What happens when Boom goes to Bust..

[sash]

Whilst people are slapping each other on the back...it might be a good idea to see what happens when the market turns...will be particularly useful for newbies who have not seen a bust!

I was telling people at a Seminar run by a spruiker to avoid mining towns as it will inevitably come to a bust....see the story below.

http://www.abc.net.au/news/2014-04-28/boom-bust-moranbah/5353114

The irrational behaviour in Sydney...could result in similar price fall in some areas of Sydney....

I am hoarding cash to buy aggressively in Sydney from 2018-2020! I feel we will see a major correction..at some point....

 

[Ausprop]

I can add that there is nothing fun about being stuck in a thin equity property - or heaven forbid negative equity.

 

[datto]

Sydney ain't no mining town.

Only high interest rates and high unemployment can hold back this wild horse of a property boom!

 

[sash]

Have you seen what happened in 2006 in Kellyville when rates and unemployment rose to about 8.5%??

Have you stress tested this?

I feel the other capitals are quite safe but Sydney...going to face grief apart from some select pockets of Melbourne....Perth and Melbourne have self cooled. There is even value in some suburbs...

Sydney ain't no mining town.

Only high interest rates and high unemployment can hold back this wild horse of a property boom!

 

[see_change]

Anywhere can crash .

When we bought our first north shore PPOR in 1994 , saw one place for sale in pymble ave in the 600's that had been bought for over 1 mill in he preceding boom .

Cremorne to Mosman post GFC had some good bargains and northern beaches , in particular upper areas came down significantly , due to the number of people in high paying jobs who lost them .

Cliff

 

[sash]

Yep...Mosman has so many off market sales during the GFCs. Lot of Macbank types got laid off....

Can see another cycle like this coming...I feel this time around places like the Northern Beaches, the Shire will be less affected.

Anywhere can crash .

When we bought our first north shore PPOR in 1994 , saw one place for sale in pymble ave in the 600's that had been bought for over 1 mill in he preceding boom .

Cremorne to Mosman post GFC had some good bargains and northern beaches , in particular upper areas came down significantly .

Cliff

 

[Ausprop]

There is even value in some suburbs...

agent was telling me today that you can get 1012sqm in central Mandurah with a good house, zoned R60, for $325k. this is less than I was paying preboom in 2003. incredible value. plus would yield ok in the meantime.

 

[k88k]

im very new to this IP game, having recently purchased my 2nd IP in Sydney (around $750k), early last yr 2014.

I just did some calculations and noticed that should IR rise to 7% or higher i would start to hit struggle street, in the sense that i have to contribute a portion of my salary to the IP, just to hold on to it.

I can see the IR is a very big factor in sydney now considering the high cost of housing.

From the experienced investors here, how fast do RBA increase the IR? each review is it 0.25% or have they ever just increase to 1%immediately,coz 1% increase is still a very large increase

 

[see_change]

Yep...Mosman has so many off market sales during the GFCs. Lot of Macbank types got laid off....

Can see another cycle like this coming...I feel this time around places like the Northern Beaches, the Shire will be less affected.

Northern beaches gets hit worse in some ways because a lot of the upper end places in Palm beach etc are weekenders ( yep would be nice to have five mill for a weekender ...) so when the top end is dead , it goes down as did the should side of port Stephens , corlette etc .

Cliff

 

[Ausprop]

here you go

http://www.tradingeconomics.com/australia/interest-rate

 

[sandyfeet]

Whilst people are slapping each other on the back...it might be a good idea to see what happens when the market turns...will be particularly useful for newbies who have not seen a bust!

The irrational behaviour in Sydney...could result in similar price fall in some areas of Sydney....

I am hoarding cash to buy aggressively in Sydney from 2018-2020! I feel we will see a major correction..at some point....

Although my wife and I are just starting out, we took a long time to develop a plan that we were comfortable with and we are partly basing our plan around the above scenario.

Over the next few years we are are going to try and repeat what worked for us in 2013-2014 to build an asset base and whilst not getting into the city market yet, we have decided to be patient and know that our time will come.

 

[hobo-jo]

Only high interest rates and high unemployment can hold back this wild horse of a property boom!

Didn't take either of these for the boom to put in a price peak in 2003, it was just the last greater fool had been sucked into the madness.

 

[Biz]

im very new to this IP game, having recently purchased my 2nd IP in Sydney (around $750k), early last yr 2014.

I just did some calculations and noticed that should IR rise to 7% or higher i would start to hit struggle street, in the sense that i have to contribute a portion of my salary to the IP, just to hold on to it.

Do you're figures again. You are probably only neutral at best even now with low rates assuming you just bought a bog standard house or unit last year after all costs.

I can see the IR is a very big factor in sydney now considering the high cost of housing.

From the experienced investors here, how fast do RBA increase the IR? each review is it 0.25% or have they ever just increase to 1%immediately,coz 1% increase is still a very large increase

Depends on the situation, in the early 90's for example they put them up 1% at a time in 94 twice.

 

[monty]

I can add that there is nothing fun about being stuck in a thin equity property - or heaven forbid negative equity.

What's wrong with negative equity? Obviously you can't use negative equity to fund further purchases but are there any other drawbacks? E.g. do the banks start ordering valuations if they see prices crash and start asking you to tip in some cash?

 

[kamchatsky]

What's wrong with negative equity? Obviously you can't use negative equity to fund further purchases but are there any other drawbacks? E.g. do the banks start ordering valuations if they see prices crash and start asking you to tip in some cash?

I am interested in this also, is there such thing as Margin Call on property, so that all your houses get revalued automatically by bank when there is downturn, and if it goes negative, they can force to sell your houses?

Or forced selling only occurs when you default on your loan payment or when trying to re-finance?

I know in shares Margin Call can be called on the day as it is very easy for bank to calculate LVR of share portfolio.

 

[BayView]

Didn't take either of these for the boom to put in a price peak in 2003, it was just the last greater fool had been sucked into the madness.

Do you think this is happening now, Hobo?

 

[BayView]

What's wrong with negative equity?

Nothing - until you need to sell.

Everyone assumes their job and income is secure and only on the rise through life.

I'm here to tell ya's it isn't.

In this current economic climate (and it aint gettin' better), I would urge everyone to not go more than 80% borrowings.

The low interest rates are the only thing kicking anything along.

 

[see_change]

I am interested in this also, is there such thing as Margin Call on property, so that all your houses get revalued automatically by bank when there is downturn, and if it goes negative, they can force to sell your houses?

Or forced selling only occurs when you default on your loan payment or when trying to re-finance?

I know in shares Margin Call can be called on the day as it is very easy for bank to calculate LVR of share portfolio.

It does happen . I had a patient who had a multimillion dollar portfolio who ( according to him ) had never missed a payment . the bank manage reviewed his LVR's and requested more equity . A couple of years later he was bankrupt .

I don't think it's common , but I also heard similar stories from the recession we had to have .

It is one of the reasons why some people don't recommend cross collateralisation and advise using different banks . If you have problems , it is harder for the banks to roll everything up , and gives you time to find further finance . Our mortgage broker was working with someone who had this problem last year .

Cliff

 

[redwing]

Whilst people are slapping each other on the back...it might be a good idea to see what happens when the market turns...will be particularly useful for newbies who have not seen a bust!

The irrational behaviour in Sydney...could result in similar price fall in some areas of Sydney....

I am hoarding cash to buy aggressively in Sydney from 2018-2020! I feel we will see a major correction..at some point....

Harvest the current Sydney equity gains

 

[Aaron Sice]

Sydney's RE price peak is reaching a height that could have waves across the nation, if it pops.