All Topics / General Property / The steps to watch for in the coming Australian housing correction

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  • mattnz
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    We are seeing signs of entering step 5, with Ralph Norris advising they can't roll over their debts given events in Europe.

    "Step 5. Australia will be competing with every other western nation, (think USA, Spain, Greece, Portugal, Iceland, Ireland) for debt funding to try to keep the housing bubble propped up. The debts that Australian house owners have taken on due to weak credit requirements from the banks (at 7-8 times income and 5% deposits for mortgages) has all been funded by overseas debt, from nations that can no longer afford to do this and will see Australia as high risk. "

    http://www.smh.com.au/business/gfc-ii-on-its-way-norris-20111124-1nwx1.html

    Mr Norris, who retires next Wednesday after more than six years in the role, cautioned that credit-crunch conditions were returning, which is threatening to choke off funding for banks around the world.

    ''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.

    ''If you have a situation like you had today, where markets had effectively frozen, then it doesn't matter how good your name is, you are not going to be able to access markets,'' Mr Norris said. ''As of today, no banks could access these markets.''

    Profile photo of mattstamattsta
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    ''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.

    That's quite concerning. I guess I may have to brace myself for the oncoming GFC2 – What are you all doing to protect yourself (or at least be cautious)?

    Profile photo of ummesterummester
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    That's quite concerning. I guess I may have to brace myself for the oncoming GFC2 – What are you all doing to protect yourself (or at least be cautious)?
    ___________________________________________________________________________________________________________
    Not buying a house:)

    Profile photo of Boshy888Boshy888
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    I have been reducing our debt level over the past year.  Also sold an investment property but not just because of the world affairs but because I wanted to take a break from full time work and then only work about 3 days a week.

    Have been trying to cut back on spending on frivolous consumer goods as well and Christmas won't be a biggy.  I know we need to spend to help our economy but really… so much of Western spending is gross consumerism and now the piper has come calling.  My kids think I don't spend much on them at Christmas compared to some of their mates but honestly, 3 – 4 – 5 hundred dollars a child is excessive and is NOT what Christmas is all about.  It is about Christ and spending TIME and LOVE with our family and close ones.  I think of the hospitality and happiness of people living in less materialistic societies and think they got the recipe right.

    I hope the fears of many people are not as warranted as they think.  Last GFC fear was fever pitch but things weren't anywhere as dire as expected for Australia.  If Europe don't get their act together we will experience greater affects this time but still… not as much as many other countries will. I also believe people will be more resiliant this time.  That's my two cents anyway.

    Profile photo of fWordfWord
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    mattsta wrote:
    ''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.

    That's quite concerning. I guess I may have to brace myself for the oncoming GFC2 – What are you all doing to protect yourself (or at least be cautious)?

    1. Stability of job & income
    2. Enough savings to meet mortgage repayments for 30 months or more
    3. Parents are additional 'last resort' safety net with enough savings to easily bail me out if I fail

    BTW, point 3 was a joke. Parents, loving as they are and regardless of how much they are prepared to sacrifice, are not there to be used or taken advantage of. Their savings are theirs to spend, not mine to inherit.

    Bottom line is, I'm not selling out of my properties just because the GFC is coming. That's like having a deep love of living near the sea but deciding not to buy or live there because there MIGHT be a tsunami. If you spend life worrying about EVERYTHING, you'll end up doing absolutely NOTHING.

    Profile photo of ummesterummester
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    fWord wrote:
    mattsta wrote:
    ''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.

    That's quite concerning. I guess I may have to brace myself for the oncoming GFC2 – What are you all doing to protect yourself (or at least be cautious)?

    1. Stability of job & income
    2. Enough savings to meet mortgage repayments for 30 months or more
    3. Parents are additional 'last resort' safety net with enough savings to easily bail me out if I fail

    BTW, point 3 was a joke. Parents, loving as they are and regardless of how much they are prepared to sacrifice, are not there to be used or taken advantage of. Their savings are theirs to spend, not mine to inherit.

    Bottom line is, I'm not selling out of my properties just because the GFC is coming. That's like having a deep love of living near the sea but deciding not to buy or live there because there MIGHT be a tsunami. If you spend life worrying about EVERYTHING, you'll end up doing absolutely NOTHING.

    Hey, I agree with you here fword.

    Your in now, make the most of it. Trying to get out could actually turn out worse. If you have your finances in order, you should be fine.

    And I plan to buy near the ocean – tsunami's be dammed:)

    Profile photo of Gus66Gus66
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    Nice to see the "chicken little's" out in force a good indicator of when to get in. Having said that getting in now can be a little like catching a falling knife. If we are to have a "crash" it won't be caused by what we know, it's what we don't know that is the problem. What you need to ask is "are all the skeletons out of the wood work"?

    Profile photo of fWordfWord
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    ummester wrote:
    Your in now, make the most of it. Trying to get out could actually turn out worse. If you have your finances in order, you should be fine.

    Interesting that we mention getting out of the market. They say the road to hell is paved with good intentions. However, I've planned not to get out of my properties for at least 10 years after purchase. There's agents ringing me up every few months and asking if I want to sell. Surely they must be disappointed to hear that I'm not selling. On the whole however, the agents are telling me to hold the properties and not sell now unless I absolutely have to.

    Profile photo of fWordfWord
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    Gus66 wrote:
    What you need to ask is "are all the skeletons out of the wood work"?

    Haha, are they EVER?

    Profile photo of ummesterummester
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    fWord wrote:
    ummester wrote:
    Your in now, make the most of it. Trying to get out could actually turn out worse. If you have your finances in order, you should be fine.

    Interesting that we mention getting out of the market. They say the road to hell is paved with good intentions. However, I've planned not to get out of my properties for at least 10 years after purchase. There's agents ringing me up every few months and asking if I want to sell. Surely they must be disappointed to hear that I'm not selling. On the whole however, the agents are telling me to hold the properties and not sell now unless I absolutely have to.

    I don't quite understand why agents would want to get more to list when many markets are in oversupply ATM.

    Being in for 10 years, so long as you haven't leveraged stupidly since 2004 or so, you should be sitting pretty anyways and be able to handle most downturns.

    I guess people should not confuse the fact that I am bearish on property values with saying that property investing can never be worth anyones while. In the end it's no different to any kind of debt, right? If you can comfortably handle taking it on and aren't relying purely on capital growth, it's just a financial descision that you make and hopefully works out fine for you. Wreckless debt and speculation are dangerous but it's not my place to discourage sensible investing.

    I think the biggest problem for our property markey now (and I was talking to an RP data analyst about this a couple of weekends ago) is our banks ability to lend. Confidence is bad but not entirely shot. Some people still want to buy homes. It's just how much more our banks are willing to risk on a property market that the rest of the world is wary of. Still, if I was running a bank ATM, I'd be taking only safe bets on.

    That's why I mentioned I'd buy when the banks want 20% deposit – not because I can't handle my own money but because I'd want to feel assurred that the lender I choose can handle it's loans.

    Profile photo of fWordfWord
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    ummester wrote:
    I don't quite understand why agents would want to get more to list when many markets are in oversupply ATM.

    Beats me too. However I think the markets are in oversupply of less desirable property…less desirable could mean, not as 'nice looking', in poorer condition, not matching the demographic or price range of the folk looking to live in that area, messy neighbours, further from amenity and public transport, non-ideal orientation or layout etc. It is hence simplistic for people to look at median prices of certain suburbs and claim that prices have fallen 10, 15, 20%. We got to look closely at the quality of properties for sale. In some cases, they are selling properties that I won't even touch with a 10-foot pole.

    Property values can vary by 10% easy, even within a particular suburb. It all depends on whereabouts in the suburb a property is actually located. A property located in a more refined part of a suburb generally sells for more than even the exact same property in a more dodgy part of the suburb. Also, a property located near the boundaries of a suburb may reflect the premium prices of a more expensive suburb across the road, or may sell for not much more than a cheaper neighboring suburb. What about properties on a main road? These also generally sell for less than a similar property in a more secluded (but not TOO secluded) street or cul-de-sac.

    The study of property for the purposes of investing is hence a fine balance between the knowledge of the big picture and also the finer details.

    mattnz
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    The mainstream media is finally waking up to what no bond issues for Australian banks would mean for the housing market.

    http://news.domain.com.au/domain/first-home-buyers/europe-crisis-threatens-our-house-prices-20111125-1nxvz.html

    An excerpt “The implications of another meltdown in credit markets are dire. Roughly a third of the funding for Australian mortgages comes from overseas bond markets. Were a third of the big banks’ sources of capital to suddenly dry up so would credit for housing markets here. Ergo, price drops.”

    Profile photo of raveygravyraveygravy
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    mattsta wrote:
    ''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.

    That's quite concerning. I guess I may have to brace myself for the oncoming GFC2 – What are you all doing to protect yourself (or at least be cautious)?

    Great question. I invest mainly in residential real estate with an investment partner.  I still invest in property but will wait to get a better deal. I just picked up a house for $465,000 that was listed at $540,000 a year ago. What else?
    a) keeping our loan to value ratio lower than usual (around 65% post new property purchase)
    b) maintaining a decent buffer for rental property vacancies and interest rate increases
    c) looking at building an additional dwelling on an existing property instead of buying an additional property.

    I am expecting prices to continue to ease for at least another year, so I am taking that into account when making investment decisions.

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