Hi. As we approach Christmas there are slightly alarming FACTS emerging around the country that point to a hefty correction around the corner for our teetering real estate market.
I guess the first one should be the USA’s impending decision to start to raise interest rates as they see their economy “recovering” somewhat. The rest is happening here Down Under. If we have a 2 percent rise in interest rates here, 40 percent of home owners will no longer be able to pay their mortgages – period – FACT. That many properties flooding the market will start an avalanche of sales that I won’t be joining in to buy any time soon. Not until the streets are running a metre deep in Mortgage Blood would I get back into property.
Aussie Banks have tightened their lending criteria. So many (foolish) people buy OFF THE PLAN – Why? They stake their place with a ten percent deposit. Come near settlement time, the Bank , after re-valuing most of these places says “Sorry – we need 20% deposit or NO LOAN for the rest”. With most of these properties selling for OVER $700,000.00 who has a lazy $70,000 lying around? Almost none of them so 1. The seller sues and buyer loses deposit and equity in other properties etc or 2. Buyer just walks away and leaves $70,000 behind and fingers crossed the Developer does not sue them for failing to complete. Has this happened? Yes – many, many times, especially here on the (fake tan – false Gods) Gold Coast.
When the Fire Sales start, whole suburbs will be revalued and lenders will eventually be forced to re-evaluate their portfolios and admit that most of their loans are under water. Who of these battlers can come up with extra money if demanded by the Bank – ahhh – about NONE – unless Mum and Dad come to the rescue and put the family home up for security – in a falling market, this is a really DUMB IDEA! But they will do it and the Banks will accept it – until the market corrects some more, and they ask for more equity and so on…until both properties are at risk of default. Combine this scenario with the aforementioned rate rise “elephant in the room” and once again you can see why I am nowhere near real estate right now.
Things are getting tighter and tighter too – just look at the continued growth in credit card debt – bad enough at 18 to 22 percent per annum, but what about Pay Day lenders, who are raking it in – double the number of loans in the last year or so (average size about $500.00 I believe), with punters paying interest of over 100% per annum annualised! If that does not point to a lot of people “losing the plot” financially, I don;t know what does.
Combine that Genius Financial IQ with previously mentioned factors and we have a recipe for disaster.