Society/Culture Australian Property Prices to Crash?

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_Mike_

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Moderator #27
Australia survived the GFC because of the mining boom and the Rudd government, otherwise we would of followed most countries.
One primary difference between the housing markets of Australia and other countries is that our financial contracts don’t absolve a party in default from its contractual obligations. So the bank can foreclose a mortgage and chase the defaulter for the remaining debt.

The issue with the “bubble” centres around the lending practises of the banks, being largely held unaccountable for what borders on unconscionable conduct, IMO, lending money to those who were not financially viable in the first place to sustain the debt. The outcome of the royal commission on banks has had the adverse affect on the property market, auction clearance rates in Victoria for example averaged around the 70% now sitting at 45%. This attributes to banks having to make it more difficult for a puchaser to obtain finance, resulting in a more nervous market. The market will have its peaks and troughs, but saving a world catastrophe such as a global depression, people might grow old waiting for house prices in Sydney and Melbourne to fall back to their early 2000 benchmarks.
 

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#28
One primary difference between the housing markets of Australia and other countries is that our financial contracts don’t absolve a party in default from its contractual obligations. So the bank can foreclose a mortgage and chase the defaulter for the remaining debt.

The issue with the “bubble” centres around the lending practises of the banks, being largely held unaccountable for what borders on unconscionable conduct, IMO, lending money to those who were not financially viable in the first place to sustain the debt. The outcome of the royal commission on banks has had the adverse affect on the property market, auction clearance rates in Victoria for example averaged around the 70% now sitting at 45%. This attributes to banks having to make it more difficult for a puchaser to obtain finance, resulting in a more nervous market. The market will have its peaks and troughs, but saving a world catastrophe such as a global depression, people might grow old waiting for house prices in Sydney and Melbourne to fall back to their early 2000 benchmarks.
Lol, early 2000s would mean the average price of a Sydney home would be $400,000. Not going to happen.

If the Sydney market falls by the 20% from peak in nominal terms (meaning an average property costs ~$800k - not inconceivable) then that would eviscerate the banks.
 

_Mike_

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Moderator #29
If the Sydney market falls by the 20% from peak in nominal terms (meaning an average property costs ~$800k - not inconceivable) then that would eviscerate the banks.
Correct, so when people argue the hypothetical bubble burst, it’s not going to be at a fire sale price drop. Average price drops of 8-10% would be reasonable in reaction to the market factors led by a change in the banks lending practices
 

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#30
Correct, so when people argue the hypothetical bubble burst, it’s not going to be at a fire sale price drop. Average price drops of 8-10% would be reasonable in reaction to the market factors led by a change in the banks lending practices
They’re going to be more than 8-10% unless something major turns this around.
 

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#32
Thats what I thought way back when. Prices just kept going up.
I was talking to my son this morning about this, when we bought our first home back in 1984 it cost us $42,000, I was on around 18k pa which was a single income family so 2 and a bit times my annual income to purchase a home.

Now with my son and his wife both working the same purchase would be around 6-7 times their combined annual income, a lot harder to get into the market now than it was in my day.
 

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Thread starter #36
World's top money manager sees 'prolonged' housing slump in Australia
Australia's housing slump could go on for another 12 to 18 months as banks keep tighter credit standards and prices slide amid an oversupply, the world's biggest asset manager warns.

Home prices could fall another 10 per cent across the country and the decline will increasingly hit consumer confidence in 2019, predicts BlackRock's Craig Vardy, head of fixed income for Australia.

.....

Sydney house prices drop most in 30 years since 2017 peak

Sydney's property market slump has reached a new milestone, with values falling further than the late 1980s when Australia was on the cusp of entering its last recession.

Average Sydney home values have fallen 10.1 per cent since their 2017 peak, CoreLogic's head of research Tim Lawless said on Tuesday, citing data as of December 7.

That surpasses the top-to-bottom decline of 9.6 per cent recorded between 1989 and 1991.


 

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Long Live HFC

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#39
Cap in hand begging to the government for bailouts.
on what basis?

The $1.3 trillion mortgage books of Australia's big four banks can withstand an Ireland-style correction in property prices but the lenders' ability to deal with second-order impacts remains uncertain, says Fitch.

As part of a housing "stress test", the global credit rating agency calculated that the big four would suffer $24 billion in losses if house prices fell 43 per cent and defaults hit 13 per cent. However, recoveries from lenders' mortgage insurers would cut the loss to about $19 billion.

As a percentage of risk weighted assets, losses would equate to between 1.8 and 1.3 percentage points before insurance recoveries, and between 1 and 1.3 percentage points after recoveries.

These losses would, on average, wipe out about half of the banks' operating profits before insurance, and about 40 per cent after insurance.

The stress test also concluded that based on mortgage losses in isolation, no bank would breach the minimum capital requirement of 8 per cent, including the additional requirement demanded of systemically important institutions.
https://www.afr.com/business/bankin...-books-stress-tested-by-fitch-20180430-h0zfjn

fitch (and others) may have made a real mess of their analysis which would lead me to ask you again to elaborate on details of the evisceration; or you are more certain about those "second-order impacts" which would lead me ask you to elaborate on the details of those instead.
 

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#41
i agree it's a possibility which is why i acknowledged it. but i also think the henny pennys in this thread (hi Lebbo73!) haven't been paying too much attention to APRA's efforts in particular over the past few years (ironic given those efforts are a contributing factor to taking heat out of the market). so yeah, i'd like to see some analysis (even if it's as bad as fitch, APRA, RBA) showing how 20%-30% falls will result in the lender of last resort having to save the big four.
 

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#43
i agree it's a possibility which is why i acknowledged it. but i also think the henny pennys in this thread (hi Lebbo73!) haven't been paying too much attention to APRA's efforts in particular over the past few years (ironic given those efforts are a contributing factor to taking heat out of the market). so yeah, i'd like to see some analysis (even if it's as bad as fitch, APRA, RBA) showing how 20%-30% falls will result in the lender of last resort having to save the big four.
What analysis would convince you better than the fact that all economies that have experienced major debt deflation events have led to an implosion of their financial sector?
 

Lebbo73

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#44
i agree it's a possibility which is why i acknowledged it. but i also think the henny pennys in this thread (hi Lebbo73!) haven't been paying too much attention to APRA's efforts in particular over the past few years (ironic given those efforts are a contributing factor to taking heat out of the market). so yeah, i'd like to see some analysis (even if it's as bad as fitch, APRA, RBA) showing how 20%-30% falls will result in the lender of last resort having to save the big four.
The Australian Taxpayers bailed the Big Banks out in 2009
 

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#46
The Australian Taxpayers bailed the Big Banks out in 2009
the australian government was the ultimate emergency loan (and deposit) guarantor during a profound credit crunch. i think if you took a good look at the figures those loans came from the US and didn't end up costing the tax payer a cent in the end.

eta- this is also a completely different cause/effect to the issues asserted in this thread.
 
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Tayl0r

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Moderator #49
What is the process for the banks to suffer from a property price dropping? Does it make sense for those underwater on their loans to declare bankruptcy and leave the bank to take the hit or just keep paying their mortgage and not move for a good ten years.

The rules on assets to lending could just be loosened to allow more above water loans to be pumped out to balance the books again?
 
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