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  • Profile photo of ScampScamp
    Member
    @scamp
    Join Date: 2008
    Post Count: 297

    The truth about the australian housing market :

    It's normal when property goes up by 100% in 2 years. Yet, when clear crash signs indicate
    the prices will crash 50% , this somehow seems impossible and the end of the world. Why ?

    "Houseprices always go up , they never go down" is the usual answer. And so they have done,
    for the last decades. But not anymore. High oil prices, rising unemployment, inflation and
    the subprime crisis are going to cause what should have been caused long before : A crash.

    Usually, markets go up and down in a sinus-like wave. We have seen a boom in 1998-2000 with
    the dot.net bubble, the bubble deflated and people who didn't sell before it deflated were
    left with no savings. With housing , we're in a similar position nowadays, only the major
    difference this time is that it isn't only savings, this time it's chokingly huge debt.
    houseprices have gone up as far as they possibly could get for a lot of good reasons which
    I won't explain to detail here. You can do your own research.

    The risks are huge, and will soon become more than clear to a lot of households when their
    lowest-ever 5-year-fixed mortgages will go up from 6% to 10% interest rates this september 2008.
    This huge increase results in average monthly mortgage repayments increasing from 850$ to 2650$.

    In september 2008 : 1.000.000 households will be in severe trouble. And this is just the start.

    Be prepared and be afraid , this crash will dwarf the 1929 crash.

    Profile photo of blogsblogs
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    @blogs
    Join Date: 2005
    Post Count: 418
    Scamp wrote:
    The truth about the australian housing market :

    The risks are huge, and will soon become more than clear to a lot of households when their
    lowest-ever 5-year-fixed mortgages will go up from 6% to 10% interest rates this september 2008.
    This huge increase results in average monthly mortgage repayments increasing from 850$ to 2650$.

    In september 2008 : 1.000.000 households will be in severe trouble. And this is just the start.

    Be prepared and be afraid , this crash will dwarf the 1929 crash.

    Agree 100000% mate!!! This post is going into the 'I told you so' file to be brought out in a year or two. Funny how greed and ignorance can blind people to the real story. Your point about people coming out of fixed rate mortgages is what Ive been saying ofr ages-no body listens. Thats o.k, the less they listen the more it will crash and the better value I will be able to buy:)

    Profile photo of gmh454gmh454
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    @gmh454
    Join Date: 2003
    Post Count: 537
    Scamp wrote:

    and will soon become more than clear to a lot of households when their
    lowest-ever 5-year-fixed mortgages will go up from 6% to 10% interest rates this september 2008.
    This huge increase results in average monthly mortgage repayments increasing from 850$ to 2650$.

    In september 2008 :

    And that is the big question. So many of the equity investors locked in 2003 and 2004 when the market noticeably paused
    and if they have not taken the time to fix up there personal balance sheets they will be facing very different lenders than the bend over backwards “lend money to a homeless drunk’ bank of 2005. What they do will set the stage for the next tweak to the market.

    Hands in pocket until then.

    Scamp I am with you except for 1929, painful yes but think 91 will be worse ( I hope)

    Profile photo of attrillattrill
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    @attrill
    Join Date: 2004
    Post Count: 54

    I have 2 loans fixed at 6.65% until 2009 when they will revert to the prevailing rate. In the last few years the rents have risen to a point where these properties will still be cash neutral. This is more a case of luck than astute financial planning.

    If we do see a big drop in values (prices), it will be as many more houses are on the market due to investors having to get out as they over borrowed.  The ones who have access to funds will clean up as all the people who are not then homeowners will still need to rent.

    Profile photo of ScampScamp
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    @scamp
    Join Date: 2008
    Post Count: 297
    attrill wrote:
    I have 2 loans fixed at 6.65% until 2009 when they will revert to the prevailing rate. In the last few years the rents have risen to a point where these properties will still be cash neutral. This is more a case of luck than astute financial planning.

    Many are in your situation Attrill. Buyers know this, and are now waiting for people like you to tumble over, and foreclosures some on the market for 50% of today's price. It's what is happening in USA now, it will happen in Australia too. January 2009 will give more insight in the real trouble people are in. But if your bank devaluates your house by 20%, and you are negatively geared, then you will have to borrow at the variable interest rates of 10% to 11% ( if not higher by that time, there's already talks about raising interest again this month ).

    Why don't you fix your interest now for 5 years ? At least you won't be one of the foreclosed ones.

    Closing your eyes or putting your head in the sand won't let the problem go away : act now, fix your interest at 8.75% ( yes , you can still do this with your bank ) before you HAVE to do anything.

    Interest at this moment will only go up , because Rudd wants to fight off inflation at all costs ( that's what he says anyway ) Just read the news, and make up your mind. I would not be surprised to see another 0.25 interest increase in June and one more in September.

    Remember the 17% interest rates ?… they're coming back.

    Profile photo of emu1208emu1208
    Member
    @emu1208
    Join Date: 2008
    Post Count: 19

    i have two property…. sounds like this is the best time to sell huh?

    Profile photo of Young gun 86Young gun 86
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    @young-gun-86
    Join Date: 2008
    Post Count: 4

    scamp with an attitude like that i feel you should be afraid
    you obviously are weak minded and find pleasure installing fear in ppl

    Kind Regards

    Celebant Monk

    he shall ask, he shall recieve

    Profile photo of emu1208emu1208
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    @emu1208
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    Post Count: 19

    r u talking to me….. young gun86????

    Before you give me a lippy u silly person.. this is a true fact that I have 2 property and I am in a process of getting appraisal and selling…cause I follow the market and i agree with the statement with the other guys… .. You mush have translated my writing in a different way..

    Profile photo of Young gun 86Young gun 86
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    Post Count: 4

    hey ostrich i mean emu not for you was intended for SCAMP…if you feel negatively towards the market then maybe sell up good luck and all the best to ya.

    He shall ask, He shall recieve

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    Scamp history repeats itself over and over again. Humans do not learn from history . I have studied the great Tulip crash 1634-1637 Holland and lived during the recession we had to have.
    http://www.investopedia.com/features/crashes/crashes2.asp
    http://www.holland.nl/uk/holland/sights/tulips-history.html

    Profile photo of superhoopssuperhoops
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    @superhoops
    Join Date: 2008
    Post Count: 15
    Scamp wrote:
    attrill wrote:
    I have 2 loans fixed at 6.65% until 2009 when they will revert to the prevailing rate. In the last few years the rents have risen to a point where these properties will still be cash neutral. This is more a case of luck than astute financial planning.

    Many are in your situation Attrill. Buyers know this, and are now waiting for people like you to tumble over, and foreclosures some on the market for 50% of today's price. It's what is happening in USA now, it will happen in Australia too. January 2009 will give more insight in the real trouble people are in. But if your bank devaluates your house by 20%, and you are negatively geared, then you will have to borrow at the variable interest rates of 10% to 11% ( if not higher by that time, there's already talks about raising interest again this month ).

    Why don't you fix your interest now for 5 years ? At least you won't be one of the foreclosed ones.

    Closing your eyes or putting your head in the sand won't let the problem go away : act now, fix your interest at 8.75% ( yes , you can still do this with your bank ) before you HAVE to do anything.

    Interest at this moment will only go up , because Rudd wants to fight off inflation at all costs ( that's what he says anyway ) Just read the news, and make up your mind. I would not be surprised to see another 0.25 interest increase in June and one more in September.

    Remember the 17% interest rates ?… they're coming back.

    Glad I didn't take this persons advice about fixing interest rates at 8.75%. 

    It is obvious that he/ she has little economic knowledge as it was quite evident that the world economy had been heading for a recession over the last 18 months which means central banks will reduce interest rates, rather than raise them. Even the RBA was too rash in its decisions to increase interest rates early this year as the impact of last years rises were not given the time to try and curb inflation.

    Whilst Australia's economy is strong it certainly is not immune from world factors, therefore anyone predicting that Australia's interest rates would continue to rise whilst other countries interest rates remained stagnant or even fell has little insight into economic theory. Therefore any advice that they provide should really be taken with a grain of salt. 

    Profile photo of kris07kris07
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    Post Count: 101

    Well said superhoops!

    Profile photo of ummesterummester
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    superhoops wrote:
    Whilst Australia's economy is strong it certainly is not immune from world factors, therefore anyone predicting that Australia's interest rates would continue to rise whilst other countries interest rates remained stagnant or even fell has little insight into economic theory. Therefore any advice that they provide should really be taken with a grain of salt. 

    I'm not trying to defend Scamp here but if the RBA wanted to keep Australia financially strong it would have left IRs, or even put them up a bit. We are doing exaclty what the US did in reponse to the subprime and how well did it work out for them? Bugger the theory, sometimes one needs to think outside the box for the best result.

    The RBA has lowered rates in the midst of food,fuel and house price inflationary pressure, to an extent that is usually reserved for the second quater of a recession. Why? Just because it's what other countries did?

    Profile photo of CHISCHIS
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    So that millions of people don't start defaulting on the loans?
    The main reason is so that banks can do business with each other. When the money dries up between banks, the economy stops dead

    Profile photo of ummesterummester
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    CHIS wrote:
    So that millions of people don't start defaulting on the loans?
    The main reason is so that banks can do business with each other. When the money dries up between banks, the economy stops dead

    You can't make an omlet – if it takes the defaults of millions to keep the economy strong than so be it, there are way more millions that need a strong economy. Look at the US, weakening the economy caused millions of bankruptcies anyway…

    Ok, so our banks can now borrow from the RBA for 1% less at a currency that is 20-30% less in global trade. Great.

    Profile photo of superhoopssuperhoops
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    Join Date: 2008
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    ummester wrote:
    superhoops wrote:
    Whilst Australia's economy is strong it certainly is not immune from world factors, therefore anyone predicting that Australia's interest rates would continue to rise whilst other countries interest rates remained stagnant or even fell has little insight into economic theory. Therefore any advice that they provide should really be taken with a grain of salt. 

    I'm not trying to defend Scamp here but if the RBA wanted to keep Australia financially strong it would have left IRs, or even put them up a bit. We are doing exaclty what the US did in reponse to the subprime and how well did it work out for them? Bugger the theory, sometimes one needs to think outside the box for the best result.

    The RBA has lowered rates in the midst of food,fuel and house price inflationary pressure, to an extent that is usually reserved for the second quater of a recession. Why? Just because it's what other countries did?

    The RBA did the same thing in the early 1990's when inflation was around the 7% mark – they lowered interest rates by 5% in the space of 12 months and furthermore they dropped the rate by a further 4% over the next twelve months. During this period inflation fell to around 1 -1.5% by early 1992.

    Thus historically the RBA has made the right decision to lower interest rates.

    Profile photo of ummesterummester
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    superhoops wrote:
    The RBA did the same thing in the early 1990's when inflation was around the 7% mark – they lowered interest rates by 5% in the space of 12 months and furthermore they dropped the rate by a further 4% over the next twelve months. During this period inflation fell to around 1 -1.5% by early 1992.

    Thus historically the RBA has made the right decision to lower interest rates.

    How does lowerring rates decrease inflation  and why has the RBA been saying that it has been increasing them to do exactly that? I think you are confusing the effects of the recession itself with the effects of RBA rate changes.

    Profile photo of superhoopssuperhoops
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    ummester wrote:
    superhoops wrote:
    The RBA did the same thing in the early 1990's when inflation was around the 7% mark – they lowered interest rates by 5% in the space of 12 months and furthermore they dropped the rate by a further 4% over the next twelve months. During this period inflation fell to around 1 -1.5% by early 1992.

    Thus historically the RBA has made the right decision to lower interest rates.

    How does lowerring rates decrease inflation  and why has the RBA been saying that it has been increasing them to do exactly that? I think you are confusing the effects of the recession itself with the effects of RBA rate changes.

    Historically there has been a correlation between a recession, lower interest rates and lower inflation. No country with an entrenched inflation problem has significantly reduced inflation without it occurring in the context of a recession. Therefore whilst lower interest rates do not decrease inflation directly, in times of a recession or potential recession we see inflation decrease.

    Profile photo of ummesterummester
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    superhoops wrote:
    Historically there has been a correlation between a recession, lower interest rates and lower inflation. No country with an entrenched inflation problem has significantly reduced inflation without it occurring in the context of a recession. Therefore whilst lower interest rates do not decrease inflation directly, in times of a recession or potential recession we see inflation decrease.

    Yes, but we are not in a recession and still have increasing inflation. Therefore, even historically, it is not yet time to lower rates. We may end up with an inflatory recession and I have no idea exactly what that will do…

    Profile photo of superhoopssuperhoops
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    ummester wrote:
    superhoops wrote:
    Historically there has been a correlation between a recession, lower interest rates and lower inflation. No country with an entrenched inflation problem has significantly reduced inflation without it occurring in the context of a recession. Therefore whilst lower interest rates do not decrease inflation directly, in times of a recession or potential recession we see inflation decrease.

    Yes, but we are not in a recession and still have increasing inflation. Therefore, even historically, it is not yet time to lower rates. We may end up with an inflatory recession and I have no idea exactly what that will do…

    No we are not nor were we in a recession in early 1990 yet the RBA lowered interest rates from 17.5% to 14% prior to the recession actually taking affect in September 1990. Therefore historically the RBA is following a similar pattern to the early 90's after the financial excesses of the late '80's.

    Look I am not saying that this is 100% guaranteed to work, however history shows that lowering interest rates has previously worked in the long run. 

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