Has anyone witnessed firsthand a property price bubble? What does it look like?

[eri]

yup

with councils dead-set on driving up the cost of new builds

it's very, very hard

in a housing shortage

to see why solid older housing

won't keep an 80%? pace

with forever climbing; leaky, shonky, shaky new build costs

the labour /green faithful must be so frustrated they can't just

nationalise housing

and give it to their supporters

isn't that

what being in POWER

is all about!

[Chris W]

FYI, here is a comment from a property investor with properties owned in Australia. The investor lives in NZ.

"I have appartments in Sydney. One has dropped $ 150,000 in 3 months.( from $ 550,000 to under $ 400,000 today) 2 in the block are for sale, equity is not there anymore. Bank has called for more money or re-mortgage.Owners are devastated, and have no home anymore, they will be renting before the end of the month. Their propertys have to be sold , at possibly no reserve."

[Perry]

I have apartments in Sydney. One has dropped $ 150,000 in 3 months. (from $ 550,000 to under $400,000 today)

And the investor's purchase price for that apartment / those apartments was?

[Chris W]

And the investor's purchase price for that apartment / those apartments was?

Undisclosed. This part of their comment might give you an idea though.

"equity is not there anymore."

[Perry]

Possibly. But if we can't know how much of "from $550,000 to under $400,000" is the counterfeit dollars of inflation, the numbers are meaningless.

[Chris W]

Possibly. But if we can't know how much of "from $550,000 to under $400,000" is the counterfeit dollars of inflation, the numbers are meaningless.

Can you please explain what you mean by "the counterfeit dollars of inflation"

[Perry]

Really?

You are joking, right?

It's part of the same scam called CGT.

If I sell my property for ten times the price I paid for it, and I seek to replace it with something similar at much the same time and place, I'll find that all other comparable properties have gone up by a factor of ten. I did not gain: I lost. Because of legal and REA fees.

The ten x numbers of the sales prices are the counterfeit dollars of inflation. That do not represent value, nor replacement cost. They are numbers which represent the decreasing purchasing power of money / currency.

Evidence?

The disappearance of one, two and five cent coins.

[Davo36]

I know what you mean Perry but never heard it called "the counterfeit dollars of inflation".

But yeah, if he paid $250k, then it's not really a problem.

[Davo36]

FYI, here is a comment from a property investor with properties owned in Australia. The investor lives in NZ.

"I have appartments in Sydney. One has dropped $ 150,000 in 3 months.( from $ 550,000 to under $ 400,000 today) 2 in the block are for sale, equity is not there anymore. Bank has called for more money or re-mortgage.Owners are devastated, and have no home anymore, they will be renting before the end of the month. Their propertys have to be sold , at possibly no reserve."

Well this is what happened in the late 80s, early 90s. The Aussie banks just foreclosed on half of NZ.

But they did the reverse in 2008/9. They kept everyone afloat.

Will be interesting to see what they do this time around.

[Chris W]

Davo36

Can you share your experiences / stories of banks choosing not to foreclose of loans in 2008 / 2009. Why do you think that did that rather than foreclose?

[Learning]

Possibly the banks were worried that had they foreclosed on all the loans they themselves, would of gone under as the outstanding debts were greater than the property values at the time???

[McDuck]

Possibly the banks were worried that had they foreclosed on all the loans they themselves, would of gone under as the outstanding debts were greater than the property values at the time???

I'm thinking, just a speculation mind, that the global banking structures were motivated by the very real possibility of the total self extinction of the worlds banking system.

Aka, no more fat cat dinners and top end luxuries for them.

I'm guessing that the nature of the contagion dawned on them, in a cold sweat, as they woke up that morning.
The interconnectedness of all financial instruments (and tools) became vividly apparent to them.
They saw dominoes, lots of financial dominoes.

The governments and the banking giants, in a desperate bid of self preservation, forced an emergency plan into operation.

While the world was blissfully unaware of how close western civilisation came to descending into a second dark age.
Or not. Who knows,
No one's telling .

One of the things I always appreciated John Key for was him having a foot in both the Government and Banking worlds.

That may have given little New Zealand a huge foot up.

[Davo36]

Davo36

Can you share your experiences / stories of banks choosing not to foreclose of loans in 2008 / 2009. Why do you think that did that rather than foreclose?

Ummm not easily. Don't you recall what happened then?

I remember hearing the boss of Kiwibank on the radio in the car one afternoon. He was explaining all the steps they were taking to help mortgage owners.

Mortgage holidays, interest capitalised into the loans, loans refixed at much lower interest rates (thanks to the OCR going from 8.75 to 2.5 overnight) - with the break fees added into the loan again.

In the commercial world the banks just let owners tread water. In some cases their properties couldn't be leased because if they did lease them at a new much lower rental, and you then applied a cap rate to that, then the property would be worth less than the mortgage on it.

Why did they do this? To save their own bacon, as others have pointed out. This is what I assume anyway:

1) If they foreclose on lots of people, they drive property values down, which is a self-fulfilling prophecy i.e it kicks off a spiral downwards, creating even more problems for themselves
2) The banks lose a lot of money when they foreclose on loans
3) Any bank doing this would lose market share.

It was as if they all got together and said "Hey guys, things are really bad out there, let's just not doing anything rash, lets just play a wait and see game and see if we can get it to all hang together. Otherwise there's going to be a bloodbath."

And of course we now know the Aussie banks got money from the Fed in the US to prop them up.

[McDuck]

.
It was as if they all got together and said "Hey guys, things are really bad out there, let's just not doing anything rash.."

It was a bit more aggressive than that.

I've watched hours and hours on interviews with all parties.
Really scrutinised each word and reason, then cross correlated those with all the other info.

If you could compare the global banking system with the human body, then they were doing mass amputations in a desperate effort to stop the poison from reaching the vital organs.

On the bright side, they dramatically slowed it.
On the bad side, the new fire walls now in place are not very good for some (unaware) parties.
They are unwittingly on the burn side.

[Chris W]

Your thoughts?

If these price predictions eventuate, then these property markets will have experienced a property price bubble.

‘Let the bloodbath begin’: House prices in Sydney and Melbourne ‘could halve’ in worst crash since 1890s

House prices could fall by more than 40 per cent in the “worst crash since the 1890s depression”, a new report warns. We’re now in stage two of the “bloodbath”.

February 20, 2019

House prices in Sydney and Melbourne could fall by up to 25 per cent this year alone and “there’s a chance they could fall by half” in the coming “property bloodbath”, an economist has warned.

LF Economics founder Lindsay David, who has been warning of the looming property crash for the past five years, said in a report today the recent house price falls were just the beginning.

CoreLogic data for January showed Sydney and Melbourne prices were now 12.3 per cent and 8.7 per cent down from their respective peaks in July and November 2017, with Melbourne falling at “the fastest rate ever seen”.

“We think there’s a chance property prices could fall by half in Sydney and Melbourne over the long run,” Mr David said. “I wouldn’t be surprised by falls of at least 40 per cent. When all hell breaks loose you’ve only got so many buyers out there.”

His base case of 20 per cent falls in calendar 2019 is significantly more bearish than other experts. AMP Capital is tipping total peak-to-trough falls of 25 per cent in Sydney and Melbourne, while UBS is tipping 25 per cent with a “rising risk of 30 per cent”.

Mr David bases his forecasts largely on the “debt accelerator”, which is strongly correlated with house price growth six months forward. Latest data indicates the debt accelerator is “falling sharply” in Sydney and Melbourne.

Growth in mortgage debt slowed from 6.3 per cent in December 2017 to 4.7 per cent in December 2018, with bank bosses tipping that number could fall to between 2 and 3 per cent in coming years.

With a baseline of 3 per cent, the downturn in the debt accelerator “remains negative through to December 2019” at a minimum, suggesting prices could continue to fall through to June 2020.

If that happens, Sydney and Melbourne “will suffer peak-to-trough falls never experienced before, outside of the 1890s depression and real estate collapse”.

Mr David’s report, Let the Bloodbath Begin, outlines no fewer than 18 separate headwinds facing the housing market, from the $120 billion interest-only loan rollover and mortgage broker exodus to the Labor Party’s proposed tax reforms.

He argues Australia is in stage two of a five-stage process as the country’s debt-financed asset bubble bursts. “The losses are going to mount, and start to mount faster because now you’ve got those economic headwinds involved with the bubble bursting,” he said.

In stage one, prices start to fall after a sharp run-up, with most people believing it’s “just a small pullback”. Stage two is when prices fall further, small property developers start to go under or cancel future projects and bank profitability begins to stall.

The mindset in this stage is that the declines are “more than expected” but “orderly”. Stage three is when prices “fall well past thresholds owners are comfortable with”, banks take a further profit hit, more developers go under and construction job losses mount.

This is when “panic slowly starts to set in”, particularly among highly leveraged borrowers, and mindsets “eventually shift from denial to questioning how this can possibly be happening” as “nobody believed prices could fall by this much”.

“We are shifting from stage two of the bust to stage three,” Mr David said.

Stage four is when the recession starts. Banks suffer a profit “wipe-out”, residential construction comes to a “grinding halt”, properties go unsold as mortgage defaults and unemployment rise. The mindset is “we’re doomed”.

The final stage is when the property market finds its floor. Banks have been bailed out or nationalised but credit availability is still limited. Cashed-up buyers or private funds buy distressed debt and dwellings at discounted rates. Prices slowly begin to rebound.

“On the bright side house prices will become very affordable again,” Mr David said. “But it could be a horrible time for the economy. The risk of recession is really high.”

The early ’90s recession was “the recession we had to have”, but Mr David believes by the end of this year we could enter “the recession that’s really going to hurt”.

In the report he argues that the more time passes, the less chance the government or regulators can arrest the declines with a “bazooka stimulus that hits the bullseye from an ever-increasing distance”.

Even if the Reserve Bank cuts rates further from its record low of 1.5 per cent, banks will “only pass on a fraction” due to their reliance on overseas capital markets, where interest rates have been steadily rising.

The only path to reinflating prices would be to relax lending standards — the prudential regulator did lift its cap on interest-only loans last month — but the banking royal commission fallout has made that unlikely.

Mr David said the downturn signalled the end of the “Ponzi finance model”. “People have to understand that there are simply too many investors already tied up in the housing market and they can’t go and buy more real estate unless the value of their home rises,” he said.

“That’s how everyone was able to accumulate so many properties in such a short time. They bought a $500,000 investment property, 12 months later it’s worth $600,000, with that $100,000 equity you’re able to go and buy another $500,000 property. You can’t do that anymore, it’s in reverse.”

Mr David, who has often been criticised as a doomsayer, said the house price falls were “nothing to feel good about”. “It’s safe to say we have for quite some time been the most hated macroeconomic research company in Australia,” he said.

“But everything we have warned about has come to fruition — the mortgage fraud, illegal lending practices, the stupidness of the RBA to cut interest rates too early. But in reality these are people’s livelihoods we’re talking about.”

Source: https://www.news.com.au/finance/econ...b13c77629f060a