AndyR1976

Well, atleast you have your priorities straight...

renth

With decent fish costing $50-$70 a kilo these days in WA then a boat could be seen as a good investment if you like eating fish.

brendarover

The Central Bank in the US and the UK are cutting base rates, yes; this is just a cover story really; so the high street banks and lending institutions can lower their savings rates whilst raising lending rates to borrowers, .i.e. mortgage holders etc.

The Central banks are helping the high street banks refund themselves.
By cutting the rates at which banks can borrow from the Central bank, the Central banks are trying to help banks generate more profits to Recapitalise themselves. They are short of cash you see? Like us all maybe?

We have a country full of expensive artifacts, but not enough cash to buy them; the printing pressess are at full tilt?

It is a capital problem the high street banks have, and capital can only be built by an injection of equity funds (i.e. a rights issue) or by retained profit.

Nerine

Got this in an email from a well known GC real estate agency this morning



30-40% ?!!! can he be serious, is it really that bad?

Wol

That "good", you mean?

Yes, prices in country NSW are well down on a couple of years ago - people are taking $400 - $600k off their asking prices and still not selling. Some houses have been on the market since we arrived three years ago.

Nerine

I think I was looking at it from the agent's point of view . That's a heluva drop though.

If the same happened around here it would be worth giving up the LAFHA and buying something. I've been watching the market since we arrived and quite a bit hasn't sold in the last 5 months - mostly rental type/lower end of the market stuff has been going.

What I am seeing though is some of those unsold properties now being offered for rent. Seems to contradict some of the statements we've been hearing that say there is going to be a shortage of rental accommodation.

A few months back there was very little for sale in Reedy Creek, now there's a glut....131 properties, most of them new builds. This one was on the market back in Oct, for $715 - good initial interest and then nothing, it's now up at $749 and has been at that for months.

Seems that vendors expectations, fuelled by the realtors, are out of kilter with what it actually happening in the market: the spring price rises came and the market didn't.

It will be interesting to see what happens during the slower winter months, will the vendors start to drop asking prices or will most of it end up on the rental market?

geordie downunder

Why would investors pile out of the market.Compounding occurs over a long period of time,not a few months.Hoping they double in a year or two is living in dreamland.They can double in a short period of time but it is pure luck if you pick it.

Look at prices from mid eighties,they are now roughly 5 to 10 times as much.During that period we have had a property boom,then a bust ,then a period of flat lining,small bust,then the present boom. I can't predict the future but flat lining on average for a while would be the pattern.

Any asset is a game of snakes and ladders,you go up the ladder (boom) and then down the snake (bust).In 20 yrs time ,or any long period ,prices should be higher.Investors may be building wealth for themselves,or their families,why would they destroy that by selling on the strength of a guru that pretends he can predict the future.Or an article in a newspaper,or the opinion of people that want to believe their chosen guru can predict the future.Why do these gurus not just predict the lottery numbers for next week for themselves.Or 8 draws on the pools (if they still have them).Surely if they can predict what millions of people are going to do then 6 numbers from 45 or 8 draws from 46 games would be ridiculously easy for them.

The financial industry makes money on commission,getting people to buy and sell,take no notice of them.

Suppose you do as the gurus say.Your house is worth 400K so you sell,hoping to buy back after the crash.Prices fall 20 % and you timed it perfectly,you buy back for 320K.Add up all the costs and you are probably in exactly the same position as if you had just held on and went through the boom /bust cycle.

Would you say houses would be worth more in 10 yrs time ,or less?Why worry at all because an article or a guru wants to spread fear or greed to get people to buy or sell.The greatest virtue is patience,patient investors reap the greatest rewards,simply because compounding takes time.

Seems like yesterday that we had a thread of how rents would rise by 50% in a short time,why sell if your income rises by 50% in a short time.Which guru/article do you want to believe,the one that predicts a large rise in your income,or the one that predicts a fall in your capital?

geordie downunder

You'll probably find that money is raised through people putting their savings into the bank.As a very general rule they operate on 60/40.60% of the money is savings,40% is raised in wholesale markets,overseas borrowings etc.

With money being scarce at the moment the banks have raised their deposit rates in OZ to try to bring money in,thus the adverts for short term rates of anywhere between 8 and 8.5%.

As wholesale markets have dried up then the cost of money goes up,risk is re-priced.Whereas they were getting money at say 5% overseas and lending it on at mortgage rates,as the money disappears they pay higher rates for it,say 6%.Thus the mortgage rates going up by more than RBA rises.

A bank operates on a very small margin,usually 1.5% of loan book,a typical high turnover,low profit business.A $4 billion profit means around $270 billion is lent out.They leverage up 10 to 1 as a general rule,so 527 billion would be kept for day to day turnover,any small shortfalls being met by o/night borrowing from other banks or reserve banks.

An OZ bank usually retains 30% of profit ,so 70% is paid out as dividends.When times are difficult they can then up the payout ratio to hold dividends or give a slight increase in dividend,The last time it occured was around 2003 when Commbank increased payout ratio to around 101% of profit and increased the yearly divi from around 150 cents per share to 154 cents per share.Remember the share price had collapsed from $34 per share down to around $23 per share,a drop in dividend would have seen the doom and gloom merchants and short sellers have a field day.
ANZ, Westpac and NAB start reporting from next week,it should give a clearer indication of what is going on.No doubt the headlines will scream 100% increase in loan defaults,bad news sells.A look at the actual results will probably prove a 100% increase,up from 0.4 % of loan book to 0.8% of loan book,nothing to worry about.Worry when it gets to around 3% of loan book,then the economy and the banks are in trouble.

The real bad one was around 91 or 92 when the high interest rates and loan defaults had the 4 banks on their knees,a $16 billion collective loss and I don't recall any of them dropping their dividends,really dropped the stock prices,wonderful time to buy.

The 5 should be a $,pressed the wrong key .Delete 527 billion and replace with $27 Billion.

Wendy&Mike

The commonwealth bank are currently offering 8.4% on $20000+ for 6 months. That means there standard mortgage rate has to be around the 10% mark. When people start coming off the fixed mortgages there is going to be some serious problems.

Mike.

brendarover

I do not believe for one moment that the Australian Banks were not getting their fingers all sticky by buying up all those MBS's from the US to aid expantion? We will see, what they declare?

I will be looking at the reporting next week, will be interestinmg to see what sort of losses they report and why?

On another note, whether this directly affects the mortgage market in Australia is an important point, because if alot of people have taken on discount deals over the past few years; then when they try to remortgage when their current deals expire. Only to find they have to find an extra couple of grand a month, then there could be a rush to sell (Investment property). This is what i am starting to see, more property for sale in Brisbane, some reduced, and what does not sell, is being put up for rent. I think myself, we will see more rented property available, so more competition for tenants, so cheaper rents in the long term, but more expensive in the short term trying to pass there increased costs onto tenants. Also as migration from the UK slows due to local economic factors, the migration cash cow from the UK will dry up due to rising living costs and falling property values, so less equity to play with. People in the UK are struggling with rising living costs, recieving less for their properties when they sell, so want a bargain if they buy in Australia. With the exchange rate at a low from a UK perspective, the migration process is becoming a dream for the few rather than for the many unlike a couple of years ago, Australia has priced itself out of the market for the normal working class family, whether this changes depends on many factors which will or will not happen over the coming months/years?

Interesting times for investor landlords in Perth and Brisbane.

Less equity from the UK
Less dollars for the pound on exchange
Rising short term rents
Rising food and energy costs in the UK and Oz

The working man is being squeezed, just hope he does not go pop, along with the economic bubble?

stariston

Sydneys Northern beaches outline suburbs

Suburbs closely linked in the high prices to the Manlys and Palm beaches
and the well known pay to be near the beaches
suburbs

There has been noticeable price drop in properties just outside the
the above areas such as Forestville Cromer,terry hills Belrose
Balgowlah, Davidson,Duffys forest This just dont happen . This is the
most overvalued property in my opinion in Sydney Can it hold up
When Anything west of it is sliding well if it does not my bets on a full blown
Correction in property prices in Sydney

Nerine

I think you're right, I forsee some people moving out of their homes and renting them out to be able meet the mortgage payments and some people needing to relocate being unable to sell and also renting out their homes.

There are a lot of builders and property developers unable to sell their new builds at the moment, when the winter downturn comes it'll be interesting to see how many of them start renting them out rather than sell at a loss. Will there be a jump in the amount of rental property on the market soon?

The other interesting thing is a rental agent told me that renters activity is very quiet at the moment - people are just staying put and deciding not to move.

sammyg

It's made us laugh over here..the papers always BIG themselves up. They never like to admit the negative!

I'm sure some of it they are completely making up!!

In the UK you see more of an honest, unbiased report on things!

It is becoming evident that there are changes on the Gold Coast and one real estate agent is saying it's a buyers market....we'll see!

jimmyd4006

I haven't had a bank account for years, only deal with credit union, they don't need to put mortgage rates up above RBA interest rises as they only raise money in os, from their members. Also fee structure is much lower, and have all wages etc going into mortgage linked saving account. Earns same interest rate as mortgage, and any interest earned per month comes of loan principle. Also this interest is not taxed. I just have a visa card (savings only) linked to this account, so have no need to deal with the rip off banks !! The house prices just seem to be getting so high that I can't see how the younger generation will be able to buy into the market

isgraham

I think the thing to look for is the unemployment rate. As the current economic problems have originated with Banks and other financial institutions making a succession of poor investments they may have to start laying people off to try to prop up the bottom line. In my experience these people that are going to be laid off are likely to be property investors who are by and large negatively geared. Fine when you have a job and pay a lot of tax. Not so good when you are unemployed and don't pay tax. We can already see Citi Bank sacking 9000 staff so it will be a case of wait and see as to wether the Australian banks are affected and to wht extent. Being a senior developer for one of the big banks I'm personally not banking on having a job in 12 to 18 mnths time.