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Think New York Housing Is Expensive? Try Wollongong
Topic Started: 2 Sep 2015, 02:22 AM (1,226 Views)
Terry
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The bastards are at again. I'm sure that many in the suburbs take this foreign perspective personally, especially comparing Wollongong to NY

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YDNEY—Anika and Grant Spears began looking for a bigger house late last year, when they learned they were expecting their third child. But the real-estate market in Sydney was soaring, and they couldn’t compete.

“After Christmas, we saw prices go through the roof,” said Ms. Spears.

They appealed to their bank, which agreed to lend them 1.5 million Australian dollars (US$1.2 million) for a two-bedroom semidetached beach house with a narrow backyard in Sydney’s eastern suburbs. The Spears put no money down on the house, which they plan to expand by adding a second floor.

“We were very lucky,” said Ms. Spears. The 37-year old isn’t concerned that mortgage repayments threaten to eat up around 62% of their household income during the nine months she plans to be on maternity leave.

Australian households have among the highest debt levels in the world, according to data from Barclays. As of December, their debt had risen to 194% of annual income, the highest in Australia since at least 1960, as far back as the Barclays data goes, and even higher than the U.S. peak of 135% just before the global financial crisis in 2007. Household debt in the U.S. stood at 107% of annual income in December.

That debt burden, combined with a slowing economy and rising unemployment, has led economists and the central bank to worry about households borrowing heavily to buy homes whose prices have soared. They are concerned a housing-market correction could derail already fragile consumer confidence and dent spending at a time where the economy is struggling to adjust at the end of a long mining

“Australia’s leverage is in uncharted territory,” said Kieran Davies, chief economist at Barclays PLC in Sydney. “Households never deleveraged like in the U.S. after the financial crisis.” He expects debt levels to rise further because interest rates have fallen. That would make homeowners, and lenders, more vulnerable, Mr. Davies said—especially if unemployment increases, as the central bank predicts.

Australia sidestepped the global financial crisis because of the strength of its mining industry. But the collapse of commodity prices has hit the economy, driving unemployment to 6.1% from 4.0% in 2008 and leading the Reserve Bank of Australia to cut interest rates to a record-low 2.25%.

The picture isn’t all gloomy. The country’s banking sector remains among the sturdiest in the world, and bad debt as a percentage of all loans has fallen to the lowest level in nearly 20 years, according to UBS. But credit-ratings firms, including Fitch, expect default rates to increase.

The Spears were given their 100% mortgage because their current home and an investment property they bought a decade ago have doubled in value. “I know that house prices could fall if interest rates start going up, but we have an equity buffer to fall back on,” Ms. Spears said. The architect and her husband, a construction manager, hope to sell one of their properties next year at a A$700,000 profit.

Lower interest rates have led banks to aggressively market their loans. At the same time, many Australians have snapped up investment properties either for their higher yields or as a bet on rising prices. Official data showed almost 40% of home loans approved in February went to investors, compared with around 31% in early 2009, when interest rates had fallen because of the financial crisis.

Unlike in the U.S., where loans to consumers with low credit scores helped trigger the turmoil, the investors driving debt to record levels in Australia are mostly wealthy, though that wealth is largely based on the value of their real-estate holdings. Research published by the Reserve Bank in March found the wealthiest 40% of society owed about three-quarters of household debt.

“For every $1 of debt held by Australian households today, they have almost $6 of assets,” said Steven Münchenberg, chief executive of the Australian Bankers’ Association, an industry body representing the lenders. He said that households on average are 21 months ahead on their mortgage payments.

Still, regulators are getting increasingly concerned as the housing boom, which had been limited primarily to Sydney, the nation’s biggest city, spread to other parts of the country.

Home prices in Sydney have increased by nearly 39% just since June 2012, according to property data firm CoreLogic RP Data. But even in Wollongong, a steel town about an hour to the south, the median house costs roughly eight times annual median household income. By that measure, Wollongong is more expensive than New York City, according to a recent study by Demographia, a U.S. think tank.

Samuel Suarez, a 41-year old mechanical engineer, felt lucky three years ago when he found a two-bedroom apartment in an unremarkable building overlooking a highway noise barrier in Wollongong’s northern suburbs for A$236,000. “It’s really impossible to buy something in Sydney,” he said. “It’s unaffordable.”

Mr. Suarez asked friends and family to scrape together the 10% deposit, but the risk has paid off. The apartment’s value has soared by more than a third and the rent covers his mortgage costs, according to Mr. Suarez. That paper gain has made him confident enough to scale back his payments to interest-only and buy a second small house in Wollongong. That house is also rented out.

Mr. Suarez, his artist wife, Maria Paula Hoyos, and their two young children rent a cheap apartment in suburban Sydney, which they share with a student. When the kids are in bed, Mr. Suarez often clicks through a raft of spreadsheets to check his finances.

“You need to be prepared to take a lot of risk and be very disciplined,” he said. “But I like doing it because I know I’ll never be able to make that money in my regular job. I tell my wife: In two years’ time, we’ll be able to afford the dream house we want to live in.”

Australia’s central bank warned in September that lending has become “unbalanced” in favor of property speculators. It is working with regulators on possibly introducing new restrictions on mortgage lending to prevent the market from overheating.

“Property investors in Australia have historically been at least as creditworthy as owner-occupiers, and mortgage-lending standards remain firmer than in the years leading up to the financial crisis,” the Reserve Bank said. “Even so, a broader risk remains that additional speculative demand can amplify the property price cycle and increase the potential for prices to fall later, with associated effects on household wealth and spending.”

THE SHORT ANSWER

Darren McCoy bought his first house in his early 20s and now, at 49, owns a handful of investment properties. He realized that the more assets he had, the easier it was to borrow.

“Why use my own money, if I can do it with bank money?” he said.

Recently, Mr. McCoy was in a bidding war for a townhouse in the trendy inner-Sydney neighborhood of Newtown. As the bids soared beyond the A$850,000 asking price, he backed off. “I’m an investor, not an emotional home buyer,” Mr. McCoy said. The townhouse sold minutes later for A$1.11 million.

http://www.wsj.com/articles/worry-over-debt-as-australian-house-prices-rise-1430207189
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Foxy
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Zero is coming...

build more houses.

Simple.

Peter
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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Ex BP Golly
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foxbat
2 Sep 2015, 05:23 AM
build more houses.

Simple.

Peter
There are plenty of houses. We just require less greed. Take the tallent in this article, the Spears....

They are in the process of buying house 3 or 4, and are having a Fucking whinge about the costs!

DOH!
Edited by Ex BP Golly, 2 Sep 2015, 09:04 AM.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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The Whole Truth
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Darren McCoy bought his first house in his early 20s and now, at 49, owns a handful of investment properties. He realized that the more assets he had, the easier it was to borrow.“Why use my own money, if I can do it with bank money?” he said.
,,,,,,,,,,,,,,,,,,,,

It's easier because they are no doubt all cross collatorized, lose one, lose the lot.
I have never read a story in the popular press of it happening but I know personally of 2 people that did lose them all because of this. Just goes to show how one sided the press is.

Good luck with your investments darren, I think you're going to need a lot of it when the NSW bubble pops.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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stinkbug
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The Whole Truth
2 Sep 2015, 09:34 AM


It's easier because they are no doubt all cross collatorized, lose one, lose the lot.
I makes no real difference these days whether they are cross-collateralised or not. X-coll makes changes to borrowing a bit more complex, but in terms of loss the bank can already take all you have with that bank and then chase you in the courts for the rest (to the point of bankruptcy).
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Love the comments from Americans. You have to see it from an outsider's perspective to see what a dumb massive housing bubble we have going on now and what is going to happen to Australia's property market. They have been through it. It is going to be ugly, far worse than the housing collapse in the US.

"Wow. This is a bubble that is going to pop even harder than the one in the US.

"bad debt as a percentage of all loans has fallen to the lowest level in nearly 20 years" - at least until the financial dominoes start to fall.

The good news is, there should be an opportunity to buy Australian property for 25 cents on the dollar in a few years."
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stinkbug
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2 Sep 2015, 10:19 AM

The good news is, there should be an opportunity to buy Australian property for 25 cents on the dollar in a few years."
Cool, I'll go put my shopping hat on!
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Terry
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The picture isn’t all gloomy. The country’s banking sector remains among the sturdiest in the world, and bad debt as a percentage of all loans has fallen to the lowest level in nearly 20 years, according to UBS. But credit-ratings firms, including Fitch, expect default rates to increase.

Discussing with my colleagues at Nomura who said that Japanese banks are sturdier than our banks. And the reasoning was interesting: Japanese banks are increasingly independent of the government and cartels whereas Australian banks are driven by national interest and ideology based around hegemony of capital flows.
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ozz
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Ex BP Golly
2 Sep 2015, 08:59 AM
There are plenty of houses. We just require less greed. Take the tallent in this article, the Spears....

They are in the process of buying house 3 or 4, and are having a Fucking whinge about the costs!

DOH!
GREED is the biggest destroyer of man. Has, is, and will be in the future. We are hardwired into it.
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