I don’t have to write anything except Google RBA concerned about Mortgage Stress, interest only loans and top down stress testing of the Banks.
I don’t have to write anything except Google RBA concerned about Mortgage Stress, interest only loans and top down stress testing of the Banks.
It’s being widely reported and my friends in Sydney who “know the market” attest to a slide in Sydney’s astronomical property prices. People are getting the jitters. The smart money has already “left town” and has found a home in the stock market, gold and other hidey-holes.
I was chatting recently with a couple in their early thirties – we started a conversation at a local coffee shop. They were wondering what to make of rumours of interest rates about to go up.
They confided that they had a $400,000 “VIP” type loan through a Broking House on their principal place of residence. They had an electronic copy of their contract so I took a peek. Just as I thought – another “Interest rate holiday” that will be clawed back by the Lender in Years 4 and 5. Poor people had no clue. They hardly understood what I was telling them.
Their repayments NOW are $1,833.00 per calendar month, interest only. By the time Year 4 comes around, very conservatively, interest rates will be at least 1 percent higher than they are today. Years 4 and 5 come with an extra sting in the tail. Their repayments will revert to Principal and Interest at “1 percent above market rate”.
I got into a Mortgage Calculator. Their repayments will jump $642.00 per month or by 35 PERCENT. I thought the poor dears were going to faint. “But, but, but…..” they stammered.
They bought me a coffee, said “thanks” in a wheezy, incoherent sort of way, and walked, leaning on each other, toward the beach.
As soon as I saw the huge number of Apartment starts planned for South East Queensland I knew there’d be trouble.
I watched the advertised “starting from” prices for 3 nearby developments go from $399,000 to $389,000 to $349,000 and $309,000 over 12 months until now where there are no prices listed, just FOR SALE signs.
Chinese who bought off the plan face capital export bans and are unable to complete their purchases. No solution here either as local banks will not finance them. The fallover rate for offshore Contracts is running at 50 to 70%. Buyers are walking away from their 10% deposit and Developers are unable to force completion. Try suing an individual in China… good luck.
Panic re-sales are resulting in spectacular losses. One large high floor apartment sold at a 42% loss before completion with the average loss now creeping into the 35%+ range.
This in the start of a pandemic. You cannot have such a large sector suffer huge monetary losses and loss of confidence without the effect spilling over into the rest of the market. Banks will pull tighter on lending criteria – there are many calls for Royal Commissions into Broker and Bank predatory lending practices – nothing will come of it of course, the blame being put on “market conditions” or some other such nonsense.
With interest rates on the rise, Banks under pressure and “the market” suffering a serious case of “the wobbles”, it won’t be long…
From Robert Gottleibsen at The Australian today…
Understand the new dynamic of Australia. Businesses that don’t could face a tough time.
The latest ABS household income and wealth survey raises all sorts of alarms about the rising debt of certain sectors of the population, particularly younger people buying homes and those punting the property market with negatively geared loans.
The Australian Bureau of Statistics is putting numbers to forces we have observed in our neighbourhoods, particularly those who live in Sydney.
However what we are seeing in those debt levels is a surface manifestation of much deeper trends in the society.
Hey how about this for good news! Back 13 years ago the average Australian had net worth of just over $600,000 and that’s risen to just over $900,000 — that’s a 50 per cent rise.
The ABS has done some calculations that makes the improvement in “my wealth” in recent times even better.
They take the 2015—16 average Australian household wealth (net worth) of $929,400 and then adjust it for inflation and discover that, average wealth has increased by 11 per cent since 2013—14.
That’s a lot better than money in the bank at today’s interest rates.
And the share market, on a risk for reward basis, is also well behind.
Better still, the average Australian is not borrowed to the hilt —-the mean value of household assets was $1.1 million while the mean level of household debt was only $168,600, or 15 per cent.
Taking averages or mean levels can, of course, be misleading because it conceals a lot of households that are over-borrowed. But there are a lot of Australians who are feeling very comfortable, thank you. The fact that they are usually older Australians is a problem.
But it’s one thing to have assets and another to have the money coming into the till to spend on necessities and the luxuries you think you deserve given the rise in your wealth.
When we look at the income graph we see a totally different picture:
According to the ABS, in 2007-08, or eight years ago, the average Australian’s mean weekly income was just under $1000 and it had been rising very well in the three years previously.
Then came the global financial crash and their income stopped rising. Looking back over those long eight years from 2007-08 what little gains were achieved were wiped out by a fall in 2015-16.
During those eight years the cost of services where people are paid at government rates (teachers, health workers, government employees and council workers etc) has continued to rise.
Still, as the average Australian, while my income has not risen my assets have gone up so I don’t feel too bad. That is unless I have a huge mortgage that was agreed to when the bank manager did a sum that assumed my income would rise with inflation.
But there is a sting in the wealth tale.
It’s true that the average Australian has assets of $1.1 million but more than 60 per cent of those assets are in property, if you include the fact that industry superannuation funds have a major stake in the unlisted property market.
And property values have often been driven by the decisions of state government and local councils to restrict supply.
So Australians have backed one sector of the investment area and it has delivered.
If ever property falls in Australia the affects will not just be directed to the over-borrowed parts of the society (and the bankers who loaned based on blatant lies by those applying for loans), but it will spread through the wealth of the community.
And not only are we looking at personal balance sheets.
A vast number of Australians are employed in the industry which is feeding this allocation of savings — the building industry.
We have to understand that as a nation we have made a huge play on one investment class.
Because this investment class is also our residences it has created deep social problems as well as the indebtedness that goes with booms that deliver 11 per cent a year.
We are watching Sydney apartment prices fall 10 per cent and the building rate fall.
In the overall scheme of the nation that is not a big deal.
But if it were to spread, watch out.
EVERYTHING HE HAS SAID ECHOES MY SENTIMENTS OF THE LAST FEW YEARS.
Interesting to read some “non-fake” news today where the truth is slowly being leaked out by major media outlets.
One of the largest builders and holders of apartments in Australia is now saying people will be wiped out in the (just starting) (watch out for that cliff!) current downturn, sighting Government activity both within and external to Australia as being at fault.
Settlements are failing at 50% as buyers walk away from their deposits due to buyer’s remorse and being scared by what they’ve actually bought into.
New South Wales Government has an application fee of $10,000 to buy if you are not an Aussie. Stamp duty on foreign buyers has been raised from four to eight per cent and a land tax of 0.75 per cent will commence in 2017. Local councils are also chipping in with extra charges.
Wow! What I’ve been saying for years is suddenly BIG NEWS. Aussie Banks are sitting on $500 BILLION of what they call “Liar Loans”. Borrowers lie on their applications for finance, however, Brokers and settlement agents within the Banks do not and have not properly checked and validated applicant’s claims as to income and expenditure. Watch out Bank Shareholders is all I can say. Profit? What profit when this House of Cards tumbles!
Economies are “recovering”. Crazed Central Bankers decide to act in advance and put the brakes on early by increasing interest rates.
The Liar Loan Borrowers have no spare capacity in their budget (what’s a budget?) so there WILL be huge numbers of defaults and the market will be flooded with Mortgagee In Possession sales. Watch prices dive with no over eager international buyers, wary investors and savvy folk like us, sitting on our hands waiting for the inevitable blood bath.
“Safe As Houses” Bullshit
The AFR is finally publishing what is really going on.
In Melbourne, apartments selling now for exactly what was paid in 2007! Wow… a stunning investment.
Apartment projects across the country being stalled, cancelled or failing as overseas buyers see that our market is a crock of shit, Banks become more conservative, and local investors finally see the downside risk.
Sell now. Buy back later.
Post war and right up until the early 2000’s, the old fashioned Dad at work and Mum at home raising the children worked a treat. I am not commenting on the social status of women or starting any such argument. I am talking AFFORDABILITY!
The “Average House” which used to be say, a cottage of about 1400 square feet, 3 bedrooms, one bathroom, kitchen/dining and lounge room, with a carport or garage on just under a quarter acre, could be had for 3 times the gross annual income of the primary (and often, ONLY) wage earner.
This “multiple” persisted for more than 60 years until the whole thing went nuts.
The first house my father bought cost $10,000 when his annual salary was a smidgen over $3,000. The first house and land that I bought and built cost me $75,000 when my annual salary was about $25,000. The next house I built was a lot bigger, at 5 bedrooms and 3 bathrooms with a double garage on a fairly pricey piece of land. The “multiple” went to 3.6 for that one, but that was to be expected.
Today, for a modest house of about 1,500 sq ft, typically with a single garage and a carport, 2 bathrooms but on a postage stamp piece of land (no value there folks!) the multiple in the majority of markets lies between 7 and 10. In other words from seriously unaffordable to economic suicide.
Record low interest rates and “Honeymoon” deals have placed hundreds of thousands of people at risk of bankruptcy and homelessness. The overall economic fallout from such a disaster, and it will happen, will be incalculable. The media is full of people with “other interests at heart” who comment. Why ask a major developer who has 5,000 apartments coming on to the market if he thinks the market is overheated, and due for a cliff like correction? Is he going to answer YES and put people off buying? Hell No.
Or other commentators who have hundreds of thousands of Bank shares in their superannuation portfolios… are they going to tell the truth and watch their Bank shares tank? Hell No.
Go out into the market and SEE for yourself what is happening. I sold a number of 50 square metre studio units in 2004 and 2005 for $209,000 and $219,000. 12 and 13 years later they just changed hands for $159,000.
A large 2 story house I helped friends sell in 2007 for $650,000, had a minimum of $150,000 spent by the new owners on pool, gazebo, extensive landscaping and upgrades to 3 bathrooms and the kitchen. Sold for $795,000 this year. That is a LOSS over 10 years of at least $60,000 in stamp duty, legal and agents fees, not to forget interest on loans, rates and insurance.
I do not care what you read elsewhere. If you are in real estate now, get out while you can…
I was almost relieved to see ABC Four Corners finally bring some sense to the argument that Housing in Australia is a No Lose, Bulletproof and Unassailable fortress of wealth.
I stand by my assertions that this market is poised for failure. I am seeing in south east Queensland some REAL (not imagined) failures happening every single day. For example three are 3 fairly major apartment developments within 5 kms of each other. One has failed as the builder went belly up. The new builder has yet to start the last leg of the project because there is NO FUNDING! Huge banners on each had prices for one bedroom apartments (facing the car park, the main road or the railway line (your choice!) starting at $389,000 and $399,000. Over about 7 months, the banner’s prices went down and down to eventually $319,000. The banners disappeared altogether. Not because all the nasty tiny 1 bedroom apartments had sold, but because the Banks will only finance 50% of the Contract price of such disasters because they are too small, have a limited market and quite frankly, the downside risk to the Banks is too high.
I saw a Studio Apartment that sold for $199,000 in 2006, $239,000 in 2009, sell last week for $169,000. Progress? Everyone making money? I don’t think so.
Fancy agents are advertising their “record prices” achieved last month! Rubbish. One place was sold for $20,000,000. Wow! Trouble is it sold for $32,000,000 8 years ago! A record? For what, the last 7.8 years? Probably. Liars!
Here is some of what happened on Four Corners recently, copied from their site and acknowledged as not my own work…
Betting on the house: Australia’s real estate obsession driving us to the brink. “I think it’s a powder keg.” Investment consultant
The statistics are startling. Australians are carrying more personal debt than ever before. For every one dollar earned, on average, Australians have nearly two dollars of debt. We hold the dubious position of having the second highest level of household debt in the world. Much of this stems from our obsession with buying real estate.
“Housing has never been rational. In Australia, it’s probably more akin to a religion or a cult so it’s all about faith. You’re either a believer in property or you’re not.” Former banker
On Monday, Four Corners investigates the forces driving our debt fuelled housing boom and the risks it poses for the nation.
“I’ve been studying the market here for a good number of years and I have never seen this perfect storm of issues coming together.” Financial analyst.
The program draws together key experts to map the danger zones in the housing market and will reveal the Australian suburbs currently experiencing the highest levels of mortgage stress.
“It’s the nightmare that you live with all the time. You wake up in the morning and you think, ‘How much longer will we be living here?’ Constantly.” Mortgage holder
Experts are warning that a wave of home owners and property investors will be unable to cope if there’s an increase in interest rates or a change in their personal circumstances.
“You’re effectively toast if you lose your job or the main breadwinner does. That’s the point of fragility that we’re at now.” Investment consultant
Regulators have been tightening the screws on lending requirements but there are concerns it’s too little too late.
“All bubbles really depend on loose credit, that’s one of the things that’s really fuelled the Australian housing market. Anyone with a pulse could essentially get a mortgage.” Economist and investment fund adviser
The program investigates the lending practices that have driven the boom in residential lending, and asks, 10 years on from the global financial crisis, if the banks are prepared for a potential crash landing.
“If there’s a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector. The banks could in fact experience higher losses because households are more indebted.” Ratings agency analyst.
It all points to exactly what I’ve been forecasting for the last 3 years. The demise of this market has been delayed by aggressive interest rate cuts by the Central Bank, the Mining boom with huge wage earners be able to buy multiple properties, and the Chinese getting their capital out of China as fast as they can. All 3 major influences have stopped dead… here it comes!
It was a fine and sunny day for Auctions, a great time of the year.
The “On The Day” clearance rates for all Queensland Auctions, of which there were nearly 300, was an astounding 29 percent.
The Sydney Morning Herald today. Credit rating agency Moody’s has downgraded a dozen Australian banks, including the big four, citing increased risks in the nation’s increasingly indebted households.
Moody’s stripped the big four banks – the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (Westpac) – of their Aa3 long-term rating and placed them on the next level down at Aa2, although it did not alter their short term ratings.
“In Moody’s view, elevated risks within the household sector heighten the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years,” the statement said.
Moody’s did not think a “sharp housing downturn” was a “core scenario” the risk posed by increasing household debt had to be considered when weighing the ratings of Australian banks.
“In Moody’s assessment, risks associated with the housing market have risen sharply in recent years. Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness,” the statement said.
I’ve been getting real time, real life feedback from operators in the business. The rot is setting in amongst the Nappy Land young couple buyers. Their properties are being revalued DOWN. it will be blood in the streets when this whole pack of cards collapses.