Marissa, Mish says Aussie House Bubble Popping. Party Over

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   bgamallposted 13 years ago

   Hi Marissa, a warning to Aussies: the housing bubble party is coming to an end: http://globaleconomicanalysis.blogspot. … s-now.html
   
   Mish is usually pretty accurate about banker abuse and economic realities. I don't agree with him about some things, but much of what he says is true.

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      bgamallposted 13 years agoin reply to this

      The key thing to watch is the surge in inventory. In Reno, NV, I was aware of massive RE inventory of over 3000 unsold homes in 2005, and sure enough, we have had one of the biggest crashes ever, with 64 percent of the mortgages still underwater. Las Vegas is first with 80% of mortgages underwater and Phoenix is second with 68% of mortgages underwater.
      
      Inventory buildup is a key that houses are not moving. Perhaps why that decadent Rothschild bank, ING, was looking into perpetual mortgages for Aussies before they were found out. I had a part in that uncovering, and I did it for your own good in the long run, Marissa.

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   shazwellynposted 13 years ago

   Australia and the rest of the world, eh?  Welcome Australia to the club!

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   WryLiltposted 13 years ago

   Sounds good to me. At the moment people my age can't really afford a new home without saving for years just for a deposit.

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      Kidgasposted 13 years agoin reply to this

      Affordability is really a key when it comes to supply and demand.  If people can't afford to purchase the houses that exist, eventually prices will crash especially when demand is the result of artificially low interest rates.

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      shazwellynposted 13 years agoin reply to this

      I hate to say it... as an older bird, that has always been the case!  It is only self certification in recent years that changed all that and we all know what happened next, don't we?

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         Pcunixposted 13 years agoin reply to this

         Well, not necessarily.  We bought our first home for $24,000 and my income at the time was right around that (and was not unusually high).  Before the bubble broke and even still today in sone places, very few people can look at a home for anything close to their yearly income.
         
         Now, yes, we were required to put a good amount down, but it was only $5,000 which was not all that difficult to scrounge up.

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      bgamallposted 13 years agoin reply to this

      Most loans in Australia are adjustable loans, a recipe for disaster.

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         Marisa Wrightposted 13 years agoin reply to this

         Sorry, we use different terminology here because our mortgage legislation is so different - what do you mean by an adjustable loan?

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            bgamallposted 13 years agoin reply to this

            Hi Marisa, an adjustable loan starts out with low payments and adjusts upward to higher payments as the loan progresses.

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               Marisa Wrightposted 13 years agoin reply to this

               Then you have been misinformed, Australian mortgages are not adjustable.
               
               Some mortgage companies offer a "honeymoon rate" for the first year ONLY, which is usually a half percent lower than the normal rate.  After the first twelve months it reverts to the standard variable rate.

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               SiddSinghposted 13 years agoin reply to this

               I think it is also known as "balloon payment mortgage/loan".

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                  Marisa Wrightposted 13 years agoin reply to this

                  Doesn't exist in Australia as far as I know.  Sounds similar to a business lease (e.g. on equipment)?

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                     SiddSinghposted 13 years agoin reply to this

                     It is available on most of the loan products - car, home, equipment, but mostly popular with commercial borrowers.
                     
                     I think "adjustable loans" may also imply floating interest loans - mostly availed on home mortgage/loans - though upwards movement in those EMIs will result only with increasing interest rates.

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                        Marisa Wrightposted 13 years agoin reply to this

                        Where do you live, SiddSingh?   Balloon-type payments aren't generally available on home mortgages in Australia.
                        
                        Bgamall, it just occurred to me that our terminology may be confusing you.  We do have "adjustable rate mortgages", but that only means that the interest rate is variable in line with the bank rate.

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                           SiddSinghposted 13 years agoin reply to this

                           I am an Indian citizen (and live in India). Some lenders do offer it here - though it is not very popular. I did not mean to imply that it is available in Australia.
                           
                           
                           
                           This is what I think too!

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                           bgamallposted 13 years agoin reply to this

                           American adjustables start out with interest rates below bank rates, then adjust upward. There are lots of interest only adjustables in Australia where people start out paying the interest only, a recipe for disaster. http://www.homeloanfinder.com.au/offset … t-account/
                           
                           And no doc loans will roast the Aussie housing market: http://www.aussiebestloans.com.au/lo_doc.php
                           
                           Deja vu all over again!
                           
                           If no doc loans, or liar loans, with bad credit, are offered in Australia, you need to sell or it will crash before you do sell.
                           
                           This is the bottom line, house prices should not be much above 4 times yearly income. And rents should be slightly more than a house price. You know these basic fundamentals don't exist in Australia. Now, clearly some cities will withstand this better than others. While the east bay is tanking, SF and the peninsula have not yet gone down 20 percent. So it depends if you own in the uber rich parts, with high tech jobs, or away from that.
                           
                           Houses in Manhattan Beach in Cali that went for 900k are now selling at 700k but could go down to 500k, if things get worse.
                           
                           I believe China's only way to fight the Fed's easy money QE2 is to quit stockpiling commodities. That will tear Australia apart. I don't know if they will do that but it could happen.

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                              Marisa Wrightposted 13 years agoin reply to this

                              That doesn't happen in Australia.  Like I said, some banks offer a "honeymoon rate" which is half a percent below their normal lending rate,but it's only for 12 months.
                              
                              
                              
                              The link you gave is to a dubious article (not even written in good English). Yes, you can get an "interest only" loan but only if you're buying for investment (not to live in) - the term is either 3 or 5 years, after which you go back to normal principal and interest. 
                              
                              And no doc loans will roast the Aussie housing market: http://www.aussiebestloans.com.au/lo_doc.php
                              
                              Lo doc loans have been available in Australia for at least ten years, but only to those with a good credit rating.
                              
                              There will always be companies ready to prey on people with bad credit - the bad credit mortgage companies are very small players and the interest rates are horrendous.

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                                 bgamallposted 13 years agoin reply to this

                                 What killed the US market was people buying, getting in cheap for 2 or 5 years, and then getting killed by interest as they could no longer finance. Believe me, the same thing is happening in Australia.
                                 
                                 If people with bad credit can get no doc loans, it drives the price of real estate up artificially, until it crashes.

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                                    Marisa Wrightposted 13 years agoin reply to this

                                    Was everyone allowed to take "interest only" loans in the US?  In Australia that avenue is limited to investors, so if they can't manage the loan after 2 to 5 years they lose their investment property, not their home.
                                    
                                    
                                    
                                    That's right, and I've just told you that the availability of bad credit loans is extremely limited.

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                                       bgamallposted 13 years agoin reply to this

                                       Marissa I will reply in general for an easier read.

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                     bgamallposted 13 years agoin reply to this

                     Marissa, it is good that Australia limits interest only loans to investors. That was not the case here. Interest only was insanity.
                     
                     However, no doc bad credit loans, with teaser rates could still get Australia in trouble, especially if there is any economic weakness.

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