A crash in property prices? Don't bet on it

[Corey Batt]

The current savings rate for Australians is between 9-10%.

Still wouldn't call that 'massive', but still better than the negative savings we had pre-GFC.

 

[lizzie]

Yep ... 10% is massive when it was off such a pitiful base!

 

[pieman]

We must bring the average up, mostly saving 30-40% of income. I'll be one of those d+g renters who are ready to "pounce" and snap up a bargain when RE goes back to a "fair" value.
I believe the drop will be 40%.

 

[whitegoodman]

Exactly. I posted the same thingt in another thread recently. My point was that with such a high level of savings it's only a matter of time until that money starts spilling out into other things again. Most people don't just save forever (at least, not in this country).

savings also include mortgage repayments, thus a heavy increase in savings might be people bunkering down and paying off the mortgage

 

[Deltaberry]

Deleveraging process that's all. Nothing new.

 

[Beorn]

It is ingrained in Australian society to strive to purchase and own your own 'home'. In America the culture is to live the American Dream of success and prosperity.

Hmm, I've lived over a decade in both countries, and I didn't notice much difference in attitude to housing and the desire to own a house.

 

[Beorn]

Houses go up. then houses go down. But don't be afraid! The houses go back up again

I'll tell the Japanese this; it'll cheer them up.

 

[Beorn]

Deleveraging process that's all. Nothing new.

Deleveraging in pictures

ABS: Australian Household Saving Ratio (Per cent of household disposable income)

 

[Deltaberry]

What does the numerator include?

Specifically, does it include the presumptuous equity in your house? Because that's not worth a lot if house prices crash haha

 

[Intrinsic_Value]

What does the numerator include?

Specifically, does it include the presumptuous equity in your house? Because that's not worth a lot if house prices crash haha

Or maybe its because in Australia people are responsible (liable) for their debts.

So yes, those savings might not mean genuine savings, but rather repayment of debt. And yes whilst the numerator is declining, there might not be a 'net equity benefit', but one day asset prices will stabalise, if the denominator has been taken care of through increased savings, and the numerator starts to appreciate again, then the cycle can begin again and from a more healthy base.

Sorry bears, but their aint gonna be no property crash against medium priced property in the capital cities.

If you have some regional property in timbacktoo, or top end property, i have no opinion.

 

[wisty]

Or maybe its because in Australia people are responsible (liable) for their debts.

Troll ahead - I'm too lazy to track down any info on recourse vs. non-recourse price falls, so I'll just rant.

Some US states are non-recourse. Some are recourse. And it depends on your definition of "recourse" - laws can actually be kind of complicated, so you can't just say "Australia has laws about actually repaying your debts, the rest of world just mails their keys back to the bank."

I'm don't know an awful lot about Australian, Japanese, US, UK, Irish, Greek, Spanish, and Icelandic bankruptcy law (and all the variations within these countries). But I'm willing to guess that Australia is really nothing special.

I did find a list of recourse and non-recourse US states - http://www.forecloseddreams.com/recourse_states, but I think it probably simplifies things (in order to increase the number of ones categorized as "recourse".

Non-Recourse States
Alaska (AK)
Arizona (AZ)
California (CA)
Connecticut (CT)
Idaho (ID)
Minnesota (MN)
North Carolina (NC)
North Dakota (ND)
Oregon (OR)
Texas (TX)
Utah (UT)
Washington State (WA)

Recourse States
Alabama (AL)
Arkansas (AR)
Colorado (CO)
Delaware (DE)
District of Columbia (DC)
Florida (FL)
Georgia (GA)
Hawaii (HI)
Illinois (IL)
Iowa (IA)
Indiana (IN)
Kansas (KS)
Kentucky (KY)
Louisiana (LA)
Maine (ME)
Maryland (MD)
Massachusetts (MA)
Michigan (MI)
Montana (MT)
Mississippi (MS)
Missouri (MO)
Ohio(OH)
Nebraska (NE)
Nevada (NV)
New Hampshire (NH)
New Jersey (NJ)
New Mexico (NM)
New York (NY)
Oklahoma (OK)
Pennsylvania (PA)
Puerto Rico (PR)
Rhode Island (RI)
South Carolina (SC)
Tennessee (TN)
Vermont (VT)
Virginia (VA)
West Virginia (WV)
Wisconsin (WI)
Wyoming (WY)

 

[Deltaberry]

Or maybe its because in Australia people are responsible (liable) for their debts.

I haven't looked in to this. Apparently it's a bit of a myth and most Americans are liable in some form or another.

But I guess the thing is, why do we keep picking differences with America? What about Ireland/Greece/Spain/Portugal/Japan/UK?

Re crash or not, I never make absolute statements. While I don't think there's one, I wouldn't be surprised if there was. Plan for the worst.

 

[.toe]

I can't imagine house prices in Australia will drop much if Australian jobs are not affected by world economic troubles. It's just that little 'if' that's the sticking point in my mind.

 

[Intrinsic_Value]

Troll ahead - I'm too lazy to track down any info on recourse vs. non-recourse price falls, so I'll just rant.

Some US states are non-recourse. Some are recourse. And it depends on your definition of "recourse" - laws can actually be kind of complicated, so you can't just say "Australia has laws about actually repaying your debts, the rest of world just mails their keys back to the bank."

I'm don't know an awful lot about Australian, Japanese, US, UK, Irish, Greek, Spanish, and Icelandic bankruptcy law (and all the variations within these countries). But I'm willing to guess that Australia is really nothing special.

I did find a list of recourse and non-recourse US states - http://www.forecloseddreams.com/recourse_states, but I think it probably simplifies things (in order to increase the number of ones categorized as "recourse".

Non-Recourse States
Alaska (AK)
Arizona (AZ)
California (CA)
Connecticut (CT)
Idaho (ID)
Minnesota (MN)
North Carolina (NC)
North Dakota (ND)
Oregon (OR)
Texas (TX)
Utah (UT)
Washington State (WA)

Recourse States
Alabama (AL)
Arkansas (AR)
Colorado (CO)
Delaware (DE)
District of Columbia (DC)
Florida (FL)
Georgia (GA)
Hawaii (HI)
Illinois (IL)
Iowa (IA)
Indiana (IN)
Kansas (KS)
Kentucky (KY)
Louisiana (LA)
Maine (ME)
Maryland (MD)
Massachusetts (MA)
Michigan (MI)
Montana (MT)
Mississippi (MS)
Missouri (MO)
Ohio(OH)
Nebraska (NE)
Nevada (NV)
New Hampshire (NH)
New Jersey (NJ)
New Mexico (NM)
New York (NY)
Oklahoma (OK)
Pennsylvania (PA)
Puerto Rico (PR)
Rhode Island (RI)
South Carolina (SC)
Tennessee (TN)
Vermont (VT)
Virginia (VA)
West Virginia (WV)
Wisconsin (WI)
Wyoming (WY)

Interesting. The states with non-recourse legislation have seen a much more severe residential property correction. Just renforces my opinion

 

[.toe]

I read today that finance for property inside an Aussie SMSF should be non-recourse according to the tax rules. Is that right? Does that make obtaining finance more difficult?

 

[whitegoodman]

Interesting. The states with non-recourse legislation have seen a much more severe residential property correction. Just renforces my opinion

FLorida...

look at availability of credit and planning process/suply responsiveness

 

[Intrinsic_Value]

FLorida...

look at availability of credit and planning process/suply responsiveness

exactly, there are numerous variables in the equation, you have identified two very important ones.

 

[whitegoodman]

exactly, there are numerous variables in the equation, you have identified two very important ones.

what im saying is Florida had huge bubble and its a recourse state

 

[Intrinsic_Value]

what im saying is Florida had huge bubble and its a recourse state

yes again i am agreeing with you. recourse/non-recourse legislation is not the sole determinant of whether a property market will crash.

But if you look through the different states and how they have performed post GFC we can see that there is a tendancy for non-recourse states to show a bigger drop, but not in all cases.

So from this we can conclude that recourse/non-recourse legislation has an influence.

 

[Propertunity]

I read today that finance for property inside an Aussie SMSF should be non-recourse according to the tax rules. Is that right? Does that make obtaining finance more difficult?

Yes and No. The lenders and their solicitors have had a couple of years to get it all sorted. There were some initial teething problems with some lenders wanting personal guarantees because they had no recourse but that seems to have been resolved to comply with the SIS Act. LVRs seem to max out at about 80%.