Australia Faces Its Demons

[wherebee]

So we have seen in the UK years of rampant house price inflation, resulting in undefendable debts for most borrowers, now resulting in a mini-crash and (possibly) a further set of falls to come in prices. If prices do not fall, other commentators seem to suggest that they will underperform inflation, bringing down cost in real terms.

My question is - the exact same bubble appears to be growing in Australia. Backed by the GFC that never was, homebuyers grant, negative gearing on BTL, it's going crazy - up 20% in Melbourne in one year for example. What advice would you all have, given the experience of the UK, to someone over 5-15 years, when we KNOW that sooner or later the party comes to an end. What would have been a successful strategy in the UK to end up with owning a good property that would be a long term family home given what we know now?

Trying to learn from the failures in the UK.....

HaveBee

[blue skies]

What advice would you all have, given the experience of the UK, to someone over 5-15 years, when we KNOW that sooner or later the party comes to an end. What would have been a successful strategy in the UK to end up with owning a good property that would be a long term family home given what we know now?

Trying to learn from the failures in the UK.....

HaveBee

I think this is just the start of the down turn.

This bubble in Australia can not possibly go on any more.

Rent unless you want to become a property day trader (20% in one year)

Who knows if the bubble will pop quick or slow.

live with in your means.

Or give up all hope and live in a van and travel.

[blue skies]

Australian banking crisis of 1893

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The 1893 banking crisis occurred in Australia when several of the commercial banks of the colonies within Australia collapsed.

During the 1880s there was a speculative boom in the Australian property market. Australian banks were operating in a free banking system, in addition to few legal restrictions on the operation of banks, there was no central bank and no government-provided deposit guarantees. The commercial banks lent heavily, but following the asset price collapse of 1888, companies that had borrowed money started to declare bankruptcy. The full banking crisis became apparent when the Federal Bank failed on 30 January 1893. By 17 May, 11 commercial banks had suspended trading.

And that was the end of the great Melbourne property bubble or was it?

[UncleKev]

That was quite an interesting time in Melbournes history, what the excerpt doesn't say is that the land boom had followed directly on the back of the gold boom. The place was rocking and Sydney only came into the fore following the bust. The commercial banks mentioned are still functioning buildings today and are still functioning and a must see particularly the Gothic Bank and 333 Collins these banks were built as a shrine to money and seeing is believing. Also the Rialto which still has one of the few remaining steam lifts on the side of the building, go inside and have a coffee you will not regret. Many suicides at this time as well truly fascinating period. Collins St property was more expensive than London that is the signal for the top.

as a young child growing up in Melbourne we were all brainwashed by being given models of the Commonwealth Bank building in the form of a money box so that we would get the "savings habit". I still have savings with the Commonweath Bank today, 40 years on.

These days I suppose the banks would be handing out credit cards to the school kids.

[housepricecrash]

Australian banking crisis of 1893

From Wikipedia, the free encyclopedia

Jump to: navigation, search

The 1893 banking crisis occurred in Australia when several of the commercial banks of the colonies within Australia collapsed.

During the 1880s there was a speculative boom in the Australian property market. Australian banks were operating in a free banking system, in addition to few legal restrictions on the operation of banks, there was no central bank and no government-provided deposit guarantees. The commercial banks lent heavily, but following the asset price collapse of 1888, companies that had borrowed money started to declare bankruptcy. The full banking crisis became apparent when the Federal Bank failed on 30 January 1893. By 17 May, 11 commercial banks had suspended trading.

And that was the end of the great Melbourne property bubble or was it?

Are you suggesting no property investments because of what happened 120 years ago?

[wherebee]

But for those recommending get in and fill your boots with debt - in a world in which no jobs are really safe, and multiples on income are so high in Australia, can that really be rational?

Edited May 5, 2010 by wherebee

[South Lorne]

But for those recommending get in and fill your boots with debt - in a world in which no jobs are really safe, and multiples on income are so high in Australia, can that really be rational?

......everywhere thinks they are the exception to the rule....remember Edinburgh.....

[blue skies]

Are you suggesting no property investments because of what happened 120 years ago?

I dont give finantual advice. I just give my humble opinion.

What I am suggesting and Glen Stevens has hinted at is that Australian property prices in a bubble.

Australian banks have something like 60% of there money in low deposite home loans, so if property prices were to fall dramaticly and unempoyment to rise, they will become insolvent.

History has a way of repeating it self, mainly because the hard lessons learned are forgotten when that generation dies.

So if we can not learn from the pages of history we are bound to repete the same mistakes, these are the words from a wise man but I dont know his name.

[steve99]

So we have seen in the UK years of rampant house price inflation, resulting in undefendable debts for most borrowers, now resulting in a mini-crash and (possibly) a further set of falls to come in prices. If prices do not fall, other commentators seem to suggest that they will underperform inflation, bringing down cost in real terms.

My question is - the exact same bubble appears to be growing in Australia. Backed by the GFC that never was, homebuyers grant, negative gearing on BTL, it's going crazy - up 20% in Melbourne in one year for example. What advice would you all have, given the experience of the UK, to someone over 5-15 years, when we KNOW that sooner or later the party comes to an end. What would have been a successful strategy in the UK to end up with owning a good property that would be a long term family home given what we know now?

Trying to learn from the failures in the UK.....

HaveBee

Appears to be growing? Its been growing in pace with UK bubble but maybe started a couple of years later and has now transmogrified into something much bigger and more evil than anything in the UK, say Ireland++ and worse on account of the government intervention++ free handouts to FTB'ers and massive tax dodges for specufestors. All sponsored by the banks of course and championed by the media with even less disagreement than anything you heard in the Uk pre 2008. All of course based on the soundness of our banks, or is it? The fact is, at least 30% of the money used to support Aus house prices is being borrowed from foreign entities (by our banks) who are spending your UK/USA bailed out banks ill gotten loot on a carry trade, hence the Aus govt has to keep lifting interest rates to keep the inflows going, if they stop then all sh*t will break loose and Aus banks will all of a sudden become technicaly insolvent., and oops as an aside no one with less than 30%+ deposit will be able to buy anything, end of boom, I would say. Currently nothing is worth buying here, crappy outer suburb (soulless, no public transport, etc etc) miles from anywhere worth being/seeing etc, are now going for $400K+ which is around 8-10x the local average sallary for an area. Dito for speculators, after costs and tax you may get a 1.5% return(if you paid cash in the first place) and are in it for the speculative ride only, or conversely you are on a massive salary and get the tax dodge that goes with it (but still depend on price rises in teh long run)

Oh and the other turd in the toothpaste tube is that if China sneezes, Aus gets diarrhea at both ends.

Australian banking crisis of 1893

From Wikipedia, the free encyclopedia

Jump to: navigation, search

The 1893 banking crisis occurred in Australia when several of the commercial banks of the colonies within Australia collapsed.

During the 1880s there was a speculative boom in the Australian property market. Australian banks were operating in a free banking system, in addition to few legal restrictions on the operation of banks, there was no central bank and no government-provided deposit guarantees. The commercial banks lent heavily, but following the asset price collapse of 1888, companies that had borrowed money started to declare bankruptcy. The full banking crisis became apparent when the Federal Bank failed on 30 January 1893. By 17 May, 11 commercial banks had suspended trading.

And that was the end of the great Melbourne property bubble or was it?

Yes till the 1950's

[blue skies]

Yes I’m afraid my parents were brainwashed about debt and ingrained in me that debt was bad. It wasn't until mid life when I realised the truth.

At least my young boys are financially literate, I have broken the mould.

Yes my poor old da getting around as a boy in shoes with the soals repaired from a tyre.

He new about the hazards of debit.

I didnt understand

1999 I was paying of 2 houses and a block of land.

Sold my nice car to by a $100 wreck.

lucky I sold the block

Debt is a double edged sword

[uptherebels]

Although predictable its always comforting to see the market continue to move north. I dont think this will end the year as being the highest price either.

<b>

Yep, hopefully by the end of 2011, even the cheapest one bed flat in the worst areas of the Cities, will be at least 8 million dollars.

[JonoP]

The thing is we have just had the biggest slump in house prices since the second world war. We are only now in recovery, there are some high end sales skewing median up we are now in the normal recovery phase, these are the facts.

If you don’t want any risk then don’t do anything.

Hah hah, that was a blip not a slump. I fear it was not the 'bottom of the cycle' that you may have hoped for. That is yet to come. And it is getting closer.........

Did I see something about prices falling in china?

http://ftalphaville.ft.com/blog/2010/05/06/222046/chinese-property-developers-begin-price-war/

That will kill the Aussie resources boom nicely.

And did I see something about a sovereign debt crises in Europe?

That should drive the cost of that capital the Aussie banks need to import even higher. 10% mortgage interest rates anyone?

Of course, when the crash gets going properly, it will get really interesting. The Rudd government is spending money like water on the assumption that the good times will last forever. When the two trick economy (digging stuff up and selling the same house backwards and forwards to each other for ever increasing amounts of debt) grinds to a halt. They will need to find the money to continue to finance their commitments. I wonder what tax breaks they might look to remove to raise more money…..? Negative gearing costs how much a year? Is it $5bn or $8bn? I forget….

I would hate to be carrying loads of leveraged debt right now……….

[buyerbeware]

http://www.dailytelegraph.com.au/money/warning-as-home-and-rates-could-yet-take-a-tumble/story-e6frezc0-1225863854979

[aussieboy]

SNIP

I would hate to be carrying loads of leveraged debt right now……….

You'll have to explain what leveraged debt is to me.

[Confounded]

Yes I’m afraid my parents were brainwashed about debt and ingrained in me that debt was bad. It wasn't until mid life when I realised the truth.

At least my young boys are financially literate, I have broken the mould.

If you are now so enlightened about debt then you will appreciate that being in debt is great so long as a debt bubble grows. Some argue, including myself and your much hated Steve Keen, that the 60 year global debt bubble popped in 2007.

[Buddleia]

I had some Ozzie friends over to dinner last night. They are returning back to Oz in a few months. Hah, I said, you'll pick up a cheap shack now that prices across the industrialised world have turned negative since the financial crisis.

Not so, they said, shocked at my Pommy lack of nous. There is a massive boom taking place in Australia. Up 20% year on year apparently.

I couldn't believe it. The received wisdom is surely that the global credit crunch has knocked the wind out of the sails of a housing boom caused by cheap credit, and shoddy lending. But Google verified it:

Weighted average of the eight major cities is UP 4.8% on the quarter, UP 20.0% on the year.

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

I find this hard to stomach. We are in a global credit crunch. The Australian economy is tiny compared to the Asian giants it rubs shoulders with. Where the hell is the money coming in from to sustain a housing boom? And to cap it all, Ozzie interest rates are rising, which should set the alarm bells ringing for most people.

I just don't get it.

[The Masked Tulip]

I had some Ozzie friends over to dinner last night. They are returning back to Oz in a few months. Hah, I said, you'll pick up a cheap shack now that prices across the industrialised world have turned negative since the financial crisis.

Not so, they said, shocked at my Pommy lack of nous. There is a massive boom taking place in Australia. Up 20% year on year apparently.

I couldn't believe it. The received wisdom is surely that the global credit crunch has knocked the wind out of the sails of a housing boom caused by cheap credit, and shoddy lending. But Google verified it:

Weighted average of the eight major cities is UP 4.8% on the quarter, UP 20.0% on the year.

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

I find this hard to stomach. We are in a global credit crunch. The Australian economy is tiny compared to the Asian giants it rubs shoulders with. Where the hell is the money coming in from to sustain a housing boom? And to cap it all, Ozzie interest rates are rising, which should set the alarm bells ringing for most people.

I just don't get it.

So is just like Wales then

[pyracantha]

So is just like Wales then

Apart from the Kangaroos...

[The Masked Tulip]

Apart from the Kangaroos...

Oh, I don't know - we have some mammals that will jump on anything.

[UncleKev]

I just don't get it.

Bardon should be along shortly to explain that it is all perfectly rational, and that Oz houses will continue to double in price every 7 to 10 years despite the GFC, because Austraia is "different"

[Guest Noodle]

I had some Ozzie friends over to dinner last night. They are returning back to Oz in a few months. Hah, I said, you'll pick up a cheap shack now that prices across the industrialised world have turned negative since the financial crisis.

Not so, they said, shocked at my Pommy lack of nous. There is a massive boom taking place in Australia. Up 20% year on year apparently.

I couldn't believe it. The received wisdom is surely that the global credit crunch has knocked the wind out of the sails of a housing boom caused by cheap credit, and shoddy lending. But Google verified it:

Weighted average of the eight major cities is UP 4.8% on the quarter, UP 20.0% on the year.

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

I find this hard to stomach. We are in a global credit crunch. The Australian economy is tiny compared to the Asian giants it rubs shoulders with. Where the hell is the money coming in from to sustain a housing boom? And to cap it all, Ozzie interest rates are rising, which should set the alarm bells ringing for most people.

I just don't get it.

It's come from mining.

I get job alerts from Theiss, an Aussie firm daily. 5-8 vacancies a day. Mostly mining sector.

[The Masked Tulip]

Oh, I don't know - we have some mammals that will jump on anything.

Although a kangaroo is a pouched mammal - a marsupial.

[Bloo Loo]

It's come from mining.

I get job alerts from Theiss, an Aussie firm daily. 5-8 vacancies a day. Mostly mining sector.

Doomberg today: China to cut back on raw materials as the costs are too high compared to demand.

[Guest Noodle]

Doomberg today: China to cut back on raw materials as the costs are too high compared to demand.

Might well pull the rug.

Demand seems to be up across this area but I'm not seeing inflation.

[aussieboy]

Bardon should be along shortly to explain that it is all perfectly rational, and that Oz houses will continue to double in price every 7 to 10 years despite the GFC, because Austraia is "different"

Pulling out "it's different this time" with a smiley stopped being arch about two years before you joined this forum so I'm not sure what you hope to disclose about yourself by pulling that old chestnut out.

As you'll see if you read the thread, Australia is not so different. Unlike the UK it stagnated for most of the 00s and started rising again a couple of years ago and so is out of step with the rest of the world (yes, ha ha).