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Safe as houses

GRAHAM DAVIS: Moving day in the suburbs and yet another family takes possession of its most precious asset, courtesy of the banks. It's the Australian dream, isn't it, what you've got here?

MEHTAP KILNIC: Definitely.

GRAHAM DAVIS: Swimming pool, big block. Is it a 5-bedroom house?

MEHTAP KILNIC: Five bedrooms and a study.

GRAHAM DAVIS: Like many Australians, the Kilnics have borrowed heavily to pursue the national dream of home ownership. But you have to pay for it, don't you?

MEHTAP KILNIC: You sure do, nothing is for free, unfortunately, unless we win the lottery.

GRAHAM DAVIS: There's a house to live in, like this one in the Hills District of Sydney, and an inner-city flat as an investment for the future. All to cushion retirement in a country with an aging population and shrinking tax base. What sort of equity do you have in the investment property?

MEHTAP KILNIC: Ah, none. :huh:


MEHTAP KILNIC: None. We've got about a $500,000 debt on it.

GRAHAM DAVIS: They call it "good debt" nowadays - bricks and mortar, with its steady record of increasing in value, but it's debt nonetheless, and all up the Kilnics are servicing loans of $840,000. When you realise that you owe the banks $840,000, how do you sleep at night?

MEHTAP KILNIC: Look, it doesn't really. If you're going to think about that, then you'll never do anything, would you? So the best thing is not to think about it. :blink:

GRAHAM DAVIS: It's a commitment previous generations would have regarded as unthinkable but is increasingly the norm in middle Australia. Are your friends in the same kind of position, with mortgages that high?

MEHTAP KILNIC: Yes, yes, quite similar.As my mum used to say. If your friends jumped off a cliff would you?

GRAHAM DAVIS: In fact, our national household debt is now a staggering $650 billion, about $32,500 for every man, woman and child. Living within our means? Well, forget it. For every $100 we earn, we owe $130, a ratio of personal debt to income that exceeds that of the Americans and the Brits. So "The Lucky Country" floats on a sea of debt that may not pose much of a threat in balmy economic times, but has the potential to suck many Australians under if the weather turns.

And it is.

JOHN SYMOND, AUSSIE HOME LOANS: Blind Freddy can see that the housing market is coming off and will continue to come off, and anyone that thinks that this softening of the real estate market is about to turn around quickly, I think they're in for a shock because this gradual decline, I believe, will go for several years. (John Symond is the head of a Mortgage broker company "taking on the banks")

LOUIS CHRISTOPHER, AUSTRALIAN PROPERTY MONITORS: There would be a number of people who bought in late '02, '03 and '04 that would be sitting on considerable negative equity right now.

GRAHAM DAVIS: When you say a number of people, how many?

LOUIS CHRISTOPHER: I wouldn't rule out tens of thousands of people.

GRAHAM DAVIS: Today we'll meet people like nurse Christine Johns, ordinary Australians whose properties are now worth less than they owe the banks.

CHRISTINE JOHNS: It has gone backwards. I paid $313,000 for it, recently I was offered $280,000. :unsure:

GRAHAM DAVIS: Christine and legions like her face a terrible dilemma right now - cut their losses and run or try to hold on in the hope the market bottoms out and picks up again. How much are you out of pocket for?

CHRISTINE JOHNS: About $55,000 if I sell it now.

GRAHAM DAVIS: $55,000 down the drain?

CHRISTINE JOHNS: That's right.

GRAHAM DAVIS: How do you feel about that?

CHRISTINE JOHNS: I'm pretty sort of upset. You know, I mean, I had dreams and expectations this was going to be my retirement. Yes Christine. You must have put in a lot of thought into it

GRAHAM DAVIS: As we'll see, some pockets of Australia are thriving, but, unfortunately for Christine, any turnaround is a long way off. For her investment is in one of the country's most precarious markets - high-density apartments in Sydney. They told you specifically that it would double. :rolleyes:Took investment advice off the salesman and was chasing easy money

CHRISTINE JOHNS: … in 7 to 10 years. Well, it's been nearly five years now, and it's gone down.

GRAHAM DAVIS: And no expert is saying it's going to double within 10 years?


GRAHAM DAVIS: Do you think you've been conned?

CHRISTINE JOHNS: Oh, absolutely, yeah. Absolutely conned.

GRAHAM DAVIS: Perhaps a better word is 'seduced', seduced by the promise of riches at the height of the boom. There's always been money to be made in property, but this was something else. Even the mugs were getting rich. And you were a bigger mug, or felt like one, if you weren't part of it all.

In the buying frenzy, ordinary Australian homes traded hands at extraordinary prices. But then the peak and the inevitable fall - auction frenzy turning to auction freeze. Suddenly this is the desultory scene in many parts of the nation.

PETER MATTHEWS, AUCTIONEER: We're working quite well. I wouldn't say it's difficult and I wouldn't say it's terribly hard. (shame there is no Co@# Sucker smiley)

GRAHAM DAVIS: You blokes are famous for talking things up, though.

PETER MATTHEWS: Yeah, but it's one of those things, I suppose. Umm that's a nice way to describe the whole fiasco :angry:

GRAHAM DAVIS: But even if you were hit by a truck, you would telling me you were OK.

PETER MATTHEWS: That's because we work so hard for our owners. I think the market we are in now is pretty much a normal market.

GRAHAM DAVIS: But you know agents are hurting when some of the old hands drop the pretence and call it as it really is.

PETER UPTON, RAY WHITE: I have operated here since '82, so that's 23 years.of honest work? ;)

GRAHAM DAVIS: And this correction compared with previous ones?

PETER UPTON: More severe and more sudden.


PETER UPTON: And deeper. But I think we're just about there now, hopefully. :rolleyes:


GRAHAM DAVIS: Because if it ain't hopefully, what then?

PETER UPTON: We'll just have to work harder. :lol:

LOUIS CHRISTOPHER: The people that have been doing it the hardest, particularly in Sydney, have been real estate agents. Overall sales turnover has actually been cut over 30% from its peak.

GRAHAM DAVIS: So they're hurting?

LOUIS CHRISTOPHER: Oh, they're hurting big time and there have been a lot of smaller businesses which have actually gone out of business.

GRAHAM DAVIS: In the case of the oversupplied Sydney flat market, everyone from the Reserve Bank Governor down has been warning for some time of the looming crunch. The smart money is long gone. Those who've stayed, buyers and developers, are taking the proverbial bath. :lol:

JOHN SYMOND: I've heard stories where you have a block of 80 apartments in the city and in eight months six apartments have sold and the average asking price is $750,000. Big holding costs! Somebody is going to end up holding the can. :rolleyes:

GRAHAM DAVIS: John Symond, Aussie John of Aussie Home Loans, is the biggest non-bank lender to middle Australia, some $20 billion funneled to home buyers and mum and dad investors. Are you still personally investing in the property market?

JOHN SYMOND: No. I mean, I've got my home, I'm building a home, I've got.

GRAHAM DAVIS: You're building a very big home?

JOHN SYMOND: I'm a big boy! But, no, I'm not a speculator.

GRAHAM DAVIS: The new "maison Symond", on Sydney Harbour, is so big, Aussie John jokes it needs its own postcode. But it isn't that long ago that he was facing ruin and he fears the same fate now awaits many in middle Australia.

JOHN SYMOND: You know, I know how tough it can be for people in difficulty and have overcommitted. I was there in the '80s and I paid the price.

GRAHAM DAVIS: You almost came unstuck, didn't you, in the last bust?

JOHN SYMOND: Absolutely. And it breaks up families. I was there. That's why I'm sensitive to the true value of home ownership is really helping families stick together.

GRAHAM DAVIS: And today, Aussie John has some advice for Australian families that will send shockwaves through the industry, as he urges those with investment properties especially to bail out as soon as they can, to sell, sell, sell.

JOHN SYMOND: I would be putting it on the market because I reckon the price you're going to get today will be higher than what it will be tomorrow. But I do believe there will be a gradual decline. Some properties that's got an edge will hold their values. You'll even get a small percentage - very small percentage - that will increase in price. But generally speaking, for the average mums and dads out there, I think the price of real estate today will decline and continue to decline over the next couple of years.

GRAHAM DAVIS: So the advice is - sell. But who to, if the punters listen to Aussie John? Would you buy at the moment?

JOHN SYMOND: No. The only time I'd buy, if I'm an owner occupier and I can tick all the boxes - proximity to work, education, transport, yes, I would.

GRAHAM DAVIS: To live in?

JOHN SYMOND: To live in. Because it's a long-term investment.

GRAHAM DAVIS: But anything else right now, no?

JOHN SYMOND: I would wait, because I believe prices will continue to come off.

GRAHAM DAVIS: So the spectre of a torrent of homes flooding onto the market but few buyers - hardly good for Symond's own business, for a start. Perhaps that's part of the reason why, when Aussie John talks, the mums and dads listen. Certainly his comments today will break like a thunderclap over middle Australia.

JOHN MCGRATH, MCGRATH: I think John's highly influential and I think from a consumer's point of view, he's very credible and Aussie have done a great job at helping consumers get set with better loans, so I think.

GRAHAM DAVIS: So when he says what he says, do you think middle Australia will listen to you?

JOHN MCGRATH: He'll have an impact on the market, definitely.

GRAHAM DAVIS: So what he said today on this program could well have an impact?

JOHN MCGRATH: Yeah, John will influence the market.

LOUIS CHRISTOPHER: You know, obviously a comment like that wouldn't help his own business, so he's calling it how he truly sees it.

GRAHAM DAVIS: He's got to be taken seriously?

LOUIS CHRISTOPHER: And good credence to him, because not many people out there do that.

GRAHAM DAVIS: But is Aussie John right in his bearish assessment of the market? Well, to a large extent, it depends on where you live. Louis Christopher heads Australian Property Monitors.

So here is a snapshot of the national market through the lens of the expert who supplies the Reserve Bank with the data it uses to determine interest rates.

LOUIS CHRISTOPHER: Sydney housing prices are now off 10% on their peak. From what we can see, housing prices will continue to correct for the foreseeable future.

GRAHAM DAVIS: Going south?

LOUIS CHRISTOPHER: Going south indeed.

GRAHAM DAVIS: Is that a soft landing, as people say?

LOUIS CHRISTOPHER: No, it's starting to turn into a hard landing, when you see housing prices 10% off their peak. That is not a soft landing in anyone's language. Yet certain players in the industry make it out as though it's still soft. Not in our opinion.

Melbourne's been experiencing a very flat market, where housing prices have gone nowhere for the last two years. Going forward, we think this trend will continue. Right now though, homebuyers who bought in '02, '03 are not sitting on any gains whatsoever, really.

Looking at the Brisbane housing market, we believe now that the Brisbane housing market is starting to fall. Canberra has been recording some housing price falls, not as bad as Sydney, but it's certainly a very weak market in the Canberra market right now. Hobart is now once again also experiencing a downturn. Adelaide - we're seeing a slowdown in the housing market but overall the Adelaide market has been experiencing a soft landing.

Perth has been the one exception in the overall property story. The Perth property market has been booming and continues to boom to this day. It's been driven by the overall global commodities boom that we've seen. We've been seeing over the last 12 months, for example, housing prices rise by 14% to 15%.

Darwin once again is another city which has been enjoying a property price boom to this day. Housing prices in Darwin have been rising by about 14% to 16%, so pretty much at the same rate as Perth. We think that will probably continue for the next couple of quarters at least.

GRAHAM DAVIS: But what next for everyone else? As we'll see, opinions vary, except for one thing.

LOUIS CHRISTOPHER: Well, I think it all boils down to what interest rates do. If we see interest rates on hold for the next two years, there's actually a likelihood we will see a bottoming out in this downturn.

GRAHAM DAVIS: But if they go up, which is what many predict?

LOUIS CHRISTOPHER: Well, that's when we're going to have some real problems and the potential for a real meltdown is on the cards.

GRAHAM DAVIS: No-one can say we haven't been warned. In fact, the Reserve Bank has gone out of its way to stress that the relevant markets are overheated and debt levels are too high. Governor Ian Macfarlane has even dabbled in some social engineering, suggesting Sydney residents consider settling elsewhere.

IAN MACFARLANE, RESERVE BANK GOVERNOR: It's so expensive that, particularly for a lot of young people. What determines interest rates is inflation.

In the September quarter, the inflation rate moved to 3%, the threshold of the Reserve Bank's so-called "zone of discomfort". This week, its board again kept rates on hold. But it's a lull that will be short-lived if there's any more inflationary pressure from fuel prices or wages.

ROBERT MELLOR, BIS SHRAPNEL: We're likely to see significantly higher inflationary rates coming through - 3% and above into next year - and with that the Reserve Bank will have no choice but to raise interest rates and potentially housing rates could be up another 1%, to around a standard variable rate of 8.1% by the end of next year.

GRAHAM DAVIS: Right. Most people are on between about 6.6% and 7.1% in the variable rate at the moment. You're talking about 1% on top of that by the end of next year?

ROBERT MELLOR: Yeah, by the end of next year and potentially maybe even as much as a 0.5% to 0.75% by June next year.

JOHN SYMOND: If interest rates went up 1%, we'd start to see people hurting.

GRAHAM DAVIS: You mean defaults?

JOHN SYMOND: We would start to see some defaults.

GRAHAM DAVIS: Which would then flow into the rest of the market, wouldn't it?

JOHN SYMOND: Well, it would.

GRAHAM DAVIS: And the appalling irony, says Aussie John, is that while governments have done everything they can to get first-home buyers into the market, they'll be the first victims of any shakedown.

JOHN SYMOND: The segment most at risk are first-home buyers, particularly those who have bought at the top of the market over the last two years, who have borrowed the lot, 97.5%, government subsidy, help from mum and dad.

Today probably they would have negative equity.

GRAHAM DAVIS: What kind of numbers are we talking about there, in terms of properties that may suddenly flood onto the market with people with negative equity in those properties?

JOHN SYMOND: Thousands.

GRAHAM DAVIS: But never mind the fallout from a 1% rate increase - some fear the consequences of any rise at all.

LOUIS CHRISTOPHER: We've done a bit of analysis on this.And put it this way - we're worried if we were to see any more than, say, a 0.5% increase.


LOUIS CHRISTOPHER: Yep. And even 0.25% we think we could see problems in the market.

GRAHAM DAVIS: What kind of problems?

LOUIS CHRISTOPHER: Well, if we were just to see a 0.25% it would basically mean that Sydney, for example, would continue with its downturn well into the foreseeable future.


LOUIS CHRISTOPHER: Well, then the downturn would accelerate and the greater the percentage increase the greater the acceleration in the downturn. If you take it to a full 1% increase, we would be looking at another 13% to 18% decline in the Sydney housing market.

GRAHAM DAVIS: And nationally?

LOUIS CHRISTOPHER: Well, a one percentage point increase you would see housing price falls everywhere. Perth and Darwin, for example, would not escape it.

GRAHAM DAVIS: So the alarm bells are ringing. But will people listen? Not judging from the numbers of ordinary Australians still mortgaging themselves to the hilt. At real estate expos like this one, the message is - ignore the doomsayers and buy, buy, buy.

Here it's easy to get the kind of finance that will give you negative equity from day one. So how much would you lend at 107%?

PROPERTY EXPO MAN: Up to $500,000. Over $500,000 you wouldn't probably get 107%.

GRAHAM DAVIS: Tempted? Well, the advice from the experts is simple - don't be.

LOUIS CHRISTOPHER: I would say avoid them at all costs. This is a particularly dangerous product. To be in a position of negative equity to begin with is a very dangerous scenario and potentially could leave you really facing bankruptcy.

GRAHAM DAVIS: Yet even equity is no guarantee of survival in this era of the million-dollar mortgage.

NEIL JENMAN: Many Sydney people are paying 50% of the money that's coming in is going on their mortgage.I heard a real estate agent put it very well. He said that mortgage payments are the new form of contraception because people cannot afford to have children. We are maxed out now at the lowest interest rates we've ever had. So whereas before we had these huge interest rates, we're maxed out at tiny interest rates now. And the difference is so much more. 0.5% now, or 1%, is just enough to bring the whole lot tumbling down.

GRAHAM DAVIS: Neil Jenman is about as popular in these parts as an interest rate hike. Once a real estate insider, now a crusader against what he says is the modern equivalent of the snake oil salesman.

NEIL JENMAN: 150 years ago, these people had wagons. Now they've got stands at the expos. I used to be angry about what these people say. Now I'm scared at what is going to happen. D-day is coming. Reckoning day is coming. The worst scenario, to me - I think of the retirees that have invested money in companies that are investing in property. That's the worst scenario. Thousands of these people - and I mean thousands, tens of thousands of these people - losing everything. And people who, all they wanted to do was be a little bit more secure in their retirement, who will have their retirements wiped out.

GRAHAM DAVIS: Retire in seven years. That'd be good. Well, join the club. You mean I could go from woe to retirement in seven years?

INVESTORS CLUB WOMAN: Yes, that's possible. It is possible with the plan that the club has.

GRAHAM DAVIS: But this is no cooperative, but a group that introduces would-be buyers to developers.

INVESTORS CLUB WOMAN: The club has been running for a long time now and it's important that we only have quality buildings or people that work.

GRAHAM DAVIS: Retire in seven years? Well, let's talk to one of the members. Christine Johns wishes she'd never heard of the Investors Club. Do you think you were sucked in by this?

CHRISTINE JOHNS: I think I was very sucked in, yes, very sucked in by this organisation.

GRAHAM DAVIS: Why were you attracted to them?

CHRISTINE JOHNS: Well, they were mum and dad investors, you know, that were running it. I thought, "Well, look, if they can do it, I can do it.”

GRAHAM DAVIS: Did you really think it was a club for mums and dads?

CHRISTINE JOHNS: Yes, I did. I did think that.That's what they said they were - a club.

GRAHAM DAVIS: Christine was persuaded to buy an investment unit in this inner-Sydney block. It's now worth at least $30,000 less than she paid for it. And when did it dawn on you that this was essentially a marketing tool for a developer?

CHRISTINE JOHNS: I guess it was when the property wasn't going up - recently, really, when I had the property valued and there was no equity in the property. You know, and it had been a very bad choice.

GRAHAM DAVIS: So the dream of early retirement turns into a nightmare of relentless night shift to pay a $130 a week shortfall on an investment property falling in value, plus the weekly rent.

CHRISTINE JOHNS: I'm now paying rent because I had to sell my residential property that I was living in at Concord to keep this property going.

GRAHAM DAVIS: We used to talk about how rich we were all getting. Well, get ready for the next dinner party staple - tales of real estate woe.

GORDON DOUGLAS, PRD NATIONWIDE: There's been all this investment selling mania where people have sort of thought they could buy it and turn it over and tomorrow they would be rich. It's just not that sort of a game. It never was.

GRAHAM DAVIS: What was it that was driving it?

GORDON DOUGLAS: It was a whole hype. It's like the stock market. It's like any fad that we get. It gets fuelled by the people in it. It gets fuelled by the press. It gets fuelled by national sentiment.

I stopped going to dinner parties because I got driven mad with people wanting to ask me about the bloody real estate market and I just went there for a feed. That's all everyone wanted to know.

GRAHAM DAVIS: It wasn't just the hype, but something deeply ingrained in the national psyche.

BERNARD SALT, SOCIAL DEMOGRAPHER: Middle Australia fundamentally, fervently, religiously believes in the value of suburban property. The baby boomers believed it. They invested in that property in the 1970s, it's made them really, really rich.

The baby boomers' parents also did well out of suburban property when they bought their houses in the late 1940s and 1950s.

GRAHAM DAVIS: But that's all going to change, according to social demographer Bernard Salt.

BERNARD SALT: Because between 1950 and 2000 our population went from 8 million to 19 million. Over the next 25 years you will not have that level of population growth. Therefore, the demand for suburban property will diminish and you won't have that price tension. The baby boomer children is Generation Y, that are now between the ages of 14 and 30. This generation has really never experienced anything other than rising gentle prosperity.

GRAHAM DAVIS: Are they in for a shock?

BERNARD SALT: Eventually they must be in for a shock. We don't have rising prosperity forever. But you can't teach them. They need to go through the fire.

MAN AT DEMONSTRATION: Why the hell don't we say to hell with the politicians, to hell with the banks and start our own cooperative?

GRAHAM DAVIS: In the last fire, of the late '80s and early '90s, many were burnt. Even more were singed. Some were in open revolt against the banks.

WOMAN AT DEMONSTRATION: If you do have a cent in the bank, take it out! GRAHAM DAVIS: When it comes to real estate, a collective amnesia descends on Australia as the good times return and the bad times become somebody else's memory.

GORDON DOUGLAS: I can remember when my housing rate was 17%. I tell my kids that and they look at me blankly and they think I'm a lunatic.

GRAHAM DAVIS: Do you think the problem is that most people under the age of 35 don't remember what it was like?

GORDON DOUGLAS: Yep. I don't think they have a clue. And a lot of people in the industry don't know.

GRAHAM DAVIS: Gordon Douglas, of PRD Nationwide, has seen five market corrections over the years, every decade or so, and says the current one was overdue. Like the others, it will pass, he says, and people should try to hold on if they can, rather than sell. But we would all do well to stick to some basic principles our grandparents took for granted.

GORDON DOUGLAS: I really think people should be better educated about debt. Debt is something you don't need. Certainly some debt is healthy, but when you actually gear yourself to the point where it affects your family and it affects your relationships and it just affects how you live, you shouldn't be there.

GRAHAM DAVIS: Certainly, as in every downturn, there will be some sorry lessons learnt in this one. But having raised the alarm today, here's some parting advice from Aussie John, the man who tells it as he sees it whatever the effect on his own business.

JOHN SYMOND: If I'm an investor, I would be selling as soon as I can. If I am a home buyer and I have got to sell the house and buy another house, it evens itself out. If I am looking for a home and I don't have a house to sell, if I could find a property that ticked all the boxes for my own home, for me and my family, I would buy. I think we will see more and more forced sales, mortgagee signs, mortgagee sale signs coming up in the market. That is why I am saying no rush to buy, people, no rush. We will have a wider selection of properties to choose from at probably a lower price. So why would you rush in?

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Note for all non-Aussie readers.

John Symond is quite well known and reasonably well respected in Australia. He is commonly associated with beating the big banks and offering better deals to consumers (whether or not he actually does so is another matter). Most people would recognize his face and he's one of those bosses who does his own voice overs in commercials.

I believe many people will take his opinion as fact and I expect that the real estate market in Australia will be different from this point on. Practically everyone in the country would have heard his comments somewhere this weekend - it's been widely reported on TV, radio and newspapers. Even non-real estate forums are discussing it.

I do not think it is going too far to say that from this point on we will see ongoing sustained falls in property prices in Australia. The psychological effect of Mr Symond's comments will be too much for practically anyone to ignore IMO. The plateau before the crash seems to have come to an abrupt end... :)

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Interesting article, thanks :)

The parallels with the UK are obvious and have ben stated here before. I just wonder if there's a Brit with a high profile who might do the same thing here.

Probably not going to be Kirstie though :lol:

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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