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Australia is Facing a “Massive” Wave of House Repossessions; $100 billion sub-prime timebomb
Topic Started: 12 Aug 2014, 02:54 PM (6,298 Views)
Shadow
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Evil Mouzealot Specufestor

Sydneyite
14 Aug 2014, 11:24 AM
Seems to me that Germany may actually show that increased investor holdings of property leads to a more stable / less boom/bust market than with a higher proportion of OOs? Woops, there goes your "bubble indicator" theory.
Yes, I posted something similar a few days ago.

If you look at the chart below, the countries at the top with the highest home ownership rates (i.e. lowest proportion of investors), Spain, Ireland and Greece actually had some of the worst housing crashes in the world recently. It looks like higher numbers of investors actually make housing markets less prone to crashes, contrary to the rantings of some bears here. It makes sense too - investors weigh up the numbers when buying, and buy with less emotion, and they have rental income coming in which makes it easier to hold on when interest rates rise or they lose their jobs.

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Edited by Shadow, 14 Aug 2014, 11:38 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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herbie
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Shadow
14 Aug 2014, 11:34 AM
... It looks like higher numbers of investors actually make housing markets less prone to crashes, contrary to the rantings of some bears here. It makes sense too - investors weigh up the numbers when buying, and buy with less emotion, and they have rental income coming in which makes it easier to hold on when interest rates rise or they lose their jobs ...
As stated to Sydneyite:

"Germany had its tax incentive/investor driven boom and bust - A decade before the others is all (the timing being directly related to the reunification of the country): "

http://www.spiegel.de/international/business/real-estate-doldrums-why-the-global-housing-market-boom-bypassed-germany-a-552901.html
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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stinkbug
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So on the basis of today's discussion, do we still think that Australia is facing a massive wave of repossessions? I don't, but then I never thought we did anyway.

Our subprime market was, and remains, far too small for it to have a meaningful effect.
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Phil
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The housing bubble will destroy the entire economy one day regardless of how much “coping mechanisms” made things look like they could be propped up. It will involve house prices collapsing anyway when the time comes and the will be nothing that can be done about it because all the ploys will already have been done.

Doing something about it now will be less painful. There are fewer people in debt, to be affected by it, today, than there will be in the 10 years time that is my pick for the absolute last possible date that this can be propped up for. The problem is, the crash will come after everyone has stopped listening to the bears because they have been wrong for so LONG; and bitter young people will have given up waiting for the crash and will have mortgaged up to the eyeballs for the new 50 square metre hovels that will have been permitted by then as “affordable housing” – debt will be at an absolute max – THEN the big crash will come.

I have been convinced of this sort of scenario from the work of Phillip J. Anderson, which is strongly recommended by Catherine Cashmore (hence my reading it in the first place – hat tip to Catherine).
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miw
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goldbug
14 Aug 2014, 09:09 AM
Why do you look for an escape from this reality? Didn't the US and EU property collapses teach you anything. They collapsed because of the consequences of a market distorted by what we see here, a doubling of investment activity in a very short time in what was traditionally a private housing market. House prices rising well beyond rises in real on the ground wages. 50% of all stock going to investors!
The US collapse had nothing whatsoever to do with investment activity. It was all about owner-occupiers who couldn't afford to be owner-occupiers.
The truth will set you free. But first, it will piss you off.
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Chris
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miw
14 Aug 2014, 03:21 PM
The US collapse had nothing whatsoever to do with investment activity. It was all about owner-occupiers who couldn't afford to be owner-occupiers.
Your referring to the ridiculous NINJA loans but was that really the crux of the collapse or the final straw that broke the camels back. From what i have read and seen the NINJA loan period was the tail end of a series if escalating risk appetite periods , by that point they had got away with so much they just became ridiculous.

You're suggesting this was always standard lending practise? I also believe a significant phase of the house price escalation in the US around. 2003-4 was the 2nd and 3 rd home for investment/ retirement was it not ?
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stinkbug
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So does Australia have NINJA or ARM loans in any meaningful quantity? I'd argue not. The point of this thread was a massive wave of repossessions. Despite some rants and soapboxing, I'm not seeing anything to suggest that this is indeed the case.
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miw
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Chris
14 Aug 2014, 03:32 PM
Your referring to the ridiculous NINJA loans but was that really the crux of the collapse or the final straw that broke the camels back. From what i have read and seen the NINJA loan period was the tail end of a series if escalating risk appetite periods , by that point they had got away with so much they just became ridiculous.

You're suggesting this was always standard lending practise? I also believe a significant phase of the house price escalation in the US around. 2003-4 was the 2nd and 3 rd home for investment/ retirement was it not ?
You can get price escalation for many reasons, but we were not talking about the reasons for price escalation here. In most cases price escalation is followed by mere stagnation, not a 30+% crash.

The process of the crash is pretty well understood. It had everything to do with the correlated souring of all the subprime loans that could not possibly go well without continued price escalation (i.e. they went sour as the inevitable stagnation set in), which in turn caused the end of new credit which then guaranteed the default of all those loans and the subsequent crash. It's pretty safe to say that without the extension of large amounts of credit to borrowers who could never repay the loans, the US would not have had its real estate crash. The whole shebang of subprime loans, exploding ARMs and other ridiculous shenanigans was touched off by Bush govt policy to extend easy credit to aspiring OOs.

There were of course other factors involved, in particular the failure of the credit agencies to apply appropriate risk ratings to the securitised mortgages. Had they applied the right risk ratings, the demand for the securities would have been much lower and the incentive to write loans at any price to anyone would not have been there.
The truth will set you free. But first, it will piss you off.
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Ned Flanders
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miw
14 Aug 2014, 03:01 AM
Nice story, except that the changing of the Fed Funds rate did not in general change the rate of those loans at all. The starter rate and the adjusted rate were fixed at time of contract.

Which loans? ARMs? Alt-As? Option-As?
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The fact is that those borrowers had no chance of ever servicing their mortgages right from day one. The only way they could manage was to refinance or sell before the adjustment rate kicked in. The drop in house pricing (effectively cutting off both options) was what caused them to fall over, not the increase in interest rates.

Of course, the increase in interest rates had nothing to do with the drop in house pricing.
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miw
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Ned Flanders
15 Aug 2014, 03:16 PM
Which loans? ARMs? Alt-As? Option-As?
I've never heard of a loan in the US that, once written, varies based on the FED funds rate. A minority of loans (mainly vanilla ARMS) vary according to the LIBOR which spiked out of al proportion the the Fed Funds rate.

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Of course, the increase in interest rates had nothing to do with the drop in house pricing.


This is irrelevant to your original claim, which was that the increase in the fed funds rate stopped subprime borrowers from being able to service their loans. First, most of those borrowers were not impacted at all by changes in the FED funds rate in terms of what their repayments were. Second, from the day they took out the loans they were going to be unable to service the loans, so there was nothing the fed could have done to save them. Their only hope was to flip or refinance. When the market inevitably stopped rising, they were screwed.
The truth will set you free. But first, it will piss you off.
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