Mortgage Meltdown ABC 4 Corners Monday night

[Sunfish]

But I thot the current Australian boom is riding to some large extent the Asia Pacific boom, mainly China's need for resources which Australia is supplying.

That's not the way I read it. I have made the point regularly that the bubble in asset prices (RE is just an asset, it's utility is secondary in this climate) is a direct result of the world being awash with cheap money, originating from the yen and gold carry trades. The bullion banks had access to literally trillions of dollars @<1% via borrowing Yen from the BOJ or gold from central banks. Their biggest difficulty was finding enough creditworthy individuals/companies to borrow it off them @<5%. Greed being such a strong emotion, they let standards slip. Ergo: The Crunch!

Goto: http://www.kitco.com/
On the lower left of the page you will see a chart of gold lease rates, currently about 0.35% for a year. If you can borrow money at that rate you don't need to be a genius to make the odd billion.

 

[sue78]

I thought that it would be rubbish and sound slike it was...what was I doing last night when the show was on? surfing Somersoft

That Professor needs to compare apples to apples...not 350 years!! who cares. The world might not even exist in the next 350 years.

Difference between US and Oz....too many to list. They don't have negative gearing. Having worked there before I can say that even people in high positions have poor spelling and grammar....with all the competitive products available, people should be able to make educated choices on loan products...it's unbelievable some of the loan products that are allowed on the market.

I was speaking to my cousin from Ft Lauderdale, Florida (home of the rich and famous ) and she kept saying that the market is terrible and that she's lucky she sold just before the crash....Only a year ago she was contemplating PI full-time. Apparently, it's not so much the interest rates but the property taxes that's hurting their pockets...well it's everything but the States keep increasing property tax. Is it the equivalent of rates? anyway, propertac in US is on ave $4 to $5k per house!! It's higher than body corporate here.

If something similar was to happen here, the investors will scoop up all the cheapies in the blink of an eye. But the US market is different....there's an oversupply of rentals. But I think there would still be bargains as long as you use the fundamentals when selecting a property.....clos eto transport, close to shops, close to major university, and big cities. I wonder if Nyc and San Francisco prices have dropped?

 

[Debt Junkie]

If something similar was to happen here, the investors will scoop up all the cheapies in the blink of an eye.

I hope you're right, or more to the point, I hope I can! I'm just worried that if a credit squeeze comes along, the bank won't lend me more.

I think if the Brissie market looks like starting to slow, I'll run out and get my places revalued! Give me a fighting chance, eh?

DJ

 

[Sunfish]

I hope you're right, or more to the point, I hope I can! I'm just worried that if a credit squeeze comes along, the bank won't lend me more.

I don't quite follow. If a credit squeeze comes and banks are reluctant to lend, then asset values will fall. Why would you want to buy assets which are falling in value with borrowed money?

Is the assumption that they will stop falling under the weight of your buying?

 

[WildDog]

There is a rumor circulating Adelaide Bank is seeking emergency fund from RBA. The virus is start to spread.. first Northern Rock, now this.

 

[MichaelW]

There is a rumor circulating Adelaide Bank is seeking emergency fund from RBA. The virus is start to spread.. first Northern Rock, now this.

http://www.smh.com.au/news/business...sh-panic-rumour/2007/09/18/1189881483571.html

Cheers,
Michael

 

[BoatBoy]

There is a rumor circulating Adelaide Bank is seeking emergency fund from RBA. The virus is start to spread.. first Northern Rock, now this.

http://au.biz.yahoo.com/070918/19/1eiye.html

Dave

 

[chilliaa]

Just my two cents worth:
The answer is very easy:....
wait for it....
....
IT DEPENDS

Just like most investments there is no black/white answer. Investors are always looking to the holly grail of solutions. The truth is there can never be a single answer. Even if there was a perfect answer at a particular point in time, market forces would re-act causing that answer to be wrong in a future point in time.

I think at the end of the day look to Jan Sommer's book, if you can afford it keep it, if you cant reduce debt until you are comfortable with YOUR OWN financial situation.
For myself i look at the following:
1) Am i financially ok if property doesnt increase for the next 10 yrs, ie can i afford repayments without resorting to future refinancing on capital appreciation
2) Whats my net rental yield against interest on debt. If the variance is only a couple of % points and the interest rate is fixed long term (ie 10yrs), then im not to fussed.
3) How satisfactory is my return is i assume long term capital appreciation of 5 - 6%. Generally i try to get a return of 20%+ per pa but with the assumption of capital and rental growth of 5.5% return. If i can make the figures 'stack up' at this rate, any higher rate is 'just icing on the cake'.
4) What is the population movement. If its going up in an area property prices will increase and conversely.

Its very difficult to accurately predict the future so why bother. If i can achieve a good return using basic conservative variables then there is no need to over analysise.

Just my two cents worth.

 

[chilliaa]

Just a quick further note of caution:
For those of you that are heavy geared (>80%) and are relying on capital growth to fund future interest payments, no offfence but i think you are gambling not investing.
Whenever an asset class out performs for an extended period of time, amatures become 'experts'. History always shows that assets return to the mean return, which means that property is likely to UNDER PERFORM at some point in the near future given its exceptional returns for the last 12 years (starting from the mid 90's). When this will happen i dont know, but i do know it will happen. ARE YOU IN A POSITION to weather it. If you are then you will be fine if not you will be like those day traders during the internet boom that gave up there jobs to trade!!!!!

 

[Ausprop]

4) What is the population movement. If its going up in an area property prices will increase and conversely.

I think this is far too simplified. You only have to look at Mandurah which is the fastest growing town in Australia - huge pop growth, construction going on everywhere, new infrastructure you name it. Unfortunately there is no scarcity value on the property tho... if you want to rent one and the owner wants too much, just move onto the next on the list. The Perth boom has been really intersting... the ripple moved out to the growth suburbs, now the growth suburbs have stopped in their tracks and it is the western suburbs and select coastal property that is going gangbusters. For me it demonstrates just beautifully the true value of what happens when there is restricted supply and strong demand. Karratha is the ultimate example - and that cap growth isn't because of the tree lined streets and good schools!

 

[WinstonWolfe]

Thanks for the reply WinstonWolfe. I agree asset prices can rise if there is demand / low supply etc but in terms of inflation asset prices aren't actually in the measure for inflation (CPI) so it doesn't have a direct effect. There is an argument for central banks to watch asset prices as well but central banks disagree.

YM, from my POV, we are just about to see the recent boom in commercial asset prices impact cpi via re-negotiated leases.

 

[yieldmatters]

Having worked there before I can say that even people in high positions have poor spelling and grammar....

well I feel better then! clearly the fundamentals in the usa are different to australia.

 

[trendsta]

I thought that it would be rubbish and sound slike it was...what was I doing last night when the show was on? surfing Somersoft

That Professor needs to compare apples to apples...not 350 years!! who cares. The world might not even exist in the next 350 years.

What should the Professor compare then? I thought he had a valid point..

Difference between US and Oz....too many to list. They don't have negative gearing. Having worked there before I can say that even people in high positions have poor spelling and grammar....with all the competitive products available, people should be able to make educated choices on loan products...it's unbelievable some of the loan products that are allowed on the market.

Yes, there are differences, but there are many similarities as well. For each asset class you need to consider macro and micro factors. The macro factors of last decade have led to medians in ALL developed nations to rise. The micro factors have resulted in varying degrees of increases. Now those macro factors are turning negative. There may be areas where the micro factors overrule the macros, but remember the macros are the tide that cause boats to rise and fall.

If something similar was to happen here, the investors will scoop up all the cheapies in the blink of an eye. But the US market is different....there's an oversupply of rentals. But I think there would still be bargains as long as you use the fundamentals when selecting a property.....clos eto transport, close to shops, close to major university, and big cities. I wonder if Nyc and San Francisco prices have dropped?

Not true. If the market starts falling there is great fear. Fear that the investment will drop even more, leading to greater loss due to gearing. Why arent people "scooping up" prop in western syd even after 4 years of negative growth? In compbination with macro conditions becoming worse there is no incentive to invest in falling asset..

Please, don't think Im against property as an investment class. Far from it. I think its agreat vehicle to increase your wealth and control your financial destiny. However, just like at time assets can be under-priced (e.g. 92-97) they can also be over-priced.

 

[Debt Junkie]

I don't quite follow. If a credit squeeze comes and banks are reluctant to lend, then asset values will fall. Why would you want to buy assets which are falling in value with borrowed money?

Is the assumption that they will stop falling under the weight of your buying?

Hi ya Sunfish.

No such assumption - I've nowhere near that sort of buying power (wouldn't that be sweet!).

It's more a case of me believing in the long term value of property, so if prices were to drop, I'd like to be in a position to take advantage of this - and that may not the case if there's a credit squeeze and I am deemed a credit risk.

Hope this clarifies my comment

DJ

 

[aussierogue]

a few points after watching the report

The report in my opinion was pretty crappy, scaremongering, sensationalistic etc etc. The fact they spent 10 minutes in a small church asking the reverand hard hitting finance questions is a case in point.

It also seemed a long bow to use Cleveland and a quote from a local lady saying that it was the brokers fault. Cleveland has severe economic problems. to blame lending practices for reducing house prices to usd 1,000 dollars is ridiculous.

And the graph - wow how long did the professor take to find this little gem of a scandanavian town - and why? Why not use London, or Hamburg or anywhere else that may have less variables (bigger sample). The fact that the town is obscure makes me suspiscious. Plot Ballarat over 250 years!

In the current bubble environment, with wwealth at all time highs, and inevitable cyclical economic events to occur, its not difficult to mount an arguement that 'times are probably about to change'. Missy Higgins (dylans too old) will write a song about it and most of us will be able to say I told you so.

Cheers
Aussie

 

[coolie21]

Mmm. Amsterdam is neither obscure or Scandinavian.

 

[Nullagine]

The fact they spent 10 minutes in a small church asking the reverand hard hitting finance questions is a case in point.

I thought the intention was to introduce you to the recipients of the US sub-prime mort-gagees' benevolence.

 

[Nullagine]

Mmm. Amsterdam is neither obscure or Scandinavian.

... and was a wealthy city when in 1616 Dirk Hartog was among the second group of Europeans to discover Australia.

 

[JAL]

[QUOTE=aussierogue;
And the graph - wow how long did the professor take to find this little gem of a scandanavian town - and why? Why not use London, or Hamburg or anywhere else that may have less variables (bigger sample). The fact that the town is obscure makes me suspiscious. Plot Ballarat over 250 years!


The reason studies have been done on a section of Amsterdam city is that
the area is protected and has not been redeveloped. The houses are the very same ones built 350 years ago and still in every day use as homes.
It provides a very interesting insight into grow of the exact same asset over a very long period of time.
Amsterdam is of course a large successful European city.

 

[aussierogue]

sorry about that

Shows how intently i was watching - I thought it wasnt Amsterdam but some obscurely named Norwegian town - hehe. There goes my bad rep.

Yes amsterdam certainly fair enuf - back in my box.

Didnt like his haircut though so I still win.