Tag Archives: real estate

Stats!

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%.

More soon.

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HERE IT COMES!

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.

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HERE COME THE LOAN RESETS

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.

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PRESSURE FROM ALL SIDES

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.

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MORE COMMENTARY ON HOW OVERHEATED OUR HOUSING MARKET IS

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…

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EVEN MOODY’S IS AGREEING WITH ME NOW!

13 May 2015 in Sydney –

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EVEN GIANT BOND MANAGER PIMCO HAS A VIEW LIKE MINE NOW

Please take a look at this article –  http://www.smh.com.au/business/banking-and-finance/pimco-calls-on-banks-to-do-their-bit-and-raise-capital-20150428-1mv1ly.html

I rest my case – AGAIN!

If you’re a property owner – get out NOW, put your money away, rent and wait til the bubble burst-eth!

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Australia is in one of the worst housing bubbles we have ever seen

So says author and commentator Lindsay David – I reproduce his article from the Domain website of 27 March 2015 and I acknowledge them and David in full for this article – could not have said it better myself!

By all accounts, Australia is experiencing what is one of the greatest credit-fuelled real estate bubbles in modern times. On the back of a collapsing mining sector, we can thank the RBA, APRA, ASIC and the political elite in Canberra for creating a flawed household wealth-creation strategy that shares all the hallmarks of a predictable economic disaster.

In plain English, since the mid-1990s, Australia’s strategy is for home buyers and investors to borrow heavily from lenders and flip houses to the next buyer who has taken out even more debt to speculate.

Today, all this country has to show for it is a $1.9 trillion mountain of household debt that will make the US credit-fuelled housing bubble of the last decade look like a walk in the park when our housing bubble bursts.

The unfortunate victims of today’s “wealth-creation” strategy are young home buyers and middle-income earners who are either completely priced out of the market or leveraged through the roof.

While our society lacks a meaningful and open debate on the toxic and rising levels of household debt, new home buyers in Sydney and Melbourne are entering the market and taking upon the most illogical sums of debt, courtesy of our over-leveraged banking system.

Based on median multiples, new home buyers in Sydney will spend the better part of 6.54 years savings (using 30 per cent of their income) for a 20 per cent deposit to buy a median-priced home.

When it comes to servicing the first 12 months of a 25-year/80 per cent LVR mortgage, it will cost roughly 65 per cent to 70 per cent of household income to service that debt at current record-low mortgage rates. Melbourne is not too far behind.

So what have our leading economists, regulators, public executives and politicians done to stop this debt-induced folly? Nothing. In fact, they have bent over backwards to inflate prices via stimulants such as housing grants and allowing retirees to tap into their life savings.

These powerful stimulants have been implemented, not to improve home ownership rates, but to boost prices for the benefit of existing owners, bankers’ profits and government balance sheets.

If new home buyers cannot access (or are not willing to take on) a greater sum of debt compared to previous buyers, Australia’s wealth-creation strategy will collapse just like it did in Ireland. Rest assured, our society is definitely caught up in the same irrational exuberance they experienced.

From 1996 to 2014, housing prices and mortgage debt significantly outpaced economic fundamentals like inflation, rents, incomes and GDP. Yet, our central bankers are more concerned about whether we will pay less tomorrow for a can of soda than new home buyers in Sydney borrowing $50,000 more than last year to buy a home. Where is the logic in that?

If the RBA factored in the expansion of debt required for a new home buyer to enter the market, inflation would officially skyrocket through the roof. Regardless, our political and economic elites are now stuck between a rock and a hard place.

Unfortunately, that is the price a country pays when it builds an unsustainable property bubble while avoiding a debate on the most important topic when it comes to housing: debt.

With Australia having the world’s most indebted household sector, the seemingly unending price rises in Fool’s Paradise will eventually slam to a halt.  As I argue in my new book Print: The Central Bankers Bubble, having the largest housing bubble and mining boom in Australia’s economic history going down simultaneously will cause a severe economic and social catastrophe.

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MAYBE IF I KEEP TALKING

Maybe if I keep talking about a major imbalance in the market that is, and has been for a long time, overdue for a correction to reality, people will start to listen.  I’m OUT of residential real estate, and have been for a few years now.  The downside risk is just too high.

And today, Thursday 26 March 2015, the Reserve Bank has issued a warning that cheap credit has and will continue to fuel a housing bubble.  Hello!!!

Just Google  RBA cheap credit housing bubble.  There are many links to the various articles in today’s news.

Once again, I rest my case.

 

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THE ELEPHANT IN THE ROOM

Sydney Morning Herald today – all credit to them for this article – thanks ladies and gentlemen….

I continue to argue to all who’ll listen, that this rate cut is just fuel to a fire that will burn a lot of people when it finally rages out of control.  What is not reported is the high number of people who are diving into this super heated market who are not sophisticated investors. I recently chatted with a young couple at a Cafe who I overheard talking about buying a house.  Their SOLE source of advice – their blue collar, working class parents who owned precisely ONE HOUSE between them, bought 20 years ago!  And of course their “friendly” Broker who had given some really awful advice, far outside his legal ability to do so.  I left them pretty sure they were going to buy a nasty house in a nasty street and a nasty suburb for a “top of the market” price and rue the day they did.  This scenario is repeated hundreds of times a day all over the country.

Let us not forget the dodgy companies who still prey on people’s fear and greed to “stitch them up” into overpriced negatively geared properties with “rent guarantees” and other incentives paid for out of their overpriced purchase.

And, of course, our crazy overseas buyers who, in many cases, just want their money out of their “old” country and into the supposedly “safe haven” of Australia.  These people are losing all sense of propriety and in certain sectors of the market are causing chaos.  This chaos filters down and sideways into other sectors, fuelling speculation, rumour and fear that others may miss out on an endless bull run, and greed for the capital gain that, in my not-so-humble opinion, will never eventuate – or if it f does, will be short lived….

Sydney Morning Herald, today —- A deteriorating economic outlook sparked the latest interest rate cut, but the Reserve Bank remains concerned about the continued strength of house prices and investor activity in some pockets of the housing market.

The minutes of the RBA’s February meeting, released on Tuesday, show the board decided to cut Australia’s cash rate to a new record low of 2.25 per cent after new figures revealed the economy wasn’t doing as well as was previously expected.

But the bank also remained concerned about the continued strength of the Sydney and Melbourne housing markets.

“Housing price inflation had moderated from the rapid rates seen in late 2013, but remained high and in Sydney and Melbourne had been well above the growth rate of household income,” the RBA said.

The RBA said growth of investor credit had continued to increase “at a noticeably faster rate” than owner-occupier housing credit.

And a range of indicators suggested further growth of dwelling investment in the near term, the bank said.

The RBA said it would keep a close eye on developments in the housing market, as well as the impact of moves late last year by the Australian Prudential Regulation Authority, designed to temper investor activity.

“Given the large increases in housing prices in some cities and ongoing strength in lending to investors in housing assets, members also agreed that developments in the housing market would bear careful monitoring,” the RBA said.

“They noted that it would be important to assess the effects of the measures designed to reinforce sound residential mortgage lending practices announced by APRA in December.”

Despite the housing concerns, the RBA said it decided to cut the cash rate after indicators of economic growth began to look weaker than it previously expected them to be.

Economic growth was expected to pick up later than the RBA expected, while unemployment looked set to peak higher than originally forecast.

The central bank also took another swipe at the Australian dollar, repeating its familiar line that “a lower exchange rate was likely to be needed to achieve balanced growth in the economy”.

The RBA said it had considered acting at the March meeting instead but decided to cut in February, giving the opportunity for more detailed communication of its decision in the quarterly Statement on Monetary Policy, released three days after the February 3 meeting.

“On the basis of their assessment of current conditions and taking into account the revised forecasts, the board judged that a further reduction in the cash rate would be appropriate to provide additional support to demand,” the minutes said.

END OF ARTICLE

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