It’s not front page news but it’s news nonetheless. Increasingly, major Banks and Government business units are becoming more wary of the overheated state of the Australian housing market. There was also scathing reports about the New Zealand housing market published recently by “people in the know” so we are not alone.
Barclays are not happy saying that our house prices are currently overvalued by 12 percent. Well, that’s not to scary one would imagine. On the surface, no, but read further into that – take a peek at my previous posts. If a “correction” were to start, it would not just “stop at 12%” and say “there ya go – all corrected – lets move on – happy days”. Corrections such as the one I say “must happen” will be much worse than just the 12% Barclay’s economists say.
Once it gets going it will be a mudslide and will over correct, as all markets do, so, 20% is not unreasonable and nor, for that matter, given the parlous state of a lot of mortgages today, 25%.
Your $600,000.00 family home becomes $450,000.00 and that $150,000.00 that you were going to draw out and live on, or travel on, or party on before you die, is GONE!
I keep saying to people who own debt free, substantial homes – sell it now and buy it back in 2 or 3 years for a big discount… In the meantime, rent yourself a luxurious place and enjoy the trappings that your current home perhaps doesn’t have. I know this strategy won’t suit everyone, but people who have $1.5m tied up in the family home and take a 25% hit, maybe 30%, is a really nasty thing to contemplate. The correction will also take away your ability to use your home for collateral at the level it is now – so “sell-take the cash – rent – and come back when things cool off”.
It’s not just me saying it…