some good points. They are building one heck of a war chest - I am told to prop up the commercial sector should they need it. The banks have too much at stake to see a large drop in commercial values.
Fiscal literacy and surviving the GFC
- Thread starter nonrecourse
- Start date
some good points. They are building one heck of a war chest - I am told to prop up the commercial sector should they need it. The banks have too much at stake to see a large drop in commercial values.
If your boarders lose their job good luck evicting them.
don't stop with boarders.
if the economy continues to tank, there's a fair probability the govt will make it illegal for property managers/landlords to evict tenants onto the streets.
I wouldn't lay awake worrying about it NR.... the devil in the detail is pretty ugly. So we have a few banks that can - at their discretion and if they consider you a good risk - give you a repayment holiday. I recall one bank said it already had that policy anyway?
Options are abundant.... rent rooms, or with interest rates going the way they are, they could throw their slack mates out and go backpacking or live with their parents and rent the house out for more than the monthly repayment.
Options are abundant.... rent rooms, or with interest rates going the way they are, they could throw their slack mates out and go backpacking or live with their parents and rent the house out for more than the monthly repayment.
Another brick in the wall
That very scenario happened to my wife's grandfather during the great depression with his properties in Brighton. In the end he was forced to sell them because of the government imposed rent controls.
One of his tenants was subletting out part of the property and was getting more than what he was paying her grandfather
don't stop with boarders.
if the economy continues to tank, there's a fair probability the govt will make it illegal for property managers/landlords to evict tenants onto the streets.
That very scenario happened to my wife's grandfather during the great depression with his properties in Brighton. In the end he was forced to sell them because of the government imposed rent controls.
One of his tenants was subletting out part of the property and was getting more than what he was paying her grandfather
don't stop with boarders.
if the economy continues to tank, there's a fair probability the govt will make it illegal for property managers/landlords to evict tenants onto the streets.
actually that could be a real - and quite frightening - risk. When inflation gets some traction the 'poor tenants brigade' will become vocal and having tenants on the steet won't look good for a labor govt. IRs in double digits and rents frozen.... now that's what I call a trap!
this is probably a relfection of the higher risk involved with resi over commercial and backs up steve mcknights advice to head for commercial. not that I needed that advice to know that anyway
So now we have the government saying to the four pillars; "we want you to give the recently unemployed a repayment holiday"? So what does that mean for all those poor suckers who took up the first home owners grant ?
It means whatever little bit of equity they were given bt FHOG will be eroded with the compounding interest on their home while on a repayment holiday
What you should really be asking yourself is how will this play out with the big banks......
http://www.intelligentinvestor.com.au/articles/268/The-bear-case-for-the-banks.cfm?articleID=874316
Seems our banks with their exposure to residential property are not as solid as you have been led to believe.
Hi nonrecourse
Interesting article.
Are your conclusions in agreement with those in the article or do they
vary in some way.
Cheers
Pete
and congress have ZERO authority to audit the federal reserve's actions.
funny that.
there'll be rent control before the "non-eviction" rule - that'll come after rent control is brought in, THEN they'll say if they can't even meet that you are evicted.
still, it's funny that even in rent control areas the deals are still CF+. maybe that's a good thing.....?
Hopefully it won't only be with the big 4 as they are also having talks with smaller lenders. However if it is the same as the repayment holidays previously in place it won't apply to investment loans anyway.
One of my homes is renting through the Housing Trust, they pay my full rent up front and the tenant pays them whatever the amount is that they are able to afford, I would imagine they will have a few more schemes like this on the go to safeguard renters and owners.
yes goes with the whole theme that everyone can be bailed out - unfortunately there are only so many parachutes.
Australian banks staring into the abyss
I think the article is very conservative on the worst case scenario. It talks about a 8.9% default rate as being catostrophic and a 20% fall in values.
Factor in a 40-50% fall in values and your closer to my position. As for the banks not having any gold bullion to bolster its position in times of panic, Dudd's guarantee is going to be between a rock and a hard place if there is a run.
I was a bit taken back about this Westpac example. My line of reasoning has been ANZ and nab would be the two that would need to seek protection by being swallowed by CBA and Wpac.
I think the article is very conservative on the worst case scenario. It talks about a 8.9% default rate as being catostrophic and a 20% fall in values.
Factor in a 40-50% fall in values and your closer to my position. As for the banks not having any gold bullion to bolster its position in times of panic, Dudd's guarantee is going to be between a rock and a hard place if there is a run.
I was a bit taken back about this Westpac example. My line of reasoning has been ANZ and nab would be the two that would need to seek protection by being swallowed by CBA and Wpac.
I don't know NR,the last few weeks have been very good for all the Banks
from BOQ too CBA,the later part of the year may well be different but you just gotta enjoy the moment
when you get it, btw i just can't see ANZ-NAb,being taken over but stranger things have happened ..imho..willair..
Hi nonrecourse,
You have said that you expect the 'soft depression' to exhibit the following attributes:
- Unemployment to remain a reasonably low levels
- Very low interest rates
- Increasing rents
If we have low unemployment, low interest rates, high demand for property and higher rents, then what exactly will force so many people to sell that it causes a 50% dive in residential property values.
For prices to drop 50% we would need to see massive levels of forced sales. Unless you are a forced seller, why on earth would you sell for a 50% discount? What will cause all these forced sales?
For prices to fall 50% there needs to be no buyers at 5% down... no buyers at 10% down... no buyers at 15% down. There are plenty of buyers ready to jump in right now (even before any significant falls) and even more ready to jump in at 10% down. Most people just want a house to live in and will buy when they can afford it. Many can afford it right now.
Property investors are already seeing cashflow positive opportunities without any significant falls in house prices required. Why sell for a 50% loss if you're cashflow positive?
I'm really interested to hear what you think will actually trigger this big crash. What aspect, specifically, of the 'soft depression' will force enough fully employed cashflow positive Australians to sell at a 50% loss that it causes the Australian median house price to crash by this amount?
Cheers,
Shadow.
I don't believe NR's prognoses either, especially the poor exchange rate V the US$ bit. But why is it important to you? Do you have an insecurity complex and a need to attack everyone who casts a shadow on your vision of the world?
I read the macro scene and the range of possibilities is quite broad. So broad and so uncertain that to say "X" can't happen because of "Y" and go out and punt large sums of money on this belief is highly dangerous.
I once had over 60% of a sizable stock portfolio in a single stock and read a comment that anyone who has over 15% in any one stock is "a gunslinger". Didn't believe it of course. Wouldn't you know it: The CEO sold us out. By the time I sold out I'd lost "half a house".
There are thousands of "prospective" plays out there and no "guru" who knows them all. Listen to them all but use your own intellect to sort the wheat from the chaff and don't bet the farm on the toss of a die. I recommend against "gunslinging".
sunfish, this forum is a place of debate and discussion, shadow is merely asking NR to explain his stance.
????????
Is it only the chosen few who can ask questions?
I have, on a number of occasions, asked "specific" questions of the perma-bulls but there are always enough others to run interference that no answer is forthcoming.
It really is a simple question: who says NR's 25-40% is the only risk? If I were highly leveraged 5 years flatlining would scare me.
Its not 25%,
Its ALL OF THE FOLLOWING of Non-Recourses predictions:
*residential property price fall of 40% accross the medium price of all property within Australia
*AUD to US0.38
*ASX to 2200 by Oct 2009
*4 big Australian banks to be merged into two due to bankrupcy of two of them
* banks demanding top ups of peoples equity position in residential property regardless of repayment history or cash flow situation.
Only protection regardless of personal circumstances is to be
1) have LVR ratio's 30% or less, regardless of personal circumstances or cashflow position.
2) Suitable asset structure so creditors wont be able to claim your assets in the soft depression to come.
3) 5-10% of your equity in gold, priced at somewhere between AU$1300 and AU$1450 per ounce
Except in Perth hey Shadow?
Dec07-Dec08
103 burbs fell more than 5%
41, 10%
15, 15%
7, 20%
not to mention regionals....or commercial....
WHO GIVES A **** about the details? I keep asking why you say that just because you don't believe his posts in their entirety (I don't either) you can totally ignore any of the risks he speaks about?
I will ask again: How does a fully leveraged property investor survive years of no growth? If you insist on using the +ve CF argument, explain how it is CF +ve. Is it because the return on your own equity is greater than the loss on OPM? Think about this because I think it is critical. If buying a property on 100% LVR isn't CF +ve in year one, it still won't be in five years time if values flatline and rents reflect the malaise which caused the flatlining in the first place.
