Yes Petermac you are correct. In the US many people bought with no money down and then took out money in a home equity loan then stopped paying and lived in the home for years for free before it was finally repossessed. Some people owned 5 or 10 homes and had them rented out, quit paying and collected rent for years. Bankruptcy was rarely necessary, the banks seldom went after people, in many States it was not even allowed. Usually it was a "short sale" where the bank sells it for less than owed and that was the end of it.

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petermac33 said..
Was thinking last night----its not so much the people who have just secured a large loan-- if the SHTF-- that will lose.

They presumably can just walk away bankrupt-- albeit losing their deposit,fees etc.

Its more the people that have paid a large percentage of their large loan off-- and find their property worth much less than what they've paid for it!

It's the banks who benefit from these high house prices--- due to them receiving more money in interest payments.

And of course the sellers who bought the property cheap and made a killing.

Can see more potential here in Australia than in the U.S due to higher house prices-- that the owners just walk away from paying off their mortgage-- when the value of their property is less than their mortgage.

It will happen here too.

Becoming bankrupt--- not sure what the laws are.

My understanding of how it works in Australia is that there is 3 stages to a complete default of a home mortgage.

1 - Bank sits down with you goes through finances and helps you with your budget
2 - Bank sits down with you and lawyers and your mortgage arrangement is changed/amended (longer term, lower rate, something to help keep your home)
3 - Bank takes your house

It is also my understanding that after the bank sells a repossessed home if they have not covered the outstanding debt owed they are able to garnish wages for up to and including 10 years of income from the mortgagees (If you sign it just you, if you and your partner sign it both of you).

I'm not 100% on all that but that is my understanding on how it works.

Little different to the throw the keys back with little or no recourse from the banks like you find in the US.

Before the house of cards came crumbling down in the US when you defaulted they would and could come after you for recourse but in the real world when so many people defaulted it was basically impossible for the banks and lawyers to go after all those people. The banks were simply overwhelmed and when they did make moves against people they were stymied by all sorts of counter measures, people questioned that the deeds were correct and in many cases they weren't, politicians got involved and put moratoriums on repossessions so as not to throw so many people out on the streets, lawyers and pressure groups found loopholes to slow them down etc...

Although there can be parallels with Aus and USA in the current economy, the same can't be said for our past and current bank mortgage finance system.

USA were lending >110% without security (and some even supplied rifles as a sign-up gift!) whilst the Aus banks would not loan over 90-95% and required security. Although the RE bubble in many of Aus cities and boom-towns is a real possibility - many (not all) of the property owners would have borrowed well within their financial capability (as opposed to USA property owners) and will possibly ride out the storm until prices lift again, inevitably reducing the impact.

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Sailhack said..
Although there can be parallels with Aus and USA in the current economy, the same can't be said for our past and current bank mortgage finance system.

USA were lending >110% without security (and some even supplied rifles as a sign-up gift!) whilst the Aus banks would not loan over 90-95% and required security. Although the RE bubble in many of Aus cities and boom-towns is a real possibility - many (not all) of the property owners would have borrowed well within their financial capability (as opposed to USA property owners) and will possibly ride out the storm until prices lift again, inevitably reducing the impact.

You would think so, but I think a lot of people will be mortgaged to the hilt in order to 'avoid missing out', and have bought places that might be a bit of a stretch. There are also investment properties with a big difference between the mortgage costs and the rental returns, and these sound great in theory but you actually need to have the income to cover it. If you don't...

If interest rates move up a little, then things become just a bit more expensive.

People also often forget that in a downturn, i.e. they lose their job, a lot of other people are also looking for work, and its difficult to find work, let alone at the same salary. A slow correction is the best to hope for.

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Sailhack said..
Although there can be parallels with Aus and USA in the current economy, the same can't be said for our past and current bank mortgage finance system.

USA were lending >110% without security (and some even supplied rifles as a sign-up gift!) whilst the Aus banks would not loan over 90-95% and required security. Although the RE bubble in many of Aus cities and boom-towns is a real possibility - many (not all) of the property owners would have borrowed well within their financial capability (as opposed to USA property owners) and will possibly ride out the storm until prices lift again, inevitably reducing the impact.

The percentages become a bit squishy when prices are over inflated, for example if some one had a 10% deposit on a home they bought for 1 million but in a few years find out it can only be sold for 800,000. It's happening where I live, mainly holiday homes and lifestyle retirement homes here but those figures quoted above are probably understating the situation.

On the flip side a bit further from the beach (1 street back) in the sub $500k market things are still moving along, all be it stagnant or at a small loss to previous sales.

Don't forget that in AUS, you either give a 20% deposit, or you have mortgage insurance. So, unless there is a >20% price correction, defaults are covered by the insurance. Might get those big corrections in the remote mining towns that close down, but I doubt you'd see that across AUS as a whole as there's just too many people hanging around wanting to buy a house that would swoop in. Doesn't sound like that was the case in USA?

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Harrow said..
Don't forget that in AUS, you either give a 20% deposit, or you have mortgage insurance. So, unless there is a >20% price correction, defaults are covered by the insurance. Might get those big corrections in the remote mining towns that close down, but I doubt you'd see that across AUS as a whole as there's just too many people hanging around wanting to buy a house that would swoop in. Doesn't sound like that was the case in USA?

yes and dont forget the main thing. supply and demand.
although sydney is pretty crazy, at the end of the day most people would rather live close to the city than in penrith or further.


and where i live, allthough soft and a surplus of flats, there is still a pretty good ratio of houses available at any one time to demand. ANd the new stuff you have to pack a cut lunch to get to. houses, not flats

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Harrow said..
Don't forget that in AUS, you either give a 20% deposit, or you have mortgage insurance. So, unless there is a >20% price correction, defaults are covered by the insurance. Might get those big corrections in the remote mining towns that close down, but I doubt you'd see that across AUS as a whole as there's just too many people hanging around wanting to buy a house that would swoop in. Doesn't sound like that was the case in USA?

Oh there were plenty of people waiting to swoop in but guess who knew better? The banks, the banks stopped financing loans because they knew the bubble had to be erased. They became very strict in their requirements and just tried to slow everything down. It was very hard to get a loan.
Unforeseen consequences, this is what I'm trying to tell you blokes. When it all goes pear shaped the cascading 5hitstorm seems to catch nearly everyone by surprise.

Now it's a month or two on, is anyone seeing any changes around Sydney and Melb? It's certainly slower here at the Gold Coast (and apparently Brisbane) for the price range I've been focussing on, with regards to time on the market.

There are a few price reductions, though they may have been overpriced in the beginning. Some places are still getting quite a few going through at open homes, but there don't seem to be offers being made

After seeing the rival gang fights on the news last night, I'd say there is a decline in prices.

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Haircut said..
Now it's a month or two on, is anyone seeing any changes around Sydney and Melb? It's certainly slower here at the Gold Coast (and apparently Brisbane) for the price range I've been focussing on, with regards to time on the market.

There are a few price reductions, though they may have been overpriced in the beginning. Some places are still getting quite a few going through at open homes, but there don't seem to be offers being made

Yeah. Nah. Yeah.

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The Gold Coast Bulletin said...

A MASSIVE 30 per cent surge in units sold in Surfers Paradise has seen the suburb leap past Melbourne's CBD as Australia's No. 1 spot for apartment buyers.

Surfers Paradise had 1606 units sold, the highest number in the country, for a median sale price of $345,000. That compared to 1540 units and a median of $455,000 for Melbourne CBD, according to CoreLogic figures.

www.goldcoastbulletin.com.au/nocookies?a=A.flavipes

Depends where on the Cold Toast of course, but as an investor you can pick up a small apartment near Surfers (Main Beach, Chevron Island, etc.) that is positively geared, after all expenses are considered. (I just bought one).

The mega Westfield project at Coomera is affecting that area, along with all the schools and its proximity to Brisbane.

Hope Island is being filled somewhat rapidly (although they all look empty). There's medical and schools going in too.

Waterfronts are being snapped up by overseas buyers, as can be seen by the number of completely dark houses at night.

While prices certainly aren't booming they're not cold either. They haven't moved for a decade. Compared to Sydney they look ridiculously cheap. A ****ing carpark near me sold for $800K because it had council approval for redevelopment as a one bedroom apartment. You can buy a four bedroom waterfront with a pool on Runaway Islands for that.

It wouldn't be the first time South East Queensland followed a Sydney boom soon after.

have you heard anything about what is holding up the westfield build? Apparently something has put it on hold

I wish I took a photo before they knocked down all the trees. The "this is a wild life conservation area" sign is still there. would make for a sad funny photo caption . the trees have already started to regrow. They'll have to bulldoze again if they wait too much longer

if you're into apartments the world is your oyster on the GC. apparently apartments have been very cheap for quite some time. real-estate agents have been suggesting them to me for the last couple of years. it must be a struggle to sell them?

Isn't the Gold Coast famous for flying people up there and convincing them to buy a new apartment and putting the pressure on? Free flights, and accommodation?

The idea is that they subsidize the first few years rent (from your purchase price) to make the deal sound good, but when the rent guarantee runs out, you now learn the market rental price is lower than you thought, and the capital value is less than what you paid for it?

I'm not saying that's always the case, its just what sticks in my memory over the years.

Not that its the same market, but I have a colleague that bought in Brisbane just before the GFC and the value is still less than what he paid for it. He's stuck with the same bank too as the valuations are too low to refinance with a different lender.

i'd like to buy to either live in or invest, but the areas i like are flood prone. in 2013 we had a serious flood around hope island and understandably it dropped values. it floods so easily. water comes out of the drain on a very high tide. i guess parts of brissy are the same.

the other area i like is in earshot of the train line, but they are about to triple or quadruple the number of trains running, so it's going to be noisier once done. I'm currently living near the track and it's bad enough as it is.

the market stats, what the media report and what you observe on the ground don't seem to add up? If you believed the paper and news, you'd think the GC was booming, but it's not. i think areas like burleigh and mermaid are doing okay

The GC is not booming. However you can get a 7.5% return on a little investment apartment. If you want yield it's not bad. Better than interest in a bank, as good as a blue chip stock, and it's pretty much guaranteed. You might even get some capital gain as a bonus (eventually you will).

BTW banks won't lend for anything under 40m2 living area no more. I found out the hard way.

@haircut: I was originally looking at Coomera (not Lower Coomera) but the prices were just outside my limit. Again they return a high yield. I can't recall what was happening with Westfield apart from it will/may not be as large as first planned and there is debate about who is to pay for the off-ramps. You can find all the plans online, if not PM me as a reminder.

P.S. Missing the clean waters of the GC and the pool-table flat runs alongside sandbanks.

When there is a downturn in housing values the first places hit are in the outlying areas, furthest from the jobs.
When the prices begin to recover it's in the reverse, areas closest to urban hubs recover first and the outlying areas recover last if at all.
I have observed this in California. While up and coming locations may seem to have the most potential for large increases in value if things go well they also are at the greatest risk when it all goes bad.

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Beaglebuddy said..
When there is a downturn in housing values the first places hit are in the outlying areas, furthest from the jobs.
When the prices begin to recover it's in the reverse, areas closest to urban hubs recover first and the outlying areas recover last if at all.
I have observed this in California. While up and coming locations may seem to have the most potential for large increases in value if things go well they also are at the greatest risk when it all goes bad.

Not true in many locations over here, although you are correct about the differences.

In Vic (as a Vicco that's what my knowledge is based on) the outer areas of the cities & rural areas don't have as high a price tag and when a downturn happens, the real estate looks attractive for those moving to the outer areas, therefore there is a lag time. Eventually the economy steadies, but in most cases that's about when prices begin to rise again.

Funnily enough, inner-city properties retain their value through sharp ups & downs whilst rural and outer areas ride the downturns well due to the longer lag in the market, so they have plenty of time to prepare...the infill areas are most affected in my opinion, but even they are remaining steady through this period.

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FormulaNova said..

In some places, even here in Australia, there are buildings without apartment 4 and the like, similar in a way that some buildings have no 13th floor and/or use it for building services instead of apartments.

I think I read something recently where a lot of Chinese developed buildings (here) skip these almost unlucky numbers.

I lived in a Chinese built apartment building in Vancouver and there were no apartment 4s. There was also no level 4, 13, 14, 24 etc. I was in apartment 8 on floor 30, which was the 7th apartment on the 26th floor.

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P.S. Missing the clean waters of the GC and the pool-table flat runs alongside sandbanks.

thanks for the info :)

do you look like ever moving back up?

Northern beaches pricing seems to have calmed down a little. Rents though seem to have gone insane.

possibly the fear of negative gearing changes?

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GreenPat said..

FormulaNova said..

In some places, even here in Australia, there are buildings without apartment 4 and the like, similar in a way that some buildings have no 13th floor and/or use it for building services instead of apartments.

I think I read something recently where a lot of Chinese developed buildings (here) skip these almost unlucky numbers.

I lived in a Chinese built apartment building in Vancouver and there were no apartment 4s. There was also no level 4, 13, 14, 24 etc. I was in apartment 8 on floor 30, which was the 7th apartment on the 26th floor.

I am guessing there were all floors 4, 13, 14 and even 24 but your lift didn't stopped on those.
You simply haven't this admin privileges to access secret floors..

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cRAZY Canuk said..
Northern beaches pricing seems to have calmed down a little. Rents though seem to have gone insane.

Not in other parts of Sydney. They seem to have dropped off a bit if anything. All the extra apartments that are available now, whether they are being bought or being rented is taking pressure off and rents are falling. Yes, believe it or not they are falling.

Despite what things like Domain and any other 'we want you to buy a place' marketing group says, rents are falling, and Sydney is not in an undersupply situation.

and just to contradict everything the local paper is writing about apartment sales going up, a news report on the radio this morning while driving to work stated gold coast apartment sales have dropped 9% this quarter according to blah blah, but i didn't hear who blah blah was.

where is everyone getting all these so called statistics?

Don't get to concerned over figures, apparently 63% of all stats are made up to suit the article they are used in.

It seems that prices have fallen Sydney for the last quarter.

I can't find the original article I read earlier today, but here's one relating to it:

www.smh.com.au/business/the-economy/rbas-glenn-stevens-says-moderating-house-prices-helpful-20160322-gnokht.html

For some reason they don't seem to make a song and dance about house prices falling... go figure. 'Domain' seem to have some interest in selling houses for some reason..

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GreenPat said..

I lived in a Chinese built apartment building in Vancouver and there were no apartment 4s. There was also no level 4, 13, 14, 24 etc. I was in apartment 8 on floor 30, which was the 7th apartment on the 26th floor.

Wouldn't that be a problem for emergency situations? Does it mean fire fighters need a "conversion table" to locate the trouble spot? Imagine the difficulties when calling "000".

"Hello Hello...I need someone to get me out of my toilet. My Mrs locked me in from the outside. I am on Level 5, which is actually Level 4."

Fire fighter: "Are you on some kind of drugs, Sir?" I shall get the ambulance for you instead.

Joke aside, isn't that against the law and building regulations?

amp have apparently just released a list of suburbs with lending restrictions for apartments. look at poor qld

Lol. Every suburb in cairns