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House price bubble will burst soon, predicts director

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Australian Broker | 14 May 2014, 08:34 AM Agree 0
A Brisbane-based financial planner has slammed Australia’s large amount of mortgage debt as being the precursor to a GFC-style meltdown
  • Steve | 14 May 2014, 09:07 AM Agree 0
    Typical financial planner slamming property so he can make money from clients share trading.
    Why no commentary on a bubble bursting in the stock market?
    Does he understand fundamentals of supply and demand?
  • Wozza | 14 May 2014, 09:08 AM Agree 0
    Another doom and gloom merchant! Our banking system is totally different to the US pre-GFC and I personally feel it is robust and in no such danger.
  • Bottom Line | 14 May 2014, 09:18 AM Agree 0
    Biggest load of rubbish I've read in the last 5 years
  • No property centric advisers | 14 May 2014, 09:33 AM Agree 0
    No doubt Mr Baker earns fees for putting his customers into cash and shares!
  • Oh I'm so scared.... | 14 May 2014, 09:57 AM Agree 0
    AB You can do better than to quote a single planner who looks to have read a book published overseas about an entirely differently regulated credit market.
  • Southern Broker | 14 May 2014, 10:21 AM Agree 0
    Is your real name Harry Dent?
  • dpathle | 14 May 2014, 12:51 PM Agree 0
    "prohibits a bank from engaging in propriety trading that does not directly benefit its clients"
    If that simple statement was incorporated into regulation, we would see some great changes develop. For example.. Bank can't approve home loan if their cash flow is reduced by more than what they are saving over the past 12 months. $20k per annum in Rent and saving $10k per annum towards home loan. If new home loan costs $$31k per annum in Interest, Rates, Insurance and maintenance (based on 7% of purchase price), then client clearly should NOT be approved a home loan.
  • DanG | 14 May 2014, 02:20 PM Agree 0
    I won't be taking financial advice from this guy any time soon.

    House prices have always fluctuated and we do not encounter dire financial markets each time. Lowering property values only entices investors look upon other avenues such as stocks and commodities which in turn enjoy increases in their value. Money moves around on swings and roundabouts and life goes on. It does not simply disappear like it did in the GFC

    The cause of this was not due to the bursting of the bubble in the property market itself. It was the subsequent revelation of overvalued products made up too much of second rate mortgages bundled into token amounts of decent stocks to create an incorrectly graded 'low risk' investment product. These products were sold and resold in blocks of hundreds of millions. The banks bought and sold off each other, sold to the rest of the market, pension funds bought in and so did any venture that had money to invest. They were mixed, combined, sold again and again and eventually intertwined so far in that it was nigh impossible to quantify the amount out there or who’s books they ended up on.

    A block that started as $100m worth of (predominantly bad) loans was sold by the bank to the market for $150m because it’s return potential by x date. That was not to be. The home loan default rate rose with borrowers forfeiting. The repayments stopped and the projected returns of these investments dropped so rapidly that they were soon identified as the junk they were. The $150m written into your book turned into $70m and money started disappearing faster than companies could check their ledgers to see if they were exposed, let alone react.

    Needless to say these products haven't been created since. 100%+ home loans have largely disappeared. Australasian banks have always had far more stringent regulation than those in America. The combination of these three we should mean lowered house prices are just that, nothing more.

    If the world didn’t crash down around us in the GFC, it won’t now
  • Peter Summerton | 14 May 2014, 03:29 PM Agree 0
    Abolsutely no idea. How can prices fall with such population growth
  • Paul Sheedy | 14 May 2014, 05:42 PM Agree 0
    The word doomsdayer comes to mind. Does this person have any knowledge at all, as to how the GFC came about? Australia arguably has the most regulated mortgage lending market in the world. To compare it to the US mortgage market is just ignorance at the highest level.
  • John Moore | 27 May 2014, 11:26 AM Agree 0
    One can’t necessarily apply Shiller’s findings to the Australian property market which is underpinned by recourse lending as opposed to the non-recourse lending that was available in the US market at the time of the GFC. Add to this the fact that Australians median wealth per adult is the highest in the world (according to the Credit Suisse Global Wealth Report 2012) at $US194,982 supporting the level of property prices in Australia. One can mistakenly interpret the figures/charts if relative considerations are not taken into account.
  • Jerry | 27 May 2014, 02:39 PM Agree 0
    so conditions here are 'the same as those which led to the “near collapse of the US banking system” in 2008. '

    Is this supposed to be a joke? I'd love to see the research which proves the alleged similarities.

    Predicting a disaster is a great way to get some attention, but, it's a pity it lacks any actual data or understanding of economic conditions,

    A review of the actual events from 2008 might also remind him that the G in GFC, stands for Global, and if you want to know what impact it had, ask the good people at Babcock and Brown

    This in depth understanding of financial markets, and current economic conditions is obviously not a prerequisite for being a financial planner

  • Non broker | 02 Jun 2014, 10:12 PM Agree 0
    One only needs primary school maths to work out that Australian residential property are significantly over priced and it is only a matter of time they come down to a sustainable level
  • Lara | 03 Jun 2014, 12:04 PM Agree 0
    When I bought my home the only deposit I had was money my parents had given me. I didn't have to prove I had saved a cent. When my sister and her husband bought their home he didn't even have a job. The bank just told them to fill in paperwork saying he was self-employed. Luckily he ended up getting a job in WA earning a large wage as they were close to declaring bankruptcy. This was over a decade ago when houses were relatively cheap. People not already in the market have no hope of buying themselves a HOME today. The only people who benefit from rising house prices are people who have more than one home. Bring on the correction.
  • SteveL | 03 Jun 2014, 03:00 PM Agree 0
    A financial planner bagging property. Best we all sell and put it in shares so you can get your 2% fee per annum! Awesome :-)
  • Broker | 03 Jun 2014, 03:53 PM Agree 0
    Re the comments from Lara , I see nothing has changed in bank world.

    Just last week I had a client present a Centrelink statement to a big 4 bank dated from August 2013 showing $700 per month. I requested an updated statement knowing full well that the bank credit area would not accept a statement that was 10 months old if I lodged the loan, and it was now showing only $200 per month (as a child had now turned 18 years old) therefore the loan would not service, as serviceability was already extremely tight using the $700 figure. I decided against pursing this application any further as I knew it would not be approved.

    Sure enough the client had it approved on the spot in bank world , and hey presto the 10 month Centrelink statement was just fine!!!!

  • Sam | 03 Jun 2014, 09:44 PM Agree 0
    Spot on our cheap credit driven debt bubble will 1 day implode and who will be left to foot the bill? the banks? Glenn Stevens? corrupt and stupid politicians? or our silly old selves for allowing greed to 1 day ruin this once great place....
  • Im old | 04 Jun 2014, 09:18 AM Agree 0
    Rememebr the days when a family could survive on one wage...including a mortgage.....
  • K.Rad | 05 Jun 2014, 05:14 PM Agree 0
    It is going to be so fantastic when the housing market falls 65%, I have been diligently saving for a long time to have the resources to pick up some bargains when prices revert to the mean.
  • James | 06 Jun 2014, 06:28 AM Agree 0
    The real estate market will crash you will all cry soon.
  • Southern Broker | 06 Jun 2014, 08:35 AM Agree 0
    What about if it falls 120%?

    Sorry all you doomsday merchants but you may have some time to wait yet.
  • K.Rad | 06 Jun 2014, 09:28 AM Agree 0
    Dear Southern Broker,
    If I am a doomsday merchant than you are a Ponzi Scheme merchant, I am not a merchant of anything, just refuse to purchase assets that are overpriced. I work hard for my money and will only purchase large ticket items if the price is fair.
  • SteveL | 06 Jun 2014, 10:11 AM Agree 0
    K.Rad. if the housing market falls 65% your hard earned and well saved money wont be worth a damn and we're all knackered! But if you own'll be able to charge huge rents for those that can afford it and at least there will be bricks and mortar to keep you warm and sheltered rather than worthless paper.
  • K.Rad | 06 Jun 2014, 10:56 AM Agree 0
    Dear SteveL,
    I don't agree with you Steve. When the housing market falls 65% than my paper money will be worth 3 times as much as today, this is simple arithmetic's. I think you may be thinking of Hyper inflation, that will happen as a result of the response to asset price deflation. See, when prices of goods fall to a massive deflation the government will pump huge sums of crap paper money in the system, this will cause the hyperinflation that you are talking about. First will be Deflation starting now till 2020, that will be the time to buy houses and gold and get out of cash.
  • Robert | 11 Jul 2014, 03:44 PM Agree 0
    The current Australian real estate market growth is mainly driven by overseas investors and SMSFs. If there is any type of crisis in Asia, mainly China, there may be less demand for Australian property and therefore lower prices. But it would certainly not create an Australian economic 'crisis'.
    Keep in mind that SMSFs are fairly new and on the rise so there is more and more money being poured into the real estate market constantly.
    Real estate markets unlike equities are generally more stable as there is less speculation on valuation - it is simply driven by supply and demand.
    With a rising Australian population and strong Asian interest in Australian property (overseas investors generally come in with cash, not mortgages) there is a lot more prosperity for Australian property in the years ahead.
  • Ray Ray | 13 Jul 2014, 02:08 AM Agree 0
    Its all very simple what goes up must come down.
    A crash might not happen in my life time but it will eventually happen.
    I have been sitting on the fence for years waiting for this so called crash.
    If your not in a couple of million dept your doing something wrong, what a load of shit. I don't have a credit card and have never needed one its called saving.
    I never go hungry my bills are always paid I have zero stress of a loan I must service, I have no fear of loosing my job, I have never paid the bank a cent in interest.
    They pay me 400 a month on my savings.
    Fuck owning a house I will just rent and trash for ever.

  • kalman | 14 Jul 2014, 09:39 AM Agree 0
    The Australia housing market is certainly not driven by Chinese People, it is less than 4% of total sales, our currency is too high and our real estate prices are too high, they prefer to invest in the USA and buy 4 homes for the same price. Also China is a communist country, most people can't even get a passport, how could they possibly buy anything from another country. And self managed super funds will demand a return, and they will not get any from real estate, soon this will become evident, than that will be another sector dumping investments and flooding the market, it is going to be a self fulfilling reaction. The only thing that is keeping the prices so high now is a Ponzi scheme, no Ponzi scheme can ever go on forever. It is simply Malinvestment and insanity to think prices will keep going up, you might as well buy tulip bulbs!
  • Mark | 18 Feb 2015, 01:37 PM Agree 0
    It was lack of regulation and the ease of being able to foreclose that led to the collapse in prices in many countries. Neither of these apply here.
  • Kalman Radvanyi | 18 Feb 2015, 02:09 PM Agree 0
    No, that is not correct. House prices are three times true value in Australia, any bank that lends 97% for an asset that is that far overpriced is not regulated and is in fact backed by taxpayers money, solely to continue the Ponzi Scheme. It is already hitting the fan in Australia, just not talked about in the controlled media. And yes, it is harder to foreclose here, or more accurately it is much more devastating to a family as they will have to go bankrupt. This will detonate the pyramid scheme that is the Australian real estate sector.
  • Wozza | 18 Feb 2015, 02:33 PM Agree 0
    What a load of rubbish being written on this subject. My first house bought for $13400 in 1972 is sure to crash is it? Worth about $400,000 now. Even a 65% drop on current value will give me a profit of $126,600. Just extrapolate these percentages on current prices, wait 40 years and the same thing will occur. Doom merchants, naysayers won't change the economics of house prices in Australia. Never a bad time to buy!!!!!!
  • Kalman Radvanyi | 18 Feb 2015, 03:59 PM Agree 0
    Dear Wozza,
    Your most recent comment shows precisely what is wrong with your way of thinking. You know nothing else than your own life experience and figure the future will be the same as the past. When you purchased in 1972 till now, credit has expended + two people started making an income. Credit cannot expand more and we can't have 5 wives per household working, It has reached a point now where the average person cannot afford to pay the average of $900/week for a mortgage, even though the rates are the lowest in 200 years. Do you really think your place will be worth 10 million dollars in a few decades? Prices will fall 40-75% from today's level over the next 5 years.
    I recommend you get a job if you wish to earn money, don't think you will continue to sit back and money will just flow your way since you are so smart and entitled.
  • Kalman Radvanyi | 18 Feb 2015, 04:27 PM Agree 0
    Also the purchase price for your home of $13,400 plus the $25,000+ interest you paid, would have purchased you 1000 ounces of Gold, about 1.6million dollars worth today.
  • Wozza | 18 Feb 2015, 05:19 PM Agree 0
    Nothing smart or entitled about buying a house and sitting on it. Just common sense - that's something you clearly seem to lack
  • Mark | 19 Feb 2015, 12:24 AM Agree 0
    What does 'True Value' mean and how did you work it out at 33% of current prices people are happily paying? I never said it couldn't happen, just that our circumstances are different.
  • Kalman Radvanyi | 19 Feb 2015, 07:52 AM Agree 0
    No, I have a lot of common sense. I don't purchase an asset that is overpriced, that is common sense. Try to understand that you were living in a different time, a time when credit was expanding, it has reached a point where it cannot grow, that always kills a Ponzi scheme, no new entrants/growing debt.
    I rent a nice house and save until the price is fair. My definition of fair is when people use their own work/money to buy something, not credit created out of thin air.
  • Wozza | 19 Feb 2015, 10:22 AM Agree 0
    This is my last comment - if you are in the finance industry, I pity your clients if they accept your advice. You certainly won't write many loans nor assist your clients, the economy or the country in general. If you hadn't noticed, I still live today and have adapted to change over six decades - you should try something similar. Look up pessimist in the Thesaurus!
  • Michael Kent | 19 Feb 2015, 01:08 PM Agree 0
    Valuer (in Melbourne) in response to your comments - why do you think brokers inflate the value when they order the valuation? It's because the valuations always come in low. We are going around in circles here.

    If the valuations came back a little closer to the actual market value we wouldn't have to do that. $100k extra is a little extreme but I certainly add $50k to what the client thinks their property is worth.
  • Kalman | 20 Feb 2015, 09:05 AM Agree 0
    I am not a pessimist, I look forward to the Ponzi scheme falling apart, we all should so the next generation has the same opportunities as you did, why should they pay 20 times what you paid for a home? Again you just don't understand, you haven't adapted the last 6 decades, the current has been flowing the same direction in that time, credit has been expending and more people entered the workforce from each family and interest rates have been falling, this all created an ever more leveraged society with inflated prices and a debt burden that is unsustainable. Do you realize there is 250 trillion dollars of derivatives in the market, bets for and again assets, it is insane, the system is bankrupt. Only the people with a clear vision will get through this, and will likely prosper as well. Ps: I obviously don't work in the financial industry, I am not sure why you thought this. I am just a young man that started from humble beginnings and made something of myself. All the best for the future.
  • Kalman | 20 Feb 2015, 09:14 AM Agree 0
    Dear Michael Kent,
    Over valuing a property is beneficial for your own purposes, the higher you value them the more work the bank will give you. The bank wants to lend out as much currency as possible, that is how they make a profit from the interest they charge on the currency they create out of nothing. They also have zero risk as that is all backed by the Australian people. Also banks lend out 10 times what they have on deposit, they make the loan just out of thin air, created on the computer screen, this would be called counterfeiting if we the people did this. Anyway, the valuations are not so high as a result of valuers, its to do with credit, anyone with a pulse can borrow so much currency that the asset prices rise, even though the debts will never be paid. The system is a Ponzi scheme, it will collapse over the next three years. Get ready now.
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