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  1. #1
    Join Date
    Jul 2003
    Location
    Kapiti in New Zealand
    Posts
    4,031

    Default House value falls trap buyers

    Hi all,

    News for today

    Turi Condon

    THOUSANDS of home owners in Sydney and Melbourne are trapped with mortgages higher than the value of their properties.

    The re-emergence of negative equity could slow sales for the start of the spring season today as people hold on in the hope of an upturn, but could later push more property on to the market as banks foreclose.

    Prices in parts of western Sydney as well as the inner Sydney and Melbourne apartment markets have fallen well below their mortgage costs.

    And many who have borrowed in the past two years would be at risk of negative equity, according to Stephen Walters, chief economist with investment bank JPMorgan. The bank forecasts a 10 per cent fall in house prices nationally and regards Sydney and Melbourne as the most "overvalued" housing markets.

    "Negative equity doesn't trigger selling. That's interest rates and oil prices," Mr Walters said.

    Rising oil prices have been equivalent to around half the recent interest rates rises, he said. The Reserve Bank of Australia has increased interest rates by 1.25percentage points since March last year. Economists expect the RBA to keep rates on hold when it meets next week.

    Rising petrol prices combined with negative equity will have broader economic consequences, putting the brakes on discretionary spending, Mr Walters said.

    Apart from food, all categories of retail spending fell in July.

    Cutbacks will be in areas such as hospitality, sporting goods and flat-screen TVs, Mr Walters said.

    Ratings agency Standard & Poor's said arrears of more than 30 days on mortgages tracked by its SPIN index had risen slightly from 0.99 per cent to 1.03 per cent over the June quarter.

    S&P said it was the highest level since early 2001, although the levels of arrears remained low both in absolute terms and by global standards.

    But anecdotally, a grimmer picture is emerging.

    Chief auctioneer in NSW for real estate agency Ray White, Tony Fountain, said the "McMansions belt" of western Sydney and inner, over-built suburbs such as Green Square would eventually take the brunt of housing price falls.

    "The number of people who have borrowed 100 per cent staggers me," he said.

    He said falling house prices relative to mortgages was putting pressures on young families, investors who owned multiple properties and empty nesters who had increased their mortgages.

    "If the parents or families were involved as gaurantors, they could be in trouble too," Mr Fountain said. "Its the bleak side of the real estate bubble."

    Nick Dilles, principal of Century 21 in the western Sydney suburb of Fairfield, said there was more evidence of banks taking possession of homes.

    "We do a lot of mortgagee sales. We're probably doing 10 to 15 mortgagee sales a month," he said. "All bought in 2003, 2004, can't afford it, couldn't get out and have been repossessed."

    He said those houses were selling "at least 10 to 20 percent" less than their purchase price.
    News Source

    Cheers

    Marc
    Free business resources - www.BusinessBlogsHub.com

  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    3,936

    Default

    Marc.

    Do you still hold your apartment in Melbourne?

  3. #3
    Join Date
    Jul 2003
    Location
    Kapiti in New Zealand
    Posts
    4,031

    Default

    Hello Whitt,

    Yep we still have the apartment in Melbourne - its currently tenanted so we are lucky!

    Cheers

    Marc
    Free business resources - www.BusinessBlogsHub.com

  4. #4
    Join Date
    Aug 2005
    Location
    Melbourne
    Posts
    18

    Default

    I've seen this a little, as there have been several valuations come in lower than expected for a few clients - even lower than the council valuation!

    I don't think it's as bad as the article reports however. If you bought at the very top of the market you might be looking at negative equity, but rents are rising and rental demand is up.

    If you're in it for the long term and you were careful about what you bought, a drop in the market only means more bargins!

  5. #5
    Join Date
    Jul 2003
    Location
    Kapiti in New Zealand
    Posts
    4,031

    Default

    Hello PT_Bear,

    Yep we are in for the long haul with our apartment in Melbourne. Last year we worked out that if we sold it the price would be about 10k less that what we brought for which was about 2 years before! Its in a good area of South Melbourne near the Aquatic Center so we are very happy with the location.

    So is the rental market okay now for apartments in Melbourne?

    Cheers

    Marc
    Free business resources - www.BusinessBlogsHub.com

  6. #6
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,767

    Default

    What bothers me about this sort of talk is its seeming lack
    of "see-through" appraisal. E.g. If I bought a property for $X
    and I have it tenanted by people who are paying the rent
    and that rent is a figure that has the mortgage payments
    covered adequately, what does the paper valuation have to
    do with it? Even if it's now 80% of $X!?

    The worst case is really that the debt/equity ratio may be
    bothering the mortgagor. But, if the repayments are being made,
    that's really all that matters to the financier and so it shouldn't
    concern them, anyway.

    Or am I missing something here?

  7. #7
    Join Date
    Aug 2005
    Location
    Melbourne
    Posts
    18

    Default

    Hi Marc,

    Long term I think you'll do fine near the South Melbourne aquatic centre. I lived in an appartment near there for many years and it's a great area. This was one of the first areas in Melbourne to boom, back in about 1998, so it had most of its growth right at the start of the boom. Now that rents are moving, it's probably leading the way, and you'll probably be amongst the first to see growth in the next boom

    Perry, we're probably all missing something. Banks generally don't forclose on a mortgage if the repayments are being made. If people are forced into fire sales, it's probably because there are other circumstances, not just the valuation and there are still plenty of people getting 100% loans out there. Forclosing only gets bad press when the big bad bank goes after the 'Aussie Battler'.

  8. #8
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,767

    Default

    Quote Originally Posted by PT_Bear
    Perry, we're probably all missing something. Banks generally
    don't forclose on a mortgage if the repayments are being made.
    Exactly.

    Maybe the only point we're missing is that the article was
    written by someone a little short in critical appraisal skills?

    ". . . falling house prices relative to mortgages was putting
    pressures on young families"
    seems a fatuous statement.
    If it was not a property investment (and it didn't sound
    like it) then, if the mortgage payments are still being made,
    where's the issue? And why the scare-mongering?

    So someone’s home (not PI) suddenly has a negative debt
    equity ratio. Apart from being p****d off about that, if it’s
    the family home, there is no inherent danger in the market
    value fluctuation.

    The only valid comment seemed to be about increasing
    interest rates and/or diminished repayment ability through
    reduced income (job loss) or higher expenses, e.g. family
    additions, fuel costs, etc.


 

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