Logic Police Thread - the really DIFFICULT questions ...

[JIT]

Michael Yardney sums it up well this in article,

http://www.propertyupdate.com.au/ar...mortgage-crisis-mean-for-Australia/Page1.html

In it he says:

"While the higher cost of funding for lenders may be passed on to some Australian borrowers, unlike its American counterpart, the Australian housing market has not been artificially driven by bad lending practices [emphasis by me]. It has been driven by our strong economy, increasing population and demographic demand and diminishing supply of available properties. This will provide Australian home owners and investors continued long-term resiliency.

Sure there will be economic bumps in the road that may scare off short-sighted investors, but the long-term economic fundamentals that drive our real estate market are sound. We have a strong economy, strong job creation, a fast growing population and we are attracting more migrants than ever to keep up a strong demand for housing.

One or two years from now, we'll look back and wonder what all the fuss was about and those who took advantage of the current Australian property markets will wonder why they didn't buy more properties while so many of us were procrastinating." - Michael Yardney

Agree YM?

 

[yieldmatters]

Michael Yardney sums it up well this in article,

http://www.propertyupdate.com.au/ar...mortgage-crisis-mean-for-Australia/Page1.html

In it he says:

"While the higher cost of funding for lenders may be passed on to some Australian borrowers, unlike its American counterpart, the Australian housing market has not been artificially driven by bad lending practices [emphasis by me]. It has been driven by our strong economy, increasing population and demographic demand and diminishing supply of available properties. This will provide Australian home owners and investors continued long-term resiliency.

Sure there will be economic bumps in the road that may scare off short-sighted investors, but the long-term economic fundamentals that drive our real estate market are sound. We have a strong economy, strong job creation, a fast growing population and we are attracting more migrants than ever to keep up a strong demand for housing.

One or two years from now, we'll look back and wonder what all the fuss was about and those who took advantage of the current Australian property markets will wonder why they didn't buy more properties while so many of us were procrastinating." - Michael Yardney

Agree YM?

I disagree with Michael Yardney. If the money was coming from increased "incomes" then I would agree - but it is coming from debt.

 

[JIT]

I've never read so much BS in all my life. If the money was coming from increased "incomes" then I would agree - but it is coming from debt. This guy is either stupid or he has an agenda. I reckon it is the latter.

edit: you got me to bite again ... I must get some self control and ignore the bait you throw out for me

When you talk about income to debt ratios, what specific 'income' and what specific 'debts' do you include in this ratio?

Is this for the whole of Australia or can it be broken down into states?

Who here is routinely using debt to fund their properties, eg. using a LOC to pay the interest and/or principal payments owed on other property loans, or even using a LOC to fund personal living expenses (LOE)?

Many investors or individuals will do this un-successfully, but some are able to do this successfully with a lot of risk management strategies in place (as it is a higher risk approach). If a market crash eventuates, and without appropriate risk management strategies in place, these people may be the worst hit.

 

[DavidMc]

I've never read so much BS in all my life. If the money was coming from increased "incomes" then I would agree - but it is coming from debt. This guy is either stupid or he has an agenda. I reckon it is the latter.

edit: you got me to bite again ... I must get some self control and ignore the bait you throw out for me

Wow. Guess you haven't heard of Michael Yardney. This guy has been invested through many full property cycles and is unimaginably wealthy. A genuine guy who I've met personally a few times has a wealth of experience from the trenches. You should check out www.propertyupdate.com.au.

 

[yieldmatters]

When you talk about income to debt ratios, what specific 'income' and what specific 'debts' do you include in this ratio?

Thankyou for ignoring my rant and asking a sensible question. I feel guilty now.

There are various. This post had some RBA data I posted earlier:

http://www.somersoft.com/forums/showpost.php?p=336408&postcount=116

The household credit to income ratio is all household credit (i.e. held by individuals rather than corporations) as a percentage of nominal GDP (effectively all income). The overal numbers over 10 years are $770 billion in new household debt with $680 billion of this going into housing. If this was new housing (i.e. actually added to our assets) then that would be great but unfortunately a lot of it went into bidding up existing house prices.

The debt servicing ratio is owner occupier housing debt interest and principle repayments (excluding extra principle repayments) as a percentage of gross household income. This is the more important chart I think - at what point does this max out and we (i.e. all of us added up) can't add any more to our debt. The deputy RBA governor thinks it has a while to go yet which supports many people on this forum who say "don't worry - it is a long way off". They may yet be right.

And before we get into circles I know this may not affect people on the micro level - they can still borrow, their area is looking fine etc etc.

 

[yieldmatters]

Wow. Guess you haven't heard of Michael Yardney. This guy has been invested through many full property cycles and is unimaginably wealthy. A genuine guy who I've met personally a few times has a wealth of experience from the trenches. You should check out www.propertyupdate.com.au.

fair call - I've never met the guy - I shouldn't have hit SUBMIT REPLY ...

 

[yieldmatters]

Who here is routinely using debt to fund their properties, eg. using a LOC to pay the interest and/or principal payments owed on other property loans, or even using a LOC to fund personal living expenses (LOE)?

Some are - some aren't. But I can tell you that more are than aren't (if you believe the RBA figures).

 

[JIT]

The debt servicing ratio is owner occupier housing debt interest and principle repayments (excluding extra principle repayments) as a percentage of gross household income.

Interest AND principal?

What about all those smart people paying interest only on their PPOR's and IP's and leaving all the extra cash (that might have been used to pay down the principal), in their 100% offset accounts, redraw facilities or LOC's, thus enhancing serviceability?

 

[JIT]

Some are - some aren't. But I can tell you that more are than aren't (if you believe the RBA figures).

Then at a micro level these particular individuals may well suffer if interest rates increase, lending policies tighten and/or a market crash occurs.

The macro picture may suggest, as you also point out, that there are more of these people around than we may otherwise think.

These individuals and the micro-markets in which they are invested may well crash.

So, at a micro level, isn't this an adequate 'solution' to your macro problem???

If so, then I think we should both agree with each other, shake hands and call this debate over?!

Further to this, even if these particular micro-markets crashed, to suggest that every other micro-market will also crash like a 'deck of cards' or 'ponzi scheme', all at the same time and to the same degree, is a bit far-fetched isn't it??

For investors and home buyers, all it means is that they need to focus on picking the right micro-markets to invest in, that will be protected from a possible crash - if not fully, then at least partially.

 

[yieldmatters]

For investors and home buyers, all it means is that they need to focus on picking the right micro-markets to invest in, that will be protected from a possible crash - if not fully, then at least partially.

I'll agree on the partially. There you go ... meeting of minds.

 

[JIT]

I'll agree on the partially. There you go ... meeting of minds.

Come on YM, just answer this question properly, I've asked you now 3 or 4 times with no direct reply:

''So, at a micro level, isn't this an adequate 'solution' to your macro problem???''

YES OR NO???

You're not saying THIS is a 'partial solution' are you?!

Or are you saying that you want a guarantee of being fully protected in the event of a market crash before you ever invest in property?!

 

[BayView]

On the debt to wages ratio thing;

I think that if your own personal exposure, debt to level ratio or LVR, sevicability level, nett cashflow, internal rate of return, cash-on-cash return or anything else that measures your bottom line and says that you are investing with a decent safety net, then the rest of the country can do what it likes. It won't really affect you.

This is probably the most important financial question that has to be answered FIRST; what is my FINANCIAL POSITION - NOW??

If it's good; invest with safety and double-check the numbers. If it's a bit dangerous; don't.

I think I'm done now; no more to add.

 

[yieldmatters]

Come on YM, just answer this question properly, I've asked you now 3 or 4 times with no direct reply:

''So, at a micro level, isn't this an adequate 'solution' to your macro problem???''

YES OR NO???

You're not saying THIS is a 'partial solution' are you?!

Or are you saying that you want a guarantee of being fully protected in the event of a market crash before you ever invest in property?!

No - I don't want to be fully protected but I don't want to buy in at the top of a cycle either.

I'll put it this way. Investing smart at the micro level is a given. Investing smart at the micro level while the macro environment is depressed is even better as the buyer has more power. That's what I plan to do and when the time comes I might even get some good tips on how to buy well at the micro level from the kind people that hang around this forum!

 

[JIT]

No - I don't want to be fully protected but I don't want to buy in at the top of a cycle either.

I'll put it this way. Investing smart at the micro level is a given. Investing smart at the micro level while the macro environment is depressed is even better as the buyer has more power. That's what I plan to do and when the time comes I might even get some good tips on how to buy well at the micro level from the kind people that hang around this forum!

You still didn't answer my question in bold/underline???

To understand the macro problem all you had to do from the very beginning was look deeper at the micro markets that compose it, not at the ABS or HIA and their big and meaningless numbers and statistics...

Anyway, I think you've said enough here YM and we can probably call this one a victory fellas.

A great collaborative effort here on SS to really stick it to 'D&G'!

Can we lock it up now please?

Peace out .

 

[yieldmatters]

If I am pushed into yes / no then the answer is no.

 

[JoannaK]

Can we lock it up now please?

this thread is getting rather long in the tooth now, but it has been a good thread with great discussion and points of view.

will discuss with other mods and act accordingly