what would happen if property prices crashed

wategos said:
The RBA might drop interest rates but in a true banking crisis the banks can't pass the drop on. Just look at the UK where a lot of banks went under, even today their variable mortgage rates are between 4 and 5% for most new buyers when bank of England rate is only 0.5%
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Well you're talking about the spread between mortgage rates and the official cash rate but I am sure that rates did drop after the rate cuts.
 
Aaron_C said:
Well you're talking about the spread between mortgage rates and the official cash rate but I am sure that rates did drop after the rate cuts.
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No the GFC increased the spread dramatically, same in a lot of other countries so the consumers are not benefiting from the low central bank rates.

The exception in the UK are "tracker" rates where some people locked in a low spread before the GFC. UK banks are happy to get rid of these customers and sometimes find the small print to do so.
 
UK IRs

Ok ...so what were the UK mortgage rates pre GFC and post GFC ? Please ...with links please ? I'll bet a delta a lot like Oz .... Ta :D LL
 
Financial crises are great if you are cashed up and still have a job (or other income coming in).

From what I observed during the GFC in relation to property:
- Banks tightened new lending
- Interest costs dropped as rates dropped
- Prices dropped (and often overshot). Not a problem if you didn't need to sell. Good buying opportunities if you're cashed up
- Rents maintained, or even increased as more renters in the market

Some people got hammered during the GFC, whilst others made bucketloads. Unfortunately (or fortunately) I didn't fit into neither....
 
landlubber said:
I don't know anybody who made "bucketloads" ... and your point is ???? :confused:LL
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Ahhhh... So your logic is.... since you don't know anyone who made bucketloads during the gfc, therefore, no one made bucketloads during the gfc.

My point is, and mentioned by others, there are opportunities in crises. Be cashed up to make the most of them.
 
landlubber said:
Ok ...so what were the UK mortgage rates pre GFC and post GFC ? Please ...with links please ? I'll bet a delta a lot like Oz .... Ta :D LL
Click to expand...

UK mortgage rates and spreads were similar to Australia before the GFC, but definitely not after. Their banks were smashed in the crisis, many went under.
 
Kerry Packer v Alan Bond 1987

Here's one story that's been told a few times:

"In 1987 Packer made a fortune at the expense of disgraced tycoon Alan Bond. It was widely reported that he sold Bond the Nine Network at the record price of A$1.05 billion in 1987, and then bought it back three years later for a mere A$250 million :eek:, when Bond's empire was collapsing. Packer later quipped; "You only get one Alan Bond in your lifetime, and I've had mine". Packer was then able to re-invest the proceeds in a 25% share in the Foxtel pay TV consortium."

http://en.wikipedia.org/wiki/Kerry_Packer
 
landlubber said:
Totally pathetic answer. No links . No evidence. ......LL rests his case.
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Go to any UK bank website and check their rates for a 10% deposit for yourself. You're just plain wrong if you think UK mortgages escaped the GFC like Australia did. I've just used the UK as an example of what happens to mortgages in a banking crisis and how lower rates can't be expected. Many other countries were just as bad.
 
Ok here?s a graph for you (note the widening spread between the green and red lines)

United-Kingdom-interest-mortgage-rate-graph-1.gif


from this article
http://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History

Key point from the article:
Mortgage interest rates then started to inch downward in mid-2008, but the spread between the key rate, and the average mortgage rate, has widened to around 3 ? 5 percentage points, from less than one percent in 2006 - 2008.
 
wategos said:
It doesn't necessarily need a stuffed economy to drive prices down, one of the biggest drivers of property prices is the availability of credit.

If credit was restricted or banks were unable to fund mortgages to the same extent, real estate prices would plummet, causing a destructive feedback loop (the more prices fall the less able banks are to lend). Bank shares would crash, some becoming worthless if bailouts were required. This scenario is what happened in the countries worst hit by the GFC. Australia escaped that.
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Interestingly, over here in Spain there has been zero credit for a few years but prices in Madrid and Barcelona haven't moved much. Of course, you can pick up a unit on one of the over-developed Costas pretty cheaply though.
 
Blueberry said:
After another discussion with hubby, with him saying we should now diversify into shares as we would be stuffed if property prices crashed. It got me thinking back to the old question.

What would happen if Australian property prices did crash? Specifically to rent prices?
.
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I have been investing from Melbourne-Cup day in 1983,started with 4k and have seen the up,s and downs in property and share markets over that period and one item that always seems to stand out is the demand for certainty ,plus I have been in this site for a while the only time when fear was scalable was when the interest rates were just below 8% a few years back,,when the "GFC" tidal wave hit and for us it was a positive accident
it was interesting to watch the share market data each morning and see our holding go down each afternoon ,,I did not give a stuff they were all less then 15 bucks when I first bought them some went to 175 bucks then back to less the 40 bucks ,one Bank went from just below 60 bucks into the very low 20's but I bought that well know big whale Bank for less then $12.50 so even at $26.00 I was still way ahead,i put 2 unencumbered titles on the block at $27.00 with that bank and bought all the bank would allow me,next day they went lower the same as the next few weeks lower,,i even started to walk past my various tool boxes thinking "FMD" "IF" this keeps going on I will have to put an add in the paper and start working as a wage slave again,it never happened the share market turned the rally that everyone thought would not happen happened,and inbetween the properties we control and I manage stayed the same prices never went down ,rent stayed ,,anyone can engage in strategies that produce very little volatility,,the only investors - that I know and the numbers are very small that went belly up during that period of the "GFC" were the ones sitting on a pile of dynamite of over 80% of debt and leveraged too the top hairs on their large heads,,the system just sold them out over a few short days..

Bottom line is investing has nothing to do with luck,you walk in one door accepting life will deal you a few psychological and intellectual difficulties
and over time you will see a series of small and large failures in life just be prepared because the next day is unknown,the same as the future..
 
willair said:
Bottom line is investing has nothing to do with luck,you walk in one door accepting life will deal you a few psychological and intellectual difficulties
and over time you will see a series of small and large failures in life just be prepared because the next day is unknown,the same as the future..
Click to expand...

Thankyou, these words are just what I needed today.
 
You're afraid of a crash so you're diversifying from property to shares? If there is a crash then shares will be hit first and harder. Better off diversifying in commodities like gold because when economy crashes, gold generally go up and vice versa.

note that I don't invest in gold/ shares :)
 
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