negative gearing then there would be a fall as investors look to offload. Can't see a Liberal government doing that though, too many of their rich friends and themselves affected.

No signs? Did you watch the 60 minutes clip in the article I posted yesterday?

 

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No signs? Did you watch the 60 minutes clip in the article I posted yesterday?

 

Sent from my Nexus 10 using Tapatalk

 

The programme focussed almost exclusively on a mining boomtown so those examples cannot easily be extrapolated to the whole country.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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No signs? Did you watch the 60 minutes clip in the article I posted yesterday?

 

Sent from my Nexus 10 using Tapatalk

No I didn't. If they just focussed on one place though like the other post suggests, then it's not right to say it's country or even City wide. I'm sure a few people got stung in places like Port Headland and Kununnura but if they couldn't see a dowturn was going to happen in places that have shortages and high prices because of one industry, with nothing much else being attractive then investors must be a bit silly. Common sense should have been enough. Not many people would go and live there by choice. Unlike major cities.

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I think we have been hearing about the great property crash at the start of every year for about 8 years now.


I want it all, and I want it now.

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I think we have been hearing about the great property crash at the start of every year for about 8 years now.

 

Agreed, ever since I arrived almost 5 yrs ago anyway. At first it used to worry me - I'd look at houses (and then apartments..) in Sydney and think how am I ever going to afford to buy anything. Now I just look on bemused. I've added the words 'property porn' to my vocabulary. The valuations do not make any logical sense to me and are a big part of why I'm going home!

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Who says it will be any different in the UK ?


I want it all, and I want it now.

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Agreed, ever since I arrived almost 5 yrs ago anyway. At first it used to worry me - I'd look at houses (and then apartments..) in Sydney and think how am I ever going to afford to buy anything. Now I just look on bemused. I've added the words 'property porn' to my vocabulary. The valuations do not make any logical sense to me and are a big part of why I'm going home!

 

You will find SE England just as crazy. Our 1930s pebble-dash 3 bed semi in a less than desirable part of Surrey sold for $850,000 (2:1) last year and is probably worth well over $900,000 today.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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When you consider you can buy in Brisbane in the 400's on 600 metres not that far out it could be worse!

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I'm not moving to the southeast - I'm from northern England and heading back there. Surprisingly, I can actually make more money there than in Sydney doing the same job. So for my specific circumstances it makes financial sense. And I also want to go back as well!

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I'm not moving to the southeast - I'm from northern England and heading back there. Surprisingly, I can actually make more money there than in Sydney doing the same job. So for my specific circumstances it makes financial sense. And I also want to go back as well!

 

Sounds like an easy choice! Although it is grim up north.:wink:

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Sounds like an easy choice! Although it is grim up north.:wink:

 

 

Yes it is, very very grim. Thats why everyone else should stay in the sunny south east. Keeps our houses affordable! :smile:

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No I didn't. If they just focussed on one place though like the other post suggests, then it's not right to say it's country or even City wide. I'm sure a few people got stung in places like Port Headland and Kununnura but if they couldn't see a dowturn was going to happen in places that have shortages and high prices because of one industry, with nothing much else being attractive then investors must be a bit silly. Common sense should have been enough. Not many people would go and live there by choice. Unlike major cities.

 

Isn't hindsight a wonderful thing? I recall distinctly you being in the camp prices wouldn't come down as demand was so high. Even as I was reporting massive drops in The Kimberly when on the spot.

You don't think over priced Perth will fall?

 

Just wait for the income shock to hit and watch the deleveraging. Houses and flats already at highest level for many a year on the market.

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It doesn't mean prices will fall.

 

I was just reading a report saying Melbourne is the most overvalued housing market in Australia.

 

However, it is expected to stagnate for a few years, not fall.

 

http://www.domain.com.au/news/melbourne-is-the-countrys-most-overvalued-market-corelogicmoodys-analytics-20160225-gn3ga0/


I want it all, and I want it now.

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I assume it must be quite a torrid time for the executive suites at the Reserve and APRA, either terrified at what is likely to happen or in utter delusion with regards the magnitude of the genie let out of the bottle.

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