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The Whole Idea Was We Would Create Our Own Wealth, But It Hasn’t Worked Out That Way

A report from ABC News in Australia. “House prices are tipped to fall by 11 per cent over the next three years as the COVID-related economic downturn bites, and for one group of Australian homeowners, it could not come at a worse time. There are an estimated 730,000 investors, many of whom are self-funded retirees or people planning for retirement, who have taken out interest-only bank loans in the belief property was a safe bet. Now these private landlords are facing big hikes in their monthly bank repayments as they switch from interest-only to paying off the principal of their loans as well.”

“Max Green is one of many who has been trying to negotiate with the banks for an extension to the interest-only period of his loans. The 69-year-old and his partner have bought two properties — one in Brisbane, the other in Perth — in the past 10 years to help fund their retirement. But the value of the Brisbane property has flatlined and the Perth property, a unit in the city’s outer suburbs, has plummeted from $425,000 in 2016 to $300,000 today, according to a recent valuation.”

“‘The intent was … to provide us with some equity growth in the properties, which would then assist us in the future once I had retired,’ Mr Green said. Instead, the couple face paying an additional $1,900 a month from July as they begin to pay off both the principal and interest on their loans. Mr Green said he still enjoyed his work as a project manager at WA’s Water Corporation, but conceded his retirement ambitions had not gone to plan.”

“He said he would now be forced to either keep working beyond 70, dip into the couple’s superannuation to pay the banks, or sell at a loss. Others with similar investment plans have already decided to cut their losses and are now facing negative equity as a result — where their home is worth less than the amount they owe.”

“Wayne Grimes, 50, said he couldn’t help but laugh when he considered the price he would likely now get for his luxury investment unit. ‘I’m laughing because it is just ridiculous,’ he said. ‘I bought it for $670,000 … and I’ll be lucky if I’m able to sell it for $400,000. We had been advised that we would be able to extend the interest-only period.”

“The two-bedroom, two-bathroom house in the inner-city area of West Perth has been on the market for five weeks, but Mr Grimes has wanted to sell it since 2017 when his interest-only loan was converted to principal and interest. ‘Originally when I bought that place I was getting $895 a week in rent and now I get about $415 a week,’ Mr Grimes said. ‘That coupled with [paying] principal and interest, there has been a big hit to our cash flow.'”

“Like many investors, Mr Grimes put his savings into property to try to get ahead for retirement. ‘The whole idea behind it was so that we wouldn’t have to rely on government pensions and government handouts when we got older, that we would be self-sufficient and create our own wealth,’ he said. ‘But it hasn’t worked out that way.'”

“Mr Grimes said his bank had been very helpful in allowing him to defer his loan payments for six months due to coronavirus, which would buy him time to sell the West Perth property, albeit at a huge a loss. He faced being left with a $180,000 debt. ‘I’m not here to blame anyone, it’s no-one’s fault, it’s just that this is how the market has gone,’ he said.”

“Analyst Martin North, from Digital Finance Analytics, said 8 per cent of property investors were looking to offload their properties in the coming months. Mr North said the COVID-19 crisis had created another pressure point for investors already struggling with the migration of their loans to principal and interest, plus other factors.”

“‘We’ve got a perfect storm emerging, particularly for property investors,’ he said. ‘We’ve had a very significant increase in the number of units on the market and some of those would have previously been used by international students, but of course they didn’t come back [for the new term]. Some of those would have been used by Airbnb, but they haven’t come back.'”

“But Mr North said he did not support Senator Smith’s call on banks to extend the interest-only terms for property investors. ‘Strategically, it does not make a lot of sense to me,’ he said. ‘We’ve got to deal with the amount of debt in the system. We have too many property owners with too much debt, they’re too leveraged.'”

The Australian Financial Review. “Sales of new housing lots in Sydney, Melbourne and south-east Queensland collapsed in the first six weeks of the COVID-19 lockdown as buyers held off making purchase decisions due to job loss fears. New figures compiled by land market specialist Research4 show the country’s three biggest greenfield markets suffered net sales falls of between 60 per cent and 80 per cent between late March and the end of April, compared with the first quarter of the year when the land market was relatively buoyant.”

“Adding to the pain for housing developers was a huge rise in the number of lots returned for resale that had previously been allocated to home builders or reported as sold. According to Research4, more than 60 per cent of previously allocated lots were returned to developers in Sydney and south-east Queensland with almost 40 per cent of lots returned to developers in Victoria.”

“Colin Keane, director at Research4, said based on its latest research, activity in greenfield markets (sales and new lot releases) fell by an estimated 58 per cent nationwide. In mid-April, Terry Portelli, the founder and managing director of land sales agency Red23, said inquiries across the 19 Melbourne and Geelong housing estates the group was marketing had ‘dropped dramatically’ since the COVID-19 pandemic hit the market in March.”

“‘The number-one issue is job security. People on our database who were in a position to buy are now questioning that decision,’ he said.”

“”Homebuilders have already started to feel the pain with Perth-based ABN Group, the country’s third-largest home builder last year, extending salary cuts made to executive pay packets to all staff.”

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This Post Has 73 Comments

  2. ‘Perth property, a unit in the city’s outer suburbs, has plummeted from $425,000 in 2016 to $300,000 today, according to a recent valuation’

    A valuation ain’t worth squat Max. Hand back the keys and set yourself free.

      1. “The Land Down Under(water)”

        Men At Work – “Down Under” – Lyrics

        “Do you come from a land down under
        Where women glow and men plunder
        Can’t you hear, can’t you hear the thunder
        You better run, you better take cover.”

    2. Hand back the keys and set yourself free.

      ^ I think some posters here have said you can’t just declare bankruptcy and walk away in the land down under. The debt follows you for life? Is that correct?

      They are so fieked.

      1. I think that all mortgages there are recourse. A BK might liberate you from it, but I think they are harder to get in Oz.

  3. ‘He said he would now be forced to either keep working beyond 70, dip into the couple’s superannuation to pay the banks, or sell at a loss’

    Golly, this shack gambling is trickier than it seemed.

  4. ‘‘We’ve got a perfect storm emerging, particularly for property investors’

    Not again! Man, these 500 year perfect storms are all over the place.

    2. +1

      – But no one in the MSM or government will call a spade a spade for what it is: a global housing bubble, which has been deflating (and now more rapidly due to CCP virus pandemic) since at least Q3, ’18. Add to that all the other asset bubbles in a similar state and you’ve got quite the mess on your hands. #AV-ShapedRecovery. But no one could have seen this coming! When the dust settles on this one it will be epic. Tulip mania kind of stuff for the history books, IMHO.

  5. “Like many investors, Mr Grimes put his savings into property to try to get ahead for retirement. ‘The whole idea behind it was so that we wouldn’t have to rely on government pensions and government handouts when we got older, that we would be self-sufficient and create our own wealth,’ he said. ‘But it hasn’t worked out that way.’”

    It would seem that Mr. Grimes and I have a different idea of what it means to be self sufficient and create/produce.

  6. ” ‘The whole idea behind it was so that we wouldn’t have to rely on government pensions and government handouts when we got older, that we would be self-sufficient and create our own wealth,’ he said. ‘But it hasn’t worked out that way.’”

    Maybe try to create something of value, instead of rent seeking?

    1. From the article:

      “Mr Green said he still enjoyed his work as a project manager at WA’s Water Corporation, but conceded his retirement ambitions had not gone to plan.”

      I guess that counts as producing value. But I guess now he has to live on his original pension… with a huge loss of course.

      1. Actually, the article mentioned that he would have to dip into his “superannuation”, so his pension will take a hit.

    2. “…create our own wealth…”

      You mean that I can’t “create wealth” just by shuffling paper?

      That means that I have to do actual work, like getting up early in the morning and going to a job.

      That’s just not fair!

      I want to shuffle paper in my bathrobe, light up a joint and make millions!!!

  7. A report from ABC News in Australia. “Like many investors, Mr Grimes put his savings into property to try to get ahead for retirement. ‘The whole idea behind it was so that we wouldn’t have to rely on government pensions and government handouts when we got older, that we would be self-sufficient and create our own wealth,’ he said. ‘But it hasn’t worked out that way.‘”

    “But Mr North said he did not support Senator Smith’s call on banks to extend the interest-only terms for property investors. ‘Strategically, it does not make a lot of sense to me,’ he said. ‘We’ve got to deal with the amount of debt in the system. We have too many property owners with too much debt, they’re too leveraged.‘”

    – Too much debt and leverage. A common global theme right now in most all asset classes. What’s next? Deleveraging and lower asset prices, also a general global theme and trend. #AV-ShapedRecovery.

  8. Stock prices have reached what looks like a permanently high plateau.

    — Irving Fisher

    2. The Financial Times
      Emma Boyde an hour ago
      US economy forecast to shrink 38% in second quarter — Congressional Budget Office
      Peter Wells in New York

      The US economy is forecast to shrink nearly 38 per cent in the second quarter compared to the same period last year, according to the most recent analysis prepared for the country’s lawmakers.

      The body expects the pandemic to leave more than 25m Americans without a job by the end of September.

      The hit to the economy will end the longest economic expansion in US history and could rank as the most severe since the government began keeping quarterly records soon after the conclusion of the second world war.

      The Congressional Budget Office expects the US economy to contract in the second quarter by 37.7 per cent compared to the second quarter of 2019 and by 11.2 per cent from the end of March. The Bureau of Economic Analysis announcement that the US economy contracted at an annualised rate of 4.8 per cent in the first three months of the year, represented the steepest decline since the financial crisis.

      The CBO’s new forecasts are marginally better than its April projection for the same period, for a quarter on quarter decline of 12 per cent and a 40 per cent annual contraction. The quarterly growth rate is expected to rise 5 per cent in the third quarter, and then edge up a further 2.5 per cent in the final three months of the year.

      The CBO’s new forecasts incorporate the economic forecasts of stimulus programmes enacted by the federal government in March and April and “that legislation will partially mitigate the deterioration in economic conditions”.

      “In particular, greater federal spending and lower revenues will cause real GDP and employment to be higher over the next few years than they would be otherwise. The effects of the legislation on economic activity will be largest in the second and third quarters of 2020 and smaller thereafter,” the CBO said.

      The number of unemployed people is forecast to hit 25.1m by the end of September, compared with 23.6m at the end of June and 5.8m at the end of 2019. By comparison, during the financial crisis, 7.9m were out of work between the end of 2007 and end of 2009, the CBO said.

      That equates to unemployment rates of 15.1 per cent and 15.8 per cent at the end of the June and September quarters, respectively.
      …

      1. “The number of unemployed people is forecast to hit 25.1m by the end of September, compared with 23.6m at the end of June and 5.8m at the end of 2019.”

        That employment outlook doesn’t sound like the makings of a V-shaped recovery with resumption of endless boom times by mid-summer 2020.

        1. Marketwatch is predicting that COVID will cause a global loss of $82 trillion. Right… like that wasn’t already baked into the cake.

          1. America at it dumbest……if they had said we will make up the difference between your UI check and $600 for 13 weeks, i would be ok with that. Massacoosetts max is $823 so lots of people would get zero.

          2. no one returning to work before July

            The late returners might find there is no job waiting for them. As the saying goes: the early bird gets the worm.

      2. lower revenues will cause real GDP and employment to be higher over the next few years

        Our world is absolutely insane. Did I mention stoopid?

      3. The Fed
        If U.S. can’t resolve public-health issues, there’s a limit on what the Fed can do to help, Rosengren says in MarketWatch interview
        Published: May 19, 2020 at 6:32 p.m. ET
        By Greg Robb
        Community spread of coronavirus has to be stopped if economy is to fully recover, Boston Fed president says
        Boston Fed President Eric Rosengren Bloomberg

        The Federal Reserve has the tools to do a lot of things, but can’t solve the public-health problems stemming from the coronavirus, said Boston Fed President Eric Rosengren in an interview with MarketWatch on Tuesday.

        “We’re not going to get back to full employment until we are also in a situation where the public-health problem becomes less of an issue for employees and consumers,” Rosengren said.

        “If we don’t get the public health right, there’s a limit to how much we’re going to be able to do to solve that problem,” he said.

        The Boston Fed president said it’s good news that states are now in the position to open up. But he said this was not the end of the crisis.

        The only way that restaurants and airlines and other businesses are going to be successful is if customers feel comfortable coming back.

        “That’s going to be a challenging model as long as community spread continues,” Rosengren said.

        “Countries that are able to stop community spread and go back to contact-tracking individuals that are infected are going to have much more success encouraging people to go back to bars, restaurants and other kinds of services that require much more interaction,” he said.

        In a speech earlier Tuesday, Rosengren said he thought the unemployment rate would still be at double-digit levels at the end of the year.

        “If 20% of the labor market is retail and restaurants, and people aren’t comfortable going to retail stores and restaurants, then there’s going to be a lot of people still looking for jobs at the end of this year,” he said.
        …

  10. House prices are tipped to fall by 11 per cent over the next three years…has plummeted from $425,000 in 2016 to $300,000 today

    Kind of a bold face lie when things have already sunk 30%.

    2. 22151 inventory 10 vs. par of 40
      selling like hocakes as fed OMB (orange man bad) spends faster than FDR

    1. Something about Moderna’s announcement made me wonder if the picture was as rosy as they implied (and as everyone interpreted it).

      1. I am fed up with the continuing hoopla and brouhahaha over things that haven’t happened and may never happen. Let me know when a COVID-19 vaccine is made available for use, and until then forgo any more of this breathless and pointless media coverage.

        1. It’s a stock market pump-and-dump strategy to lure in dips buyers, and hand them a morning-after loss.

          2. I’m re-reading “Reminiscences of a Stock Operator”. It’s a good way to help decouple from the MSM and market hoopla. So much of Jesse’s message is about trusting what you think about what you see and how it’s OK to be wrong as long as you LEARN FROM IT. So many suckers don’t so you’ll have plenty of future chances to make money even if you go concave.

          3. “It’s a stock market pump-and-dump strategy to lure in dips buyers, and hand them a morning-after loss.”

          4. Oops, here’s the rest of my post: yes I’ve noticed the incredible hype around these vaccines, Etc. Especially since I pretty much exclusively listen to or read financial news networks. And had likewise concluded it was mostly cheery talk to pump up the stock price.

  13. I went on Nextdoor earlier today and the top thread was about wearing masks. I find it amusing that people think there’s an honest discussion about this rather than an echochamber. I’d wager those not wearing masks aren’t commenting on social media sites.

    2. I’m lucky(?) that I had a few N-95 masks left over from house projects, and that I scored a few more in February. So I figure I’m a little more protected even if others don’t wear their masks.

        1. Yeah, I’d probably be jacked for my mask. I stay off Metro anyway. They’ve been getting steadily worse since 2000.

      2. left over from house projects

        The ones with the little plastic exhaust valve in the middle? Protection for me, but not for thee?

          1. But the cheap ones catch the user’s exhalant.

            >Protection for me, but not for thee?

            Good point!

          2. I have a box of cheapo N-95s. If I exhale hard, some air will vent along the edges, especially around the nose area (and fog up my glasses).

            Most people I see out and about only wear a kerchief on their face, which I suppose is better than nothing.

  14. Has your favorite bearish prognosticator lost faith in the Fed’$ ability to further kick the can down the road?

  16. “‘The intent was … to provide us with some equity growth in the properties, which would then assist us in the future once I had retired,’ Mr Green said.

    This greedy Boomer planned to profit off making housing unaffordable for younger generations. I hope COVID carries him away before he goes bankrupt.

  17. Do you find it difficult to put much faith into the euphorically wishful bear market rally?

    1. Coronavirus business update 30 days complimentary
      Markets volatility
      Investors show little faith in ‘bear market rally’
      BofA survey reveals few fund managers expect swift economic recovery
      A second wave of coronavirus infections tops fund managers’ list of worries
      © REUTERS
      Harry Dempsey in London yesterday

      A majority of investors believe the global stock market rally will soon swing into reverse, with a second wave of coronavirus cases topping their list of worries.

      About two-thirds of fund managers polled in a monthly Bank of America survey said the rise in stocks since March was a “bear market rally” — a strong but doomed bounce — against a background of dire economic data.

      Only 10 per cent of those surveyed expect a V-shaped economic recovery from the pandemic, echoing warnings from Jay Powell, the US Federal Reserve chair, who said a rebound in the US economy was likely to be protracted. Most believe the development of a vaccine to address coronavirus would be needed to fuel a swift recovery.

      Financial markets were hit hard in late February and most of March, when lockdowns kicked in across major economies in an effort to slow the spread of coronavirus. Since then, though, the FTSE All-World index has risen about a third — comfortably surpassing the definition of a bull market — while the tech-focused Nasdaq Composite is in positive territory for the year.

      These rallies came after a surge in stimulus from central banks and governments aimed at averting a full-blown financial crisis triggered by the pandemic.

      But many investors do not believe the rebounds are sustainable. “Equities are now back at the same levels as the summer of 2019, which is of course remarkable if you remember that the global economy and corporate earnings could be down by as much as 20 per cent,” said Joost van Leenders, senior investment manager at Kempen Capital Management, an asset manager. “We are not convinced that the flood of negative data still to come has been fully priced in,” he added.
      …

  18. 12 years ago the house bottom feeders were starting to buy when prices hit 15% of original price ranges ……packs of houses from banks that were just glad to be shed of them …We aren’t there yet, not nearly,but we will at some point….We are still at the point where owners are trying to get out with just a little clipping,…..

  21. there will never be a recession
    EVER !
    mort apps up 6%
    more likely there will never be real growth
    see Japan 1989-2020
    zilch
    niekkie at 50% nominal

  22. Total disconnect with facts that makes so called Science look like one more corrupted area of narrative of control.

    The fake housing cheerleading and all the other areas where supression of facts is the way to keep whatever narratives going.

    How do you like Big Government now, or Big Science, or Big Politics or Big Money?

    It all about control of people. They don’t want people in pursuit of their own happiness. We are in this together as long as you do what we say. These control freaks have a mental illiness just as the greedheads do.
    They are cheaters who really don’t want a fair playing field. They don’t want a merit based playing field because it’s all about them picking the winners and losers , in a rigged version of reality.

  23. During the American Revolution only 30 % of the population rebelled. Kind of a miracle that they won.

    But, I don’t want a Bernie Sanders type of rebellion into Communist Government. I want more of a rebellion back to the intent of the original founders of the USA Constitution.

    1. But, I don’t want a Bernie Sanders type of rebellion into Communist Government. I want more of a rebellion back to the intent of the original founders of the USA Constitution.

      Me too. But I was reading a Charles Hugh Smith(?) link somebody posted recently it struck me that when you get to the top of the S curve there are simply too many people who don’t want to go back. You have all the SJWs who think life was too unfair then allied with the elites who have perfected skimming a much higher percentage than they were then. There aren’t enough people left who want to fight it and go back to more productive times. So the only way is forward into collapse. Then the productive will have more clout again.

      1. There aren’t enough people left who want to fight it and go back to more productive times.

        But as long as a minority is willing to be productive the charade can last a very long time.

        1. But as long as a minority is willing to be productive the charade can last a very long time.

          True, but I think that’s only as long as they have false hope in somehow going back. Once they decide the only way is forward I think it goes off a cliff at that point. They reserve their productivity for themselves and family only and the system collapses.

          1. True, but I think that’s only as long as they have false hope in somehow going back.

            Or they still have something to lose.

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