Joebloggs Posted March 9, 2011 Share Posted March 9, 2011 Hi, slightly moving away from the initial thread, but we're looking to move to Perth later this year, and as mentioned housing is very costly now. I was reading that not many banks/lenders offer anything more than 90% mortgages now, but there is an insurance you can take out which can assist and push it further towards the 100% mark. Does anyone have any knowledge of this? Carl Yeah its called mortgage insurance and it required if you have less than 20% deposit, really it protects the bank and not you..... but you have the pleasure of paying for it anyway. Its like taking $13K and throwing it down a hole. You probably still need at least 10% deposit and the mortgage insurance.... so it wouldnt be near 100%. More like 90% Link to comment Share on other sites More sharing options...
Guest carlj3108 Posted March 9, 2011 Share Posted March 9, 2011 Yeah its called mortgage insurance and it required if you have less than 20% deposit, really it protects the bank and not you..... but you have the pleasure of paying for it anyway. Its like taking $13K and throwing it down a hole. You probably still need at least 10% deposit and the mortgage insurance.... so it wouldnt be near 100%. More like 90% Am i right in saying the 13k (example) is a percentage of the price? And that this can be added to the mortgage? Link to comment Share on other sites More sharing options...
Joebloggs Posted March 9, 2011 Share Posted March 9, 2011 Am i right in saying the 13k (example) is a percentage of the price? And that this can be added to the mortgage? Yeah it's an example and I think it can be rolled into the Mortgage. Link to comment Share on other sites More sharing options...
the coyne family Posted March 9, 2011 Share Posted March 9, 2011 I remember listening to an Irish economist on the radio back in 2007, she was advising people to sell put their money in the bank and rent. She gave her situation as an example. Her house was valued at € 1,000,000+ she said she was going to sell and would rent for about 5 years she thought she would be able to buy her house back for about €500,000, she turned out to be right, no one listened. My house was worth €550,000 in 2007/2008, I had to put it on the market in Nov 2010 for €310,000 only to get offers of €255,000, luckily for us it still gives us some profit but not enough to buy in Australia, so we have decided not to sell and rent it out, we will rent in Australia. Wish I had listened back then and sold, I can see the same thing happening down under, prices are way to high and unsustainable. Link to comment Share on other sites More sharing options...
stevenpasha Posted March 9, 2011 Share Posted March 9, 2011 if interest rates go up later part 2011 then through 2012 prices will drop although not by much as there is much demand and not much supply especially around or near to main cities,wait until around end 2012 and you may get a bargain Link to comment Share on other sites More sharing options...
Guest shark Posted March 9, 2011 Share Posted March 9, 2011 2012 and you may get a bargainlong time to wait Link to comment Share on other sites More sharing options...
steen1976 Posted March 9, 2011 Share Posted March 9, 2011 I remember listening to an Irish economist on the radio back in 2007, she was advising people to sell put their money in the bank and rent.She gave her situation as an example. Her house was valued at € 1,000,000+ she said she was going to sell and would rent for about 5 years she thought she would be able to buy her house back for about €500,000, she turned out to be right, no one listened. My house was worth €550,000 in 2007/2008, I had to put it on the market in Nov 2010 for €310,000 only to get offers of €255,000, luckily for us it still gives us some profit but not enough to buy in Australia, so we have decided not to sell and rent it out, we will rent in Australia. Wish I had listened back then and sold, I can see the same thing happening down under, prices are way to high and unsustainable. I really can't understand why anyone thinks Australia would be immune from it. Link to comment Share on other sites More sharing options...
BrisDubBris Posted March 9, 2011 Share Posted March 9, 2011 I remember listening to an Irish economist on the radio back in 2007, she was advising people to sell put their money in the bank and rent.She gave her situation as an example. Her house was valued at € 1,000,000+ she said she was going to sell and would rent for about 5 years she thought she would be able to buy her house back for about €500,000, she turned out to be right, no one listened. My house was worth €550,000 in 2007/2008, I had to put it on the market in Nov 2010 for €310,000 only to get offers of €255,000, luckily for us it still gives us some profit but not enough to buy in Australia, so we have decided not to sell and rent it out, we will rent in Australia. Wish I had listened back then and sold, I can see the same thing happening down under, prices are way to high and unsustainable. So many people have been burned here in Ireland. People trapped in negative equity & can't go anywhere. There is no real floor in house prices now, it is really what people that can get a mortgage are prepared to pay which seems to vary wildly. Link to comment Share on other sites More sharing options...
stevenpasha Posted March 9, 2011 Share Posted March 9, 2011 I really can't understand why anyone thinks Australia would be immune from it. australia isnt immune from anything,but they have the one of the lowest unemployments in the world it has low levels of debt and most importantly australian banks arent exposed to america which is where the credit crisis happened,only if china go into recession will australia go down the pan and that wont happen for an awful long time .....if ever Link to comment Share on other sites More sharing options...
Paul1Perth Posted March 10, 2011 Share Posted March 10, 2011 I think Glen Stevens has been on the radio this morning saying that the ratio of earnings to house prices is about 4.5 and hasn't moved for 10 years or so in Oz. He doesn't see any reason to worry about it. With the current interest rate, slowing sales and slowly stagnating prices I reckon he's about right. To compare the price of houses when coming from the UK is a bit misleading. The average house in Perth would leave the average house in the UK standing in terms of size and quality. We sold an end terrace built in 1898 which had a warped gable end and a dodgy roof which you couldn't swing a cat in, for 52,000 pounds in 92 and bought an 4x2 with a big garden, 10 mins walk from a gorgeous beach, in a nice area for $132,000. That same house is now worth around $600,000 I guess but at the height of the boom it was closer to $800,000. Not that it matters to us, we aren't intending moving anywhere. Link to comment Share on other sites More sharing options...
skipjack Posted March 10, 2011 Share Posted March 10, 2011 I think Glen Stevens has been on the radio this morning saying that the ratio of earnings to house prices is about 4.5 and hasn't moved for 10 years or so in Oz. He doesn't see any reason to worry about it.With the current interest rate, slowing sales and slowly stagnating prices I reckon he's about right. To compare the price of houses when coming from the UK is a bit misleading. The average house in Perth would leave the average house in the UK standing in terms of size and quality. We sold an end terrace built in 1898 which had a warped gable end and a dodgy roof which you couldn't swing a cat in, for 52,000 pounds in 92 and bought an 4x2 with a big garden, 10 mins walk from a gorgeous beach, in a nice area for $132,000. That same house is now worth around $600,000 I guess but at the height of the boom it was closer to $800,000. Not that it matters to us, we aren't intending moving anywhere. A ratio of 4.5 (house price to earnings) may not be great but it’s not excessive for a prosperous country. England has seen ratios increase from 3.4 in 2003 to 5.1 in 2008. And this is a country average with the London and SE ratio being higher. Just like England, Australia has ratios that exceed 4.5 in some areas and ratios that are well below 4.5 in other areas. The ratio of 4.5 is here to stay and there’s very little that can be achieved through government or bank intervention. Source for data: mortgageguideuk... And I agree that it is also worth noting that you get a lot more land and square metres of house for your money in Aus. I wonder where Aus would come on the list if it was a comparison of earnings to house size. Link to comment Share on other sites More sharing options...
Life on easy street Posted March 10, 2011 Share Posted March 10, 2011 Yeah its called mortgage insurance and it required if you have less than 20% deposit, really it protects the bank and not you..... but you have the pleasure of paying for it anyway. Its like taking $13K and throwing it down a hole. You probably still need at least 10% deposit and the mortgage insurance.... so it wouldnt be near 100%. More like 90% I totally agree The UK had the same thing in the late 1980,s and many people found out the hard way In the early 1990,s when they had their properties repossessed that it was the bank that was protected and not them. Link to comment Share on other sites More sharing options...
stevemalbec Posted March 30, 2011 Share Posted March 30, 2011 I do like the website link that was posted above, but that does have a few flaws if you ask me. It has a static house price and rental price fluctuation. Such as house price will increase over the time of the mortgage. No hint of any variations. As you're feeling in t he uk, prices have dropped no doubt and it will be a while before they recover again. It's a thoroughy interesting debate though The website link you referred to Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com is excellent. And you can vary the price as well as the rent, just slide the bars under the words 'Annual home price change'. I agree with your analysis though. Unless you absolutely have to 'own' (i.e. rent the house off the bank if you're paying a mortgage), renting is so much cheaper at the moment. For the next few years I plan to rent, I'll be saving tens of thousands of dollars. Put that in the bank at 6.5% and I'll be winning two ways; have a huge deposit, and buy the same house for 10-20% less after property prices have fallen. Which they will unless you believe that Australia is unique and can defy the laws of economics. Link to comment Share on other sites More sharing options...
Guest guest30038 Posted March 30, 2011 Share Posted March 30, 2011 unless you believe that Australia is unique and can defy the laws of economics. What laws are those? Scientific facts ot just conjecture as is psychoanlysis? Capitalism is not a science. When every other major economy was obeying those so-called "laws" of economics, Australia remained pretty much unscathed. Link to comment Share on other sites More sharing options...
Guest Prawny4 Posted March 30, 2011 Share Posted March 30, 2011 Can't blame you for that selfish point mate! We want to buy a 5 bed house and since exchange rates are cr*p with UK pound and we are about to move over, a drop in house prices would be great for us too! I have attached an interesting article for you to read if you like too... Home | Unsubscribe | Port Phillip Publishing Real Estate Industry Forecasts Major Price Falls Tuesday, 29th March 2011 Melbourne, Australia By Kris Sayce Real Estate Industry Forecasts Major Price Falls Why These White Swans are More Dangerous than Black Swans ............................................................................................................................................................................. How do you average 42% gains since March 2007 when the market FALLS -18%? The simple answer is you get your stock recommendations from Kris Sayce of Australian Small Cap Investigator. Imagine how his tips may fare in a RISING market! To find out what stocks Kris is tipping for 2011, click here. ............................................................................................................................................................................. In today’s Money Morning: House prices to drop 5%... Valuers make real valuations… A lifetime of servitude… Statistics ARE lies… Black or White Swans… Real Estate Industry Forecasts Major Price Falls Your editor is still on Australian Small-Cap Investigator duties this morning. Click here to get the latest issue when it’s released. “We anticipate a reduction in the median price from $601,500 in December last year to somewhere between 3-5% below that in March.” – Enzo Raimondo, CEO, Real Estate Institute of Victoria. It seems it’s not just the so-called lunatic fringe saying the housing bubble has burst. Yep, your editor has been called worse than a lunatic for saying house prices are over-valued. It’s a good job we’re thick-skinned and can handle it. After all, we’re not afraid to point fingers at others. So it’s only fair we cop it on the chin when others attack us. And we’re happy to cop it because ultimately, we know we’re right. Make no mistake, a 3-5% drop in the median house price is big. Especially if you’re mortgaged to the eyeballs. For some, when you take into account the fees associated with buying and selling, it can mean the difference between walking away break-even or walking away with a big loss. And I mean big. A 5% drop from $601,500 is a fall of $30,075. That’s a lot of money to lose when you’ve been told house prices always go up. But as I’ve written before, the median house price number is misleading. Because it only shows the value of houses that have sold. It doesn’t include all those poor souls who are unable to offload the burden of an oversized mortgage on an overpriced house. Throughout Australia there are thousands of people who just can’t afford to sell. Thanks to the spruikers and government handouts, these people have locked themselves into a lifetime of servitude to the banks. Why? Too scared to take a loss Well, imagine you bought a house for almost no money down at the peak of the market in 2009. You put in a few grand of your own money, but most of the deposit came from the first home-buyer’s bribe. Now you realise it was a mistake because you can’t afford the increase in interest costs, and you want to get out. Only you can’t. Because selling now means taking a loss on the property. How can you lose when you didn’t put anything in? That’s not fair. But that’s what happens when you’re suckered in by bankers and spruikers. Not only that, but because you’re in negative equity once you sell you’ll still owe the bank cash for the shortfall. Not forgetting the agent’s fees and removalists and coming up with a deposit for a rental property. What are the alternatives? I mean, there certainly aren’t any savings to draw from because the mortgage is such a burden there isn’t any spare cash to save. All the home owner can do is either resign themselves to living in debt-ridden poverty – in a big house – or try and get a personal loan from the bank to cover all the expenses. To be honest, that’s probably the best option. But few will take it. They’ll prefer to wait until the value of housing has fallen even further and the negative equity is even larger. At that time, with higher interest rates, they’ll have no choice but to bail out. Not a day goes by without tales of personal housing disasters hitting the Money Morning mailbag. Most of them I can’t reprint here for fear of identifying the writer. But here’s a classic example: “My brother is looking at buying his first house this year. “He has his eyes on a place in Coburg / Preston that is being sold via private sale. “The owners tried to sell it last year at auction with a reserve of $795K but it didn’t sell. “The owners now want $680-700K for it. “My brother got an independent valuer in on the weekend who valued it at around $630-650K.” This is a key point. Houses like this have been massively overvalued. We’re sure in this case the vendors saw a similar house in the street selling and thought, “Ours is better than that”, or “If they got that for theirs, we’ll get this for ours.” Twelve months later, realisation is setting in that house prices were stupidly high. Even if they get the top-end of their asking price, it’s still more than a 10% reduction. But if they’re not careful, they’ll be lucky to even get the valuer’s price by the time the market crash has finished. Then there was this letter: “In regards to the falling house prices, you are spot on the mark. My wife and I are just about to put our house on the market and we will be lucky to get what we paid for it 12 months ago after putting an extra 20K into it. “We live in ______ on the coast just east of ________ in Qld. Both places next door to us are for sale and there are ~70 houses for sale in ______ between 400 - 450K (hopefully our price bracket).” So much for “marvellous water views” Or this one, also from Queensland: “As of Saturday 5.30 pm, Buderim, I have direct personal experience to support your contention that Aus. house prices have collapsed. “A beautiful, tasteful, 4 bed, 2 bath house with a view to die for, magnificent landscape garden, recent kitchen and bathrooms, terraces, etc, on a 2,500 sq mtr lot, in a highly sought after area of Buderim was auctioned by NEXT. Only one real bid of A$750K, passed in! I believe sold post auction for no more than 850K. Point is this house has been for sale since last September, when it was marketed at over 1.5 Mil.” Ah, a “view to die for”. That would be the equivalent of Jessica Irvine’s “marvellous water views”. Well, it hasn’t done much for this home. Almost a 50% drop in the asking price. It shows you even places with a view can become overpriced. And that places with a view can suffer catastrophic price falls. But why would someone take such a huge cut? We can only guess. Our guess is you’ve got a whole bunch of people who bought in thinking prices would always go up. They thought there would be a greater fool who would pay an even higher price. They probably even used equity against another property as the deposit. But the greater fool investment strategy will always end messily. As I say, there are many more stories coming through each day. But that’s not the only thing. Where are the cashed-up investors now? There’s a remarkable silence by the property investors. As recently as twelve months ago, we’d receive letters from property investors saying, “I’m looking forward to house prices falling because then I can buy even more properties, so bring it on sucker.” But now, not a single word from them. They’ve obviously just realised their so-called wealth isn’t wealth at all. It’s just equity in property. And equity in property isn’t wealth. Equity in property is just a pre-approved loan from the bank. Because as soon as you withdraw equity it becomes debt… how can that be wealth? It isn’t. Besides, as you know, even pre-approved loans are subject to approval. And right now, we’ll guess banks won’t lend against existing properties because they’re worried about falling prices. This lack of credit growth is what’s helping push prices lower. But that’s what happens with Ponzi finance. It becomes self-fulfilling as the banks see the writing on the wall and don’t want to be the one left holding the baby [Ed note: apologies for the mixed metaphor!] Think about it, how do banks decide on the valuation of a property? That’s right. They require a valuation. And as our reader noted above, the valuers are pricing down valuations. Lies, damned lies and statistical lies But that hasn’t stopped the spruikers from keeping on keeping on. In a recent article for Switzer.com.au, Comsec economist Craig James writes: “There is an old adage in economics – there are lies, damned lies and statistics. And when it comes to the issue of housing valuations and affordability, there is a lot of data that can be categorised in the two former terms and much less in the latter.” So what does Mr. James do? That’s right, he quotes the following statistic: “However Glenn Stevens did say something else: ‘The other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio is about 4.5 and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.’ “What he was quoting here was the analysis by Rismark International and RP Data on housing affordability. To measure home affordability you need to compare all incomes across Australia with all home prices across Australia – city and regional. Unfortunately, a raft of industry bodies don’t do that and it produces spurious outcomes.” It seems Mr. James has rather missed the point of the adage about “lies, damned lies and statistics.” The adage is ironic, it’s not literal. It’s not a statement to say that statistics are truthful compared to lies and damned lies. The meaning of the statement is that statistics are worse than lies and damned lies. That you can trust a statistic less than any lie. To make it easier to understand, perhaps we could make the statement more literal: There are lies, damned lies and statistical lies. There. Because you can take a statistic and do anything with it to support your argument. Hence it’s worse than lies and damned lies. So for Mr. James to rely on a statistic from companies that provide data to the housing industry misses the point by a wide margin. Mr. James winds up with: “The bottom-line is that Australian home prices aren’t so extraordinary after all. Once foreign investors start focusing on the facts rather than fiction then perhaps a few more dollars will start flowing Down Under. Because it is a concern abroad, and it’s not being helped by misinformation.” Really? Perhaps Mr. James should look at some of the other statistics he’s so fond of. For instance, the median house price in the United States is… $202,000. That’s less than half the median house price in Australia. About a third of the Melbourne median house price. But, then again, that’s just a statistic too. So do with it what you will. But we don’t need statistics to know that Australian house prices are overpriced. However much the spruikers and bankers try to talk it up, the slowing and contracting of credit in Australia will be the ultimate reason for the continuing house price crash. It’s getting worse by the day. And we’re getting more letters by the day to prove it. Cheers. Kris Sayce For Money Morning Australia Why These White Swans Could Be More Dangerous than Black Swans by Aaron Tyrrell, Editor I don’t know if you have read Nassim Taleb’s book, The Black Swan. It’s a classic ‘must read’... like Atlas Shrugged... or anything by Tolstoy. Plenty of people claim to have read it. Not many have. But that doesn’t stop them pretending to know what a black swan is. It’s an interesting book... The Black Swan… but it’s kind of pompous and repetitive once you’ve got the main idea down. After reading it you know what a black swan is. And you know what a black swan is not. For the sheer pleasure of understanding something most others only claim to, it is worth the 30-odd bucks you’ll pay for it. You can pick up the newly revised edition from your local bookshop (before it goes bust) to read it for yourself. Or you could take 7 minutes to watch Taleb in action at this meeting of the minds in January 2011. Just in case you don’t want to watch Nassim wax lyrical on fragile and robust markets, the main take away from The Black Swan is this: Before people came to Australia they believed there were only white swans in the world. When they got here they discovered there were black swans, too. It was completely unforeseeable. And it changed the world forever. From then on, when people thought about swans, they had to take into account that there were black swans and white swans. Today, guns are firing and bombs exploding in Libya... while the Italian’s plot Gaddafi’s escape route. And Japan faces its biggest crises since Hiroshima and Nagasaki... a post-quake clean-up and the growing problem of radiation contamination. Reporters like Gillen Tett in the Financial Times have called these events black swans. Events nobody could predict that had a high impact on the global community – and the markets. Even our own Dr Alex Cowie wrote in a Diggers & Drillers update on 18 March: ‘The market is presenting some great entry prices for small caps, but is not a good time to be complacent. It’s not so much a black swan that we are seeing, but a gaggle of the damn things. I had a quick flick back to my first update of the year and I mentioned back then to expect a few black swan events this year. I just didn’t expect that two of my three suggestions would happen within the first quarter! All we need now is for a bank to collapse and we’ve got the trifecta.’ But to me, these events are more like white swans tarred with a black brush. I won’t argue with the impact. In the short term, it was devastating. The market crashed more than 300 points… Around six months’ worth of buying was wiped out in four days. The market has bounced since then. But the important thing is these disasters weren’t ‘random’. If you were smart – and used a little forward thinking – you could have prepared for them. They were like gunpowder kegs sitting in the back of a dark shed. Light a match near them and you can be 100% certain what will happen... Powder Keg + Lit Match = Predictable Devastation. Middle Eastern Tyrant + Civil Uprising = Bloodshed. Nuclear Power Plant + Earthquake Zone + Tsunami Region = Nuclear Catastrophe. Civil War in the Middle East + Nuclear Crisis in Japan = Negative Market Sentiment. And that negative market sentiment leads to a deep, sudden dip in the market. These events were foreseeable. They were damned near obvious. But because anyone could see it coming, no one thought them important enough to do anything about them! When riots broke out in Tunisia in January, Alex Cowie said to me – this thing could spread through the Arab World and drive up the price of oil. About a week later Dan Denning published this: “With young populations and high unemployment levels in the Arab world, you can imagine many young men being recruited to a revolutionary cause. Whether it's a democratic revolution or an Islamic revolution is a whole other matter. And what, if anything, it would mean to oil prices, is unknown.” As you can see, there was nothing random about what unfolded. And you know that if the proper precautions had been taken everything could have been perfectly safe. So these were not black swans. They were white swans... commonplace, obvious, everyday swans that a lot of people take for granted, overlook or choose to ignore. As Dan Denning wrote to Australian Wealth Gameplan readers on 15 March... ‘I don’t think it would be right to call this [the Japanese quake] a Black Swan. That is, it’s not a scenario that was unthinkable and therefore something you couldn’t plan for. But it was highly improbable that a major earthquake AND a major tsunami would cause multiple reactor failures and lead to an even further ecological crisis on top of natural disaster of immense proportions.’ They were predictable – to the point of boring. So much so, that the war in Libya dropped out of the news almost completely when Japan hit the headlines. And now – a few weeks later – it’s lucky to make the front page of the major tabloid news. Some of today’s top stories on the Herald Sun website are about public toilets, speeding drivers and Ricky Ponting’s captaincy of the Aussie cricket team. (Personally, I hope he goes.) And because of this predictability, the market has shrugged it off. Until the next white swan in black clothing crops up. The popping of the Australian housing bubble could be one of these white swans. The drying up of Chinese demand for Aussie commodities could be another. And don’t forget about the death of the U.S. dollar. The good news is though, these events are predictable. And you can prepare your portfolio so you won’t get wiped out... like so many investors did in the GFC. All you have to do is prepare like these white swans will appear today. Aaron Tyrrell for Money Morning Australia Please note: this email was sent from a no-reply email address. 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The Dirty Secret Behind Silver's Record Rise You might not have noticed, but since 2001 silver has actually risen more than gold. Silver bullion is up 790%, compared to gold's 458%. Recently silver hit a 31 year record. Why? The common answers are supply and demand, uncertainty in the markets and inflation fears. But the real reason for silver's meteoric rise is much more sinister. Find out what it is here. ....................................................... ....................................................... 2010 was a terrible year for most Aussie stock investors. Westpac dropped 12.6%... Telstra stock tanked 18.4%... NAB lost 13%... Woolworths was down 3.8%... ANZ crawled up 1.6%... But in the same year Aussie stocks conspired to make you poorer, one Australian investment service made a cumulative 57% return for its members. That's pretty surprising in a market that ended the year down 2%. But here's the really surprising part: That return came from investing in the exact same stocks as the ones I've listed above - along with others that made a loss during the year. How is that possible? Click here for the answer. ....................................................... Money Morning | New to Money Morning? | Free Subscription | Contact Us | Advertise All content is © - 2007 - 2011 Port Phillip Publishing Pty Ltd All Rights Reserved We encourage you to republish our material, all we ask is that you provide a working text link back to the original article on this site. More information on our free financial content. Port Phillip Publishing Pty Ltd holds an Australian Financial Services License: 323 988. ACN: 117 765 009 ABN: 33 117 765 009 Disclaimer and Important Information | Privacy Policy Contact us: if you have any questions about your subscription, please email cs@portphillippublishing.com.au or phone 1300 667 481. 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stevemalbec Posted March 30, 2011 Share Posted March 30, 2011 What laws are those? Scientific facts ot just conjecture as is psychoanlysis? Capitalism is not a science. When every other major economy was obeying those so-called "laws" of economics, Australia remained pretty much unscathed. Who mentioned capitalism? Not me! If you want to be pedantic, lets call them 'principles', 'rules', whatever you like. Maybe even an adage (or adagium (Latin), a short but memorable saying which holds some important fact of experience that is considered true by many people, or that has gained some credibility through its long use.) I'd argue that the First Time Buyers' grants and the boom in exports to China have helped Australia avoid the worst effects of the Global Financial Crisis so far, but also that it won't escape them forever. I'm not saying that there'll be a crash in prices to the extent as in Ireland, the USA, or Spain, but I'll put money (indeed I have!) on the fact that property prices in Australia will be lower in real terms in 5 years time. Link to comment Share on other sites More sharing options...
KIRK AND CO Posted March 30, 2011 Share Posted March 30, 2011 can't blame you for that selfish point mate! We want to buy a 5 bed house and since exchange rates are cr*p with uk pound and we are about to move over, a drop in house prices would be great for us too! I have attached an interesting article for you to read if you like too... Home | unsubscribe | port phillip publishing real estate industry forecasts major price falls tuesday, 29th march 2011 melbourne, australia by kris sayce real estate industry forecasts major price falls why these white swans are more dangerous than black swans ............................................................................................................................................................................. How do you average 42% gains since march 2007 when the market falls -18%? the simple answer is you get your stock recommendations from kris sayce of australian small cap investigator. imagine how his tips may fare in a rising market! to find out what stocks kris is tipping for 2011, click here. ............................................................................................................................................................................. In today’s money morning: House prices to drop 5%... Valuers make real valuations… a lifetime of servitude… statistics are lies… black or white swans… real estate industry forecasts major price falls your editor is still on australian small-cap investigator duties this morning. Click here to get the latest issue when it’s released. “we anticipate a reduction in the median price from $601,500 in december last year to somewhere between 3-5% below that in march.” – enzo raimondo, ceo, real estate institute of victoria. It seems it’s not just the so-called lunatic fringe saying the housing bubble has burst. Yep, your editor has been called worse than a lunatic for saying house prices are over-valued. It’s a good job we’re thick-skinned and can handle it. After all, we’re not afraid to point fingers at others. So it’s only fair we cop it on the chin when others attack us. And we’re happy to cop it because ultimately, we know we’re right. Make no mistake, a 3-5% drop in the median house price is big. Especially if you’re mortgaged to the eyeballs. For some, when you take into account the fees associated with buying and selling, it can mean the difference between walking away break-even or walking away with a big loss. And i mean big. A 5% drop from $601,500 is a fall of $30,075. That’s a lot of money to lose when you’ve been told house prices always go up. But as i’ve written before, the median house price number is misleading. Because it only shows the value of houses that have sold. It doesn’t include all those poor souls who are unable to offload the burden of an oversized mortgage on an overpriced house. Throughout australia there are thousands of people who just can’t afford to sell. Thanks to the spruikers and government handouts, these people have locked themselves into a lifetime of servitude to the banks. Why? Too scared to take a loss well, imagine you bought a house for almost no money down at the peak of the market in 2009. You put in a few grand of your own money, but most of the deposit came from the first home-buyer’s bribe. Now you realise it was a mistake because you can’t afford the increase in interest costs, and you want to get out. Only you can’t. Because selling now means taking a loss on the property. How can you lose when you didn’t put anything in? That’s not fair. But that’s what happens when you’re suckered in by bankers and spruikers. Not only that, but because you’re in negative equity once you sell you’ll still owe the bank cash for the shortfall. Not forgetting the agent’s fees and removalists and coming up with a deposit for a rental property. What are the alternatives? I mean, there certainly aren’t any savings to draw from because the mortgage is such a burden there isn’t any spare cash to save. All the home owner can do is either resign themselves to living in debt-ridden poverty – in a big house – or try and get a personal loan from the bank to cover all the expenses. To be honest, that’s probably the best option. But few will take it. They’ll prefer to wait until the value of housing has fallen even further and the negative equity is even larger. At that time, with higher interest rates, they’ll have no choice but to bail out. Not a day goes by without tales of personal housing disasters hitting the money morning mailbag. Most of them i can’t reprint here for fear of identifying the writer. But here’s a classic example: “my brother is looking at buying his first house this year. “he has his eyes on a place in coburg / preston that is being sold via private sale. “the owners tried to sell it last year at auction with a reserve of $795k but it didn’t sell. “the owners now want $680-700k for it. “my brother got an independent valuer in on the weekend who valued it at around $630-650k.” this is a key point. Houses like this have been massively overvalued. We’re sure in this case the vendors saw a similar house in the street selling and thought, “ours is better than that”, or “if they got that for theirs, we’ll get this for ours.” twelve months later, realisation is setting in that house prices were stupidly high. Even if they get the top-end of their asking price, it’s still more than a 10% reduction. But if they’re not careful, they’ll be lucky to even get the valuer’s price by the time the market crash has finished. Then there was this letter: “in regards to the falling house prices, you are spot on the mark. My wife and i are just about to put our house on the market and we will be lucky to get what we paid for it 12 months ago after putting an extra 20k into it. “we live in ______ on the coast just east of ________ in qld. Both places next door to us are for sale and there are ~70 houses for sale in ______ between 400 - 450k (hopefully our price bracket).” so much for “marvellous water views” or this one, also from queensland: “as of saturday 5.30 pm, buderim, i have direct personal experience to support your contention that aus. House prices have collapsed. “a beautiful, tasteful, 4 bed, 2 bath house with a view to die for, magnificent landscape garden, recent kitchen and bathrooms, terraces, etc, on a 2,500 sq mtr lot, in a highly sought after area of buderim was auctioned by next. Only one real bid of a$750k, passed in! I believe sold post auction for no more than 850k. Point is this house has been for sale since last september, when it was marketed at over 1.5 mil.” ah, a “view to die for”. That would be the equivalent of jessica irvine’s “marvellous water views”. Well, it hasn’t done much for this home. Almost a 50% drop in the asking price. It shows you even places with a view can become overpriced. And that places with a view can suffer catastrophic price falls. But why would someone take such a huge cut? We can only guess. Our guess is you’ve got a whole bunch of people who bought in thinking prices would always go up. They thought there would be a greater fool who would pay an even higher price. They probably even used equity against another property as the deposit. But the greater fool investment strategy will always end messily. As i say, there are many more stories coming through each day. But that’s not the only thing. Where are the cashed-up investors now? There’s a remarkable silence by the property investors. As recently as twelve months ago, we’d receive letters from property investors saying, “i’m looking forward to house prices falling because then i can buy even more properties, so bring it on sucker.” but now, not a single word from them. They’ve obviously just realised their so-called wealth isn’t wealth at all. It’s just equity in property. And equity in property isn’t wealth. Equity in property is just a pre-approved loan from the bank. Because as soon as you withdraw equity it becomes debt… how can that be wealth? It isn’t. Besides, as you know, even pre-approved loans are subject to approval. And right now, we’ll guess banks won’t lend against existing properties because they’re worried about falling prices. This lack of credit growth is what’s helping push prices lower. But that’s what happens with ponzi finance. It becomes self-fulfilling as the banks see the writing on the wall and don’t want to be the one left holding the baby [ed note: Apologies for the mixed metaphor!] think about it, how do banks decide on the valuation of a property? That’s right. They require a valuation. And as our reader noted above, the valuers are pricing down valuations. Lies, damned lies and statistical lies but that hasn’t stopped the spruikers from keeping on keeping on. In a recent article for switzer.com.au, comsec economist craig james writes: “there is an old adage in economics – there are lies, damned lies and statistics. And when it comes to the issue of housing valuations and affordability, there is a lot of data that can be categorised in the two former terms and much less in the latter.” so what does mr. James do? That’s right, he quotes the following statistic: “however glenn stevens did say something else: ‘the other thing i’ll say is that it’s quite often quoted very high ratios of price to income for australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio is about 4.5 and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as i can see.’ “what he was quoting here was the analysis by rismark international and rp data on housing affordability. To measure home affordability you need to compare all incomes across australia with all home prices across australia – city and regional. Unfortunately, a raft of industry bodies don’t do that and it produces spurious outcomes.” it seems mr. James has rather missed the point of the adage about “lies, damned lies and statistics.” the adage is ironic, it’s not literal. It’s not a statement to say that statistics are truthful compared to lies and damned lies. The meaning of the statement is that statistics are worse than lies and damned lies. That you can trust a statistic less than any lie. To make it easier to understand, perhaps we could make the statement more literal: There are lies, damned lies and statistical lies. There. Because you can take a statistic and do anything with it to support your argument. Hence it’s worse than lies and damned lies. So for mr. James to rely on a statistic from companies that provide data to the housing industry misses the point by a wide margin. Mr. James winds up with: “the bottom-line is that australian home prices aren’t so extraordinary after all. Once foreign investors start focusing on the facts rather than fiction then perhaps a few more dollars will start flowing down under. Because it is a concern abroad, and it’s not being helped by misinformation.” really? Perhaps mr. James should look at some of the other statistics he’s so fond of. For instance, the median house price in the united states is… $202,000. That’s less than half the median house price in australia. About a third of the melbourne median house price. But, then again, that’s just a statistic too. So do with it what you will. But we don’t need statistics to know that australian house prices are overpriced. However much the spruikers and bankers try to talk it up, the slowing and contracting of credit in australia will be the ultimate reason for the continuing house price crash. It’s getting worse by the day. And we’re getting more letters by the day to prove it. Cheers. Kris sayce for money morning australia why these white swans could be more dangerous than black swans by aaron tyrrell, editor i don’t know if you have read nassim taleb’s book, the black swan. It’s a classic ‘must read’... Like atlas shrugged... Or anything by tolstoy. Plenty of people claim to have read it. Not many have. But that doesn’t stop them pretending to know what a black swan is. It’s an interesting book... The black swan… but it’s kind of pompous and repetitive once you’ve got the main idea down. After reading it you know what a black swan is. And you know what a black swan is not. For the sheer pleasure of understanding something most others only claim to, it is worth the 30-odd bucks you’ll pay for it. You can pick up the newly revised edition from your local bookshop (before it goes bust) to read it for yourself. Or you could take 7 minutes to watch taleb in action at this meeting of the minds in january 2011. Just in case you don’t want to watch nassim wax lyrical on fragile and robust markets, the main take away from the black swan is this: Before people came to australia they believed there were only white swans in the world. When they got here they discovered there were black swans, too. It was completely unforeseeable. And it changed the world forever. From then on, when people thought about swans, they had to take into account that there were black swans and white swans. Today, guns are firing and bombs exploding in libya... While the italian’s plot gaddafi’s escape route. And japan faces its biggest crises since hiroshima and nagasaki... A post-quake clean-up and the growing problem of radiation contamination. Reporters like gillen tett in the financial times have called these events black swans. Events nobody could predict that had a high impact on the global community – and the markets. Even our own dr alex cowie wrote in a diggers & drillers update on 18 march: ‘the market is presenting some great entry prices for small caps, but is not a good time to be complacent. It’s not so much a black swan that we are seeing, but a gaggle of the damn things. I had a quick flick back to my first update of the year and i mentioned back then to expect a few black swan events this year. I just didn’t expect that two of my three suggestions would happen within the first quarter! All we need now is for a bank to collapse and we’ve got the trifecta.’ but to me, these events are more like white swans tarred with a black brush. I won’t argue with the impact. In the short term, it was devastating. The market crashed more than 300 points… around six months’ worth of buying was wiped out in four days. The market has bounced since then. But the important thing is these disasters weren’t ‘random’. If you were smart – and used a little forward thinking – you could have prepared for them. They were like gunpowder kegs sitting in the back of a dark shed. Light a match near them and you can be 100% certain what will happen... Powder keg + lit match = predictable devastation. Middle eastern tyrant + civil uprising = bloodshed. Nuclear power plant + earthquake zone + tsunami region = nuclear catastrophe. Civil war in the middle east + nuclear crisis in japan = negative market sentiment. And that negative market sentiment leads to a deep, sudden dip in the market. These events were foreseeable. They were damned near obvious. But because anyone could see it coming, no one thought them important enough to do anything about them! When riots broke out in tunisia in january, alex cowie said to me – this thing could spread through the arab world and drive up the price of oil. About a week later dan denning published this: “with young populations and high unemployment levels in the arab world, you can imagine many young men being recruited to a revolutionary cause. Whether it's a democratic revolution or an islamic revolution is a whole other matter. And what, if anything, it would mean to oil prices, is unknown.” as you can see, there was nothing random about what unfolded. And you know that if the proper precautions had been taken everything could have been perfectly safe. So these were not black swans. They were white swans... Commonplace, obvious, everyday swans that a lot of people take for granted, overlook or choose to ignore. As dan denning wrote to australian wealth gameplan readers on 15 march... ‘i don’t think it would be right to call this [the japanese quake] a black swan. That is, it’s not a scenario that was unthinkable and therefore something you couldn’t plan for. But it was highly improbable that a major earthquake and a major tsunami would cause multiple reactor failures and lead to an even further ecological crisis on top of natural disaster of immense proportions.’ they were predictable – to the point of boring. So much so, that the war in libya dropped out of the news almost completely when japan hit the headlines. And now – a few weeks later – it’s lucky to make the front page of the major tabloid news. Some of today’s top stories on the herald sun website are about public toilets, speeding drivers and ricky ponting’s captaincy of the aussie cricket team. (personally, i hope he goes.) and because of this predictability, the market has shrugged it off. Until the next white swan in black clothing crops up. The popping of the australian housing bubble could be one of these white swans. The drying up of chinese demand for aussie commodities could be another. And don’t forget about the death of the u.s. Dollar. The good news is though, these events are predictable. And you can prepare your portfolio so you won’t get wiped out... Like so many investors did in the gfc. All you have to do is prepare like these white swans will appear today. Aaron tyrrell for money morning australia please note: This email was sent from a no-reply email address. 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The dirty secret behind silver's record rise you might not have noticed, but since 2001 silver has actually risen more than gold. Silver bullion is up 790%, compared to gold's 458%. Recently silver hit a 31 year record. Why? The common answers are supply and demand, uncertainty in the markets and inflation fears. But the real reason for silver's meteoric rise is much more sinister. Find out what it is here. ....................................................... ....................................................... 2010 was a terrible year for most aussie stock investors. Westpac dropped 12.6%... Telstra stock tanked 18.4%... Nab lost 13%... Woolworths was down 3.8%... Anz crawled up 1.6%... But in the same year aussie stocks conspired to make you poorer, one australian investment service made a cumulative 57% return for its members. That's pretty surprising in a market that ended the year down 2%. But here's the really surprising part: That return came from investing in the exact same stocks as the ones i've listed above - along with others that made a loss during the year. How is that possible? Click here for the answer. ....................................................... Money morning | new to money morning? | free subscription | contact us | advertise all content is © - 2007 - 2011 port phillip publishing pty ltd all rights reserved we encourage you to republish our material, all we ask is that you provide a working text link back to the original article on this site. More information on our free financial content. Port phillip publishing pty ltd holds an australian financial services license: 323 988. Acn: 117 765 009 abn: 33 117 765 009 disclaimer and important information | privacy policy contact us: If you have any questions about your subscription, please email cs@portphillippublishing.com.au or phone 1300 667 481. Or you can write to us at: Po box 899, braeside, vic 3195. Customer services business hours are mon-fri 9am-5pm aest to remove your name from money morning and associated external offers sent from money morning visit this link. :SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP::SLEEP:lol Link to comment Share on other sites More sharing options...
Guest Prawny4 Posted March 30, 2011 Share Posted March 30, 2011 Sorry I bored you! LOL! x Link to comment Share on other sites More sharing options...
Guest guest30038 Posted March 30, 2011 Share Posted March 30, 2011 I'll put money (indeed I have!) on the fact that property prices in Australia will be lower in real terms in 5 years time. So would I. Salaries will rise at a higher rate than house prices. Link to comment Share on other sites More sharing options...
Parley Posted March 31, 2011 Share Posted March 31, 2011 There are many good things about having a mortgage over renting though. One is the enforced savings implicit in it. While you may be able to rent for a lesser monthly outlay and theoretically save the extra money and invest it and end up better off, the reality is most people wouldn't. Many of us live to our means and spend what we have left after paying off the bills, so paying a mortgage is good for these people. Also security. Ideally everyone should own their own home by the time they retire. I would hate to be a pensioner paying rent. Link to comment Share on other sites More sharing options...
gpo1971 Posted March 31, 2011 Share Posted March 31, 2011 Expensive houses aren't selling at the moment, cheaper ones still do ok. Anything $700k+, you just won't shift in Perth at the mo, unless you're lucky. Link to comment Share on other sites More sharing options...
stevemalbec Posted March 31, 2011 Share Posted March 31, 2011 There are many good things about having a mortgage over renting though.One is the enforced savings implicit in it. While you may be able to rent for a lesser monthly outlay and theoretically save the extra money and invest it and end up better off, the reality is most people wouldn't. Many of us live to our means and spend what we have left after paying off the bills, so paying a mortgage is good for these people. Also security. Ideally everyone should own their own home by the time they retire. I would hate to be a pensioner paying rent. I agree with you here. But for me, in the short term, say over the next 5 years, I calculate I could save $10,000 a year paying rent instead of buying. Scenario: paying $1,300 a month rent and putting my $300,000 in the bank, instead of buying a unit for $300,000 (a real example I've seen recently, there was the choice of two identical units in the same block). That's assuming there's no change in prices or rents. So after 5 years I'd have $50k extra deposit. But in the medium to long term, I'd always prefer to buy. I've never rented in my life, always bought, but in this market, I'm going to wait. Link to comment Share on other sites More sharing options...
stevemalbec Posted March 31, 2011 Share Posted March 31, 2011 So would I. Salaries will rise at a higher rate than house prices. And in actual terms, I'd say property prices will be lower in three years. Its already started. Link to comment Share on other sites More sharing options...
Guest Guest 47403 Posted March 31, 2011 Share Posted March 31, 2011 To those that are saying house prices will drop do you think that when/if the bubble bursts people will be left with negative equity or will it just be a case of the property market slowing down considerably? Link to comment Share on other sites More sharing options...
gpo1971 Posted March 31, 2011 Share Posted March 31, 2011 And in actual terms, I'd say property prices will be lower in three years. Its already started. Doubt it. Prices have only really lowered in WA & NT anyway & it won't last long. Link to comment Share on other sites More sharing options...
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