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Australia Faces Its Demons


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Small drop in first home buyer actvity in Jan followed by a little bit of anxiety makes a good time to buy. Rent pressure back on once first home owner cools off.

I'd be very interested to know the real proportion of the activity at the lower end that was due solely to FHOG. My suspicion is, the vast majority of it. I think there's been a mini sub prime explosion at the bottom end of people who really shouldn't be buying a house.

I suspect we will see considerably more than a small drop off.

Plenty of time to be buying in the next 24 months no need to rush in to anything right now especially as I may be changing jobs once the LNG projects kick off in the new year. Long term tax implications and structures need to be considered and clear for selction of buying entity.

Something we can both agree on.

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Guest The Relaxation Suite
I'd be very interested to know the real proportion of the activity at the lower end that was due solely to FHOG. My suspicion is, the vast majority of it. I think there's been a mini sub prime explosion at the bottom end of people who really shouldn't be buying a house.

I suspect we will see considerably more than a small drop off.

Something we can both agree on.

It's not going to be pretty, IMO. I suppose the powers that be are currently cooking up something to get out of that problem as we speak.

Couple earns £45k + House costs £220k = big mess as seen in credit crunch.

When multiple of 3.5 is returned then the economies will rebalance.

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I'd be very interested to know the real proportion of the activity at the lower end that was due solely to FHOG. My suspicion is, the vast majority of it. I think there's been a mini sub prime explosion at the bottom end of people who really shouldn't be buying a house.

I suspect we will see considerably more than a small drop off.

Something we can both agree on.

The real problem is that they never remove that first $7,500 because it was introduced to offset the GST and therefore has become sacrosanct. As far as I am concerned all bets should be off and if people want to buy a house, they should learn how to manage their money first. It means that any fool can produce a 5% deposit and as you say, a lot of people are buying who really shouldn't be.

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The original grant was brought in by a supposedly "laze faire" government.

As far as saving up for a deposit that really doesn't achieve anything for the buyer and is only there as a method to protect the lender. All that a borrower needs to do is service the loan whether it be 80 %, 95 % or 104% (my preferred one) the deposit proves absolutely nothing. I would never had been able to wait around to save a deposit as a young man as I ahd better things to do with my hard earned than leave it in the bank.

All the doomsayers never get held to account guys like Steve Keen 40% drop and 30% unemployment FFS, it might get you on the news and sell books but now its payback time we should shackle him to the stocks and humiliate him. He really has been shown to be an "oxygen thief" for an economist he forgot to consider supply and demand and learn from what happened to house prices during the last recession. We now have the poorest construction progress on record (note this is good for those that already have one) and the strongest population growth in 40 years so how can an economist not include this in his sums.

The new bogey man is the predictions of the first home owners fleeing the market and those that cant being trapped in negative equity another future fear. What will they do when this doesn't eventuate? Many things they will have a new bogey man and they will alter their predictions accordingly and some people will choose to believe them and some won’t.

That's a fairly gun-ho attitude there Bardon, maybe you could get a job working for lehmans? I think the reason we should preclude buyers who can't even get a measaly 5-10% deposit together from the market is two fold.

If you can't even do that chances are you are in such a financially precarious state it's unlikly that you will get to the end of the term of the mortgage without defaulting.

It also means that any old idiot can't just start spending other peoples cash building up a property empire out of thin air which leads to massive HPI as we've seen.

I've heard you go on about this Keen geeza in the past. If the government hadn't steped in last year with massive stimulus he may well have been proved right. In the next 5-10 years he may well still be proved right.

As in all things patience is a virtue.

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All the doomsayers never get held to account guys like Steve Keen 40% drop and 30% unemployment FFS, it might get you on the news and sell books but now its payback time we should shackle him to the stocks and humiliate him. He really has been shown to be an "oxygen thief" for an economist he forgot to consider supply and demand and learn from what happened to house prices during the last recession.

Bardon, earlier in this thread you stated that house prices grow at between 7 and 10% p.a. over the long-term, and in the post above you suggest that Steve Keen is an 'oxygen thief' of an economist.

In order to satisfy me that your economic skills are up to the job, you need to consider the following:

with gdp growth at 2.5% pa and wage growth at a generous 4%, if house prices increase at 10%p.a. they will double w.r.t. wages about every 12 years. So in 12 years, the average house will be about 16 times the average wage, and in 24 years about 32 times. At an interest rate of 3.125% (lower than a mortgage today, at 40 year lows), it would take the entire gross salary of the average worker to pay the interest on a loan the size of the average house.

How does this work?

when you've answered that one we can look at the pros and cons of the average Australian house price exceeding the GDP of Australia within 150 years.

FWIW I think Steve Keen may yet be proved right - looking at real not nomial figures here - some time in the next decade. Definitely one of the more realistic commentators in Aus (not too hard), he has been calling a credit bubble for some time - have a look at http://www.debtdeflation.com/blogs/

edit: missing word

Edited by mattyboy1973
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RBA starting to flap about a housing bubble.

http://www.theaustralian.news.com.au/busin...136-643,00.html

Bubble about to burst, surely.

I had to check the date on that link - good call by the governor, shame its 10 years late!

still, if ever proof positive was needed that housing is well and truly in a bubble here, it is the fact the we are seeing price rise at the moment.

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Guest The Relaxation Suite
I had to check the date on that link - good call by the governor, shame its 10 years late!

still, if ever proof positive was needed that housing is well and truly in a bubble here, it is the fact the we are seeing price rise at the moment.

Absolutely.

"In contrast to developments in so many other countries, house prices are tending, if anything, to rise."

Bubble isn't the word for it - more like a nuclear reactor in meltdown.

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Except as stated by his good self the main problem was lack of supply of new houses. So the asset price is driven by less supply than demand good news for those that have got some in my view.

Believing high house prices to be a function of the supply/demand of physical houses, rather than the excess supply of credit, may prove to be a costly mistake IMO.

Bardon - go on mate, address the house prices doubling w.r.t. wages every 10 years according to your forecast point that I made a few posts back! I really want to know the answer :)

edit: ok, so you just did while I was typing - sort of. Wouldn't be planning my retirement using that 'logic' tho :)

Edited by mattyboy1973
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I just started a new job in Canberra, and I am surrounded by a team of Computer Contracters most in the mid 30 age bracket. All the social chit chat revolves around real estate and how well their investments are going. One guy is currently buying two investment properties, and he just missed out on one of them because he was gazumped by another buyer who offered an extra $9,000 over the asking price.

Its totally insane. These guys are all high earners, double income professional units for the most part, and its all about high leverage to get the negative gearing and cut their tax bills. I dont see how these guys are going to live with the leverage when interest rates go up. I suppose the smart ones will sell to bigger fools just before the crash hits.

I am seriously doubting if I have got it right though. Maybe house prices do always double every 7 to ten years.

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its truly amazing, the housing juggernaut rolls on, yet everyday we are hearing more stories like these:

http://www.news.com.au/travel/story/0,2831...5009000,00.html

Australian tourism industry still in crisis, operators say

By John Wright

The Courier-Mail

July 31, 2009 12:01am


0,,6771230,00.jpg Where are they? ... Australian tourism has had its worst year since the 1989 pilots' strike

THE worst year for tourism since the 1989 pilots' strike just won't go away, with the rapidly declining $90 billion-a-year industry on virtual life support.

That is the underlying assessment of almost half the nation's tourism leaders in a new sentiment survey that reveals a depth of despair worsening by the month.

http://www.news.com.au/business/story/0,27...4-31037,00.html

80,000 construction jobs may go

By Kate Hannon

AAP

  • July 31, 2009 12:07am

MORE than 80,000 jobs could be lost in Australia's building and construction industry during the next three years, according to a study by Access Economics, to be released today. The study predicts apprentice numbers will fall by 10 per cent and the sector will contract during the period with the most severe impact to be felt in 2009-10 and 2010-11, followed by some consolidation in 2011-12.

"Access Economics sees the downturn in business investment as carrying too much momentum to be fully offset in the short-term by additional government investment and a housing sector recovery,'' the report says.

"In large part that is because both business investment and the construction sector grew so strongly over recent years that a period of consolidation was always going to be likely.''

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Its a great time to buy a holiday. I have just booked one up for the family to the Whitsundays at a 30% discount.

Same here. I had a two week break after resigning from my contract and starting my new role as a public servant, and stayed on the Gold Coast in 4 star accomodation for less than $100 a night. Air travel is even better at the moment, return to London under $1300. These companies must have been really ripping their customers off in the boom times, if they can offer these prices now.

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There are huge problems being stored up for the Australian property market. The prices are ever increasing yet wages are third world by European standards. Notwithstanding that unemployment is rising at an alarming rate and hitting the professional high earners, many of whom are highly geared having invested in "Living the Dream"

The same old mantra we heard in the UK from the vested interests is being rolled out daily here, however as we all know there will come a time when the prices are just simply unnafordable to the average Joe and the market will hit a brick wall leaving the banks with some serious unpaid debts on their hands.

That said property is still going strong here with the lemmings all of the mindset that renting is dead money. Amazing theory when you consider a 2 bed flat costs 700k and the rental income on it is a mere 1600pm.

Thats a return of less than 1.5% after the landlord has paid the water rates, and the council rates!!!!

With home loan rates around 7% and set to rise steeply post Dec 2009 its hard to see where the room for manouvre is going to come from.

With all the will in the world, if the punter is earning low wages, or has lost his/her job which is becoming increasingly common its hard to see where the recovery or profit taking is going to come.

As a footnote, Greythorn one of Sydney's largest and well established IT recruiters ,laid off a large number of staff last week..............now thats not a business looking at a recovery is it ?

The recruitment business in Sydney and Australia in general is now a terrible mess, and that for me is one if the most telling signs that we have yet to see the real pain, that is surely going to come to Australia.

http://www.apm.com.au/Default.aspx?AspxAut...CookieSupport=1

Edited by laurejon
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As a footnote, Greythorn one of Sydney's largest and well established IT recruiters ,laid off a large number of staff last week..............now thats not a business looking at a recovery is it ?

The recruitment business in Sydney and Australia in general is now a terrible mess, and that for me is one if the most telling signs that we have yet to see the real pain, that is surely going to come to Australia.

http://www.apm.com.au/Default.aspx?AspxAut...CookieSupport=1

I am seeing the end result of that in the IT Industry in Canberra. I am very glad that I have got out of contracting and gone permanent. We had 5 new contractors start this week and they are all walking wounded from the carnage in the private IT sector in the big cities, Melbourne, Sydney and Brisbane. Several of these new guys are having to commute down from Sydney and live in motels during the week. Things can't be too rosy in the Sydney IT market. The only thing propping up the Canberra IT Market at the moment are the new systems that are being being put in place to manage the Rudd Stimulus programmes. These contracts are not going to last for long. I would hate to be a contractor with a mortgage at the moment, because lean times are coming in this industry.

I had drinks with my agent before leaving my last contract and she said that her agency is getting hundreds of CV's now for any contract that they advertise, and the calibre of candidates is better than they have ever seen before for Canberra IT roles. They are getting very senior people prepared to do basic develoment and testing roles and prepared to relocate from the state capitals to Canberra on very ordinary rates.

A lot of very mediocre people have done very well on the gravy train of contracting in the cushy Canberra market for many years now. Some of these jobsworths are not relishing the stiff competition they are now facing for the diminishing number of contract positions that are available. The Canberra IT recruitment business is struggling as many departments tighten their belts due to the downturn and also due to the Gershon Report, and she has seen several of the middle managers at her agency "let go" in recent months.

The Australian IT Industry is a strange beast. Offshoring of whole IT Departments continues in the private sector while at the same time hordes of eager new IT workers are flooding into the counrry due to IT being on the list of industries suffering a skills shortage. Amazing!

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The Australian IT Industry is a strange beast. Offshoring of whole IT Departments continues in the private sector while at the same time hordes of eager new IT workers are flooding into the counrry due to IT being on the list of industries suffering a skills shortage. Amazing!

Very true.............I am hearing from people who have been working on TR Visas in Australia for many years without any serious breaks in their work record and are now looking at having to head home to the UK and other countries because they cannot find any work and are running out of money fast.

Any job in the IT business now is considered good...........................even helpdesk jobs paying peanuts are being flooded with hundreds of applicants!!!!

In the construction business I know of tradesmen on the North Shore in Sydney that have not worked in four months and when they do get work its a day here and a day there...............many have large mortgages and are looking as serious financial failure having lived the dream sucking the equity YOY out of their properties.

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Yes it was a terrible time for us all the worst slump since the war. We really suffered badly words fail me in describing the horror that we faced in those dark days that are now thankfully in the past. I am sure that I will be telling my grandchildren of this time in history of the great Australian house price crash my sons are definitely learning some lessons from it now.

Thank god it is over.

:D

Thanks for that, I'd forgotten the, truly, stupid mentality that goes behind housing bubbles.

It is a reminder that that a peak of a housing boom requires a group of the least intelligent and informed to simply run out. Once all the idiots/suckers have been used up, thats ..it price crash.

A housing boom isn't so much about supply and demand of houses, but the supply and demand of idiots.

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An intersting article from Neil Jenman who is anything but a bull. On face value it looks like $40 well spent once you know the postcode that you are targeting.

Yes Bardon, definitely worth looking at 'stale' properties to get a bargain.

Another great resource is www.oldlistings.com.au.

It seems to keep a record of previously listed prices for properties that are on the market or have been recently.

Not 100% but very useful.

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Welcome to the forum we certainly need some more bears around here just to balance it up a bit. ;)

Need some more bears you say? Have the bears gone into hybernation during this Bernanke Bounce? They'll be back!

How about Kevin Rudd's essay in the Sydney Morning Herald last weeked titled Pain on the road to recovery

(for those not from Down Under - Kevin Rudd is the PM of Australia)

Not saying Kevin is generally bearish, but he shows that he thinks house prices are overvalued with comments like

...debts were racked up on the back of skyrocketing asset prices. In several countries, stock prices and house values soared far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.

Kevin shows the greatest depth of understanding of any leader I have seen, but creating policy is a political process of compromise. We'll see if the gov can come up with policies that actually help solve the housing bubble rather than jus stoke the fire (like FHOG).

Edited by Koala Kaper
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I know someone in Melbourne who has just sold their house at auction for nearly 85k ozzie dolllars more than the highest offer they had. Got 605k in the end but had to pay 20% auction fees over the reserve of 550k.

They definitely say that there is a whole sea change in the way they get work all their building jobs are small piecemeal jobs instead of large development jobs and peole are going bust on them and they lose materials on a job and their labour.

Still houseprices dont seem to have slumped if that is anything to go by.

Bit like the uk really, especially the southeast - economy fecked, jobs fecked houses the same old prices - sorta. argggh

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Bardon by a quirk of good fortune I find myself eligible to move to Australia and intend doing so in the next 5 years. Should we buy now or leave it til we get there? NB probably Sydney or Melbourne, and retiring to Adelaide in 15 year's time.

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I have just received the following email from one a well known Australian Property Investment guru:

Hi Kevin,

I've just received an email advising that the CBA is about to increase

its fixed interest rates by up to 60 basis points (details below).

If you have a loan with the CBA and you want to fix it before the rate

increase then you must send a 'rate lock' notice to the CBA before 5pm

Saturday!

If this affects you, time is of the essence and I strongly recommend

you contact your mortgage broker or CBA manager immediately!

=============

Should You Lock In Your Rate?

=============

Many people are asking me whether now is a good time to lock in a

fixed interest rate.

I'm planning on releasing a short video on this topic soon, but to

quickly answer the question in light of the CBA's announcement, you

need to consider the upside versus the downside.

Why you WOULD LOCK IN Your Rate:

-------------------------------

A) Because interest rates are at historic lows, and given recent RBA

hints, they are unlikely to go lower. This seems to be the bottom of

the cycle

B) You want the certainty of knowing what your interest cost will be

C) You have investments that are marginally positive cash flow and if

the rate went higher they would turn negative cash flow

D) You plan to fix your rate and want to get in before the next round

of increases

E) Banks are trying to get every dollar of profit they can, and so

there will probably be more interest rate increases on fixed loans in

the months ahead

This chap is highly respected in the industry, and not an alarmist. It looks its time to fasten the seat belts as the OZ Property market heads into turbulence.

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Good for you I hope it works it out for you.

Cycle wise I think we are somewhere around the bottom maybe on the up side of the bottom especially Sydney and probably Melbourne. I don’t think that means galloping growth though and you don’t need to rush into anything just yet.

...

But yes houses in Sydney and Melbourne will at least be worth more than 50% than they are now in 5 years and it something you need to consider.

So - the most overvalued (and manipulated) property market in the Anglosphere is somewhere near the bottom of its price cycle. You don't see 'galloping growth' but houses in Sydney and Melbourne will be worth 'at least' 50% more in 5 years?

Come on Bardy boy!

I will take you up on a cheeky $50 wager that house prices in Sydney will not be 50% higher (in real terms) in five years than they are today.

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