Agreed. I would caution anyone looking to borrow heavily to take...

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Scotty B

1,314 Posts.

22/08/14

20:41

Post #: 13860151
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Originally posted by LongNow ↑

Property prices didn't hold up because of the banks.They held up because of people having jobs. The US recession was caused by the spread of toxic debt instruments throughout the financial world, which vaporised when the US housing market went into decline, which led to a recession, which led to lower house prices, more trouble on financial markets etc.

Australia's banks were well regulated (and capitalised), hence weren't dragged into the GFC to the same extent.

Re our property prices, you have to ask yourself:

1) Is there capacity for people to pay more at the moment? Not for the average Aussie.
2) Can interest rates get lower? Not much
3) Can they get higher? Inevitable
4) Is there the likelihood of strong economic growth in the next 5 years? Hard to argue there is.

5) Can the economy (unemployment) deteriorate much? We haven't had a recession in over 2 decades.

So, if the market is fully priced in low interest rate settings, with decent employment figures, what happens when:

1) Interest rates go up again? If they doubled they wouldn't be high.
2) Unemployment goes to say 10% or more?

The answer is mortgage stress. When people find themselves in negative equity, the temptation to jump is high. The rush will then be on to exit the market, exacerbating the problem, and the banks - having grown fat on the booming property market - will be in the firing line.

Over the course of decades (and in the right areas), property is still a safe bet. Over the next few years? I don't think you could miss out much by waiting for the next recession to do its thing.

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Agreed. I would caution anyone looking to borrow heavily to take a breath and wait. Property prices will pull back, and the market is now fairly neutral on rates for another 12 months so there is no rush. Save your dollars now, borrow less later, you will have more equity and less risk when it comes time to buy.
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Agreed. I would caution anyone looking to borrow heavily to take...

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