FutureValue = PresentValue * (1 + Rate) ^ Time
915,522 = 1 * (1 + 0.04) ^ 350
-------
Rate = ((FutureValue / PresentValue) ^ (1 / Time)) - 1
Mortgage Meltdown ABC 4 Corners Monday night
- Thread starter twobobsworth
- Start date
FutureValue = PresentValue * (1 + Rate) ^ Time
915,522 = 1 * (1 + 0.04) ^ 350
-------
Rate = ((FutureValue / PresentValue) ^ (1 / Time)) - 1
Our market is more orderly than the yanks' so it will not play out the same here.
But we are mostly on variable rates and our fixed terms are limited in duration, so there is still a direct risk if credit continues to tighten, more likely though it will sneak in around the back via worldwide slowdown/recession ie Our problems will be general rather than property specific.
But we are mostly on variable rates and our fixed terms are limited in duration, so there is still a direct risk if credit continues to tighten, more likely though it will sneak in around the back via worldwide slowdown/recession ie Our problems will be general rather than property specific.
There have been long defaltionary periods as well esp when measured against previous default world currency - gold.
His statement is thought provoking..
Also, last 30 years also some huge social changes in the Western world contributing to general upward trend e.g. double income families.. Unlikely that in next 30 years we are going to have quadruple income families (quite the opposite - households getting smaller).
Buy when fundamentals are right and you should do fine..
Err, might I dare to suggest there are fewer of the Kleptocracy and fewer of the Exploitables here?
Persistent, pervasive inflation is a relatively new phenomenon, an invention of central bankers. I think you will find there were centuries of steady prices. But even money is a fairly new invention so I'm not sure how this is measured.
But there is no doubt that inflation is theft by borrowers from savers. And our governments are the biggest borrowers of all.
Gotta say, I found it terrifying that anyone would take out a mortgage with an automatic reset in interest rates upwards by 5+% ... also the fact that by the middle of next year over $200B more will reset.
Considering that it's cheaper (by far) for me to buy another IP than it is for many to buy a PPOR of the same value loan, I'd say it's not the investors who have to be worried about a possible credit crunch ...
DJ
Considering that it's cheaper (by far) for me to buy another IP than it is for many to buy a PPOR of the same value loan, I'd say it's not the investors who have to be worried about a possible credit crunch ...
DJ
You may say that.
Kleptomania is a socially acceptable disease over there.US income/mortgage is 3.7, Australia about 7
ARM (variable type loans) account for 20% of US mortgages, Australia I think is way higher (sorry, I can't remember the figure so dont want to mis-quote).
US population demographics suggest population is not ageing as much as Australia, and growth rate is also higher overall than Australia. Even in some of the battered markets like Florida and Cali.
So on some fronts Australia looks safe, on others... ???
P.S note Inflation and thus higher IR hitting the rest of the world including China (6.5%) .. watch for 08
ARM (variable type loans) account for 20% of US mortgages, Australia I think is way higher (sorry, I can't remember the figure so dont want to mis-quote).
US population demographics suggest population is not ageing as much as Australia, and growth rate is also higher overall than Australia. Even in some of the battered markets like Florida and Cali.
So on some fronts Australia looks safe, on others... ???
P.S note Inflation and thus higher IR hitting the rest of the world including China (6.5%) .. watch for 08
That is correct but I'm not sure the fundamentals are right. What are these fundamentals? Everybody should listen to the extended interview with Shiller on the 4 Corners website. It is very informative.
Unfortuntaely I see many of the same characteristics as the USA in Australia. House prices since 2001 have become completely disconnected to rental yields, and house prices have become completely disconnected to incomes. The only thing supporting these prices is debt, and lots of it. No amount of positive thinking will overcome this - if it was genuine new wealth I would be attracted to the asset category but it isn't - if you folow the cash trail back far enough you end up finding debt.
I genuinely hope I am wrong and everybody here does well but I must say I am concerned. I see strong parallels with the USA and for some reason people seem to think we are 'different'.
All the doom and gloom did not seem to worry all the investors at the
property auctions,i just hope they have a better exit strategy then
the previous title holders,willair..http://abc.net.au/news/stories/2007/09/17/2035447.htm?section=business
property auctions,i just hope they have a better exit strategy then
the previous title holders,willair..http://abc.net.au/news/stories/2007/09/17/2035447.htm?section=business
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I guess the thing is, people don't like to sell property at a loss.
As long as our economy stays strong, people won't need to sell, so prices shouldn't need to drop. How the economy pans out is kind of going to be based on who has invested, directly or indirectly, in the sub-prime market ...
Some of graphs shown mapped house prices against rent, adjusted for inflation. In those instances when house prices rose dramatically (compared to rents), it was followed by a few years of gradual decreases in the graph line, which, again adjusted for inflation, translates to flatlining house prices ... I can live with that, especially if rents catch up.
Can't say I was much impressed by the show. Seem more panic mongering and melodrama. Others on this forum have said that the extended interviews on the website provide good additional information - pity more wasn't shown on teev - there was proportionally a bit too much 'human element' versus fact on the show. And yes, I have trouble sympathising with people who sign into ridiculous mortgages ... I was waiting for a starving pensioner to show up eating dog food. Okay, maybe that last comment was a bit harsh.
I thought the Amsterdam graph was a bit of a joke - unless he had adjusted it for wars, floods, formation of the EU, democracy - oh, how about Napoleon, or the Belgian revolution ... and other random factors likely to affect Dutch house affordability - and less likely to affect us here in Oz.
DJ
As long as our economy stays strong, people won't need to sell, so prices shouldn't need to drop. How the economy pans out is kind of going to be based on who has invested, directly or indirectly, in the sub-prime market ...
Some of graphs shown mapped house prices against rent, adjusted for inflation. In those instances when house prices rose dramatically (compared to rents), it was followed by a few years of gradual decreases in the graph line, which, again adjusted for inflation, translates to flatlining house prices ... I can live with that, especially if rents catch up.
Can't say I was much impressed by the show. Seem more panic mongering and melodrama. Others on this forum have said that the extended interviews on the website provide good additional information - pity more wasn't shown on teev - there was proportionally a bit too much 'human element' versus fact on the show. And yes, I have trouble sympathising with people who sign into ridiculous mortgages ... I was waiting for a starving pensioner to show up eating dog food. Okay, maybe that last comment was a bit harsh.
I thought the Amsterdam graph was a bit of a joke - unless he had adjusted it for wars, floods, formation of the EU, democracy - oh, how about Napoleon, or the Belgian revolution ... and other random factors likely to affect Dutch house affordability - and less likely to affect us here in Oz.
DJ
Our economy is 5% resources, and something like 70% consumer consumption.
In the 3 blocks walk to my post office, I pass 3 real estate agents and 2 mortgage companies. On the 1 block opposite me at work there are 2 mortgage lending companies.
Think of all of the money and jobs generated by house prices going up - new cars, new boats, holidays paid out of equity withdrawal. Huge consumer spending, shop refitting for mortgage companies, reasonably high paying jobs for mortgage lenders etc.
Imagine if all of the new jobs created for those lending companies disappear? People stop spending the "free" money they got from their house?
If Australia only took out new debt at the rate of GDP growth (not stopping debt, just only increasing it at the rate at which we grow) aggregate spending would decrease by 16% next financial year. And yet we *MUST* decrease our new debt one day! We're stuffed!
Hi all,
A couple of general observations that seem to have been overlooked.
Firstly,
Thommo (err.. sunfish)..
Absolutely correct, and hence the beauty of property investment over the long term (by borrowing to purchase).
Secondly,
Since the gold standard was abandoned, the rules governing money are different. Previous history (in terms of money) is not relevant.
Thirdly,
In the USA the way they tax property ownership is completely different to here. This makes a huge difference in how it affects property prices.
I was speaking to a couple of people who owned their own properties (Houses) a couple of months ago. The equivalent of our yearly rates for these people were around 1.5% of property value.
Picture your rate notice showing a $15,000 bill per annum in New Jersey (house value just under $1m) or another person who thought she was lucky because of a 'grandfathered' lower rate of only $24,000 on her property of $2.4m value (Pasadena). The rates without the 'grandfathering were over $35,000!!!! . These types of 'rates' add a different dimension to property ownership.
bye
A couple of general observations that seem to have been overlooked.
Firstly,
Thommo (err.. sunfish)..
Absolutely correct, and hence the beauty of property investment over the long term (by borrowing to purchase).
Secondly,
Since the gold standard was abandoned, the rules governing money are different. Previous history (in terms of money) is not relevant.
Thirdly,
In the USA the way they tax property ownership is completely different to here. This makes a huge difference in how it affects property prices.
I was speaking to a couple of people who owned their own properties (Houses) a couple of months ago. The equivalent of our yearly rates for these people were around 1.5% of property value.
Picture your rate notice showing a $15,000 bill per annum in New Jersey (house value just under $1m) or another person who thought she was lucky because of a 'grandfathered' lower rate of only $24,000 on her property of $2.4m value (Pasadena). The rates without the 'grandfathering were over $35,000!!!!
. These types of 'rates' add a different dimension to property ownership. bye
Sensationalism is another word that springs to mind!
Agree too yieldm....but don't tell the mortgage brokers here.
I am not expecting strong growth in the next 5 years in Oz...just can't see the debt serviceability there to keep pushing prices.
Plus I think when Labor get in, they're bound to mess with cgt and stamp duty, in favour of fhb and against pi's.
Plus Plus, like Schiller, I reckon the USA will go into recession next year, and the Japs won't be lending their money for nicks.
And sub prime will peak in March next year and that'll freeze banks up again. So definitely seeing a tightening of lending policies in Oz on the horizon, at least lo doc. So I reckon it would be a good idea to buy now while you know you can get the money.
I am not expecting strong growth in the next 5 years in Oz...just can't see the debt serviceability there to keep pushing prices.
Plus I think when Labor get in, they're bound to mess with cgt and stamp duty, in favour of fhb and against pi's.
Plus Plus, like Schiller, I reckon the USA will go into recession next year, and the Japs won't be lending their money for nicks.
And sub prime will peak in March next year and that'll freeze banks up again. So definitely seeing a tightening of lending policies in Oz on the horizon, at least lo doc. So I reckon it would be a good idea to buy now while you know you can get the money.
Well..............
Very disappointing effort from Mr Barry. I think he's lost his touch.......
The American situation was interesting, but the promised enlightenment of how Australia will be affected was sadly lacking.
The graph at the end was a joke....right? We may as well start talking of tulip prices and washing machine scenarios...............
Though truthfully I wonder what satisfaction the bears get out of this. If it all turns to the proverbial I feel that a lot more than the price of housing will be on peoples minds.
Maybe some bears can explain to this noob what joy they will get out of lower house prices.......when the share market has crashed, the economy is in ruins, unemployment is rampant.........etc etc etc.
How do you get your money out of the bank when that happens? And what do you do with your gold? Didn't know you could eat that stuff........
ciao
Nor
( Oh.....Absolutely loved the bit at the start........."we got five guns hidden in dah house and thirty days of canned food".......how quaintly American)
Very disappointing effort from Mr Barry. I think he's lost his touch.......
The American situation was interesting, but the promised enlightenment of how Australia will be affected was sadly lacking.
The graph at the end was a joke....right? We may as well start talking of tulip prices and washing machine scenarios...............
Though truthfully I wonder what satisfaction the bears get out of this. If it all turns to the proverbial I feel that a lot more than the price of housing will be on peoples minds.
Maybe some bears can explain to this noob what joy they will get out of lower house prices.......when the share market has crashed, the economy is in ruins, unemployment is rampant.........etc etc etc.
How do you get your money out of the bank when that happens? And what do you do with your gold? Didn't know you could eat that stuff........
ciao
Nor
( Oh.....Absolutely loved the bit at the start........."we got five guns hidden in dah house and thirty days of canned food".......how quaintly American)
It brought home to me the point that an asset is only worth what someone will pay for it. If we didn't believe that property would steadily increase in value we wouldn't be investing in (currently overpriced) property with relatively low yield.
I wonder how easy it would be to reach that tipping point where purchasers lose confidence in the likelihood of increasing propery value. The herd mentality is a funny old thing, and panic can spread very quickly - look at the [url="http://news.bbc.co.uk/1/hi/business/6997264.stm]Northern Rock [/url]in the UK.
I wonder how easy it would be to reach that tipping point where purchasers lose confidence in the likelihood of increasing propery value. The herd mentality is a funny old thing, and panic can spread very quickly - look at the [url="http://news.bbc.co.uk/1/hi/business/6997264.stm]Northern Rock [/url]in the UK.
