The Great Australian Housing Bubble

So, I was on a flight into Sydney recently and got talking to the bloke next to me who turned out to be an investment adviser in the U.S.

It was a long, fascinating and sometimes scary convo, but - in a nutshell - he explained to me why he was extremely confident that our real estate market was about to implode - like within the next year.

It was extremely convincing stuff. 

He also pointed out a number of very prominent (and successful) U.S. fund managers who have shorted Australian banks in anticipation of what they feel is a certain crash. Our banks are so highly leveraged with real estate debt it's ridiculous. Our property is extremely overpriced and interest rates are extremely low.

All of this can really only go one way - and it's not up.

So here's a bit of advice from one of the world's leading corporations, Kramerica Industries:

If you're currently sitting on a big mortgage that is taking up a big chunk of your income, NOW is the time to see the bank and negotiate a fixed rate or an extension of interest only payments. If you can only lock in a fixed rate that is more than the current rate don't worry - the important thing is that you can afford the payments over the medium to long term. Rates WILL rise and home prices WILL drop.

Likewise, if you own an investment property with little or no equity (which you may be making interest only payments on) now is probably the time to get out.

If your bank can't/won't help look around. 

Don't leave it 'till it's too late. If you see yourself struggling if you had to pay more on your mortgage act now, future proof yourself, and sleep easy.

Trust me, when the levee breaks (and it will), there will be alot of people lamenting "if only i'd done something when I could".

Cheers 1eyed Eelers :)

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  • ....or move to God’s own on the North Coast where it’s reported won’t be affected by the largely dominant Sydney implosion. We have an investment property on the peninsula, we’re just fortunate enough to have the equity in it to ride out this out.

    Interesting read Kramerica.

    • That's the secret mate - if you've got equity and disposable income it's just a number on a bit of paper. It's the folk that are fully extended now that could suffer terribly if there's a big market correction.

      The whole point of my blog was to say to people you can't really lose by acting now, but you can lose everything if you don't act now.

      • Yes, good point. It's long overdue this rate hike.

        • Precisely, Kram. A friend of mine is currently fully extended and works in finance. They are currently aiming to either refinance thru the bank of inheritance or rent out the home and rent elsewhere in a tree change. I doubt they are alone in worrying about rising rates, for instance. 

  • How have prices tracked over the last 12 months compared to the 36 months before that?

    What about Australian's household debt ratio? It's way higher than the United States'. In fact it's higher than what it was in the U.S. before the GFC in '08.

    I would like someone to tell me why there ISN"T going to be a collapse in Australian housing prices but so far I can't find anyone that can.

    • This reply was deleted.
      • So, which way are mortgage rates headed, and which way are house prices headed - in the next 12 to 24 months?

        What about all the 5 year interest only investor loans that are expiring over the next 3 years? The huge majority have to go into I&P loans. What will the effect of this be? 

        Oh, and how can a sub prime mortgage be discribed as "hi-doc" ?

  • This reply was deleted.
    • Yep I agree with alot of that POP but I don't think in this case that looking at what has happened in the past is any indicator of what is going to happen in the future. After all, this housing bubble is really about 30 years old - maybe even older.

      The RBA has continued to lower rates over the last 7 years even thouugh the GFC "crisis" had passed - I reckon they're hoping for a soft landing but all I see is a classic burst with a cascading effect that will wipe out alot of punters.

      The only reason APRA are screwing down the banks now is because of their lending practices over recent years. If they (the banks) hadn't gone wild on interest only debt maybe APRA would have stayed away. Or maybe they are trying to control the bubble, or even burst it now?

      I agree the royal commission is going to have alot of influence in future events. It looks to me like the banks are raising their rates now in anticipation of a fall in profits - afterall, the official interest rate hasn't gone up. The value of bank shares is based solely on investor dividends - if banks drop dividends (something unheard of in recent decades) their share price will drop like a lady of the night's knickers.  

      I actually reckon there's still alot of investment opportunities out there for the right people, but I also think now is the time for the average punter with limited disposable resources to batten down the hatches. Just to be safe. Mortgage insurance covers the bank (and only in certain circumstances), not the mortgagee.

      Cheers mate :)

      • Something for consideration both of you have missed.

        The planned future residential developments in the SE QueeRZland sector ALONE, is in excess of the projected NATIONAL population growth over the next 15 years. Ie Sunshine Coast to border and west to Toowoomba.

        Add bigger numbers for Sydney, Melbourne and similar (but slightly lower) numbers for Adelaide and Perth and what have you got?

        So I would be backing Kram in front of a demented old fart on this.

        Now I know Poppa knows his money markets, but you missed this one mate.

        You cannot sell to an absent market.

        • This reply was deleted.
          • As noted, recent debates about Australia’s population have centred on the projection that Australia’s population may reach 35.9 million by 2050. This figure comes from Treasury’s 2010 Intergenerational Report (IGR) (Australia to 2050: future challenges).

            Under this projection, the population will continue to grow but annual rates of population growth would slow gradually. According to Treasury, the rate of increase will slow from 2.1 per cent in 2008–09 to 0.9 per cent in 2049–50.

            The Treasury projection is also more or less consistent with the figure predicted by the ABS (35.5 million by 2056) in its middle range (Series B) projection for 2056. Whilst the ABS creates many alternative variations of the projections, Treasury used a combination of ABS and its own projections in the IGR.

            According to the ABS, Australia’s estimated resident population at 30 June 2007 of 21.0 million people is projected to increase to between 30.9 and 42.5 million people by 2056; and to between 33.7 and 62.2 million people by 2101.

            https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/P...

            Future planned residential estimates till 2030. (approximate)

            Brisbane = 425,000

            Gold Coast = 385,000

            Logan = 315,00 (?)

            Moreton = 255,000

            Sunshine Coast = 285,000

            Toowoomba = 185,000

            Total = 1,850,000 residential dwellings.

            Projected National population growth to 2030 @ 2.1% = 484,000 people

            Some figure have the projected growth as high as 4.9% which is still below the proposed developments of 1.85 mill dwellings for 1,225,000 people - or a national population around 26 million people.

            Poppa old mate you are capable of cutting me to pieces with finance BUT I will carve you up with Local Government issues - make no mistake about that.

            Australia’s future population – Parliament of Australia
            Australia’s future population
            • This reply was deleted.
              • Whats Ipswich figures?

                First answer - one massive Cluster F***

                With Ipswich council being sacked and 15 people facing 87+ charges for corruption etc, the new (ALP plant) administrator has sort of put a lot of things on hold.

                That said, Springfield alone is touted to become one of the biggest residential areas in Qld if not Australia.

                It is proposed to become a fully self sufficient "city" with the populace to work, play and whatever in the one area without ever having to go outside that area for anything.

                Of note are the charges against ex mayors and developer for "circumventing due legal process (and alleged bribery) to continue the growth.

                But I digress.

                Good pick up Browny, as I was thinking there was more that should have been added having a figure rattling around in my head of in excess of 2 1/4 million proposed dwellings for the SE corner.

This reply was deleted.

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