Banks have treated our housing market like a Ponzi scheme, and it's about to bust

The 70% of homeowners who are PPoR owners don't think this.

 

I agree

 

I agree with this as well. Drives me crazy when people infer that Australia is a homogenous market. Sydney appears to have the London effect for now of sucking in most of the Capital Gains from around the country due to demand and scarcity.

 

@MGF, can you highlight any cities in Ireland which remained around their bubble peaks for 5-6+ years (e.g. Adelaide/Brisbane) before collapsing by 50%?

@Bayview, acting in the capacity of CEO is also a speciality that is needed. No one is stopping you from working your way up the corporate ladder if you want such a role & think compensation is obscene.

 

A billionaire sitting in a castle. Discuss the topic not the person.

 

This post by @THX got me thinking, how would you calculate what a market might cost if it was affordable?

At 5% interest rates, a 25 year repayment mortgage costs around 7.5% of the total borrowed per year. If rates rise to 7% to 7.5%, then the cost is about 10% per year.

Let's say that 30% of income going on repayments for a median earner is sustainable, then you'd be looking at three to four times household earnings as being a sensible limit. I'll take three times as the expected price for other dwellings and four times for houses.

If I use gross, because I can't be bothered working out after tax, and the 15% or so reduction would roughly correspond to a deposit, then the numbers are:

MEDIAN OTHER DWELLING / MEDIAN HOUSE

• Sydney: $270,000 / $360,000
• Melbourne: $240,000 / $320,000
• Darwin: $300,000 / $400,000
• Canberra: $330,000 / $440,000
• Perth: $270,000 / $360,000
• Brisbane: $240,000 / $320,000
• Adelaide: $210,000 / $280,000
• Hobart: $210,000 / $280,000

The above strikes me as a reasonable baseline for housing affordability. In most cases it's a long way down on the current prices, and you'd need a minimum of a 30% fall (or equivalent wage growth) to bring things back into line.

With a couple of exceptions (apartments in Canberra and Hobart), I'd say that most markets are looking bubbly.

 

As long as there is homelessness we do not have a housing oversupply. Google homelessness. There are homeless people in Australia with no place to live. We need more houses to house them. If there were no homeless there would not be an undersupply.

 

Too true. I tried to re-fi Melbourne earlier this year and got a bank valuation of $520,000. It is likely to sell around $700k next month. This is not how a ponzi scheme works.

 

There was an oversupply in some U.S. markets when their bubble popped and they still had homeless people. People can be homeless for all sorts of reasons, it's not a good indicator of over/under supply of housing.

 

MGF, not trying to get personal, but how old are you? Single or partnered up? Do you have children?

I only ask as over the last 12 years my whole perspective on things has evolved.....ALOT!

I first got on somersoft forum when I was 26 and newly married with no children and I knew jack all about....well most things

I am now 38 with 2 kids (8 and 5yrs old), and I now know a lot more about a lot more based on life experience and growing from facing challenges .

Your age and real life experience do obviously have some bearing on the strength of, and what, you believe in, so it is relevant.

I am interested, what is your own current story?

 

I tend to agree with MGF about the direction of Australian Real Estate.

 

It is very relevant MGF.

The reason is because for the older folks who are here - who disagree with your view - they have had a lot more time and experience to see things a certain way, to form a view on life.

Folks who are young, not of high income, no house etc - their view is often a doom and gloom attitude and sadly; resentful of those who are higher up the ladder for various reasons.

If you are 40 (or older), have a few houses and have had to grind away to get to that position - you might have a totally different point of view.

You keep banging on that $4b refunds are criminal and should be used for feeding the poor around the world. It's a noble idea.

But, anyone who has clawed their way up from zero to a decent position over several years, who has been giving to the poor over that time through various ways, who is a good provider of benefit to the community by way of their wealth they spend, and tax they pay - which ultimately goes back into the community - those folks are never going to agree with you.

Someone like myself - who is in that group - feel sorry for the poor of the world; and have helped over the years - but I have no guilt whatsoever about any little wins I get, because there are an awful lot of losses along the way to being more well-off.

 

Probably most people on this forum (even old timers) have never experienced a property crash. Except for a few mining and tourist towns it just hasn't broadly happened yet in Australia, ever, but that does mean it can't. Its a scary thing to witness, I was around during the Spanish crash. Noone thought it would happen, then it did, then noone wants to buy because they know it will be cheaper next year. Now prices are down 50% on average. Then follows evictions, bank collapses, credit freezes, parasitic private equity offshore buyers moving in like vultures. Its scary stuff. Thankfully Spain seems to have bottomed out and is starting to recover now but it took 7 long years.

 

Didn't they have a massive over-supply issue a few years back as well?

 

We are about to lose around $150K on our Gladstone house. I have to sell it in the next few months before the next round of redundancies occurs. I'm very well qualified to discuss housing bubbles. If lending criteria changes any further than it already has, we will then have to sell our PPOR as well. The last thing I need right now is any more tampering with the goal posts.

 

You know Australia has record dwelling completions/approvals with population growth having slowed significantly right?

Granted most of the growth in build rates has come from multisite complexes/units, but an oversupply and collapse in that market segment would impact everything.

 

That must be very stressful for you and your family! I hope it pans out okay for you in the long run.

 

Hey MGF; is your name Emma King (CEO of V-Cost or something like that), and were you just on ABC radio this morning talking to John Feine?

She was saying the exact same things you've been saying...exact.

 

Thanks Nate. We'll be good. I can do without the stress though.

 

This where I just don't see it having an impact on the prices of your stock standard house on a block of land where someone actually wants to reside as a PPOR out in the suburbs....from a Melbourne perspective.

If there is an oversupply of city apartments, I have this seeing zero effect on prices in.....Cheltenham, footscray, Frankston, Sorrento, donvale, scoresby....

Also......importantly....

NOT ALL new dwelling approvals are actually adding a new dwelling to the total supply.....

In the last month alone I have personally helped 12 new clients committ to build a new PPOR on thier own existing land where they are demolishing an old house.

These will show up in new dwelling approvals stats, but its not adding any to the supply.

Melbourne is starting to go through a massive knockdown rebuild phase over the next 10 years.

Lots of new construction.....but not adding to supply.