Quietly one arvo the Aussie property bubble burst

Game over. Via ABC coverage of CBA CEO Matt Comyn at the Hayne Royal Commission yesterday afternoon:

Rowena Orr has moved on to CBA’s own lending practices, particularly its extensive use of the Household Expenditure Measure (HEM).

For those of you who don’t remember the HEM from the first round of hearings, it is a relatively low-ball measure of household living costs.

Banks have used it as either a floor or even default measure of living expenses when they decide how much people can afford to borrow.

When the bank regulator APRA ordered a targeted review of major bank lending standards, conducted by PwC, it found CBA used the HEM in 75-80 per cent of loan approvals.

Given that the HEM represents the median (middle, or typical) spending on essential items for people in a particular region and the 25th percentile (top of the bottom quarter) spending on discretionary goods and services, Matt Comyn says only 40-50 per cent of loans should be approved using the HEM as the measure of living costs.

All by itself, that is the bubble’s pin right there. The nation’s bellwether bank just confessed that roughly one quarter of its book is unexpectedly sub-prime and, worse for house prices, that that lending will no longer be available. In Westpac’s RC’s loan data the number was as high as 50% sub-prime. Add the other banks and it implies that at least one third of Australian mortgage lending is liar loans that will never be repeated, rolled over nor renewed. This is conservative. Other estimates are much higher.

It also means CBA and NAB will be following ANZ’s recent draconian lending standards tightening. It may also implies that the legality of the banks using the HEM remains a live issue at the RC and class actions.

There is no legislative fix for it. The banks are already raising lending standards and that will continue. Call it a credit squeeze, crunch or anything you like. Where the government may be able to stem the pain is in not allowing retrospective HEM legal fallout. That might prevent jingle mail. But the initial hit to credit availability and house prices will likely be large enough to break sentiment and trigger a price overshoot that hits the macro anyway leading to RBA rate cuts.

There was more bad news for property lovers:

Ms Orr shifts the focus to mortgage brokers, a channel CBA is the least reliant on of all the banks.

Mr Comyn says mortgage brokers provide a valuable service to customers, and are seen as independent of the financial institutions, providing choice, make the loan application process easier, and customers have “perceptions” they will get a better price.

The CBA boss agrees with a Productivity Commission proposition that the home loan market is “intimidatingly complex”.

Orr: “In your view, do mortgage brokers provide customers with advice?”

Comyn: “Yes.”

Mr Comyn says he thinks the average customer who walks into a mortgage broker would view them as an agent acting on their behalf.

Mortgage brokers are generally remunerated by commissions paid by the banks whose loans they sell.

Ms Orr questions why financial advisors are now banned from receiving conflicted remuneration while mortgage brokers are not. Clearly an area of interest for the commission.

More at Banking Day:

Mortgage brokers will be bracing for the elimination of trail commissions and even up front commissions, if the financial services royal commission’s questioning of CBA CEO Matt Comyn is any guide.

Discussing ASIC’s 2017 report on mortgage broking, counsel assisting Rowena Orr asked, “What did you hope that the report would achieve”?

Comyn said he “hoped it would recommend a specific commission model and structure.”

Orr: “A change to the commission model towards a fee model. Is that what you were hoping for?

—Yes.

“A recommendation that that occur, which you could then adopt and the rest of the industry would also adopt?”

—Yes.

“But that wasn’t what happened?

—No.

Comyn eventually agreed that CBA was waiting for the royal commission to report its own recommendations on commissions, and to act on those.

To put it mildly, the great Australian property bubble is bursting at the Hayne Royal Commission. There is much more here.

It’s no wonder that bank shares are plunging:

It’s going to get worse.

Comments

  1. ’Twas brillig, and the slithy toves
    Did gyre and gimble in the wabe:
    All mimsy were the borogoves,
    And the mome raths outgrabe.

    “Beware the Jabberwock, my son!
    The jaws that bite, the claws that catch!
    Beware the Jubjub bird, and shun
    The frumious Bandersnatch!”

    He took his vorpal sword in hand;
    Long time the manxome foe he sought—
    So rested he by the Tumtum tree
    And stood awhile in thought.

    And, as in uffish thought he stood,
    The Jabberwock, with eyes of flame,
    Came whiffling through the tulgey wood,
    And burbled as it came!

    One, two! One, two! And through and through
    The vorpal blade went snicker-snack!
    He left it dead, and with its head
    He went galumphing back.

    “And hast thou slain the Jabberwock?
    Come to my arms, my beamish boy!
    O frabjous day! Callooh! Callay!”
    He chortled in his joy.

    ’Twas brillig, and the slithy toves
    Did gyre and gimble in the wabe:
    All mimsy were the borogoves,
    And the mome raths outgrabe.

      • Not yet, you will also need more unemployment, otherwise sellers will not have to sell and will not drop their prices.

        You can one ingredient for a crash, the other is still waiting in the wings…

      • @Laurens unemployment can also be an effect. HIA says house construction to contract by 20%, everyone who sucks on the teet of housing are about to take a haircut. That’s a big chunk of the consumer who is spending less. The effect of this is unemployment – and then unemployment becomes your cause propelling the cycle further.

      • @Laurens

        As dent pointed out the other day – no other country in the world has (HAD) the incredibly relaxed approach to finance lending that Australia did with “equity”.

        Everyone knows the story – you take the equity out of one house and use it to fund the purchase of another – and that has been the main source of credit and driver of the economy. The simple fact is that this “floating” finance as he put it is a source of credit on the way up – however is a much more powerful source of negative credit rating on the way down.

        All other countries do NOT see having another house with huge debt attached as “equity” rather they see it for what it is – debt.

        Everyone who has bought a second, third, fourth house with equity WILL BE REQUIRED BY LAW to top up to meet minimum lending standards.

        Regardless of peoples employment conditions – they will not be able to top up. So now – wipe out 1/3 of the investor market.

        Now factor in the interest only swith to interest and primary adding at minimum 30% increase to more than 40% of all loans……

        Unemployment levels are 100% irrelevant. They simply will not be able to pay their loans, and will not be able to refinance and will not be able to sell.

        The housing crash will CAUSE unemployment – precisely as it has done in every single crash on this planet – from Spain to Ireland to the United States – credit event precedes unemployment event.

  2. Viral graph shows Australia is on brink of house price collapse – NZ Herald

    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12162132
    .
    .
    Sydney’s house price falls just kicked up another gear | Business Insider

    https://www.businessinsider.com.au/australia-property-market-downturn-sydney-melbourne-home-prices-2018-11
    .
    .
    The HIA warns Australia’s housing construction downturn could get nasty unless credit continues to flow | Business Insider

    https://www.businessinsider.com.au/australia-property-market-credit-squeeze-housing-construction-downturn-2018-11

    • When is NZ going to get its housing crash? I’m getting sick of waiting and starting to feel like Steve Keen.

      • greedypuppyMEMBER

        Prices in the provinces are still rising – real estate agent in Wanganui told me over the weekend they have sold 2 $1m properties this year.

        Sigh

        Who would have thought –

      • I was at a function on the weekend and was listening to few regular skiers (to Queenstown, I think it was) and it dawned on me that several people just in my broader circle (I’m based in Queensland) have bought property over there. You have to think that a lot of that capital will re-trench if things get nasty.

  3. Brace for the unintended consequences of a housing crash – possibly even as extreme as serious recession.

    And curse the greed and stupidity of those who enabled and encouraged this thing to inflate to such insane levels as to make such an outcome inevitable in the long run.

      • The upcoming recession will not be, “the recession we had to have” but “a recession that was entirely unnecessary”.

        Insane

    • Serious means that all the people who didn’t experience recession-like living start to experience it and whinge a lot while those of us who’ve lived it for twenty years, and were overlooked during the boom might start to recover a life.

      • Mining BoganMEMBER

        This is something that cannot be said enough. Many have been living a recession for years. A lot of them have been living it even while boasting about how much their house is worth.

      • Spot on. Those of us who saw the industries that produced goods that replaced imports or earned foreign currency get trashed by a high dollar for years, who thought this BS couldn’t possibly go on who worked and paid tax while others freeloaded encouraged by the LNP, those that sold out a generation of housing ownership rather than see house prices fall (K Rudd). Those who were part of the deep state who refused to enforce the law against foreigners while similaneouslycrushing the locals. Those who destroyed the ambiance of our cities, destroyed wages, impoverished their fellow countrymen and especially their children to line their own pockets, from both left and right. Representatives who didn’t represent anyone but were stooges for the sponsors. I want to see them all crash and burn.

      • boomengineeringMEMBER

        Mild
        Hope you start recovering a life, For me we were turfed out into the street with no money or assets and nowhere to go, two kids in tow after living on the gym roof with makeshift toilet and shower for nearly two years beforehand, two days before Christmas..
        Luckily Vinnies gave us food and we found a derelict house to live in which we ended up cheaply renting for 13 yrs to save up for our house while getting a free car then one for $10 (he wanted to recoup the cost of the battery).Furniture came later.
        Anyhow we recovered our life over 10 yrs ago I hope you recover yours soon.

      • I like your optimism but the reality is the people at the bottom of the ladder will get hit worse than those at the top if it all goes pear shaped.

      • Yes and no. It is the holders of the assets that lose the most and many of them end up in penury. Those at the bottom of the pile don’t have anything to lose and have to rely on the government.

      • You guys are deluded. A recession is when most of us lose our jobs. During the gfc when credit froze, construction sites with 100s of tradies shut down before Christmas and most were sacked, luckily not me. When a real recession hits you’ll know about it.

      • Fitzroy
        I’d add in the University professors and their lackey departments to your list of the scumbags who have consciously destroyed this country over six decades and we probably can close the book and say ‘Amen’

      • boomengineeringMEMBER

        Most of my contemporaries who had built up a good business/wealth have still not recovered (from 89 crash) as far as regaining their previous position, but are content to just coast at a moderate speed.
        bjw678, actually last time the ones on the top went bankrupt ( I didn’t) and couldn’t trade for years so they were worse off than the bottom.

      • I liked through the Irish recession not long ago, I had a job though, so I was fine. A lot of people had a hard time, those with lots of debt in particular. I’d rather have a recession and housing return to normal, than to continue with the current status quo.

      • Thank you Boom for your kind words. I have to confess that my life is a holiday in paradise compared to many people’s and I don’t forget that. I’ve had to move house often as a renter and lived with the long drag of watching this bubble inflate but I think the thing that really burned was living through the propaganda regime of lies, so widespread and something I thought I’d never see. But in the end, that’s only left me flabbergasted, not broke. And aware enough to have sympathy for other people.

    • Concentrate.
      The Reserve Bank of Australia has given permission to the bankers to produce the one of the world’s largest financial bubbles that the current Royal Commission has now burst.
      Further, the current govrnment not only did everything in its power to stop the Royal Commission but it encouraged the RBA to continue its ridiculous policy of “emergency interest rates” to keep the bubble inflating.
      The crash in property prices will now accelerate.

      • St JacquesMEMBER

        The commission didn’t burst it, it burst itself as all these things inevitably do. The commission was an effect of the bubble, a reaction to its ever growing corruption.

      • Maybe you’re right but it still rates as a black swan event.

        I fantasized hearing Commissioner Hayne do the nemesis line from Snatch
        “Do you know what nemesis means? A rightuous infliction of retribution manifested by an appropriate agent. Personified in this case by a horrible cu^t, me.”

  4. StanGoodvibesMEMBER

    I’m confused – why is Matt taking the stand? All this (frankly) criminal behaviour happened on Ian Narevs watch. And where is Narev (aka The Ten Million Dollar Man)? It’s like he literally disappeared off the planet!

    Given how vigorously he pursued and bullied any whistleblowers while hypocritically pushing his ‘speak up’ campaign at work, it should be him not Matt on the stand.

    Narev is a coward, and a weasely coward at that. He should be arrested and stripped of all his ill-gotten gains from his tenure at CBA. Like all the other Banksters from the GFC *cough*…

    • He’s not Robinson Crusoe. Look at the building society WBC. The person instrumental in wrecking the place has retired long ago spending her millions with the admiration of th PC brigade.

      • Not to mention, MQG gets its first female CEO just in time for the royal commission to get started, how’s that for progress?

      • StanGoodvibesMEMBER

        It’s standard CBA procedure – Ralph Norris fronts up to an inquiry and apologies for his predecessors mistakes and promises to “do better”. 5 years later Ian Narev fronts up to an inquiry and apologies for his predecessors mistakes and promises to “do better”. 5 years later Matt Conwyn fronts up to an inquiry and apologies for his predecessors mistakes and promises to “do better”.

        Rinse. Repeat.

    • The concentration of buyers is not the same and prices take longer to react. The place I am looking at hasn’t had an offer for 5 years but the price has gone up ! I think things will be very tough if there is no rain over summer in eastern Australia. Where are you?

    • interested party

      Ditto here in the Douglas shire.
      People best start planning for remaining right where they are. Looks to be getting very hard to sell up and relocate…….likely to get worse…..much worse. Locked in, they are.
      So…..it’s time to be proactive.
      Get yourself a Permaculture Design Certificate and get resilient. Crash now and avoid the rush.
      https://holmgren.com.au/2019-permaculture-design-course-rocklyn-ashram-melbourne/https://www.milkwood.net/course/permaculture-design-course-190409/

      • I am/was a permaculture devotee, but I now believe that AGW will be truly catastrophic making even a permaculture lifestyle marginal at best.

    • I have been watching several regions for almost ten years.

      Gippsland where properties do not change their prices and stay on the market for years and years – I am looking at some still listed the same from a decade ago.

      The reality is that most of these guys are old farmers – dirt poor and all they have is their house. They will live off the land and their pension and only move if they get the right price and most will only leave in casket.

      They set the prices at absurd levels just hoping.

      Outside of that I also look at the Alpine regions from south of Mt Bull up to the Kiewa valley.

      There are a second type here who are the weekend warriors. A property would come onto the market maybe once a month – I am seeing half a dozen listed every single week now. Absolutely nothing was moving and then the ski season finished and everyone who “fell in love with the place” bought up – so about half a dozen were moved.

      Prices are completely and utterly insane – well over a million for 100 acres of highly forested, hilly often rocky terrain – difficult to farm but still workable for beef. Just completely and utterly insane.

      The prices are a pure reflection of old timers fishing for fools and past fools desperate to off load their total insanity (2-3 hours drive, total isolation, insanely hard work, massive amounts of cash poured into the ground).

      Finally Mt Macedon to Woodend. Tree change central. Properties come and go like hot cakes. The average time for a person to move to the regions is two years before returning home. Cold – FREEZING – dark, isolated, filled with bogans and all there is to do is “antique shop” and get into the foody scene and cook. Painful.

      Kyneton house prices went completely ballistic – Castlemain is known as North Thornbury. $800k for a small run down weatherboard in upper armpit.

      Markets are seriously heaving with listings. Mount Macedon (Hesket) is VERY tightly held and places are just piling up. Again I am seeing properties listed from 5 years ago.

      I also follow Berry region in NSW if anyone wants info.

      But just a quick heads up – open up domain.com.au at MAP VIEW and Melbourne – zoom out. Houses only to buy – draw a line down the middle through the CBD – to the right in “investor” suburbs where the wealthy people have 1,2,3 homes, Chinese have flooded and the page is a sea of red – to the left owner occupier poverty – no listings.

      It really is the most starkly illustration of the housing bust you will ever see.

      • My better half wants to move to Kangaroo Valley (cauldron in summer, fridge in winter but “pretty”) so would value your observations on Berry region.

      • Fabian AlderseyMEMBER

        Hello Mark Antony, I did the domain map view thing – I think the stark divide might be a function of how many listings can be displayed at once on the map. If you zoom in to the left, all the listings will appear on the map – it’s not empty.

      • Yeah I cannot believe prices being asked in and around Kyneton / Castlemaine either… I recently visited the area and thought it was nice, but I don’t see the diversity of jobs out that way.

        Bendigo makes more sense and houses are half price there!

      • Been living and watching the northern rivers for 5 yeast now prices are crazy for a bush block house $700k and what dumps, need total Reno’s Unless you want to live in the meth towns Lismore or Casino. Many listings languishing for years, lots more come onto the market recently and some pretty hefty price drops going on.

  5. In bris prime suburbs still asking obscene amounts well north of 1 mil for v ordinary houses

    Just remember before the election to tell everyone that scomo never wanted to decrease immigration either..he wanted to ramp it up
    Labor are no better…aiming for 30000 refugees to be a burden on everyone for a long time.
    Libs also never wanted a royal commission

    • Like the 102 Park Terrace property, you’ll find most of these houses have had significant money spent on reno’s/extensions. Whether the owners are getting their sunk capital back is another matter. I think time will show they have significantly over-capitalised.

      • Zero doubt about that. Artificially low interest rates lead to gross mal-investment every time.

  6. Some of you have already read it, but for those who haven’t my Royal Commission submission is the most recent add to my blog. Some great references to MB in there and it has some sexy graphs.

    It’s a PDF – apologies, the cut and paste into blog didn’t work and I just haven’t been arsed doing it yet.

    http://homdom.blogspot.com/

    • But I disagree on the limitations of your recommendations on what to do about the financial illiteracy of the common Australian. Teaching critical thinking is useful, but unless there are consequences for stupidity, people don’t learn. today there are minimal consequences, so people can continue on in their ignorance. You mention Thucydides “fortune favours the brave”, but in the long term fortune favours the experienced, and experience is gained by paying a price for mistakes. Very difficult issue, but our current societal approach is not working.

      • Thanks Oswald.

        Indeed, the consequences are being felt now as people painfully realise their own #PersonalRecession, but the lesson learned through a lived experience isn’t remembered by those who follow. Sometimes so good old brainwashing rote learning is needed to remind people not to pat the brown snake. I think the license for a credit card is an excellent idea, I’m talking pretty low bar stuff, and I’d be curious to see if it had an effect on behaviour. I know people who have never driven because they’ve been too lazy to get their license.

        We’ll see where Thucydides places the Bank of Mum and Dad as their income sources dry up, those running on ponzi finance should be in the process of dumping now – they’ll have cash flow problems before you know it.

      • Hear hear. so long as the wealthy/elites also suffer consequences of greedy and/or stupid decisions

    • Some interesting reading, but if we need to perform all your recommendations in order to ‘deflate the bubble(s)’ was it ever really a bubble in the first place? Maybe prices are reasonable based on the conditions we have.

      • I like your suggestion of maybe.

        We could construct a Bubble Maybe Table:

        …………………….. Reasonable ………. Unreasonable .

        Sustainable

        Unsustainable

        I put my X in the bottom right, and suggest we’re deep into three bubbles. Where would you put your X?

        AND, if we’re not in a bubble and one was yet to form, how big could the bubble grow? <— #winner 😉

      • I just use the classic definition of a bubble i.e. will be confirmed with a collapse in price:

        http://www.bullionbaron.com/2015/10/defining-housing-bubble.html

        I think it’s possible that some cities and property types are in a bubble, but living in Adelaide with prices of many properties still around the same level as 8 years ago… I wouldn’t call that a bubble. If we see the sort of changes you’ve recommended and prices get crushed, that is a change in value due to structural changes in the market, not a popping bubble IMO.

      • I think we’re in agreement that there are constructs under this hyperbubble. The decisions people make might be reasonable at the time, but entropy is going to entropy, and if you’re not keeping up with the entropy it will eventually adjust your thinking for you. I think these are all feasible and people (who have another 50 years of life in them) are going to vote for them in the next two terms. That’s six short years and will probably take us to the floor of the bust.

        What to do about deflating the bubbles?
        ● Remove stamp duty. This is creating friction preventing people from downsizing and is the
        single biggest inhibitor to upfront affordability.

        ● Remove the tax concessions such as the capital gains tax exemption on the primary place
        of residence.

        ● Isolate the deductibility of costs of asset holding to the income earned by that asset,
        essentially gaoling negative gearing to the costs of the property income generated by the
        property.

        ● Stabilise population growth to sustainable levels.

        ● Stop the transfer of public money to home buyers. There is no relationship to these
        payments, which are at their highest levels ever, and first homebuyer home ownership,
        which is at its lowest levels ever.

        ● Put a minimum loan to value ratio on the amount Self Managed Superannuation Funds can
        borrow to purchase residential housing.

        ● Ban the ownership of residential property by all foreigners.

        ● Investigate the ultimate ownership of companies purchasing residential property, and all
        owners of the company must be resident, Australian citizens.

      • Maybe we can just call it a very extended bull market then. A very extended bull market which is about to enter an inevitable bear market (just as all bull markets inevitably come to an end). This is is why I’m expecting the crash to probably play out over 5-10 years or so rather than be really sudden and brutal. But who knows what will actually happen.

    • I’d just like to be called up to have a chat about this in front of the press diligently watching the proceedings. Sitting in the box at the RC looks like fun and it would be great to get some facts on the record.

  7. I guess it depends on how many people actually borrowed the full amount offered by the bank… quite a few I’d suggest..

    • Well the more you borrow, the greater the doubling effect of waiting every seven to ten years. You would be crazy not to borrow more than you can afford*.

      * 1996-2017 thinking.

    • Judging by prices paid in the last few years, I don’t know how anyone wasn’t bidding as much as the bank would offer them at auction?

      • Philly SlimMEMBER

        We bought in 2011. My wife saw what the bank wanted to give us and went to a few auctions. Luckily we missed out – sometimes she was the first bid and we were out!

        I then targeted a place that had passed in at auction and talked her around. She hated it initially, because it was $500 less than houses we had been looking at! Been there ever since and I’ve slept far easier with $500k less debt than I could have had.

  8. @164:25 yesterday “applications via brokers more commonly misrepresent customer circumstances. Broker behaviour explains the difference.”

    Ahahahhahahahhababa!

    • The bank don’t want to be caught making up people’s income, which is why the mortgage broker industry is born.

  9. Some anecdata: The bank I work for is still issuing loans, but the criteria to get a loan has tightened gradually over the last year. Looking at approx 60% decline rate for a new loan (prime borrowers only).

    Business lending has fallen off a cliff.

    I live in a regional area where property prices have been climbing. But was chatting to a real estate agent the other day who was panicking cause deals are falling over due to lack of finance.

    • Brendan, thankyou. Can you please clarify two things:
      1 – “Looking at approx 60% decline rate for a new loan (prime borrowers only).“ Does this mean 40% of all comers declines, leaving 60% which are prime? Or 40% of prime are declined, leaving only 60% super-prime?

      2 – are these numbers for your local regional area or for the bank more broadly?

      • 60% decline rate on all new applications. The bank is still lending to prime borrowers (40%). Numbers are Aus wide as it’s due to credit policy.

      • Thanks Brendan.

        (Sorry I misread which way around the 60/40 went).

        If it’s *this* dire, I will step gently back from my view that smaller lenders will be able to back-fill that amount of credit creation.

      • Peachy,

        The small lenders will not need to.

        The Royal Commission hearings end next week and no one will care about credit policy again.

        The RBA and Treasury are not happy about APRA getting so uppity and are working with Josh to ensure Santa brings toys for the all girls and boys.

      • Pfh – yes indeed. The unspoken assumptions above are “if this continues” and “all else being equal”.

        If the standards are loosened again by banks themselves or with APRA prodding – things change.

        If government comes out with deductible interest for FHB/all or some shared-equity bullsht – things change.

    • Are we talking a big 4, or a Newcastle/Summerland/BCU type insto.

      How does your bank define prime?
      What about refi?

      • Ah-ha! Yes, we removed a pond and planted Sir Walter and it’s gone crazy. It’s been great in the dry weather. No water needed at all. Keeps the ants and bindii out, too.
        However, I have some more space to plant, including a golf tee, so I am thinking Zoysia or Bermuda. Removing a big rock wall near house (to reduce Browns risk) and making an elevated green (and bunker) in paddock so am thinking Bermuda. Not sure yet. Any ideas?

      • Sir walter is a helluva grass
        you will be disappointed with anything less
        it was a good choice in the first place

  10. After the royal commission, out of cycle rate hikes, so called tighter lending standards, the IO reset, investors and foreign buyers disappearing and record high new builds, we are still not even half way to a crash scenario and its been over a year. I’m afraid its going to take a lot more to sink this ship.

    • At peak to trough of 8.5% and still falling 2.5% per quarter, Sydney is three months off recession level falls- literally the same as the pre 1990 fall. It’s plenty already with no end in sight, in fact it feels like that was the warm up and the real shows just about to start.

    • Construction only has 6 months left before it runs out of work due to lack on new demand in a falling market, not to mention we are starting to see a settlement crisis as apartment prices fall below what people paid 18 to 24 months ago. With the rest of the economy already on its knees, the loss of well paid construction jobs will decimate the economy.

      • How much is a typical deposit?
        In Sydney, 18 months of falls could be 15% down (based on falling 2.5% quartlerly), so by walking away and losing your deposit, you are saving yourself a bigger haircut if the deposit was 15% or less.

      • Legally you are also liable for any loss incurred by the seller due to failure to fulfil the contract. If they can only sell it for a lesser price than you agreed to they can legally chase you for the difference for breach of contract.

      • Didn’t realise that, but I’m wondering whether for people who were going to flip whether there’s a practical difference between take possession and find your own buyer to crystallise the loss or don’t take possession and let developer find a buyer to crystallise the loss. Suspect there will be some who will choose the second on the basis that it will at least delay the inevitable, even if that belief if ill founded.

      • I’m not sure how often the builder would actually chase someone, but I guess most of the time the loss isn’t bigger than the deposit anyway, but the deposit is forfeit even if the seller doesn’t take a loss, but can take you to court to claim any additional losses if they exist.
        I could also be wrong because I am not a lawyer. This is not investment advice. Past performance is not an indicator of future gains etc….

      • A big fall in the construction workforce is coming which will surprise a lot of people. At 10% of the workforce, a contraction in the construction workforce is what will sink this ship.


      • A big fall in the construction workforce is coming which will surprise a lot of people

        Why will they be surprised? I thought a 20% fall in construction starts was forecast just yesterday – how can there be such a large drop in activity without an attendant drop in head count?

  11. When I was a boy an ordinary family with one ordinary wage earner could comfortably afford a decent home and could live a modest life with no housing stress. Not a lot of luxuries mind you.

    What has been allowed to happen is a shortage of decent housing has slowly developed and like a frog slowly boiled, families have been forced to sacrifice more and more and more to become one of the few families in decent housing, or indeed, any housing at all.

    The list of sacrifices is huge and could take many pages to detal. Mothers and fathers working long hours and sacrificing time with their children, long commutes, managers shafting their workers to get ahead in businesses, etc. And of course all kinds of sacrifices have been made to get the money to buy the housing – this includes outrageous loan applications.

    Since it is almost impossible to use a wage to pay rent and save-up to buy a house outright, the only way to get ahead has been to get access to some of that privately-created publicly-backed credit that the banking system has been spraying onto the zoning-restricted land market. Since in a shortage of physical housing, there can never be enough credit for everyone to buy housing, it becomes crucial to game the credit rationing system to get ahead and be one of the few winners.

    The way to get ahead in the credit game has been to use existing equity and/or lie on applications and to either live on the poverty line or sign a declaration that you will live on the poverty line in order to qualify. What happens next might involve a better job, or a lot of credit card debt, or BNB your bedrooms. Who cares since property always goes up.

    Simply judging by today’s property values and today’s property owners, there have been huge numbers of very successful loan liars. These people lied and won. Who is to say that the person who lied on their loan in 2008 and is now up 160% on their house value did the wrong thing? Likewise who can say anything against the 2012 liar who made 100%, or the 2016 bullsh!t artist who is up 30%?

    And what bad can we say about the mortgage brokers who helped lie on the forms to make their clients winners in the housing shortage market?

    I know this could not go on forever. It seems to be turning now. What kind of scoundrel will you have to become to get ahead in the new credit shortage and housing shortage regime? Time will tell.

  12. Government to establish a not-for-profit agency to absorb existing loans no longer welcome by the banks due to refinancing or LVR triggers.

  13. We need a housing crash of epidemic proportions. Those with vested interests in property will obviously disagree. But anyone with half a shred of integrity and takes a step back from self-driven greed should understand the effect this housing unaffordability madness has and is having on our youth that see the dream of property ownership and other dreams stifled due to handing over ridiculous sums of rent money to cashed-up Boomers/Chinese landlords. We have and are losing generations of youth that see their goals disintegrate that were once doable and realistic for their forefathers. Previous generations don’t know how good they indeed had it.

  14. Jumping jack flash

    Attitudes towards debt have not reflected the enormity of taking it on.
    It is simply ridiculous. People happily and willingly plunge themselves into lifetimes worth of unproductive debt without considering the impact. Banks ignore the obvious risks of this kind of debt and don’t price the debt appropriately with high interest rates. This mess we have now is the result. Thanks, RBA. Thanks, private banks. Thanks, Greenspan.

    Debt is incredibly bad stuff and should only be used to boost income earning capacity – you know, so it can be repaid in full plus interest using the EXTRA earning capacity it generated, otherwise it drags everything down.

    Debt-fuelled asset bubbles are not synonymous with earning capacity because, as the banks now admit, the ONLY reason the assets are growing in price is because of the growing debt. Rather it is synonymous with tulip mania.

    It will take another deep global recession or depression to change attitudes towards debt. Perhaps the next generation can put things back to how they should be?

    • For a long time used to wonder how so many people were doing so much better than me despite my relatively high income.

      Then, pretty much around the time I discovered MB, I realised that all those big houses and flash cars and big TVs were all on the never-never, and I was horrified. How was all that going to be paid back? Then I realised further that lots of people were banking on house prices rising for ever and lots of other delusional nonsense.

      Now house prices are falling, and I suspect that this is going to be epic. A large amount of that debt is never going to be paid back. Never. The consequences will be catastrophic.

      • I was the same as you mate, couldn’t understand it. Now of course as the tide goes out we get to see all those naked swimmers.

      • Not hating on you LSWCHP but people were saying the same things in 2012. They were making the same noise and look where we are now…

  15. Thought the behaviour of the entire room at the RC yesterday said everything about where this RC will go. When Comyn freely admitted they couldn’t give a toss about their customers the entire room laughed (twice) and even Hayne was comical about it. Is this serious or not?

  16. … and not only Australia … check this from Auckland ! …

    AUCKLAND: Overall sales rate of 22% at Barfoot & Thompson’s latest auctions | interest.co.nz

    https://www.interest.co.nz/property/96972/overall-sales-rate-22-barfoot-thompsons-latest-auctions

    Barfoot & Thompson sold less than a quarter of the properties at its auctions last week.

    The agency, which is the largest in the Auckland region, marketed 172 residential properties for sale by auction last week and achieved sales on 37 of them, giving an overall clearance rate of 22%. … read more via hyperlink above …

  17. Rowena Orr has pretty much lost the plot this morning imo. All these questions about values and feelings and processes … sorry, but she’s tending towards the stereotype, almost New Idea level interview. An intellegent high-level bureaucrat like Matt Comyn is in his element talking about processes and aspirations and organisational structures. She needs to get back to facts and figures and stop asking Comyn about his feelings and reactions. The outcome of the RC can’t be about banking executives being better able to express their feelings. ps oh ffs Comyn: “there’ll never be a day when I’m fully satisfied” – getting close to uttering the “of course I’ll respect you in the morning” close.

    ps Comiss Hayne just cut in when Rowena and Matt started talking about systems again to say that the fact was CBA knew it was making easy money on ripping customers off. Fact and figures not feelings.

    • She needs to ask him

      “Given the performance of CBA in ripping off and gouging its customers why shouldn’t the public withdraw or at least heavily restrict the CBA’s privileges with regard to credit creation”

    • The outcome of the RC is likely to be a big dusty report that sits on a shelf and is quietly ignored by all the people who matter.

      • The only people who matter in one way are house buyers, and they seem to be listening to its essential message – don’t buy now- as do the money lenders who have heard the RC say ‘don’t lend now’.

      • Not if Labor win the next election and extend the RC by 2-3 years with a panel of 3 commissioners.
        The only way to keep them honest is to keep them under investigation.

    • So the final conclusion will be:
      * It was the broker’s fault.
      * Awesome market forces meant this was the game the poor banks were forced to play.
      * Eliminate commissions, move to fee only model.
      * Everything is awesome now, pile back in!

    • Did the RE agent copy DomainFax and ask them to adjust the clearance rate down for week(s) they reported it as a sold at auction?

      Just snooping at the pics for that place I was thinking it was not too bad – yes you would want to burn a lot of the furniture and do a bit of straightening – and $1.6 mio is a bit light on for 4BR on a decent size block up that way. Either the rot has really set in hard with the credit rationing or there is something else?

      Then I looked at the map and see that it is danger close to that Pymble to Hornsby stretch of the rail corridor which is due to be / is being ??? carpet bombed with high density dog boxes?

      • I’m going to have a look at it tomorrow. Not looking to buy just yet, just want to see what you would get for your money. Prices have come down here quite a bit but hopefully have a bit more to run