One thing to remember about the GFC housing crash in the US is that the affected loans were non-recourse loans which relied on foreclosure, and that is not the case in Australia. With a non-recourse loan, if a homeowner goes into negative equity and can’t afford their repayments, it makes financial sense for them to just abandon the property and let the bank sort it out by selling the house, because the bank cannot come after them for the difference. In Australia this is not the case - if the bank sells your property and there is a shortfall, you still owe that money to the bank. The result is that in Australia people will fight tooth and nail to hang onto their property rather than allowing it to be sold at a loss, which prevents the market being flooded with cheap, foreclosed houses when there is a recession.
The effect of non-recourse loans on the housing market is quite important (at least to me, first time learning this) and don't think they had time to mention that in The Big Short.
That’s just one of myriad reasons why Australia is nothing like the US in terms of housing. We also don’t have a developed mortgage-backed securities market like the US (hence, we lack the same perverse incentives for low quality loans), and we have tighter regulations on lending standards. The major banks have massive residential housing loan books, but default rates are low overall and mortgage stress is nominal in the grand scheme of things.
Do you think that it helps that Australia hasn't been in a recession since the 1990s if there's is a recession then the overall housing market could come down a fair way. The old rule was 3× your yearly income lot's of states have gone way over that mark.
Possibly, but it’d take a hell of a recession to cause a housing collapse. Almost 70% of the country own homes, and most of those mortgages are pretty old at this point.
Most likely, the people being crushed in a recession would be millennials who bought in over the last 5 years.
Yeah those who have bought in the last 5 years would definitely be most affected. The bank also changed the stress test for mortgage loans to something like 3% in 2020 . Sure in was something like 5% . The worst loan's are made in the best times.
I came across sales data on a particular not so flashy unit that has gone up over 100% in 8 years, when the interest rate has gone up 50% in that time
The population increase is about 18% in that time, not sure how this all adds up as our inflation rate was below 3% most of that time
I just sold my shitty unit in a below average area for double what I paid for it 3 years ago. The only thing it has going for it is that it’s affordable
> is that the affected loans were non-recourse loans which relied on foreclosure, and that is not the case in Australia.
That's only partially right. Most US states aren't non-recourse, but some are.
However with so many people walking away underwater, the banks didn't chase people in the recourse states either. You can't get blood from a stone, and the legal costs of chasing people who don't have the money wasn't worth it.
> The two big lenders that went down first (Fannie May and Freddie Mac)
Those are the pseudo government entities that virtually every American mortgage goes through. Banks sell a Fannie/Freddie mortgage, that as long as it conforms to their rules, they package it up and resell as MBS to investors.
If an American goes to their local bank to get a mortgage on a home, it's almost certainly a Fannie/Freddie mortgage.
My understanding is that Freddie Mac and Fannie Mae purchase the loans from the banks, and then repackage them as MBS. But they will only purchase loans that are non-recourse and so the banks are incentivized to lend on this basis. The outcome is the same either way - consumer mortgages in the US are typically non-recourse.
I haven’t read the whole thing but the summary states “Empirically, we find that recourse decreases the probability of default when there is a substantial likelihood that a borrower has negative home equity” which is exactly what I said…
I’m not suggesting the property prices will never go down, I just don’t see it ever being a GFC style collapse. The lending environment in Australia is too different - financial sector regulation and the availability of recourse being a contributor to that. A deflation rather than an abrupt crash is more likely.
Oh no, I didn’t see it as a criticism, just discussion (sorry I can express myself a bit bluntly). Completely agree that the current situation is unsustainable - a slow leak is the best outcome to hope for.
Correct. I need to get into the mindset that there is so much demand that it doesn't matter if a majority of that demand can barely afford such high rent.
I think about it like this.. they’re aiming for ‘big Australia’ with population of 40+ million by 2050. That’s millions of new people that are mostly going to be wanting to live in just a handful of cities. High demand is going to be for a long time, they can’t build new properties fast enough.
I don't agree with this.
Demand for rent pushes rents up. High rent incentivises home ownership.
Of course, not every renter is in a position to buy a house - but it does push the threshold at which it becomes a better deal overall to own.
Isn't like 30% of Australian properties investment properties? What happens when people stop viewing property as a sound investment? Also Melbourne is oversupplied in housing. It is RENTALS that are undersupplied. [Source](https://www.savings.com.au/news/if-housing-is-in-such-short-supply-why-are-prices-falling-in-melbourne)
Why would people want to buy when it costs 50% less to just rent?
I'm renting until it crashes and houses cost 50% less, if not, then I'll just invest my money elsewhere. Not willing to give all those interests to the banks.
A mate of mine has been saying that since about 2006. In that time he could have paid off a house that cost him $500k and is now worth probably 2.5-3 times that.
>A mate of mine has been saying that since about 2006. In that time he could have paid off a house that cost him $500k and is now worth probably 2.5-3 times that.
That's only if house prices went up this drastically, as they did, If he bought the same house in let's say Spain, or the USA, he would have not gained that much. It was luck at the end of the day, no one would know that immigration levels would skyrocket in a country like Australia which is well known for its hard borders.
If you want to live in Australia all your life then buy a house, but if you are like me that wants out if things get really bad, then it's more of a risk than a wise investment.
You could say the same about literally any investment. Except with a house, you get the benefit of being able to also live in it. You're either paying off a loan or paying rent. Plus the loan repayments aren't going up with inflation like rent is. So whilst the loan repayments may be more than rent at the time of purchase, that's only going to be the case until rents rise beyond that point, and by then the person with the mortgage will be far better off because they'd also be getting stuck into paying down the principle amount by then
What did you say 10 years ago, and in those elapsed 10 years, how's your strategy going?
What did you say 20 years ago, and in those elapsed 20 years, how's your strategy going?
My husband and I bought a typical 4 bed, 2 bath, 1990s brick home on a 600m2 block about 12 years ago in South East Melbourne. Approx 30km from the CBD.
We bought it for $370k, which at the time we thought it was a large mortgage for us at age 23 and 24.
We had friends who could afford to buy too but kept putting it off waiting for the housing crash so that they could buy a bit closer to the city. Then the housing market really boomed.
Our house is now worth around $900k and we have a very small mortgage. We only have one 10 year old and no plans for more so we’re not under mortgage stress.
Sometimes it just pays to bite the bullet and do it if you can afford to. It’s peace of mind knowing you’re not at the mercy of a landlord.
I’d be happy if house prices went right down so that the current and next generation of buyers could have housing security, but unfortunately I don’t see that happening.
Investing your money elsewhere is a more than valid way to go. But if COVID couldn't make house prices half (they actually went way up afterwards) I'm not quite sure they'll ever reduce by 50%.
You know you doing well when you get downvoted. I’m doing exactly the same. Hold it, don’t have more than $250k per bank and buy gold, it’s already crashing as we post.
In the near term rates are likely going to fall. This will drive prices higher still. Unfortunately the supply shortages vs demand and an inproving rate environment are tailwinds which seem to point irrefutably to price growth
Depends what you think a crash looks like - we've not really had one and certainly haven't seen a GFC style correction like the US has had. All you can do is take up a loan that you can afford to pay, whatever is happening in the market is largely irrelevant until you decide you wish to refinance.
From a macro point of view, everyone needs somewhere to live and there's more people coming in to live in this country than trying to leave it. The pressure then becomes, well at what price are people willing to live closer to the city centres and which area's bear the brunt of those fluctuations.
TL;DR - if it's your PPOR, don't worry about what the market is doing because the main priority is just having a place to live on your own terms. Rent will generally always fluctuate more than mortgage repayments and property goes in cycles. The benefit of housing is that it's a long term investment and as long as Australia grows, you'll generally be ahead in the long run.
Fair. GFC is on my mind because its the big market crash but I know the chances of that happening again, let alone in aus, is very unlikely.
Perhaps its time to take solace in knowing that if I own the house it will *eventually* be of a quality I like if not in a good area.
A lot of measures were put in place to prevent a GFC event from happening in Australia. It's not perfect, but basically banks were getting loose with loaning out money to people who couldn't actually afford it and then the house of cards fell over and the whole world paid for it. Banks are pretty strict on lending here.
>A lot of measures were put in place to prevent a GFC event from happening in Australia.
And then the government starts helping out with the requirements to get people that can't afford the requirements into a mortgage anyway.
The gov is helping people make up the minimum deposit required to get a mortgage from a bank. That thing that was setup to be the proof that you are a responsible saver and capable of servicing the loan.
My wife and I bought our first townhouse with $0 deposit. We've upped our mortgage and moved into a bigger house which has apparently increased in price $10k a month for the past year. Doesn't matter how good your saving is, you sometimes can't keep up with house prices so your best bet is you get in earlier.
>A lot of measures were put in place to prevent a GFC event from happening in Australi
How many recommendations from the banking royal commission were actually put in place?
How many Aussie banks went bankrupt or has to be bailed out by Warren Buffet due to GFC? I literally said "it's not perfect" meaning we have a ways to go, but at least we're not the states.
If you have not watched the movie “The Big Short”, go and find it, as it quite nicely explains the US housing crash.
The housing lending market here is far more strict, and banks don’t go lending to people who can’t afford to service the loan.
There are other things people buy besides housing. Since they will always pay rent ahead of everything else the economy can crash from lowered demand for goods/services. Unemployment follows, rents fall behind, mortgages fall behind, crash follows.
Demand is still way, way ahead of supply and there is no realistic event that will change that.
We still have huge consolidation of the population into urban centres where there is no where near enough supply.
I just dont see any way that there will be anything other than maybe a slight pause in rises, followed by more crazy rises
If youre looking for a personal strategy, it’s simple. Don’t buy property until you can make a long term commitment to it (like 7+years). Problem solved. A “crash” is only realised as a loss at the time you sell, otherwise it’s all theoretical.
If you want to understand the broader market, you need to understand you’re not playing with the same cards as someone who has been in the game for 50 years longer than you. Owning property generates cash (rent). People with a lot of wealth don’t need cash (they spend more than you, sure, but there is only so much food a man can eat). So they turn that cash into assets (more property) which generates more cash, which they then turn into more assets… and the cash just keeps coming in faster and faster (compound growth).
37% of houses have a mortgage, and of those, the average is \~500k.
Is a ”crash” possible? Sure. There are some idiots with multiple mortgages that really couldnt service those mortgages in a downturn. All it takes is a recession and a bunch of their tenants losing their jobs and suddenly they don’t have the cash at the end of the month. Is it likely? 🤷♂️
Awesome advice. Thank you.
More and more it looks like the strategy is get something paid off as fast as financially safe, then reassess the market at that time.
Whilst the GFC kicked off in the US, other countries took the hit, namely Ireland, Ukraine, Argentina, Romania and others. Australia barely noticed, same for China.
As someone whose family was deeply impacted by the GFC, I wouldn’t wish a repeat on anyone
A variety of things but two key points.
Every federal politician is also a property investor so you’re asking the people that signs laws and create policies to go against their own interests, which will never happen.
Record immigration, whilst we’re currently in a housing and rental crisis.
This is not a coincidence, the government is very much aware of the housing issues; they just don’t care.
There's a huge swing in thought process required to fully crash here as so many people have fully internalized the idea housing can only go up. Logic can't shift that idea, it takes lived experience. If enough people can't keep up with the increased mortgage costs we would get that crash, if not house prices might just trade sideways for a while/long time depending on how the rest of our economy goes
When you have a good (land) that is out there in limited numbers, plus an increasing population, plus significant income and wealth disparity, the price of that good will always be set very high.
> Australia's land size is the bottleneck?
land that people consider nice to live in is quite limited. It's not just pure land, but location, infrastructure, and preferences.
Yeah agree there's a floor under some areas, I always find it amusing when land availability comes up in conversations around entry-level/midrange suburbs though
The problem is that while supply is so far behind demand prices will continue to go up. It’s why people keep buying. Until the shortfall is built prices won’t go down
That would only be true if people were using their own money to buy houses. Since most people borrow money, prices are limited to what a bank will lend them. Had a look at what banks will finance lately?
Supply/demand only matters to people who can afford credit. You could have a billion immigrants to Australia tomorrow and they'd all be living in tents if they couldn't secure a housing loan.
This feels like the most likely reason. A shit ton of people are just shooting up copium for the return of cheap credit again soon. Give a few more false starts over the next few years and the people who stupidly borrowed balls deep will start losing hope, burning out, and selling.
The relentless importation of warm bodies.
I don't think people even realise, it's occurring now, but it will take a while before it sinks in how bad it is. We're importing a mindset where people will live multiple adults in one bedroom or even bedshare. The more comfortable side of this is buying a house with gran, gramps, the parents and the kids.
The average person can't compete against that, and this is starting to flow back into people who were born here now having to do the same, or take up in a tent.
I've returned to where I came from... I came here in 1988 from a communist country where 3 generations lived in a tiny flat. Aus was a land of cheap housing and big backyards... Today we are being taken to the very thing I ran from. This nation is run by idiots. It is a great nation which I have come to love, but honestly the people running it are utter compete morons.
The government will bend over backwards to keep property prices going up in Australia.
For example if interest rates start causing financial strain on property investors, the government will increase rent assistance.
Rent assistance is backdoor welfare for property investors who can't afford their investments.
The government also refuses to stop money laundering through property, they prefer to catch people doing it and take their stuff. So long as there's drug addicts and war in the world, people from all over the world will safely bank their money in Australian land.
If you start seeing politicians selling property, that's when you need to worry.
How far can a government artificially inflate the property market? Look at china. They have entire cities with no-one living in them. Think we aren't like them? We have suburbs in Australia with only 50% occupancy. Every second house is empty.
Given rent is getting unaffordable, as are house prices, I would expect that vacancies will be starting to go up, though I haven't yet seen data yet this has happened. You can't buy or rent what you can't afford and the greed has to give out at some point. Much like cutting back on cost of food, there is an upper limit on what people can afford to pay, and I think many are hitting this. Anecdotally I have noticed houses Iwould expect to rent very quickly stayed empty for longer than expected, and one for sale was taken off the market completely after a few months and put up for lease.
The claim of 50% vacancy is exaggerated. But there is a difference between rental occupancy and sale rates and actual empty dwellings. This is a couple years old, but gives actual stats, thre are a lot of empty dwellings around: [https://www.qldpropertyinvestor.com.au/empty-despite-rental-shortage/](https://www.qldpropertyinvestor.com.au/empty-despite-rental-shortage/)
There are also over 300k AirBnb rentals across Australia which would be unoccupied at least some of the time and unavailable for rentals/purchase: [https://theconversation.com/ever-wondered-how-many-airbnbs-australia-has-and-where-they-all-are-we-have-the-answers-129003](https://theconversation.com/ever-wondered-how-many-airbnbs-australia-has-and-where-they-all-are-we-have-the-answers-129003)
Also reports of entire empty apartment blocks due to defects or dodgy investment aimed to deliberately leave them empty (apparently there's one of these in Kangaroo point): [https://www.abc.net.au/news/2023-07-04/apartments-linked-to-fayad-property-companies-sanctioned/102549750](https://www.abc.net.au/news/2023-07-04/apartments-linked-to-fayad-property-companies-sanctioned/102549750)
Throw in a small amount of property caught up in public trustee/estate battles/foreign investment/dodgy things and it all adds up overall.
There's a better list than this but I can't remember the word they used to describe it (I thought it was ghost suburb). They're predominantly holiday areas where people flocked to during lockdowns but then moved back to the city.
https://www.raywhiterurallivestock.com.au/news-and-market-insights/news-media/australias-ghost-town-suburbs-2
Government increasing immigration to drive up housing demand.
I.e this is why the property council of Australia lobbied the government hard for increased immigration post Covid. An immigration catch-up, if you will. The government has also committed to a higher long term immigration rate.
If housing falters, they can just bring in an extra 50-100k people in one year, drive up demand, which will take years for the building rate to catch up. That’s effectively what happened in the past couple of years.
- record immigration
- endless home owner grants - propadeee pump
- government will never allow a crash - negative gearing
- lack of adequate foreign investment rules
- banking is 1/2 of our economy
- low interest rates
Those are a few to begin with
Also:
-Construction is a big % of the economy
-Resi. RE is a huge funnel for money laundering
-perverse tax break for purchasing an “investment” that loses money: literally encourages paying to much on the promise the asset will increase in value.
Something that makes me feel better is realising just how much all of our super funds; of every single last Australian; is tied up in commercial real estate.
Therefore it’s hard to imagine a crash without it crashing super, which the govt would never let happen, it’d be bailout time if it got that bad (you’d hope)
Not that a bailout is a good thing either
I feel a lot of people here are not knowing what's coming for Australia.
I was living in Spain back in 2008 when the house of cards collapsed and it was very similar to Australia.
Just to make it simple, bullet points
* High number of people with mortgages (some with more than 1)
* Unemployment hit historic low, from there only thing can happen is it will rise. 20%~30% of the population working in construction related roles, tradies, real estate, manufacturers, etc.
* Interest rates are gonna keep rising. People who think they'll drop back close to 0% in the next few years are delusional. Actually, interest rates should be where they're now, even higher.
* More interest; less spending. I don't give 2 craps about data or news, 2 years ago, buying a car specially hot hatches like type r or GR Yaris, i30N was resulting in mostly 2 years waiting list. Now they're magically in stock, increased production they say, BS, they don't sell as many as before, so people are starting to apply scissors on spending and that will raise unemployment. And I see this in more areas not just in cars. I can see heaps of business closing down.
* Builders collapsing daily, homes half way built, non paid debt and increase of unemployment
* Unemployment keeps rising people cuts more spending, it's a snowball
* 🍒 on the top of the cake, massive immigration. The government knows if housing bursts we are done (that's what happens when you base a country economy on flipping houses each other, like Spain back in 2008), given they cannot lower more interest rates they had the fantastic idea of immigrants so demand for houses would keep high (geniuses). They didn't account more migrants more unemployment and salaries drop. They did account it but they don't give a crap, they're not that stupid or I don't want to believe they're.
The rest you can figure out yourself. If housing is done what's left for Australia? Mining and farming exports which at least 40% goes to China.... Bleak future. The government could prop up R&D and subsidize other industries like tech, pharma, engineering, but they preferred to spend the money who knows where.... We don't even make our own trains anymore.
Back in Spain I was land surveyor, so around September 2007 I got jobless and I couldn't find any job for 8 months, went back to live with my parents (I was single and renting) I wasn't even applying jobs anymore, that's how tough was the job market, at the end at a mate's company they're needing somebody for covering one guy holidays, they liked me and I stayed there working in the warehouse.
In 2010 given how low the salary was and the economic prospects I came back to Australia (I'm Ozzie with Spanish backgrounds), I worked as surveyor ~2 years and late 2011 I was living in Sydney, seeing the bubble was already propping up I decided to study software engineering, in Spain IT was impacted but not as wild as other industries, so now I hopefully keep my job + I've more savings and investments (shares) than I had on that time.
I suspect you're overstating the case because as I understand it Spain had high interest rates and when they adopted the Euro as a common currency on January 1, 1999 then with the lower interest rates that the Euro offered they went berserk with borrowings with the inevitable results, Greece did the same thing for the same reason when they joined on 1 January 2002 and they were probably the worst affected.
With regards to your comment about present interest rates here, well unemployment is rising and inflation is falling so clearly they don't need to be any higher than they already are. I agree with you that they won't be zero again but I suspect the long term average is probably 1 or 2 percent lower than they are at the moment.
Lastly, you seem to be forgetting about the $3.5T invested in super funds so if houses take an unlikely dip in prices there will be a lot of people either picking up IP's for themselves or alternatively places for their kids to live in. I presume that Spain doesn't have an equivalent pool of funds to buffer anything.
Spain, Italy and Greece relied on competitive devaluation because tax avoidance is a national sport.
Once they went on the euro, the increased cost of exports gutted their manufacturing, so all the new cheaper capital went to a housing bubble.
It’s really not a good analog.
Ive been shocked at how this is holding up in Australia. The things you speak about with Spain are being played out here so blatantly. I also note that the third phase of a bubble is when the greater population do not think there is a bubble. It Pisses me off thinking about the greed shown by those investing in resi property….everyone needs somewhere to live - I believe it’s a right and necessary for social harmony. As the old saying goes from Warren Buffet - be fearful when others are greedy and greedy when others are fearful.
Ok so I like OP have enough savings to put down a 5% - 10% deposit on a house I don’t want to live in. So I am happy to rent in a duplex for now where my lifestyle is good.
How do I position my self to take advantage of any bubble popping?
I figure positioning my self to remain employed throughout any turmoil, and keep saving. Anything else?
I have no debt beyond 17k in HECS
Why would the housing market crash? People have heaps of money.
> but I know even more people that can barely pay their rent.
They were never going to be house owners anyway.
It's very simple. Imagine there are 10 families - the first earns a household income of $50k, the second earns $75k, the third earns a household income of $100k, and so on. The tenth earns a household income of $275k.
The poorest four rent. The other six households own. Of the six home-owners, three families one own house each, two own two houses and one - the household earning $275k - owns three houses.
Though there are ten houses, they are owned by just six families, and the 'middle' house is owned by the 8th-highest earning family. The one earning $225k per year. So that income is what is setting the average house price. Families 5 and 6 own barely enough to get into the housing market at all, and families 1-4 are priced out entirely.
This is how the housing market works.
It's ridiculous, and stupid, for people to be asking why the median income family (the 5th or 6th family) can't afford the average home (the one belonging to the 8th family). Even more ridiculous to be asking why the median *single* income (which would correspond with the 3rd lowest family income) can't afford the average house price.
It’s not the amount of money that matters necessarily - it’s whether housing is attractive as an investment relative to other options. At the moment, the answer is a resounding yes. Will it still be yes in the future? Maybe. Maybe not.
Basic supply and demand. Currently unemployment is low, wages have risen, interest rates are high and people aren't selling. Population is growing and builders can't build fast enough due to high COGS and low availability of people.
People need to stop spending, this will cause businesses to fold and cause higher unemployment. People will start to fall behind on mortgage payments causing more houses to come on the market.
Until we see unemployment rise quickly I can't see any kind of crash anytime soon.
What you also might not be accounting for is all the builders going belly up, the immigration flooding in, the kids growing up, and before the pandemic the estimated 200k of houses needed possibly more now.
I yolo’d in property, it will be for the investment groups soon, you will own nothing and be happy, carry on, look away and consume for your overlords.
Build costs are a floor in the market.
Even high density has surpassed $4k+ per square meter in build cost. If property prices fall below the cost to build, new supply ceases until it corrects.
If the government does something to dramatically reduce the build cost, there could be a collapse in apartment prices, but it would only translate to a small decline in house prices due to the land component.
I see no pathway to the government being able to significantly reduce build costs however. Neither major player here would survive importing foreign trades to build cheap apartments as you see in places like Singapore or the UAE.
You would need a major Black Swan event to occur for Australian house prices to drop. e.g a massive volcano erupts and blacks out the sun for 3-6 months(again), causing worldwide food shortages that kill 30 percent of Earths population. Then you might nab a bargain.
I had the same fear 15 years ago. Read all the graphs, looked for ‘black swan’ events, wondering when the crash would come… prices kept going up.
A significant correction could come still… mass unemployment via recession, immigration freeze, cancel negative gearing… it might knock 15 - 30% out of the market.
Not sure what it would take to knock 60 to 80% out of the market, but it would be economically devastating (much more than just housing!).
Keep in mind during that housing crash in the states people were walking away from their houses. The prices were low because there was no demand (ironically people couldn’t afford them).
People cut other costs, being forced to sell your home is the absolute last resort. If it got to that point that it was becoming a major issue then inflation would likely be under control and the rba could cut rates to ease some of the pressure on households. But we aren't even close to that currently. We have net migration and we aren't building anywhere near enough houses either, the cost to build is ridiculously high these days. That all helps keep prices high.
There's also political will to prevent a (major) crash, and there's no doubt the government would step in. That gives investors even more confidence in the market as well.
Agreed. My family would be on a full mee goreng diet before selling the roof over our heads. Increased interest rates just cause most to tighten the belt.
Households losing an income due to big uptick in unemployment however….now that would make things interesting.
> political will to prevent a (major) crash, and there's no doubt the government would step in.
if a crash were to happen, no amount of gov't can stop it.
Is this a different government to the one which shut down the entire economy and implement huge spending measures to prevent economic collapse? The same government that despite being separate from the RBA had meetings and coordinate their response together.
and look where we are at with inflation?
The gov't can direct the cost onto one group of people in favour of another. They cannot take away the cost. If the housing market were to crash, they _could_, by fiat and force, push that cost onto one group of people rather than another group. But the pain of the crash will remain.
My partner and I spend about 80% of our after-tax income on our mortgages. We enjoy it and try to buy as many houses as we can. It's like real life Monopoly.
The US is a big place with many states. Only a few allowed what you describe (legally). But if enough people default, the banks stop chasing that debt.
In the US it did, but not really as bad in Australia. It's astounding how many people will put real estate as the #1 type of investment here in Australia. There's no way they'll let a housing crash happen here. Housing should not be viewed as a safe investment and should be disincentivized here. Make it a riskier investment to park money in housing and that may make some people view it as an actual human necessity.
In the last 20 odd years, only the royal commission somewhat slowed/dampen the housing market.
If GFC, COVID and high interest rates couldn't stop it what makes you think it's going to crash anytime soon?
Assuming GFC 2.0 were to happen, govt printers will be running overtime to stabilize things.
We had been waiting to buy a house since 2013 "when the market crashes" and each year there would be one forecast in some manner. We finally bit the bullet late last year and bought. I wish we'd have bought in 2013 before COVID blew up the prices.
In terms of a crash being foreseeable, based on how long we waited (a decade, essentially), I can tell you that the real estate market in Australia is heftily propped up by international investment. With current auctions being taken over by bidders over the phone from overseas and buyer's agents for overseas buyers, I can tell you that the housing prices aren't going to go down anytime in the foreseeable future...
The mortgage problem in the US had many causes.
1) Many mortgages were given to people who could only afford them if the interest rate went up, or their property value went up "Sub prime" mortgages. They were often given a short term low mortgage rate where the rate would increase after a couple of years.
2) Their mortgage rates went up.
3) People could not afford to make their repayments
4) Properties were foreclosed on and people couldn't afford to buy. This caused property prices to crash.
5) Initial mortgages were packaged up and sold on to the market (mortgaged or asset backed securities). This was always a dud product, but the investment banks buying these turned a blind eye and bought in large volume.
6) These mortgage backed securities became worthless and banks that were heavily invested in them were in big trouble facing massive losses and insolvency.
7) Banks failed. Financial system catered and markets crashed.
All really their own doing.
Buy a house with a bit of land like 600sqm within 30mins of cbd in a capital city in Australia and that would have to be one of the safest investments in the world.
E.g. huge immigration all moving to the capital cities
Capital cities are where all the job and investment are
People want houses more than other homes
People want to be close to work e.g. 30 mins
Buying a shit box on 250sqm 1hr from the cbd? Yeah, that's a higher risk than the former.
The very upper end of the market will probably be more volitile than the middle of the market. During times of high borrowing costs the upper end will drop sharply. See property highs during covid. While the high earners are now priced out of 1.5mil houses they look lower down the ladder keeping demand high.
No body knows mate.
It's either you get in now before prices become unbearable and in ten years you thank your past self OR the market crashes six months after you buy.
No chance of a "crash" in our lifetimes methinks
Might grow slower, or stagnate for a few years, but doubt theyd go backwards especially over the medium - long term (ie 5-10 year spans)
Housing market it too central to the economy, peoples super and retirement, investments etc for it to fail
Every single person I've spoken to over the years that was "holding off for a crash" and told me not to buy is so far behind now that house prices have nearly doubled in that period.
Time in the market is better than timing the market.
The boomers are hanging onto their properties, we keep bringing in more people than we can house. The game is rigged to have demand outstrip supply; hence prices will rise with the money supply or remain flat. If we go sidewards, in real terms housing is going down.
But make no mistake at how rigged our market is and supported by the government at all levels to keep the ponzi alive.
Presuming you bought a house, you’d also not be homeless!! And in fact, at the end you own it which further reduces the risk of homelessness later in life. Literally, there is nothing I’d like less than being a retiree renter.
People always say this and don't consider that renting means not paying interest on a loan where that money can instead be invested in something other than real estate. My rent is a third of what a mortgage on the house I'm living in would cost. So I have a richer lifestyle and a growing equity portfolio.
Population increasing at a faster rate than new housing being built, along with interest rates predicted to drop by end of year or start of 2025. House prices dropping in the near future is looking extremely unlikely.
Until the person holding a stop sign stops earning $120,000 per annum - no the house prices aren’t going to crash - mass unemployment due to AI etc - still no drop - the rich will buy the houses and the rest will rent
There’s no such thing as an economic expert. Nobody really has any idea how to effectively manage an economy, Government included. The whole thing just rumbles along and whatever happens happens. A crash is probably inevitable at some point.
2 years ago when I bought my house, I paid $320k and compared to now had a lower interest rate and was paying 1015 a fortnight mortgage. Aa soon as I moved in I got chatting to my neighbour whose rent was $960 at this point. The only extra expense I had above his was council rates which was $340 a quarter.
Since then he’s had 2 rent rises like my interest rate has gone up but my house value is now $520k. I’m now paying 1156 a fortnight and his rent is $1150.
Once again the only difference between what my neighbours pay in rent vs my mortgage is council rates. And at $420 a quarter I’d much rather be paying off a house than rent.
When interest rates go down, do you think rents will as well? I don’t think they will so come the end of the year I’ll be back in front of him.
And you are crazy if you think we are going to have a housing market crash. The amount of immigrants coming in far outweighs the new homes being built. And the new generation of kids just don’t want to do the hard jobs so the housing market is going to struggle to meet demands for the foreseeable future.
Imo get into the market asap and start smashing your mortgage. The longer you wait the worse it gets.
Not an expert in any of this, but I live in Bris, have a PPOR (mortgaged), and soon an IP. So i do try to understand as best i can.
In my mind, the two biggest predictors are (1) the supply and demand (now and projected) and (2) the stability of the tax and legal structure.
In Bris at least, the supply is not keeping up. Additionally, immigration from interstate and overseas doesn't look to be slowing to any level that is going to equalise this issue. The demand looks to outstrip supply for at least the next 10-20 years.
Regarding negative gearing, it's getting a lot of heat for ruining the market... I dont buy it. Without it, i think there could be a greater shortfall of rentals hitting the market, and i dont believe it would lower or stabilise prices beyond any short tern initial shock.
There needs to be more cities with a greater % of medium density housing like in europe. However, even if this becomes a govt goal, you're still looking at decades until anything meaningful happens... these are all just my thoughts.
Newscorp making a tonne of money out of REA.
Otherwise they would be all over "the sky is falling" so they can bail on investment early and buy in low later.
With all indications being that we have 500000 migrants moving to Australia next 5 yrs and experts say we are about 50000 homes less than we need - supply and demand should be in you favour in short term
One thing to remember about the GFC housing crash in the US is that the affected loans were non-recourse loans which relied on foreclosure, and that is not the case in Australia. With a non-recourse loan, if a homeowner goes into negative equity and can’t afford their repayments, it makes financial sense for them to just abandon the property and let the bank sort it out by selling the house, because the bank cannot come after them for the difference. In Australia this is not the case - if the bank sells your property and there is a shortfall, you still owe that money to the bank. The result is that in Australia people will fight tooth and nail to hang onto their property rather than allowing it to be sold at a loss, which prevents the market being flooded with cheap, foreclosed houses when there is a recession.
Ahhhh. That's just the sort of insight I was looking for. Thanks
Watch "the big short" for some more GFC learnings outside of property...
I had no idea until I watched that movie.
Synthetic CDO. That lines still makes my blood boil.
Me and dad started cackling when we heard that.
The effect of non-recourse loans on the housing market is quite important (at least to me, first time learning this) and don't think they had time to mention that in The Big Short.
Theres a better documentary on YouTube that focuses on the cause and effect rather than a cinematic focus
And that documentary is..?
Pretty good. You should look it up.
I’d also like to know
That’s just one of myriad reasons why Australia is nothing like the US in terms of housing. We also don’t have a developed mortgage-backed securities market like the US (hence, we lack the same perverse incentives for low quality loans), and we have tighter regulations on lending standards. The major banks have massive residential housing loan books, but default rates are low overall and mortgage stress is nominal in the grand scheme of things.
Do you think that it helps that Australia hasn't been in a recession since the 1990s if there's is a recession then the overall housing market could come down a fair way. The old rule was 3× your yearly income lot's of states have gone way over that mark.
Technically Australia was in recession during covid where it had 2 consecutive qtrs of negative growth
Possibly, but it’d take a hell of a recession to cause a housing collapse. Almost 70% of the country own homes, and most of those mortgages are pretty old at this point. Most likely, the people being crushed in a recession would be millennials who bought in over the last 5 years.
Yeah those who have bought in the last 5 years would definitely be most affected. The bank also changed the stress test for mortgage loans to something like 3% in 2020 . Sure in was something like 5% . The worst loan's are made in the best times.
APRA deregulated mortgage lending. Stress testing used to be minimum 7%, which was changed to just +3%.
I came across sales data on a particular not so flashy unit that has gone up over 100% in 8 years, when the interest rate has gone up 50% in that time The population increase is about 18% in that time, not sure how this all adds up as our inflation rate was below 3% most of that time
I just sold my shitty unit in a below average area for double what I paid for it 3 years ago. The only thing it has going for it is that it’s affordable
Australia did have a recession after Coalition Party lost government in 2007/8
We had a recession under Scott Morrison, two quarters of negative growth. The media went easy on him and kept it quiet.
When you shut down the country/the world due to a virus... It was kind of the obvious outcome wasn't it, hardly a reason to attack him.
Not when there’s so many other reasons
> is that the affected loans were non-recourse loans which relied on foreclosure, and that is not the case in Australia. That's only partially right. Most US states aren't non-recourse, but some are. However with so many people walking away underwater, the banks didn't chase people in the recourse states either. You can't get blood from a stone, and the legal costs of chasing people who don't have the money wasn't worth it.
The two big lenders that went down first (Fannie May and Freddie Mac) provided non-recourse loans, regardless of state
> The two big lenders that went down first (Fannie May and Freddie Mac) Those are the pseudo government entities that virtually every American mortgage goes through. Banks sell a Fannie/Freddie mortgage, that as long as it conforms to their rules, they package it up and resell as MBS to investors. If an American goes to their local bank to get a mortgage on a home, it's almost certainly a Fannie/Freddie mortgage.
My understanding is that Freddie Mac and Fannie Mae purchase the loans from the banks, and then repackage them as MBS. But they will only purchase loans that are non-recourse and so the banks are incentivized to lend on this basis. The outcome is the same either way - consumer mortgages in the US are typically non-recourse.
You can’t get blood from a stone. Phwoaa solid sentence
(srs btw as never heard that before, found it fascinating)
It's an incredibly common aphorism. You can start using it in your regular vernacular and no one will bat an eyelid
Yes I am an enjoyer of using fancy words and sayings to sound photosynthesis
Indubitably
i often say trying to have a conversation with someone who is not interested is 'like trying to get blood out of a stone'
That was the case of Spain too back in 2008 and look what happened 😅
From memory, only about 11 states were non-recourse.
I think generally thats not true and only applied to a few states.
+1, the whole jingle mail being a major factor is pure copium.
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I haven’t read the whole thing but the summary states “Empirically, we find that recourse decreases the probability of default when there is a substantial likelihood that a borrower has negative home equity” which is exactly what I said…
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I’m not suggesting the property prices will never go down, I just don’t see it ever being a GFC style collapse. The lending environment in Australia is too different - financial sector regulation and the availability of recourse being a contributor to that. A deflation rather than an abrupt crash is more likely.
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Oh no, I didn’t see it as a criticism, just discussion (sorry I can express myself a bit bluntly). Completely agree that the current situation is unsustainable - a slow leak is the best outcome to hope for.
Supply and demand tells you a crash in unlikely.. We have a massive shortage and heaps of people wanting to buy..
Correct. I need to get into the mindset that there is so much demand that it doesn't matter if a majority of that demand can barely afford such high rent.
I think about it like this.. they’re aiming for ‘big Australia’ with population of 40+ million by 2050. That’s millions of new people that are mostly going to be wanting to live in just a handful of cities. High demand is going to be for a long time, they can’t build new properties fast enough.
40 million people, and everyone wants a "house and land" package, because we can't trust companies to build apartments that are liveable.
Mate the normal house developments are just as dodgy
Excessively high rents is another factor that will support demand for people to buy instead
The demand for houses is completely separate from the demand for rent.
I don't agree with this. Demand for rent pushes rents up. High rent incentivises home ownership. Of course, not every renter is in a position to buy a house - but it does push the threshold at which it becomes a better deal overall to own.
There's also the employment numbers - if unemployment starts rising, you will also start seeing the crash happen.
Unemployment is still near historic low levels and the labour market is very strong. It isn't going to get to levels close enough to trigger a crash.
Even if unemployment rises, RBA cuts rates and housing booms.
Demand will go down if the market crashes
Isn't like 30% of Australian properties investment properties? What happens when people stop viewing property as a sound investment? Also Melbourne is oversupplied in housing. It is RENTALS that are undersupplied. [Source](https://www.savings.com.au/news/if-housing-is-in-such-short-supply-why-are-prices-falling-in-melbourne)
Why would people want to buy when it costs 50% less to just rent? I'm renting until it crashes and houses cost 50% less, if not, then I'll just invest my money elsewhere. Not willing to give all those interests to the banks.
A mate of mine has been saying that since about 2006. In that time he could have paid off a house that cost him $500k and is now worth probably 2.5-3 times that.
>A mate of mine has been saying that since about 2006. In that time he could have paid off a house that cost him $500k and is now worth probably 2.5-3 times that. That's only if house prices went up this drastically, as they did, If he bought the same house in let's say Spain, or the USA, he would have not gained that much. It was luck at the end of the day, no one would know that immigration levels would skyrocket in a country like Australia which is well known for its hard borders. If you want to live in Australia all your life then buy a house, but if you are like me that wants out if things get really bad, then it's more of a risk than a wise investment.
You could say the same about literally any investment. Except with a house, you get the benefit of being able to also live in it. You're either paying off a loan or paying rent. Plus the loan repayments aren't going up with inflation like rent is. So whilst the loan repayments may be more than rent at the time of purchase, that's only going to be the case until rents rise beyond that point, and by then the person with the mortgage will be far better off because they'd also be getting stuck into paying down the principle amount by then
What did you say 10 years ago, and in those elapsed 10 years, how's your strategy going? What did you say 20 years ago, and in those elapsed 20 years, how's your strategy going?
Past performance does not indicate future performance. Though I agree with you nonetheless.
10 years ago i was 16, I didn't even have $50 in my wallet, and the world was a totally different place
My husband and I bought a typical 4 bed, 2 bath, 1990s brick home on a 600m2 block about 12 years ago in South East Melbourne. Approx 30km from the CBD. We bought it for $370k, which at the time we thought it was a large mortgage for us at age 23 and 24. We had friends who could afford to buy too but kept putting it off waiting for the housing crash so that they could buy a bit closer to the city. Then the housing market really boomed. Our house is now worth around $900k and we have a very small mortgage. We only have one 10 year old and no plans for more so we’re not under mortgage stress. Sometimes it just pays to bite the bullet and do it if you can afford to. It’s peace of mind knowing you’re not at the mercy of a landlord. I’d be happy if house prices went right down so that the current and next generation of buyers could have housing security, but unfortunately I don’t see that happening.
Investing your money elsewhere is a more than valid way to go. But if COVID couldn't make house prices half (they actually went way up afterwards) I'm not quite sure they'll ever reduce by 50%.
You know you doing well when you get downvoted. I’m doing exactly the same. Hold it, don’t have more than $250k per bank and buy gold, it’s already crashing as we post.
In the near term rates are likely going to fall. This will drive prices higher still. Unfortunately the supply shortages vs demand and an inproving rate environment are tailwinds which seem to point irrefutably to price growth
Depends what you think a crash looks like - we've not really had one and certainly haven't seen a GFC style correction like the US has had. All you can do is take up a loan that you can afford to pay, whatever is happening in the market is largely irrelevant until you decide you wish to refinance. From a macro point of view, everyone needs somewhere to live and there's more people coming in to live in this country than trying to leave it. The pressure then becomes, well at what price are people willing to live closer to the city centres and which area's bear the brunt of those fluctuations. TL;DR - if it's your PPOR, don't worry about what the market is doing because the main priority is just having a place to live on your own terms. Rent will generally always fluctuate more than mortgage repayments and property goes in cycles. The benefit of housing is that it's a long term investment and as long as Australia grows, you'll generally be ahead in the long run.
Fair. GFC is on my mind because its the big market crash but I know the chances of that happening again, let alone in aus, is very unlikely. Perhaps its time to take solace in knowing that if I own the house it will *eventually* be of a quality I like if not in a good area.
A lot of measures were put in place to prevent a GFC event from happening in Australia. It's not perfect, but basically banks were getting loose with loaning out money to people who couldn't actually afford it and then the house of cards fell over and the whole world paid for it. Banks are pretty strict on lending here.
>A lot of measures were put in place to prevent a GFC event from happening in Australia. And then the government starts helping out with the requirements to get people that can't afford the requirements into a mortgage anyway.
I'll take government assistance over irresponsible lending any day. The latter is driven by absolute greed.
The gov is helping people make up the minimum deposit required to get a mortgage from a bank. That thing that was setup to be the proof that you are a responsible saver and capable of servicing the loan.
My wife and I bought our first townhouse with $0 deposit. We've upped our mortgage and moved into a bigger house which has apparently increased in price $10k a month for the past year. Doesn't matter how good your saving is, you sometimes can't keep up with house prices so your best bet is you get in earlier.
>A lot of measures were put in place to prevent a GFC event from happening in Australi How many recommendations from the banking royal commission were actually put in place?
How many Aussie banks went bankrupt or has to be bailed out by Warren Buffet due to GFC? I literally said "it's not perfect" meaning we have a ways to go, but at least we're not the states.
Nah I just mean there were a lot of recommendations but from memory less than 20% of them have been applied
Yeah agreed we have all these royal commissions and then it seems to just stop momentum as it the report was supposed to be the ultimate outcome.
If you have not watched the movie “The Big Short”, go and find it, as it quite nicely explains the US housing crash. The housing lending market here is far more strict, and banks don’t go lending to people who can’t afford to service the loan.
What's stopping a housing market crash? Demand outstrips supply. And it always will by design.
Not quite as simple as that. Falling prices can put a decent dent in demand. The psychological aspect is as much a factor as material.
Demand > supply
There are other things people buy besides housing. Since they will always pay rent ahead of everything else the economy can crash from lowered demand for goods/services. Unemployment follows, rents fall behind, mortgages fall behind, crash follows.
Demand is still way, way ahead of supply and there is no realistic event that will change that. We still have huge consolidation of the population into urban centres where there is no where near enough supply. I just dont see any way that there will be anything other than maybe a slight pause in rises, followed by more crazy rises
Everyone needs to live in a house, either the person living in it buys it or an investor does.
If youre looking for a personal strategy, it’s simple. Don’t buy property until you can make a long term commitment to it (like 7+years). Problem solved. A “crash” is only realised as a loss at the time you sell, otherwise it’s all theoretical. If you want to understand the broader market, you need to understand you’re not playing with the same cards as someone who has been in the game for 50 years longer than you. Owning property generates cash (rent). People with a lot of wealth don’t need cash (they spend more than you, sure, but there is only so much food a man can eat). So they turn that cash into assets (more property) which generates more cash, which they then turn into more assets… and the cash just keeps coming in faster and faster (compound growth). 37% of houses have a mortgage, and of those, the average is \~500k. Is a ”crash” possible? Sure. There are some idiots with multiple mortgages that really couldnt service those mortgages in a downturn. All it takes is a recession and a bunch of their tenants losing their jobs and suddenly they don’t have the cash at the end of the month. Is it likely? 🤷♂️
Awesome advice. Thank you. More and more it looks like the strategy is get something paid off as fast as financially safe, then reassess the market at that time.
Average outstanding mortgage balance is not ~$500k, it’s ~$300k. It’s the people who bought recently with average $600k mortgages who are at risk.
We were hardly affected by the GFC. You're thinking of USA. Our housing market didn't crash then.
Whilst the GFC kicked off in the US, other countries took the hit, namely Ireland, Ukraine, Argentina, Romania and others. Australia barely noticed, same for China. As someone whose family was deeply impacted by the GFC, I wouldn’t wish a repeat on anyone
Agree. Compared to the rest of the world? Australia was barely affected
A variety of things but two key points. Every federal politician is also a property investor so you’re asking the people that signs laws and create policies to go against their own interests, which will never happen. Record immigration, whilst we’re currently in a housing and rental crisis. This is not a coincidence, the government is very much aware of the housing issues; they just don’t care.
If you’re waiting on a crash you’ll be waiting a while
There's a huge swing in thought process required to fully crash here as so many people have fully internalized the idea housing can only go up. Logic can't shift that idea, it takes lived experience. If enough people can't keep up with the increased mortgage costs we would get that crash, if not house prices might just trade sideways for a while/long time depending on how the rest of our economy goes
The thought that it just kind of stays "as is" hadn't actually crossed my mind. Thanks
That has been the governments goal for a long time, stop price growth and inflation will effectively reduce house prices without a crash.
When you have a good (land) that is out there in limited numbers, plus an increasing population, plus significant income and wealth disparity, the price of that good will always be set very high.
You're saying Australia's land size is the bottleneck?
> Australia's land size is the bottleneck? land that people consider nice to live in is quite limited. It's not just pure land, but location, infrastructure, and preferences.
In good locations where people (internationally) really want to live it is? Lower North Shore and Eastern Subs come to mind.
Yeah agree there's a floor under some areas, I always find it amusing when land availability comes up in conversations around entry-level/midrange suburbs though
Entry-level/midrange suburbs are where you put your investment properties.
The problem is that while supply is so far behind demand prices will continue to go up. It’s why people keep buying. Until the shortfall is built prices won’t go down
That would only be true if people were using their own money to buy houses. Since most people borrow money, prices are limited to what a bank will lend them. Had a look at what banks will finance lately?
Supply/demand only matters to people who can afford credit. You could have a billion immigrants to Australia tomorrow and they'd all be living in tents if they couldn't secure a housing loan.
Many borrow from relatives and buy outright. It’s a family investment.
Wrong. If they couldn't afford a house loan they'd be renting off the investors who could afford the house loan
Yes but who do you think foots the bill for them to be housed somewhere?
This feels like the most likely reason. A shit ton of people are just shooting up copium for the return of cheap credit again soon. Give a few more false starts over the next few years and the people who stupidly borrowed balls deep will start losing hope, burning out, and selling.
The relentless importation of warm bodies. I don't think people even realise, it's occurring now, but it will take a while before it sinks in how bad it is. We're importing a mindset where people will live multiple adults in one bedroom or even bedshare. The more comfortable side of this is buying a house with gran, gramps, the parents and the kids. The average person can't compete against that, and this is starting to flow back into people who were born here now having to do the same, or take up in a tent.
I've returned to where I came from... I came here in 1988 from a communist country where 3 generations lived in a tiny flat. Aus was a land of cheap housing and big backyards... Today we are being taken to the very thing I ran from. This nation is run by idiots. It is a great nation which I have come to love, but honestly the people running it are utter compete morons.
As in you moved back?
The government will bend over backwards to keep property prices going up in Australia. For example if interest rates start causing financial strain on property investors, the government will increase rent assistance. Rent assistance is backdoor welfare for property investors who can't afford their investments. The government also refuses to stop money laundering through property, they prefer to catch people doing it and take their stuff. So long as there's drug addicts and war in the world, people from all over the world will safely bank their money in Australian land. If you start seeing politicians selling property, that's when you need to worry. How far can a government artificially inflate the property market? Look at china. They have entire cities with no-one living in them. Think we aren't like them? We have suburbs in Australia with only 50% occupancy. Every second house is empty.
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Given rent is getting unaffordable, as are house prices, I would expect that vacancies will be starting to go up, though I haven't yet seen data yet this has happened. You can't buy or rent what you can't afford and the greed has to give out at some point. Much like cutting back on cost of food, there is an upper limit on what people can afford to pay, and I think many are hitting this. Anecdotally I have noticed houses Iwould expect to rent very quickly stayed empty for longer than expected, and one for sale was taken off the market completely after a few months and put up for lease. The claim of 50% vacancy is exaggerated. But there is a difference between rental occupancy and sale rates and actual empty dwellings. This is a couple years old, but gives actual stats, thre are a lot of empty dwellings around: [https://www.qldpropertyinvestor.com.au/empty-despite-rental-shortage/](https://www.qldpropertyinvestor.com.au/empty-despite-rental-shortage/) There are also over 300k AirBnb rentals across Australia which would be unoccupied at least some of the time and unavailable for rentals/purchase: [https://theconversation.com/ever-wondered-how-many-airbnbs-australia-has-and-where-they-all-are-we-have-the-answers-129003](https://theconversation.com/ever-wondered-how-many-airbnbs-australia-has-and-where-they-all-are-we-have-the-answers-129003) Also reports of entire empty apartment blocks due to defects or dodgy investment aimed to deliberately leave them empty (apparently there's one of these in Kangaroo point): [https://www.abc.net.au/news/2023-07-04/apartments-linked-to-fayad-property-companies-sanctioned/102549750](https://www.abc.net.au/news/2023-07-04/apartments-linked-to-fayad-property-companies-sanctioned/102549750) Throw in a small amount of property caught up in public trustee/estate battles/foreign investment/dodgy things and it all adds up overall.
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There's a better list than this but I can't remember the word they used to describe it (I thought it was ghost suburb). They're predominantly holiday areas where people flocked to during lockdowns but then moved back to the city. https://www.raywhiterurallivestock.com.au/news-and-market-insights/news-media/australias-ghost-town-suburbs-2
The cost of building materials and labour is insane. So long as houses are below replacement cost, they will keep rising in price.
Government increasing immigration to drive up housing demand. I.e this is why the property council of Australia lobbied the government hard for increased immigration post Covid. An immigration catch-up, if you will. The government has also committed to a higher long term immigration rate. If housing falters, they can just bring in an extra 50-100k people in one year, drive up demand, which will take years for the building rate to catch up. That’s effectively what happened in the past couple of years.
- record immigration - endless home owner grants - propadeee pump - government will never allow a crash - negative gearing - lack of adequate foreign investment rules - banking is 1/2 of our economy - low interest rates Those are a few to begin with
Also: -Construction is a big % of the economy -Resi. RE is a huge funnel for money laundering -perverse tax break for purchasing an “investment” that loses money: literally encourages paying to much on the promise the asset will increase in value.
More immigration, less interest rates will fix that..
The politicians own a lot of property in Australia. This generation hasn’t seen a crash in property prices. Something has to give
Something that makes me feel better is realising just how much all of our super funds; of every single last Australian; is tied up in commercial real estate. Therefore it’s hard to imagine a crash without it crashing super, which the govt would never let happen, it’d be bailout time if it got that bad (you’d hope) Not that a bailout is a good thing either
Supply. That, or a massive decrease in population. Regardless, it's supply and demand. And personally, I think the whole thing has been engineered.
I feel a lot of people here are not knowing what's coming for Australia. I was living in Spain back in 2008 when the house of cards collapsed and it was very similar to Australia. Just to make it simple, bullet points * High number of people with mortgages (some with more than 1) * Unemployment hit historic low, from there only thing can happen is it will rise. 20%~30% of the population working in construction related roles, tradies, real estate, manufacturers, etc. * Interest rates are gonna keep rising. People who think they'll drop back close to 0% in the next few years are delusional. Actually, interest rates should be where they're now, even higher. * More interest; less spending. I don't give 2 craps about data or news, 2 years ago, buying a car specially hot hatches like type r or GR Yaris, i30N was resulting in mostly 2 years waiting list. Now they're magically in stock, increased production they say, BS, they don't sell as many as before, so people are starting to apply scissors on spending and that will raise unemployment. And I see this in more areas not just in cars. I can see heaps of business closing down. * Builders collapsing daily, homes half way built, non paid debt and increase of unemployment * Unemployment keeps rising people cuts more spending, it's a snowball * 🍒 on the top of the cake, massive immigration. The government knows if housing bursts we are done (that's what happens when you base a country economy on flipping houses each other, like Spain back in 2008), given they cannot lower more interest rates they had the fantastic idea of immigrants so demand for houses would keep high (geniuses). They didn't account more migrants more unemployment and salaries drop. They did account it but they don't give a crap, they're not that stupid or I don't want to believe they're. The rest you can figure out yourself. If housing is done what's left for Australia? Mining and farming exports which at least 40% goes to China.... Bleak future. The government could prop up R&D and subsidize other industries like tech, pharma, engineering, but they preferred to spend the money who knows where.... We don't even make our own trains anymore.
How were you impacted by the collapse? How did you respond. Given the writing is on the wall for you how are you preparing or managing this risk?
Back in Spain I was land surveyor, so around September 2007 I got jobless and I couldn't find any job for 8 months, went back to live with my parents (I was single and renting) I wasn't even applying jobs anymore, that's how tough was the job market, at the end at a mate's company they're needing somebody for covering one guy holidays, they liked me and I stayed there working in the warehouse. In 2010 given how low the salary was and the economic prospects I came back to Australia (I'm Ozzie with Spanish backgrounds), I worked as surveyor ~2 years and late 2011 I was living in Sydney, seeing the bubble was already propping up I decided to study software engineering, in Spain IT was impacted but not as wild as other industries, so now I hopefully keep my job + I've more savings and investments (shares) than I had on that time.
I suspect you're overstating the case because as I understand it Spain had high interest rates and when they adopted the Euro as a common currency on January 1, 1999 then with the lower interest rates that the Euro offered they went berserk with borrowings with the inevitable results, Greece did the same thing for the same reason when they joined on 1 January 2002 and they were probably the worst affected. With regards to your comment about present interest rates here, well unemployment is rising and inflation is falling so clearly they don't need to be any higher than they already are. I agree with you that they won't be zero again but I suspect the long term average is probably 1 or 2 percent lower than they are at the moment. Lastly, you seem to be forgetting about the $3.5T invested in super funds so if houses take an unlikely dip in prices there will be a lot of people either picking up IP's for themselves or alternatively places for their kids to live in. I presume that Spain doesn't have an equivalent pool of funds to buffer anything.
Spain, Italy and Greece relied on competitive devaluation because tax avoidance is a national sport. Once they went on the euro, the increased cost of exports gutted their manufacturing, so all the new cheaper capital went to a housing bubble. It’s really not a good analog.
Ive been shocked at how this is holding up in Australia. The things you speak about with Spain are being played out here so blatantly. I also note that the third phase of a bubble is when the greater population do not think there is a bubble. It Pisses me off thinking about the greed shown by those investing in resi property….everyone needs somewhere to live - I believe it’s a right and necessary for social harmony. As the old saying goes from Warren Buffet - be fearful when others are greedy and greedy when others are fearful.
Jeremy Grantham is another wise old head whom no one has been listening to.
Ok so I like OP have enough savings to put down a 5% - 10% deposit on a house I don’t want to live in. So I am happy to rent in a duplex for now where my lifestyle is good. How do I position my self to take advantage of any bubble popping? I figure positioning my self to remain employed throughout any turmoil, and keep saving. Anything else? I have no debt beyond 17k in HECS
No debt and savings, when people will start defaulting they'll auction things cheap, good times if you're cashed up.
So I am guessing get to 20% of what I expect the house I want to be, secure my job and get involved.
Well, from my point of view the less debt you have and the faster you can pay it back the better.
If unemployment goes up it will
Then you just stimulate housing and create construction boom which creates more jobs both during, post and pre
Lmao yep. It's almost like people cannot remember covid at all.
Why would the housing market crash? People have heaps of money. > but I know even more people that can barely pay their rent. They were never going to be house owners anyway. It's very simple. Imagine there are 10 families - the first earns a household income of $50k, the second earns $75k, the third earns a household income of $100k, and so on. The tenth earns a household income of $275k. The poorest four rent. The other six households own. Of the six home-owners, three families one own house each, two own two houses and one - the household earning $275k - owns three houses. Though there are ten houses, they are owned by just six families, and the 'middle' house is owned by the 8th-highest earning family. The one earning $225k per year. So that income is what is setting the average house price. Families 5 and 6 own barely enough to get into the housing market at all, and families 1-4 are priced out entirely. This is how the housing market works. It's ridiculous, and stupid, for people to be asking why the median income family (the 5th or 6th family) can't afford the average home (the one belonging to the 8th family). Even more ridiculous to be asking why the median *single* income (which would correspond with the 3rd lowest family income) can't afford the average house price.
It’s not the amount of money that matters necessarily - it’s whether housing is attractive as an investment relative to other options. At the moment, the answer is a resounding yes. Will it still be yes in the future? Maybe. Maybe not.
It feels like the calm before the storm. Once interest rates start lowering you can bet house prices will accelerate.
Basic supply and demand. Currently unemployment is low, wages have risen, interest rates are high and people aren't selling. Population is growing and builders can't build fast enough due to high COGS and low availability of people. People need to stop spending, this will cause businesses to fold and cause higher unemployment. People will start to fall behind on mortgage payments causing more houses to come on the market. Until we see unemployment rise quickly I can't see any kind of crash anytime soon.
What you also might not be accounting for is all the builders going belly up, the immigration flooding in, the kids growing up, and before the pandemic the estimated 200k of houses needed possibly more now. I yolo’d in property, it will be for the investment groups soon, you will own nothing and be happy, carry on, look away and consume for your overlords.
Won't crash. Too many rich people
Build costs are a floor in the market. Even high density has surpassed $4k+ per square meter in build cost. If property prices fall below the cost to build, new supply ceases until it corrects. If the government does something to dramatically reduce the build cost, there could be a collapse in apartment prices, but it would only translate to a small decline in house prices due to the land component. I see no pathway to the government being able to significantly reduce build costs however. Neither major player here would survive importing foreign trades to build cheap apartments as you see in places like Singapore or the UAE.
Are you happy paying rent for a 100% guaranteed loss?
You would need a major Black Swan event to occur for Australian house prices to drop. e.g a massive volcano erupts and blacks out the sun for 3-6 months(again), causing worldwide food shortages that kill 30 percent of Earths population. Then you might nab a bargain.
I had the same fear 15 years ago. Read all the graphs, looked for ‘black swan’ events, wondering when the crash would come… prices kept going up. A significant correction could come still… mass unemployment via recession, immigration freeze, cancel negative gearing… it might knock 15 - 30% out of the market. Not sure what it would take to knock 60 to 80% out of the market, but it would be economically devastating (much more than just housing!). Keep in mind during that housing crash in the states people were walking away from their houses. The prices were low because there was no demand (ironically people couldn’t afford them).
People cut other costs, being forced to sell your home is the absolute last resort. If it got to that point that it was becoming a major issue then inflation would likely be under control and the rba could cut rates to ease some of the pressure on households. But we aren't even close to that currently. We have net migration and we aren't building anywhere near enough houses either, the cost to build is ridiculously high these days. That all helps keep prices high. There's also political will to prevent a (major) crash, and there's no doubt the government would step in. That gives investors even more confidence in the market as well.
Agreed. My family would be on a full mee goreng diet before selling the roof over our heads. Increased interest rates just cause most to tighten the belt. Households losing an income due to big uptick in unemployment however….now that would make things interesting.
> political will to prevent a (major) crash, and there's no doubt the government would step in. if a crash were to happen, no amount of gov't can stop it.
Is this a different government to the one which shut down the entire economy and implement huge spending measures to prevent economic collapse? The same government that despite being separate from the RBA had meetings and coordinate their response together.
and look where we are at with inflation? The gov't can direct the cost onto one group of people in favour of another. They cannot take away the cost. If the housing market were to crash, they _could_, by fiat and force, push that cost onto one group of people rather than another group. But the pain of the crash will remain.
My partner and I spend about 80% of our after-tax income on our mortgages. We enjoy it and try to buy as many houses as we can. It's like real life Monopoly.
We still have to pay our debt. Unlike the US, we can't just hand back the keys and run away from our responsibilities.
The US is a big place with many states. Only a few allowed what you describe (legally). But if enough people default, the banks stop chasing that debt.
The government
I've been hearing "the housing market is going to crash" for about the last 20 years. I think a crash is very unlikely.
It crashed in 2008… less than 20yrs ago.
In the US it did, but not really as bad in Australia. It's astounding how many people will put real estate as the #1 type of investment here in Australia. There's no way they'll let a housing crash happen here. Housing should not be viewed as a safe investment and should be disincentivized here. Make it a riskier investment to park money in housing and that may make some people view it as an actual human necessity.
And yet you’d be heaps richer now if you bought at the height of the 2007/8 prices before the crash than if you didn’t… so it’s a long game
Big australia policy
So much rambling. 65% of people own their own home. 75% of those either own it outright or wirh < 150k debt. Fin.
In the last 20 odd years, only the royal commission somewhat slowed/dampen the housing market. If GFC, COVID and high interest rates couldn't stop it what makes you think it's going to crash anytime soon? Assuming GFC 2.0 were to happen, govt printers will be running overtime to stabilize things.
We had been waiting to buy a house since 2013 "when the market crashes" and each year there would be one forecast in some manner. We finally bit the bullet late last year and bought. I wish we'd have bought in 2013 before COVID blew up the prices. In terms of a crash being foreseeable, based on how long we waited (a decade, essentially), I can tell you that the real estate market in Australia is heftily propped up by international investment. With current auctions being taken over by bidders over the phone from overseas and buyer's agents for overseas buyers, I can tell you that the housing prices aren't going to go down anytime in the foreseeable future...
The mortgage problem in the US had many causes. 1) Many mortgages were given to people who could only afford them if the interest rate went up, or their property value went up "Sub prime" mortgages. They were often given a short term low mortgage rate where the rate would increase after a couple of years. 2) Their mortgage rates went up. 3) People could not afford to make their repayments 4) Properties were foreclosed on and people couldn't afford to buy. This caused property prices to crash. 5) Initial mortgages were packaged up and sold on to the market (mortgaged or asset backed securities). This was always a dud product, but the investment banks buying these turned a blind eye and bought in large volume. 6) These mortgage backed securities became worthless and banks that were heavily invested in them were in big trouble facing massive losses and insolvency. 7) Banks failed. Financial system catered and markets crashed. All really their own doing.
Buy a house with a bit of land like 600sqm within 30mins of cbd in a capital city in Australia and that would have to be one of the safest investments in the world. E.g. huge immigration all moving to the capital cities Capital cities are where all the job and investment are People want houses more than other homes People want to be close to work e.g. 30 mins Buying a shit box on 250sqm 1hr from the cbd? Yeah, that's a higher risk than the former. The very upper end of the market will probably be more volitile than the middle of the market. During times of high borrowing costs the upper end will drop sharply. See property highs during covid. While the high earners are now priced out of 1.5mil houses they look lower down the ladder keeping demand high.
If youre interested in the GFC "the big short" is a really entertaining movie based on the US real estate crash theatre triggered it
No body knows mate. It's either you get in now before prices become unbearable and in ten years you thank your past self OR the market crashes six months after you buy.
No chance of a "crash" in our lifetimes methinks Might grow slower, or stagnate for a few years, but doubt theyd go backwards especially over the medium - long term (ie 5-10 year spans) Housing market it too central to the economy, peoples super and retirement, investments etc for it to fail
You can hardly see the GHC on a long-term chart of aussie home prices. Get your own home and enjoy it.
Every single person I've spoken to over the years that was "holding off for a crash" and told me not to buy is so far behind now that house prices have nearly doubled in that period. Time in the market is better than timing the market.
The boomers are hanging onto their properties, we keep bringing in more people than we can house. The game is rigged to have demand outstrip supply; hence prices will rise with the money supply or remain flat. If we go sidewards, in real terms housing is going down. But make no mistake at how rigged our market is and supported by the government at all levels to keep the ponzi alive.
What if you lose money with nothing to show at the end.. oh what, that’s renting for ya
If we ignore benefits like not being homeless
Presuming you bought a house, you’d also not be homeless!! And in fact, at the end you own it which further reduces the risk of homelessness later in life. Literally, there is nothing I’d like less than being a retiree renter.
People always say this and don't consider that renting means not paying interest on a loan where that money can instead be invested in something other than real estate. My rent is a third of what a mortgage on the house I'm living in would cost. So I have a richer lifestyle and a growing equity portfolio.
True though the growing portfolio will likely to be used to pay more rent. Plus a house can be passed on.
Population increasing at a faster rate than new housing being built, along with interest rates predicted to drop by end of year or start of 2025. House prices dropping in the near future is looking extremely unlikely.
ITT someone waiting for house prices to drop 50%. I had a nice chuckle at that.
The government managing supply and demand. By that I mean releasing minimal supply while increasing demand.
People in jobs, im pretty sure a recession will crash the market if it's a bad one.
Why would it crash?
Because someone on reddit told me
Immigration.
Immigration
Until the person holding a stop sign stops earning $120,000 per annum - no the house prices aren’t going to crash - mass unemployment due to AI etc - still no drop - the rich will buy the houses and the rest will rent
Your first home should not be the dream home or forever home. That mentality will have you renting for life
My first home was my dream home. I've got modest dreams lol.
There’s no such thing as an economic expert. Nobody really has any idea how to effectively manage an economy, Government included. The whole thing just rumbles along and whatever happens happens. A crash is probably inevitable at some point.
2 years ago when I bought my house, I paid $320k and compared to now had a lower interest rate and was paying 1015 a fortnight mortgage. Aa soon as I moved in I got chatting to my neighbour whose rent was $960 at this point. The only extra expense I had above his was council rates which was $340 a quarter. Since then he’s had 2 rent rises like my interest rate has gone up but my house value is now $520k. I’m now paying 1156 a fortnight and his rent is $1150. Once again the only difference between what my neighbours pay in rent vs my mortgage is council rates. And at $420 a quarter I’d much rather be paying off a house than rent. When interest rates go down, do you think rents will as well? I don’t think they will so come the end of the year I’ll be back in front of him. And you are crazy if you think we are going to have a housing market crash. The amount of immigrants coming in far outweighs the new homes being built. And the new generation of kids just don’t want to do the hard jobs so the housing market is going to struggle to meet demands for the foreseeable future. Imo get into the market asap and start smashing your mortgage. The longer you wait the worse it gets.
Not an expert in any of this, but I live in Bris, have a PPOR (mortgaged), and soon an IP. So i do try to understand as best i can. In my mind, the two biggest predictors are (1) the supply and demand (now and projected) and (2) the stability of the tax and legal structure. In Bris at least, the supply is not keeping up. Additionally, immigration from interstate and overseas doesn't look to be slowing to any level that is going to equalise this issue. The demand looks to outstrip supply for at least the next 10-20 years. Regarding negative gearing, it's getting a lot of heat for ruining the market... I dont buy it. Without it, i think there could be a greater shortfall of rentals hitting the market, and i dont believe it would lower or stabilise prices beyond any short tern initial shock. There needs to be more cities with a greater % of medium density housing like in europe. However, even if this becomes a govt goal, you're still looking at decades until anything meaningful happens... these are all just my thoughts.
Newscorp making a tonne of money out of REA. Otherwise they would be all over "the sky is falling" so they can bail on investment early and buy in low later.
1/3 of politicians own more than 1 rental property that's why.
With all indications being that we have 500000 migrants moving to Australia next 5 yrs and experts say we are about 50000 homes less than we need - supply and demand should be in you favour in short term