Society/Culture Australian Property Prices to Crash?

[Cuzz09]

I think Im like 3.5x so Im up there but not struggly

On SM-G925I using BigFooty.com mobile app

 

[Gigantic]

Given how sensitive our economy is to the RBA cash rate due to the wealth effect of property, I wonder how soon we can even expect an independent review of the RBA. And more importantly how wide they will cast the net in the Terms of Reference.

 

[HirdsTheWord]

Given how sensitive our economy is to the RBA cash rate due to the wealth effect of property, I wonder how soon we can even expect an independent review of the RBA. And more importantly how wide they will cast the net in the Terms of Reference.

I'll do the review now & for free.

Housing Affordability is now part of RBA's written mandate.

End.

The fact these morons are trying to manage our economy, without managing housing prices is just plain stupid. Australia's economy is predicated on housing. You cannot manage one without managing the other.

I say morons but its more likely just corruption.

 

[FRUMPY]

prices of new houses wont be coming down anytime soon with the price of materials going through the roof - a client of ours, a builder, says there are no more fixed price builds due to the unavailability of materials and the significant increases in cost of materials over the time of the build.

 

[HirdsTheWord]

prices of new houses wont be coming down anytime soon with the price of materials going through the roof - a client of ours, a builder, says there are no more fixed price builds due to the unavailability of materials and the significant increases in cost of materials over the time of the build.

they will in 12-24 months.

Competition for work will eventually bring supply/labor costs back down to Earth.

Only an absolute moron would sign a contract with a builder without it being lump sum. Builders would take the absolute piss out of a loose contract.

 

[HPKS]

prices of new houses wont be coming down anytime soon with the price of materials going through the roof - a client of ours, a builder, says there are no more fixed price builds due to the unavailability of materials and the significant increases in cost of materials over the time of the build.

If that’s the case be prepared for consumers to abandon new home builds. No1 in their right mind would consider signing a contract without a firm commitment in price. And secondly how can you finance something without a price?

 

[Madas]

they will in 12-24 months.

Competition for work will eventually bring supply/labor costs back down to Earth.

Only an absolute moron would sign a contract with a builder without it being lump sum. Builders would take the absolute piss out of a loose contract.

Not all and certainly not I would, so don’t be too quick to cast aspersions

If you had any idea how much money we have lost in fixed price contracts over the last 12 months and how hard it is to try and win new work when you genuinely can not look people in the eye and say I can’t tell you how much your house is going to cost to build for the foreseeable future

It is a shitshow and most builders I know are struggling mentally with the difficulty of it all

It will undoubtedly resolve itself but right now it’s horrible.

A cost plus contract is actually the fairest way right now to enter into an agreement for both parties because there is no point allowing for price rises that might not happen

And if they do well everyone shares the risk .

The onus and expectations put on builders is ridiculous

 

[HirdsTheWord]

Not all and certainly not I would, so don’t be too quick to cast aspersions

If you had any idea how much money we have lost in fixed price contracts over the last 12 months and how hard it is to try and win new work when you genuinely can not look people in the eye and say I can’t tell you how much your house is going to cost to build for the foreseeable future

It is a shitshow and most builders I know are struggling mentally with the difficulty of it all

It will undoubtedly resolve itself but right now it’s horrible.

A cost plus contract is actually the fairest way right now to enter into an agreement for both parties because there is no point allowing for price rises that might not happen

And if they do well everyone shares the risk .

The onus and expectations put on builders is ridiculous

Hey man I feel for you. But there is absolutely no way I or anyone else with a brain would sign a cost plus contract with a residential builder. Who’s going to be able to afford a quantity surveyor to vet and make sure your costs are legit with market conditions?

Firstly how do you get finance from a bank on a cost plus contract? Secondly what’s stopping builders working with subcontractors to submit fake quotes showing price increases taking the piss?

You might be the one in a million who is honest and has integrity. Most dont.

 

[FRUMPY]

Hey man I feel for you. But there is absolutely no way I or anyone else with a brain would sign a cost plus contract with a residential builder. Who’s going to be able to afford a quantity surveyor to vet and make sure your costs are legit with market conditions?

Firstly how do you get finance from a bank on a cost plus contract? Secondly what’s stopping builders working with subcontractors to submit fake quotes showing price increases taking the piss?

You might be the one in a million who is honest and has integrity. Most dont.

You might sign on a fixed price build and then half way through be without a builder who has gone under because they worked for fixed price contracts....

 

[yodellinhank]

You might sign on a fixed price build and then half way through be without a builder who has gone under because they worked for fixed price contracts....

Yep. Can't trust them one way or the other. Rogues.

 

[HirdsTheWord]

You might sign on a fixed price build and then half way through be without a builder who has gone under because they worked for fixed price contracts....

that's why you do your due diligence on builder selection. Though mind you i wouldn't be doing any type of building work in this current environment anyway, the risk profile is way too high.

ask to see their cash flow etc.

you can also ask for bank guarantees etc

there are plenty of ways to transfer risk on builders to protect yourself in the current environment, if you are so inclined to take on the risk of building in 2022. If a builder refuses than wait it out until competition for work kicks in.

 

[Gigantic]

My prediction for the end of the year is that RBA are going to have their work cut out for them with rising energy prices caused by the current geopolitical landscape and Australian gas exporter cartel behaviour. Inflation will become more entrenched and rate hikes could get more aggressive if this doesn't get sorted out.

 

[Gigantic]

 

[FRUMPY]

Slackers/idiots taking 10 years to get multiple degrees that end up nowhere will be complaining on twitter.

Those with a job will just shrug and pay it off, like normal people who take out a loan

Sent from my CPH2005 using Tapatalk

 

[Hamingja]

Anyone hear the news today about the regulator questioning lenders about lending 9x income on very large loans?
With banks responding by adjusting to 7x income as the limit. LOL



Is it about to get harder to get a big home loan?

Pretty much no loans would actually service with a DTI of over 7

 

[Hamingja]

depends how lenient banks are allowing people movement.

A lot of people will be paying negative asset debt though.

What will banks do if prices drop? For example I have a loan at 80%, if the house prices drop 10% can they force you to pay mortgage insurance for them?

I was reading through the terms of my loan and they can default you due to a drop in house price. If that started happening that would put some serious downward pressure on the market.

 

[HirdsTheWord]

What will banks do if prices drop? For example I have a loan at 80%, if the house prices drop 10% can they force you to pay mortgage insurance for them?

I was reading through the terms of my loan and they can default you due to a drop in house price. If that started happening that would put some serious downward pressure on the market.

depends on your bank. If you are comfortably paying back your loan amount than it won’t be an issue, banks would rarely just default you. They would put you on some type of assistance program first. i Think market drops in terms of actual price (in the immediate effect) probably impacts buyers rather than sellers as banks won’t approve a loan for a house that's falling in value, thus settlement becomes harder. I'm no expert though

not sure about the Mortgage insurance. i don’t think a bank can make you pay it, they might suggest it But not sure they can actually make you.

 

[Gigantic]

Another weekend of poor auction clearance rates in the two major cities it seems

 

[Simon_Nesbit]

The short answer is if you are making repayments on time correctly, then it is very unlikely the bank will make a call against you and you have very little to worry about.

It would take an awful lot to go wrong for one of the banks (or indeed most national lenders) to fall into financial trouble in Australia, similar to those seen previously in the US. Our regulatory bodies and restrictions are significantly higher and infinitely better enforced.

Already, a 0.25% increase has had an effect on lending with a 6% reduction nationally last month. (>10% in NSW/VIC). RBA are using a sledgehammer to treat a symptom (inflation), whilst the issue (distribution and supply shortages) remain virtually unaffected.

It's akin to cutting off your finger to fix a hangnail.

 

[HirdsTheWord]

The short answer is if you are making repayments on time correctly, then it is very unlikely the bank will make a call against you and you have very little to worry about.

It would take an awful lot to go wrong for one of the banks (or indeed most national lenders) to fall into financial trouble in Australia, similar to those seen previously in the US. Our regulatory bodies and restrictions are significantly higher and infinitely better enforced.

Already, a 0.25% increase has had an effect on lending with a 6% reduction nationally last month. (>10% in NSW/VIC). RBA are using a sledgehammer to treat a symptom (inflation), whilst the issue (distribution and supply shortages) remain virtually unaffected.

It's akin to cutting off your finger to fix a hangnail.

if a 0.25% to 2.00% interest rate hike process is a sledgehammer than wow, our economy is more ****ed than i thought. Most economists say a healthy economy has interest rates a couple of % above inflation, that's around 5% in a normal situation if CPI is usually 2.5%, we are at bloody 0.35% now.

If a basic interest rate hike process are causing this much of an issue than the RBA has itself to blame. It allowed people to get into this much debt along with an inept government with zero long term strategy for housing prices.

RBA failed to realise that managing the economy means managing housing prices, the 2 are not separated, at least not in this country. Their failure to step in and curb the issue in 2021 is now a clear and utter failure for all to see. Housing and as such debt should not have been allowed to grow at the rate it did. No one did anything and now there is a ticking timebomb about to go off.

Inflation is going be higher than 5.1 at the next measure. And if a 0.25% hike is causing this much of a drop than wow, pucker your ass up because shits about to get rough for anyone not on a low fixed rate.

 

[Simon_Nesbit]

if a 0.25% to 2.00% interest rate hike process is a sledgehammer than wow, our economy is more ducked than i thought. Most economists say a healthy economy has interest rates a couple of % above inflation, that's around 5% in a normal situation if CPI is usually 2.5%, we are at bloody 0.35% now.

If a basic interest rate hike process are causing this much of an issue than the RBA has itself to blame. It allowed people to get into this much debt along with an inept government with zero long term strategy for housing prices.

RBA failed to realise that managing the economy means managing housing prices, the 2 are not separated, at least not in this country. Their failure to step in and curb the issue in 2021 is now a clear and utter failure for all to see. Housing and as such debt should not have been allowed to grow at the rate it did. No one did anything and now there is a ticking timebomb about to go off.

Inflation is going be higher than 5.1 at the next measure. And if a 0.25% hike is causing this much of a drop than wow, pucker your ass up because shits about to get rough for anyone not on a low fixed rate.

I think we are actually agreeing.

RBA increasing housing rates to "control inflation" is the wrong lever to be pulled. The economy is nowhere near strong enough for that to work without devastating effects. 10-15 years of flat property prices is far better IMO than haemorrhaging 20-50% in value to "revert to normal conditions"

I firmly believe a very large proportion of the inflation figures are due to supply shortages, rather than increased demand. IMO, the Government should be focused on methods of streamlining supply chains and improving availability of goods post Covid. Demand based price inflation is probably closer to 0% than it is to 5%.

 

[HirdsTheWord]

I think we are actually agreeing.

RBA increasing housing rates to "control inflation" is the wrong lever to be pulled. The economy is nowhere near strong enough for that to work without devastating effects. 10-15 years of flat property prices is far better IMO than haemorrhaging 20-50% in value to "revert to normal conditions"

I firmly believe a very large proportion of the inflation figures are due to supply shortages, rather than increased demand. IMO, the Government should be focused on methods of streamlining supply chains and improving availability of goods post Covid. Demand based price inflation is probably closer to 0% than it is to 5%.

No i don't think we are in agreement if what you wrote in bold is your stance.

RBA pulling the lever should never have been about controlling inflation, it should have been about controlling debt but they missed that boat years ago and then let it compound in 2021. The only reason its a lever now is because its the only option to control/reduce inflation. The only reason its such a big issue is BECAUSE they allowed people to go into so much debt because they decided its not their mandate to control housing prices.

Rising rates should not even be seen as a lever anyway. We are so far below what interest rates should be its not even funny. We should never have even got to 0.1% rates. it was a terrible economic decision from the get go.

Housing should absolutely be allowed to correct itself, I am all for a massive drop. If that means people who took on more debt that they can service suffer. Then so be it, if that's a 30% to 50% drop, then so be it. I am absolutely sick of the government & RBA doing everything they can to keep property rising in value, all they are doing is kicking the can down the road.

What we need is affordable hosing. The only way to get that (without wage growth to match) is for housing to become cheaper, not stagnating and growing.

We cant accept 30% growth as acceptable and then say 30% decrease is not as acceptable - that is not how a real market works.

 

[Simon_Nesbit]

No i don't think we are in agreement if what you wrote in bold is your stance.

RBA pulling the lever should never have been about controlling inflation, it should have been about controlling debt but they missed that boat years ago and then let it compound in 2021. The only reason its a lever now is because its the only option to control/reduce inflation. The only reason its such a big issue is BECAUSE they allowed people to go into so much debt because they decided its not their mandate to control housing prices.

Rising rates should not even be seen as a lever anyway. We are so far below what interest rates should be its not even funny. We should never have even got to 0.1% rates. it was a terrible economic decision from the get go.

Housing should absolutely be allowed to correct itself, I am all for a massive drop. If that means people who took on more debt that they can service suffer. Then so be it, if that's a 30% to 50% drop, then so be it. I am absolutely sick of the government & RBA doing everything they can to keep property rising in value, all they are doing is kicking the can down the road.

What we need is affordable hosing. The only way to get that (without wage growth to match) is for housing to become cheaper, not stagnating and growing.

We cant accept 30% growth as acceptable and then say 30% decrease is not as acceptable - that is not how a real market works.

Again, I agree almost entirely with your post - but think it's (FAR) too late to start that now. Affordable housing should have started a generation (or more!) ago, along with proper infrastructure investment in regional transport, health and services. Our last 30 years of (relative) economic prosperity has left us with very little to show for it.

The damage has already been done. Crashing the market now will just compound the issue.

Rates should never have been used as such a drastic method of economic stimulation to counter COVID. Actually even that's not fair - this cycle of stimulation stretches back to mid 2019, before Covid-19 even meant anything. The COVID economic stimulation packages led to a unique situation - what happens when you give money to the rich? They keep it. Give money to the "poor"? They spend it and everyone benefits - increased sales, more employment, bigger profits. We are now reaping the fruits of that "bottom up" economic decision through higher inflation.

From the perspective of property, prices were already starting to fall in the Sydney/Melbourne markets, and stagnate in other capitals, before rates were increased. We had reached the 'peak' of the economic boost. Even without any adjustment for increasing rates, I think we would have naturally seen a nationwide 5-10% fall over the next 12-18m purely as a result of the ongoing "supply shortage" driven inflation limiting capacity to save.

To now attempt to "artificially" freeze the property market >30% via rapidly increasing rates could end up destroying the entire economy (and still not fix the inflation issue!) If a 0.25% rise (with ~3 months of warning) can clip 6% off the top immediately, then you would think another 0.25 would more than double that effect (maybe 15%?). To even consider the effects another 2% on top of that would have on the market suggests to try to "fix" prices in this way appear foolish.

There's no quick fix available here and it's going to be a long road ahead, however IMO committing to a target of long term neutral (+-5%) capital growth is far, FAR better than a sudden 30-50% drop, triggering mass loan defaults and forced sales (as much as 30% of property sold in last five years), bankruptcy (debt > value leaves virtually no option) and significant (>5%) increases to unemployment rates.

We have the most perfect example of how to control property prices - Supply vs Demand. Increase supply to suppress prices.

Therefore, a very simple solution - capital values increasing? Release more land, incentives for new, cost-effective housing, increase infrastructure spending in regional areas, increase costs of holding capital city property.

 

[Madas]

Again, I agree almost entirely with your post - but think it's (FAR) too late to start that now. Affordable housing should have started a generation (or more!) ago, along with proper infrastructure investment in regional transport, health and services. Our last 30 years of (relative) economic prosperity has left us with very little to show for it.

The damage has already been done. Crashing the market now will just compound the issue.

Rates should never have been used as such a drastic method of economic stimulation to counter COVID. Actually even that's not fair - this cycle of stimulation stretches back to mid 2019, before Covid-19 even meant anything. The COVID economic stimulation packages led to a unique situation - what happens when you give money to the rich? They keep it. Give money to the "poor"? They spend it and everyone benefits - increased sales, more employment, bigger profits. We are now reaping the fruits of that "bottom up" economic decision through higher inflation.

From the perspective of property, prices were already starting to fall in the Sydney/Melbourne markets, and stagnate in other capitals, before rates were increased. We had reached the 'peak' of the economic boost. Even without any adjustment for increasing rates, I think we would have naturally seen a nationwide 5-10% fall over the next 12-18m purely as a result of the ongoing "supply shortage" driven inflation limiting capacity to save.

To now attempt to "artificially" freeze the property market >30% via rapidly increasing rates could end up destroying the entire economy (and still not fix the inflation issue!) If a 0.25% rise (with ~3 months of warning) can clip 6% off the top immediately, then you would think another 0.25 would more than double that effect (maybe 15%?). To even consider the effects another 2% on top of that would have on the market suggests to try to "fix" prices in this way appear foolish.

There's no quick fix available here and it's going to be a long road ahead, however IMO committing to a target of long term neutral (+-5%) capital growth is far, FAR better than a sudden 30-50% drop, triggering mass loan defaults and forced sales (as much as 30% of property sold in last five years), bankruptcy (debt > value leaves virtually no option) and significant (>5%) increases to unemployment rates.

We have the most perfect example of how to control property prices - Supply vs Demand. Increase supply to suppress prices.

Therefore, a very simple solution - capital values increasing? Release more land, incentives for new, cost-effective housing, increase infrastructure spending in regional areas, increase costs of holding capital city property.

All of this Spot on

The government missed a generational opportunity during Covid to stimulate the first home buyers and social housing stocks
Would have been perfect timing to start addressing the affordable housing crisis
But they just made it worse

But all is not lost
As Nesbitt has pointed out , incremental change and legislation focussed purely on increasing stock for the low end of the market is the Target for the next 10 years

Fix the supply chain , then get the construction industry and land developers working again in the right direction

 

[Purple7x08_24]

Again, I agree almost entirely with your post - but think it's (FAR) too late to start that now. Affordable housing should have started a generation (or more!) ago, along with proper infrastructure investment in regional transport, health and services. Our last 30 years of (relative) economic prosperity has left us with very little to show for it.

The damage has already been done. Crashing the market now will just compound the issue.

Rates should never have been used as such a drastic method of economic stimulation to counter COVID. Actually even that's not fair - this cycle of stimulation stretches back to mid 2019, before Covid-19 even meant anything. The COVID economic stimulation packages led to a unique situation - what happens when you give money to the rich? They keep it. Give money to the "poor"? They spend it and everyone benefits - increased sales, more employment, bigger profits. We are now reaping the fruits of that "bottom up" economic decision through higher inflation.

From the perspective of property, prices were already starting to fall in the Sydney/Melbourne markets, and stagnate in other capitals, before rates were increased. We had reached the 'peak' of the economic boost. Even without any adjustment for increasing rates, I think we would have naturally seen a nationwide 5-10% fall over the next 12-18m purely as a result of the ongoing "supply shortage" driven inflation limiting capacity to save.

To now attempt to "artificially" freeze the property market >30% via rapidly increasing rates could end up destroying the entire economy (and still not fix the inflation issue!) If a 0.25% rise (with ~3 months of warning) can clip 6% off the top immediately, then you would think another 0.25 would more than double that effect (maybe 15%?). To even consider the effects another 2% on top of that would have on the market suggests to try to "fix" prices in this way appear foolish.

There's no quick fix available here and it's going to be a long road ahead, however IMO committing to a target of long term neutral (+-5%) capital growth is far, FAR better than a sudden 30-50% drop, triggering mass loan defaults and forced sales (as much as 30% of property sold in last five years), bankruptcy (debt > value leaves virtually no option) and significant (>5%) increases to unemployment rates.

We have the most perfect example of how to control property prices - Supply vs Demand. Increase supply to suppress prices.

Therefore, a very simple solution - capital values increasing? Release more land, incentives for new, cost-effective housing, increase infrastructure spending in regional areas, increase costs of holding capital city property.

You can't just release more land. Sydney is land locked by forest, other cities surrounded by farm lands. We need to start investing in higher density but sustainable cities especially in regional cities. We also need to do what ever we can to ensure properties aren't being left vacant.