Welcome Guest [Log In] [Register]


Reply
  • Pages:
  • 1
Your wealth can evaporate quickly if property prices fall, but your debts will remain the same; Housing wealth is uncertain, but mortgage debt is very real
Topic Started: 15 Aug 2017, 09:32 AM (1,370 Views)
Admin
Member Avatar
Administrator

Quote:
 
Housing wealth is uncertain, but mortgage debt is very real

Basically, the head of Australia's biggest bank is warning that a large part of your wealth can evaporate quickly if property prices fall, but your debts will remain the same.

That can leave over-leveraged home owners and investors in negative equity, where they owe more than their property is worth.

At that point, the borrower has few options. They can't sell the property to pay off the debt, so they just have to try and keep up with the repayments.

If their income falls (say through job loss) or interest rates rise and they can't meet the repayments, they will be at the mercy of the bank or bankrupt if the debts are called in.

So, on paper right now, most Australian home owners look like they're doing just fine, even fantastically well.

But it only takes a fall in the market value of their real estate to put them on the knife-edge of bankruptcy.

One factor reducing this risk is the large repayment buffer Australian households have — in aggregate, the nation is well ahead on its mortgage repayments.

That means, should a serious downturn and rising unemployment strike, many borrowers could ride out a long period without defaulting on their mortgage because they are so far ahead on repayments.

But Mr Narev again had a word of caution against being too complacent.

"We've just got to make sure we don't take comfort just of the averages," said Mr Narev, adding that the bank was focused on identifying "the risks in the tail."

If you get to a situation where average borrowers are defaulting, you're probably already in a financial calamity of the scale of Ireland or Spain in 2008/2009.

Even in the US during the financial crisis, the bulk of defaults were people at the extreme margins of loan quality — the so-called subprime and NINJA (no income, no job, no assets) mortgages.

Dr Kent said there is evidence in the Reserve Bank's analysis of a large bundle of mortgages that it is precisely the riskiest borrowers, who have borrowed the largest amounts relative to their home's current value, that have the skinniest repayment buffers.

Read more: http://www.abc.net.au/news/2017-08-14/housing-wealth-uncertain-mortgage-debt-is-real/8803116
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
Member Avatar


In other news, fish swim. More at 6...
---------------------------------------------------------------

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.

Profile "REPLY WITH QUOTE" Go to top
 
Simon_S
Member Avatar


I like this Bit:

Quote:
 
So, on paper right now, most Australian home owners look like they're doing just fine, even fantastically well.

But it only takes a fall in the market value of their real estate to put them on the knife-edge of bankruptcy.


It doesn't take much..... :lol

Profile "REPLY WITH QUOTE" Go to top
 
herbie
Member Avatar


Well Yeah maybe; Unless things were to genuinely turn to poo and some sort of 'debt forgiveness deal' (as supported by Steve Keen - 7:00 mins into https://www.youtube.com/watch?v=368rjAANQRQ )

Or 'alternative solution/s' were to be implemented.
Edited by herbie, 15 Aug 2017, 04:35 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
Profile "REPLY WITH QUOTE" Go to top
 
Ex BP Golly
Member Avatar


stinkbug
15 Aug 2017, 03:49 PM
In other news, fish swim. More at 6...
Mr Narev said ""It should cause questions, because this is an outlying chart relative to global experience,"
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
Profile "REPLY WITH QUOTE" Go to top
 
herbie
Member Avatar


Ex BP Golly
15 Aug 2017, 04:46 PM
Mr Narev said ""It should cause questions, because this is an outlying chart relative to global experience,"
I've no doubt at all it is causing questions Golly.

But I've also got no doubt (these days at least) that the answers bears are given to those questions (should it come to it), very well may not be ones that they'll like.

Leastways the Mises type bears won't ... :)
Edited by herbie, 15 Aug 2017, 04:53 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
Profile "REPLY WITH QUOTE" Go to top
 
GloomBoomDoom
Member Avatar


http://www.news.com.au/finance/business/breaking-news/dollar-and-housing-credit-concern-rba/news-story/17e506ec1378444430a76d85360ad474
MSE
Profile "REPLY WITH QUOTE" Go to top
 
Poontang
Member Avatar


Shares are no different. You can have a bad year and your portfolio go backwards. If the fundamental reasons for holding those stocks are still sound you can ride out short term negativity or even look to take advantage of it and top up.
There are some people who seem angry and continuously look for conflict.
Walk away, the battle they are fighting isn't with you, it's with themselves.

The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it.
The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.

Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
Member Avatar


Ex BP Golly
15 Aug 2017, 04:46 PM
Mr Narev said ""It should cause questions, because this is an outlying chart relative to global experience,"
Our market (generally) has done fairly well, but most places still haven't seen the kind of increases that preceded major crashes (e.g. Dublin).

We should be keeping a watching brief, which I believe we are doing.
---------------------------------------------------------------

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.

Profile "REPLY WITH QUOTE" Go to top
 
herbie
Member Avatar


stinkbug
15 Aug 2017, 06:29 PM
Our market (generally) has done fairly well, but most places still haven't seen the kind of increases that preceded major crashes (e.g. Dublin).

We should be keeping a watching brief, which I believe we are doing.
While I'll not pretend to have thought about it deeply or even researched it in any real way at all, of the 'modern' severe property corrections I know of (Japan in the early 90s; Germany in the late 90s; the US, Ireland and Spain all about a decade ago and GFC related), the one that just off the top of my head I'd opine any similar major property corrections in the various Australian State capitals might bear the most similarity to, was the German one.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
ZetaBoards - Free Forum Hosting
Create your own social network with a free forum.
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply
  • Pages:
  • 1



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy