HOMES AREN’T BANKS

As property values soared out of control after 2001, many people used the increased equity to fund an outrageous lifestyle or consolidated their massive credit card debts at 21% into long term debt at under 10%.  Many folk in business used the equity to fund business expansion, or as a buffer if their business had seasonal cash flow problems.

The fallout from record insolvencies is flowing into the housing market, and not just at the top end of town where we’ve seen houses sold for half or less of their pre GFC highs.

Company insolvencies were thought to have reached an absolute high in 2011 when just shy of 10,500 fell over but that sad statistic has, it seems, been surpassed already with 2012 set to be even worse.

This activity results in many “distressed assets” coming on to the market.  These assets are mainly industrial/commercial in nature, but can often involve a business’s investment or owner occupied residential real estate. Whether these distressed assets are worth buying is another thing. I’ve said elsewhere that this market has a long, slow and painful correction to come, is still overpriced and unaffordable for many.  Be wary of Mortgagee In Possession and Receivership sales.  You may think you’re getting a bargain but do lots of homework before you raise your hand to bid, or, pen in hand you sign, pressing hard on those three copies!

In speaking with more people “in-the-know” today already there are stories of residential sales made only 6 months ago, put back on the market, not under any sort of stress, just don’t like the street for instance, where owners have suffered substantial losses.  One was bought after Easter for $565,000 and sold again, 6 months later for $535,000. The apparent loss was $30,000, bad enough, but when you add the cost of purchase, stamp duty, legal fees, inspections etc and the cost of selling such as necessary repairs and maintenance, legal and agency fees,  the loss on sale ended up at no change out of $80,000.  After only 6 months, that’s a nasty outcome.

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