Share on Facebook Share on Twitter Share on Reddit + - ABC The Business does the building housing bust By Houses and Holes in Australian banks, Australian Property, Featured Articleat 12:15 am on April 16, 2018 | 65 comments From ABC’s The Business: Spot on. Share on Facebook Share on Twitter Share on Reddit + - YOU MAY ALSO BE INTERESTED INBanks, realty still under heavy selling pressureAUD is firm through the morning: Bonds areInvestor mortgage growth is crashing everywhereBy Leith van Onselen Australia's speculatorNegative mortgage equity spreadsVia Australian Parasite: Research from RoyWhy are Aussie banks getting smashed?Karen Moley puts lippy on the banking pig Comments mdseeMEMBER April 16, 2018 at 12:50 am That analysis needs to be on bogan breakfast TV to really start scaring the punters Red_Pill April 16, 2018 at 1:18 am The trouble is, bogans are not financially literate. They would not understand what is being said. NikolaMEMBER April 16, 2018 at 8:27 am and interpret it as time to buy. yogiman April 16, 2018 at 9:00 am Sadly, I agree with both Red_Pill and Nikola. A surprising number of people were rushing to buy before the tightening, on the logic that they would be able to borrow more money and therefore buy a better house. BubbleyMEMBER April 16, 2018 at 1:20 pm This turns into Blah blah blah when bogans hear it – it makes them disengage and switch channels to sport, celebrity news or some other brain fluff. GunnamattaMEMBER April 16, 2018 at 5:58 am This should be mandatory breakfast listening for all Australians MB Radio: Australia’s hidden normal comes out https://www.macrobusiness.com.au/2018/04/mb-radio-hidden-normal/ Peachy April 16, 2018 at 6:55 am Highlight of Part 1: “…he’s kind of swallowed the entire trickle down …from Rupert Murdoch”. BRILLIANT, David. Red_Pill April 16, 2018 at 1:25 am This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. fitzroyMEMBER April 16, 2018 at 3:55 am V Wiley Wolf April 16, 2018 at 7:18 am V V V V ++ Higgins April 16, 2018 at 4:34 pm And Reusa is nowhere to be seen ! LOL Tassie TomMEMBER April 16, 2018 at 5:56 am I think George is a bit optimistic to think that bad debts won’t be a part of the medium-term future. Once the house price tide starts going out, we’re going to see a whole lot of people swimming naked. ChrisMEMBER April 16, 2018 at 7:36 am It is perhaps necessary to say to avoid coming across as a crashnik. NikolaMEMBER April 16, 2018 at 8:30 am +1. I am sure he worked out that price falls means equity falls means difficult to refinance means forced sales means price drops means.. LBS April 16, 2018 at 10:09 am @TassieTom I think he was holding back and probably agrees with everything your saying and more. He just doesnt want to sound to bad. MichaelB April 16, 2018 at 7:51 am An interest only loan is renting from the bank, while owning the capital appreciation/depreciation risk. It is really no different than option trading. If you agree with the assumption that people take out interest only loans mostly either to speculate on house prices as investors, or because they simply cannot afford to pay the principal, then it is unlikely that any speculators will go “all-in” with principal plus interest loans in a falling market. Most will elect to cut their losses or capture gains, in many cases BEFORE their loans convert. While those interest only loans come due over a period of 3-4 years, most speculators will want to get out at the same time and once prices start dropping they will run for the exits – why would they want to be the ones holding the bag? Those who simply could not afford the payments will be forced to sell. As the reality of Australia’s housing market is understood by global investors, the cost of money will increase for Australian banks, causing a rise in interest rates that is totally out of the RBA’s control. Any retirees who are looking to downsize or sell will also rush for the exits. It is going to be ugly. I thought this would be happening 10 years ago and it would have been bad then. Now, Australia is staring down the barrel of the mother of all housing crashes. As he says in this interview, home loans should not be more than 4 x household income. I would argue that home prices should not be more than 3-4 x household income. That means in many neighborhoods a median home should be $300,000 to $400,000, not $750,000 to $1,000,000. Once unemployment increases and wages drop, these numbers will get even worse. Wiley Wolf April 16, 2018 at 8:01 am Well said Bullion BaronMEMBER April 16, 2018 at 8:20 am For property investors with an outstanding loan on a PPoR, using IO on any IP loans likely makes sense from an accounting / tax minimisation perspective. They would typically be better off paying down their loan book starting with the one for their own home, the interest of which is not tax deductible. NikolaMEMBER April 16, 2018 at 8:34 am in a falling market lot of them will not be able to come up with additional deposit in order to refinance. Rod77 April 16, 2018 at 8:49 am 3x Income would make it just affordable. Having a family is bloody expensive. GavinMEMBER April 16, 2018 at 10:14 am Cost of Groceries each week is crazy, $200 last night at Coles and I reckon we will still go back 2-3 times before end of week..I wouldn’t be surprised if we spent $300-$400 p/week on groceries and it’s just the missus and I (+dog). TimMEMBER April 16, 2018 at 11:59 am That’s the problem with you young blokes! You expect to own a mortgage yet you think you can do it by eating groceries 1+ times a week. Gimme a break FFS. BubbleyMEMBER April 16, 2018 at 1:48 pm Here you Gav, 30 ways to upgrade your Ramen noodles so you can afford and overpriced Australian house. https://www.seriouseats.com/2011/03/ramen-hacks-30-easy-ways-to-upgrade-your-instant-noodles-japanese-what-to-do-with-ramen.html GavinMEMBER April 16, 2018 at 2:25 pm I know you’re both joking (or at least I hope you are), but since I moved out of home at 25 I decided I would spend my money on good quality healthy food first and foremost. I’d rather a punnet of Raspberries than a pint of beer. My reasoning is simple, if you invest in your health and eating good food, you’ll be able to think clearer, won’t get sick as often and really the most important asset we have is our health. I would give up many vices to pay for a home to live in, but I would never trade my long term health for it. I’d rather rent forever. 😀 TimMEMBER April 16, 2018 at 5:22 pm But raspberries don’t make you witty and attractive! DanMEMBER April 16, 2018 at 9:50 am Great comment [email protected] April 16, 2018 at 10:02 am AAA+++ [email protected] April 16, 2018 at 10:09 am You know, Michael, sometimes I’m totally convinced that the more obvious an issue is the less likely a lot of sheeple will agree with it. In fact, that’s why politicians can get away with so much codswallop, ah? BubbleyMEMBER April 16, 2018 at 1:49 pm because the punters are sitting on their sofa’s watching Master Chef rather than painting placards and marching in the streets. LSWCHPMEMBER April 16, 2018 at 10:10 am Correct and well said, particularly the bit about IO loans being the same as renting from the bank. I’ve been spruiking that to a few of my property owning friends recently, and they don’t seem to grasp the concept. GavinMEMBER April 16, 2018 at 10:15 am Probably because they don’t realise paying Interest Only means they are not paying off the house. 😀 [email protected] April 16, 2018 at 10:28 am LSWCHP, “renting” from a bank would mean that you could walk away at the end of the lease. An interest only loan commits you to refinance at the end of the term or sell to liquidate your liability. B I G FRIGGIN DIFFERENCE, buddy! Arrow2MEMBER April 16, 2018 at 10:51 am Treibs and LWSCHP have it right – it’s like renting from the bank except unlike a normal renter you are up for the costs of rates, maintenance and repairs, plus you can’t move house without paying a huge transfer cost (stamp duty, agent’s fees). Sounds fun. Repeat after me. Interest payments are dead money. TimMEMBER April 16, 2018 at 11:55 am Good fkin luck getting your bond back! BubbleyMEMBER April 16, 2018 at 1:51 pm And if house prices do drop and the loan is underwater, then not only does the IO loan not get any capital gain but the mortgagee can end up owing the bank. #liferuined. TailorTrashMEMBER April 16, 2018 at 10:15 am Excellent stuff …..and a loss of continuity of employment will the the killer in this ………pity so much of it is also rolled up into the ponzi itself gballardMEMBER April 16, 2018 at 12:25 pm Yes – you have made a good point. Flies in the face of some viewpoints that are expressed here but that is what makes a market. Wiley Wolf April 16, 2018 at 8:31 am GERMAN investors on the GC appear to have sounded a barely-audible retreat bugle, without firing a development shot, at the vibrant lakefront suburb that is Varsity Lakes. A group of Deutschlanders plunged $26.4 million into a gem of a site fronting Lake Orr 11 years ago and at one point appeared poised to press the go button on a major project. It now has emerged that the mixed-use 5.4ha holding, known as Bermuda Point, very discreetly has been waved under the noses of potential buyers. WW massive amounts of land going on the market here, now. matthew hoodMEMBER April 16, 2018 at 1:24 pm Same here WW. Smart money getting out? harry petropoulosMEMBER April 16, 2018 at 8:54 am finally house prices will be easing and bring some normality into the market place………………..im astounded that no-one is considering independent mortgage rate increases by the banks……………………you might as well take another 10% off house prices.All these million dollar suburbs will suffer steep losses!!!! Dylan April 16, 2018 at 9:32 am My banker was concerned 8 months ago. He had several Eastern suburbs couples with $10m in investment loans and no wiggle room. The tide is going out…. LSWCHPMEMBER April 16, 2018 at 10:12 am It’s very likely that they will be forced to dispose of those “investments”, and possibly at a loss. Property portfolios are turning into Albatrosses. GavinMEMBER April 16, 2018 at 10:16 am You mean like this? https://www.youtube.com/watch?v=1PJix23IeF8 TailorTrashMEMBER April 16, 2018 at 10:28 am Man, we just got to share the bright yellow happiness around ….she’ll be right mate ! BubbleyMEMBER April 16, 2018 at 1:52 pm Is yellow the colour of Prozac pills? HFW April 16, 2018 at 10:48 am Does this mean Steve Keen has gone mainstream? gballardMEMBER April 16, 2018 at 12:43 pm Steve was too far ahead of his time. It is one thing to make a forecast but another to encapsulate it in a specific time frame. As J M Keynes observed Markets can remain irrational for longer than one can remain solvent. Can’t remember the exact wording but you get my gist. reusachtigeMEMBER April 16, 2018 at 11:05 am Someone needs to take that traitorous banking guy out for saying such blasphemous stuff… it’s rubbish! The next boom is building strongly, everyone who is anyone knows this!! [email protected] April 16, 2018 at 11:34 am Reusa, you’re a national treasure. I’m looking forward to an invite to one of your relos shindigs. If the going gets too rough, I’ll put me pants on and go back home, buddy. Arrow2MEMBER April 16, 2018 at 12:48 pm There’s no pulling out early at Reusa’s parties! Jake Gittes April 16, 2018 at 12:00 pm Forget the banker, it’s the ABC spreading its biased unbalanced views which must be in clear violation of editorial codes. It’s time hard-partying investors took up a complaint to the national broadcaster about this so-called fake news. gballardMEMBER April 16, 2018 at 12:21 pm Reusa – I haven’t quite made up my mind as to whether you are simply taking the piss out of most people or sincerely believe in what you write. Time will tell. BubbleyMEMBER April 16, 2018 at 1:56 pm Reusa has taken cynicism and made it a separate identity. We revel in his evil real estate spruiker alter ego. darklydrawlMEMBER April 16, 2018 at 7:30 pm It’s an art. And he is most excellent at it. The back story is a good one. 🙂 GavinMEMBER April 16, 2018 at 2:28 pm I dunno Reusa, you’ve been right in the past, but I think “this time it’s different”. MAW April 16, 2018 at 3:10 pm Only when the original Reus returns we can confirm it is truly different. darklydrawlMEMBER April 16, 2018 at 7:31 pm Yes Maw, Yes. That is correct. [email protected] April 16, 2018 at 11:42 am Arrow, on the subject of interest and rent being “dead money”, food is dead money too, tell ’em to grow their own vegies and raise their own farm animals and slaughter them……he he he he he Arrow2MEMBER April 16, 2018 at 12:49 pm And gather wild food. Apparently you can eat dandelions. Does anyone know? (Stagmal?) BubbleyMEMBER April 16, 2018 at 2:00 pm Yes, you can eat Dandelions, the roots can also be roasted as a alternative to coffee and is reputed to be a good diuretic. The leaves are bitter and rather nasty and as a coffee, it will make you piss more. Such is the price of free food. Jacob April 16, 2018 at 12:26 pm You can actually download the video: http://mpegmedia.abc.net.au/news/thebusiness/video/201804/THBs_Therenou_1304_1000k.mp4 Explorer April 16, 2018 at 3:29 pm He supports what Steve Keen said 10 years ago. Its the growth in borrowing which supports increasing house prices and when credit growth turns negative house prices fall. [email protected] April 16, 2018 at 3:33 pm Believe it or not, the Albert Einstein of Propertology is at it again…..as if his congregationist could still borrow to the hilt as before……he he he https://www.youtube.com/watch?v=e7k5kxYZfjk&t=219s bendy wire April 16, 2018 at 6:40 pm its already playing out in WA!! Sellers still dreaming we’re in a mining boom, buyers unable to borrow enough to even bid up to the reserve price at most auctions!! Laughable rentsailorMEMBER April 17, 2018 at 12:21 am Can confirm this Bendy Wire. The dreamers I encounter, whenever I go through Perth for work. From Uber drivers to Mortgage Brokers who have swallowed their own lies that “Mining is picking up again” NSW (Sydney) punters should consider Perth’s post boom immediate shrinkage in Real Estate. (But won’t) When I lived in WA I never knew anyone who did the IO thing.. and yet a lot of people fell hard.. fast forward to my share house in Eastern Subs where all the cool kids have IO loans for their 800k, 1 bedders – “bought” 14 months ago looking to make big gains to pay for their Audi. This video is spot on as artice says.. Almost hard to believe he was allowed by the media handlers for such true speak, nice of him to put a soft spun explanation.. shame the people who need to watch this clip either: just won’t, won’t get it, refuse to accept it.