All I have to say is – read this – and get out!
All I have to say is – read this – and get out!
Thank you ABC News, for this article – one of the best I’ve read in over a year.
Thank you Australian Financial Review for this article – 07 July 2016 – A former Aussie Home Loan broker would go to jail for up to a year after admitting he submitted fake home loan applications to Westpac, National Australia Bank and ANZ Banking Group at least 18 times.
Aussie Home Loan mortgage broker Madhvan Nair admitted on Thursday making 18 loan applications totalling $5.6 million between 2012 and 2014 which had false borrower employment documents.
Of the 18 loan applications, 12 were approved by the banks, which resulted in home loans worth $3.7 million.
Mr Nair pocketed $10,000 in commission and cash payments for making the false loan applications.
I have said for a long time that this is an epidemic. A dark undercurrent of lies and deception that is NOT being thoroughly investigated by the lenders despite the fact that they KNOW its an epidemic!
These practices are silently contributing to the severity of the ultimate correction that is now long overdue.
I’m always intrigued, bemused and at times frustrated when I see ‘statistics’ so badly mauled in the Press.
Example. If you had $100,000 and got about 3% interest per year, compounded, your account would have a balance of around $116,000 after 5 years. Im assuming no tax, just to be clear.
Congratulations though, because your $100,000 has been eroded even faster by inflation.
When online and print articles proclaim that a 14.2% rise in the Median house price in Brisbane is a winner what on Earth are they banging on about?
14.2% compound over 5 years is a LOSS!
And the median is across all of Brisbane and can be so easily skewed by the odd high value sale. See previous parts of my blog for more detail on the ‘nil value of misquoted medians’.
Here on the Gold Coast, many Apartments, especially in the ‘basket case’ that is Southport, have dropped more than 20% in the last 12 months!
For the entire Gold Coast, sales volumes of Apartments fell through the floor, dropping 10% in the 3 months to 31 December 2015. Just watch 2016! And see for yourself how poorly that sector will perform when March quarter figures are released. Year on year fall will be closer to 50%.
When “Free Enterprise” gets it wrong, things can go pear-shaped quite rapidly. Take the Brisbane Central Business District as a prime example – and if this goes as badly as I think it will, the effects will flow to surrounding areas like a cancer.
Buyers are gullible. Who believes everything the salesperson and/or Developer tells them in their glossy brochures? Well, the vast majority it seems. People want a nice new shiny Apartment with a rental guarantee and massive capital gain to fund their retirement, buy a big boat and so on. The promoters will say and write anything, as long as it comes with a Disclaimer as long as a telephone book (and about as interesting).
People do NOT do their own research. Are they just lazy, or have so much money they can afford to lose $100,000.00 like dropping a $5 note on the ground? Or is it that they really do not want to find out that they can buy far better value for sometimes 100’s of thousands less a few blocks away where it’s all established and happy? Who knows?
The fallout from over 30 thousand Units/Apartments hitting a saturated Brisbane CBD market over the next 24 to 36 months will be catastrophic. This same thing happened here on the Gold Coast and was well publicised in the lead up, during and afterwards when folks lost their “investment” and their principal place of residence to the Banks as it was tied up as “security” for their supposedly bulletproof investment!
Prices of Apartments are falling – and fast – I would not be surprised to see discounting at the 15 to 20 percent range in the next 6 months. Rents are falling much faster. Apartments are sitting vacant for a couple of months, so cash poor landlords (many of whom have never had an investment property before) are going nuts at their letting Agent and saying “get me a tenant…at any price, as I am bleeding cash here!”
Well – there is your next problem. Crap tenants. Agents not only have to deal with a very large number of new Apartments to try and find tenants for, their time to check references is reduced so some very bad tenants will move in to new buildings and cause chaos. Good tenants in the same building will cry foul and move out to get away from the drunken party animals, leaving even more apartments vacant and the cycle then spirals downwards. There are many buildings here on the Gold Coast where the ratio of sole operator prostitutes to tenants in the same building is quite staggering! Not to forget the Mobile Drug Labs!
As rents crash and buildings become full of rat-bag tenants, first-time landlords will “want out” so even more Apartments will come on to the market, adding to the glut. These “distressed sales” will put more pressure on Developers, already staring at floors and floors of dead stock. Prices will “tank”.
When prices “tank” in one area, especially when you talk about tens of thousands of properties, the contagion rapidly spreads to surrounding areas as confidence falls.
I know I’ve been banging on about this rapid correction for a while now, but we are seeing the many and varied conditions required for a perfect storm, slowly but surely coming together.
Watch this space for when interest rates cycle upwards!
Governments clutching at straws to balance the books. If people in business ran their businesses like the Government runs this country, there would be no jobs, no profits and no businesses.
But I digress.
Now Turnbull is talking about messing with Negative Gearing! Oh My Lordy – ahhhhhh – idiots – didn’t a Labor Prime Minister do that is the 90’s? And look waht happened then! Public Housing waiting lists stretched out for 5 or 10 years. Those of us who has negatively geared properties back then (like me!) just shook our heads and either immediately sold up back into private occupiers hands or held tight through 19 % interest rates and perhaps a reversal of Policy (which did happen thanks goodness) and came out the other side scarred but intact.
With this market at historical multiples, ANY jitter will accelerate the inevitable correction. Playing with Negative Gearing is not a jitter boys and girls. It’s a bloody Tsunami ready to do some serious damage.
Overheard a couple in their 20’s talking about Mortgages, so I waded in and told them a little of my background. We chatted for a while and he pulled out a letter from his Lender.
$450,000.00 loan over 30 years at about ca. 4.5 or 4.6% INTEREST ONLY for 3 years, about to revert to PRINCIPAL AND INTEREST at >5.3%. Neither of them had ANY IDEA what those terms meant or how it affected them, and they certainly did NOT understand why their Mortgage repayments were jumping from around $1,720 per month to $2,500.00 per month in a couple of weeks. NO IDEA at all.
Since they had borrowed through a Broker, she had had a baby and gone part time AND they had signed up for a brand new car at Dealer finance, which was not, in any way, a “friendly” deal as had been promised!
I brought up a Loan Calculator online and asked them what their circumstances were at the time they took out their loan. OH DEAR! The BEST I could come up with was $350,000.00, certainly not $450,000.00. I told them about suspect Brokers who were inflating people’s circumstances, as well as Banks bad lending practices that were “setting people up for failure” down the track.
They got quite angry – not at me, but left, RAGE ON, ready to question both Broker and Lender with the list of ‘please explains” I’d provided.
Here it comes folks – all these bullshit loans made before the Banks were forced to tighten lending criteria are coming home to roost. This couple are screwed and will have to hand back their car, or sell their home.
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.
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…
Published in every major newspaper the last 24 hours are serious comments by the OECD that mirror what I’ve been squawking about since I started this Blog.
OECD officials say the Sydney and to only a slightly lesser extent, the Melbourne markets, are overheated and if the Reserve Bank gets it wrong and lowers rates again, it will be like throwing a bucket of jet fuel on a hot engine!
Others are pointing to where I live, the Gold Coast in Queensland, to be THE place to buy lest you miss out. Here we have the affordability multiple (that is, primary wage earner gross annual income multiplied to give average house price for a small family home) that used to be 3.0 to 3.5 at ridiculous levels of 8, 9 and even 10.0 in some places.
At the same time we have tens of thousands of first home buyers who have used the equity in their parent’s homes to “get into” their first home at any cost. These poor people are repaying “interest only” for a few years at a “Honeymoon rate” of interest. When their loans reset to Principal and Interest at rates well above market (something they signed up for but by then have completely forgotten) their repayments will double to unaffordable levels and they will be forced to sell. Just imagine tens of thousands of distressed properties coming on to the market at once? Mayhem! And major price falls as supply outstrips demand. Not only are the First Home Buyers at risk of getting less for their home than they owe Mr Bank, but their parents, who never really understood what handing over equity in their home really meant, may suddenly find themselves homeless too.
Keep leasing folks, and find safer places for your money!