I have a question to those investing in RE for more then 20 years
just about every time when prices go up, there are articles and reasons why and why not the mother of all booms is coming, and yet the property cycle follows the general rule of 10 years with 2-3 years big growth, 2-3 years big falls with 4-5 years of plateau (obviously not in that order)
the doom and gloomers will get vocal in a downturn or just before, while by the end of hte boom, everyone from their next door neighbours cat is a property expert
do you guys see anything different this time?
admittedly, i have seen a few articles saying why this time its different and it wont be the same as before.
any comments?
The main danger I can see for the property market is the difference between wage growth and house price increases. House prices are relatively flat everywhere in the country (rising by inflation), except in Sydney where it?s going nuts.
I see 2 scenarios:
1. The economy recovers, business confidence increases, wage growth returns to a moderate level, and unemployment decreases. This is all good news; however, this would lead to interest rates rising. If the interest rates rose up to 8% there would be a lot of people both investors and OO who have over-leveraged during this period of low rates.
2. The stagnating Australian economy eventually hits Sydney. Business confidence drops, wage growth remains flat, unemployment increases and people are now struggling to pay their mortgages. It doesn?t matter how low interest rates are if you don? t have a job and a reasonable buffer.
http://www.abc.net.au/news/2015-06-15/verrender--a-ponzi-scheme-that-could-ruin-us/6545316
?Ever since the stock market collapse in 1987, when the entrepreneurs all hit the wall, Australian banks have deliberately targeted real estate. It may have been dull. But it was hugely profitable. And unlike corporations, homeowners would do just about anything to avoid default.
That was aided and abetted by negative gearing, a discount on capital gains tax and more recently self-managed super funds that now can gear up to buy property. Overwhelmingly, investors seek out existing properties rather than develop new ones, forcing owner occupiers to borrow more.
The more money the banks pumped in, the higher real estate prices rose. The higher the prices, the more that was needed in loans; a business model of rare beauty that some call a Ponzi scheme.
Australian households now are among the among the world's most indebted. In 1990, household debt accounted for about 60 per cent of income. By 2013it had risen to 180 per cent. The reason? Mortgages.
Between them, the big four banks hold about 80 per cent of all Australian mortgages. All up, Australians owe about $1.4 trillion on their houses, which is rising at a rapid clip each month. It is their most important business.
That concentration - both geographically and in one asset class - leaves the banks hugely exposed in the event of a real estate slump?.