What happens during a recession????

[Player]

I love recessions or downturns in the markets.

Leo, I have just read your interview and if you are 32, you don't know what a recessions is.

Congratulations by the way on your accomplishments. Other young or new investors take note what can be accomplished by various means and the mindset required to do so.

That's where the best deals are gotten by savvy investors.

Or lucky investors. Also be careful what you wish for. There is a big difference between a downturn (softening) and a true recession. All young investors reading this please have adequate buffers and sensible LVR's. The b(w)anks and lenders can exercise all their rights in the contract we all signed called a mortgage document. Careful come time to re-finance or seek a reval. And, those reliant on a job for income, careful if you lose yours.

The best deals I ever got (and a lot of my friends) was during the 'doom and gloom' sentiment of markets. I just love it.

Unless you have purchased in the USA around 2011 or some select Euro countries, I doubt you have done well out of a recession as you aren't old enough to have lived and understood the late 80's and early 90's here. There is a difference between a shift in sentiment where property goes on the nose and a true doom and gloom scenario that a recession may manifest.

Markets will always bounce back. Our liveable land is limited. People love Australia. Immigration is good. Most people want to live in the major cities. So im not worried that the medium/long term demand for property in Australia will suddenly disappear. When they can start to make the desert liveable and comfortable with great jobs and infrastructure, then I might worry a little. I suspect i'll be dead by the time that happens though.




Leo

Those who trivialize the notion of a recession, should be careful what they wish for when they pronounce they love recessions. We don't know whether we will enter one here or by when or for how long.

This country has ridden the coat tails of selling its dirt for a decade whilst also letting go much of the innovation of bio-technology and other technology industries due to the immature venture capital industry here and the lack of vision of any government (left, right or ambidextrous). Outcome is the ideas and patents and intellectual property and the talent that invents/supports the new initiatives/products go overseas, ergo Australia's loss.

I won't start on rising unemployment, harsher re-financing scenarios, all monies clauses and banks calling in for cash injections come the end of fixed interest periods when they reval at their utmost discretion.

My glass if not half empty however I am a realist and as I accumulate birthdays a little more cautious. Please enjoy the escalating capital growth in Sydney (merely playing catch-up) and Melbourne of late. The rest of Australia's real estate prices (aside from some regionals) are barely moving. We may indeed see another interest rate cut that may fuel some further growth in housing prices, however when interest rates return to an equilibrium point (circa 7 % to 7.5%) there will be a rise in housing and likely commercial property that hits the market. If rates need to rise to circa 9-10 % levels then there will be many assets on sale. Those that were patient will have their pick.

My two cents worth is to muster up all the equity you can through re-vals now and stoke the off-sets. I wouldn't be buying residential real estate in Australia right now. My caveat this is a sweeping statement that covers the whole market as a general investment notion, not some specific sub-markets that may out-perform.

Do not over-leverage for the next few years................

 

[Northy85]

Why would anyone want a recession unless they have a large cash holding or gold. All your assets will tank and the banks won't let you borrow money to take advantage of the bargains. All I can see with a highly leveraged society like ours is heartache during a recession. I'm currently sitting at 82% LVR with $1.18 mill debt, a recession would completely suck for me right now.

 

[ZachAnSel]

Why would anyone want a recession unless they have a large cash holding or gold. All your assets will tank and the banks won't let you borrow money to take advantage of the bargains. All I can see with a highly leveraged society like ours is heartache during a recession. I'm currently sitting at 82% LVR with $1.18 mill debt, a recession would completely suck for me right now.

I dont think anyone want, however this topic for us to learn. What do we need to prepare just incase recession coming.
My first recession is 97-98 asian finance crisis.. Our city have riot, where people broke and steal food, gas, electronics from store. They burn the store, police can't handle it. It end up with president resignation.

But that time also create an opportunity, people buy USD because currency jack up like crazy. It almost give 700% return during that period.
Stock market crash also another opp.

So here we are to discuss what can we do to prepare if that happens. Also how do we act in recession for our favour..

I knew few people will ride the wave and do nothing. Some unfortunate have to sell in order to survive. But I also know one of my close mentor become wealth, he bought share and sell some 3 years later. Then buy property when the market recover.

 

[Redom]

Was having this discussion with a couple economist mates recently - great thread. I basically asked the same question and presented a view, noting that I have zero actual experience in living through a recession.

I was thinking of it from a completely different angle - if its NOT a financial sector crisis, I imagine the returns on labour being the most effected during recessionary conditions.

Capital (asset) holders - apart from a SHORT term blip, I wonder how it plays out.

Reasons:
I assume the RBA would go through a significant easing cycle, supported with some fiscal loosening (although Australia doesn't seem to have the appetite to use public funds to act as a support mechanism).

When rates fall, asset values rise. So the real economy could be seriously effected (jobs falling, output contracting, etc) - but the nominal economy could actually grow (i.e. asset prices rise).

Note this assumes that the financial sector is very healthy and lending conditions don't tighten. This would be a completely different type of recession to the 2007-8 GFC.

All complete speculation, but did lead to an interesting debate for a while.

Cheers,
Redom

 

[topcropper]

I love recessions

Leo

You are 32. You don't yet know if you will love a recession mate. But well done on what you've done so far.

Australia makes almost nothing anymore, our golden goose mineral exports no one wants, and everyone works in services these days. Services are what a wealthy nation does with it's wealth! Things could get bad.


See ya's.

 

[LeoT]

You are 32. You don't yet know if you will love a recession mate. But well done on what you've done so far.

Australia makes almost nothing anymore, our golden goose mineral exports no one wants, and everyone works in services these days. Services are what a wealthy nation does with it's wealth! Things could get bad.


See ya's.

Yes I was flippant with the recession comment but I was more meaning downturns and flat markets, not recessions.

Cheers

Leo

 

[LeoT]

Those who trivialize the notion of a recession, should be careful what they wish for when they pronounce they love recessions. We don't know whether we will enter one here or by when or for how long.

This country has ridden the coat tails of selling its dirt for a decade whilst also letting go much of the innovation of bio-technology and other technology industries due to the immature venture capital industry here and the lack of vision of any government (left, right or ambidextrous). Outcome is the ideas and patents and intellectual property and the talent that invents/supports the new initiatives/products go overseas, ergo Australia's loss.

I won't start on rising unemployment, harsher re-financing scenarios, all monies clauses and banks calling in for cash injections come the end of fixed interest periods when they reval at their utmost discretion.

My glass if not half empty however I am a realist and as I accumulate birthdays a little more cautious. Please enjoy the escalating capital growth in Sydney (merely playing catch-up) and Melbourne of late. The rest of Australia's real estate prices (aside from some regionals) are barely moving. We may indeed see another interest rate cut that may fuel some further growth in housing prices, however when interest rates return to an equilibrium point (circa 7 % to 7.5%) there will be a rise in housing and likely commercial property that hits the market. If rates need to rise to circa 9-10 % levels then there will be many assets on sale. Those that were patient will have their pick.

My two cents worth is to muster up all the equity you can through re-vals now and stoke the off-sets. I wouldn't be buying residential real estate in Australia right now. My caveat this is a sweeping statement that covers the whole market as a general investment notion, not some specific sub-markets that may out-perform.

Do not over-leverage for the next few years................

Player like I said to the other poster I was just being flippant when I said recessions, I was just trying to make a point that in downturns/flat markets and the GFC, those were my best times.

Cheers

Leo

 

[datto]

Recessions dont last forever, usually 3 to 4 years in Oz before things pick up again . You can check the data.

 

[grand dad]

I have lived through several recessions. From memory:

1974 - took a year but prices did rise by 75
1982 - prices climbed higher
1991/92- prices climbed higher in all states, despite nsw being a bit sluggish

The next recession is probably already here. As far as property prices go, I am not especially worried.

We can expect one or two interest rate cuts in 2015, which should light a warm fire under the market.

 

[joeExpat]

Why would anyone want a recession unless they have a large cash holding or gold. All your assets will tank and the banks won't let you borrow money to take advantage of the bargains. All I can see with a highly leveraged society like ours is heartache during a recession.

Yes this is what happens. I?m living in a country in a deep recession now, credit is very hard to get, property prices have approximately halved, property investors and developers wiped out. Unemployment, emigration, crime, suicide all up. Salaries slashed. Many public and private works projects halted. This in a country that had one of the best regulated banking systems in Europe through the GFC, doesn?t help much in a property crash.

But the bars and restaurants are still doing ok and people continue to enjoy life as best they can. Standing room only in a tapas bar last night.

 

[see_change]

I did spent about 100K to buy a 499K property during GFC. The capital gain for this property is over 1M today.

.

Nice , where was that ?

Cliff

 

[LeoT]

I did spent about 100K to buy a 499K property during GFC. The capital gain for this property is over 1M today.

Now, like See-Change, I am selling one property and hopefully have 800K to 1M cash on hand.

Very nice and savvy indeed mate. This is the sort of opportunities I live for.

Would you mind sharing a little detail on this place? Would love to hear about it!

Well done again mate!

leo

 

[LeoT]

[QOTEPlayer;1248286]


My glass if not half empty however I am a realist and as I accumulate birthdays a little more cautious. Please enjoy the escalating capital growth in Sydney (merely playing catch-up) and Melbourne of late. The rest of Australia's real estate prices (aside from some regionals) are barely moving.
I disagree mate. Bought in middle ring suburbs in Brisbane and 1 place already has had 50k growth in 6 months and other the place I purchased I already conservatively made 150k in 9 months (bought under value to be honest) but from that 150k I think 50K is recent growth. So I don't agree with your above comment. And to be honest, this whole thing about short term growth is not so important IMHO.

This is the reason I strongly believe (almost) NO MATTER what someone's strategy is, its important to buy under market value AND have scope to add value. Market growth will come but I wouldn't be looking at market growth in the first 12-18 months when buying a place. Buying under intrinsic value AND scope to add further value will take care of that while reducing risk, and also providing multiple exit point strategies, further reducing risk.

My two cents worth is to muster up all the equity you can through re-vals now and stoke the off-sets. I wouldn't be buying residential real estate in Australia right now. My caveat this is a sweeping statement that covers the whole market as a general investment notion, not some specific sub-markets that may out-perform. I disagree. there are always good deals. Just my opinion. I respect yours.

[/QUOTE]

 

[MTR]

Why would anyone want a recession unless they have a large cash holding or gold. All your assets will tank and the banks won't let you borrow money to take advantage of the bargains. All I can see with a highly leveraged society like ours is heartache during a recession. I'm currently sitting at 82% LVR with $1.18 mill debt, a recession would completely suck for me right now.

Yes, it would suck, so just wandering are there any properties that you could sell now and make a tidy profit, reduce debt and move on. The market will not continue to rise we all know this so if you can take some profits off the table this could also possibly help you to move on??

MTR

 

[Northy85]

All my properties are in south east queensland, so with any luck they should get some CG before anything happens. Then I can reduce my holdings and realise a profit on 1 or 2 properties.

It's funny when a bad economy emerges in a country all the population parties more. The same thing happened in America when I was there in 2010.

 

[Macca]

The people who benefit the most from a recession are those who are cashed up and able to buy assets cheaper.

Those who lose out are the ones with a lot of debt and no buffer, unemployment increases cause people to fall behind in repayments and forced sales lower the market value of the property.

Right now we have a few mining towns doing this very thing, Gladstone has been rough, Singleton and Muswellbrook are about to experience it.

Expand that to most of the country and suddenly the banks need to have higher provisions for bad debts so credit slows or dries up and suddenly it is very hard to find a buyer............ bargain hunter time but only if you have cash !

 

[The Fence]

Ready and waiting.

 

[ToGetProperty]

Nice , where was that ?

Cliff

Tungarra Road, Girraween. It is 1223 sqm with zoning changes, 8 units can be built. Just search the price history in the street and you can get the results.

There are some lucks here as well because the houses in another side of street have no zoning changes. They cannot be sold in a higher prices.

 

[Lord Shanghai]

I did spent about 100K to buy a 499K property during GFC. The capital gain for this property is over 1M today.

Now, like See-Change, I am selling one property and hopefully have 800K to 1M cash on hand.

Curious as to where this happened? Please share, even if its too late for the rest of us to pile in.

 

[ToGetProperty]

Curious as to where this happened? Please share, even if its too late for the rest of us to pile in.

Why not go to onthehouse.com.au to check the price history from the end of 2008 until today?

There are plenty of similar cases in Sydney. For example, I am told that the houses close to Epping railway station was selling 1M not long ago. They are selling 3.5M now.