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Part Of A Game Plan To Pay Less

Two reports from ABC News in Australia. “Property prices have fallen in Australia many times before – often in response to rising interest rates.This time is different – the cash rate is at a record low but house prices are dropping faster than they have since the global financial crisis – they may still fall further.”

“The rules of Australia’s property game have changed. It remains too expensive for many and some with mortgages are becoming resigned to never paying them off. Flight attendant Darren Thomas makes a little over $100,000 a year but has managed to buy and sell several family homes in Sydney’s harbourside suburb of Mosman.”

“With about 10 years left in the workforce, Darren can’t see how he’ll ever pay back the more than $600,000 he still owes on his family home. Thomas: ‘I don’t think I feel wealthy. That’s the scary part is that you have the trappings of wealth, but not the real wealth and the knowledge of, that the mortgage will never be paid off.'”

“‘In my father’s generation, he could actually see a finish line and say, ‘Okay, well, I will pay off my mortgage by whatever date.’ However, I don’t see that finish line. I don’t ever think I will see that finish line. ‘”

“As the nation’s housing market downturn continues, South Australia’s peak body for home building is pushing for greater security for the industry following the collapse of two local businesses this week.”

“‘This goes right through a community,’ said Master Builders CEO Ian Markos. ‘You’ve had people who’ve worked their life to build a business and they’ve put everything they have into that and they obviously lose it.'”

The Australian Financial Review. “Chinese developer Forise is tossing up taking on a joint venture partner for its $1.2 billion high-rise luxury residential tower ‘Spirit’ in Surfers Paradise on the Gold Coast, or sell the site altogether, as it struggles to sell apartments.”

“Sales have been slow, with prices as steep as $32,000 a square metre at the top levels, equivalent to Sydney property prices. Even lower priced apartments are much higher than the area’s average at about $18,000.”

“The landlord of Forise’s leased display suite at the Paradies Centre at Cavill Avenue has also taken over the property after Forise failed to pay rent. A hole has been dug out at the Iluka site, but no further works have commenced. It is understood the local representative of the Beijing-based Forise is selling his sub-penthouse in the Soul tower.”

“The departure of the investors, particularly cashed-up Chinese buyers have hurt sales of luxury apartments on the Gold Coast. The slowdown in the housing markets on the east coast has caused many apartments to also fall in value, hurting settlements.”

From Domain News. “At dozens of Melbourne auctions on Saturday there was a disconnect between buyers and sellers on how they valued properties. This was reflected in a faltering weekend auction clearance rate.”

“Observers say buyers targeting general property stock are increasingly demanding discounts. Buyer’s advocate Paul Osborne, of Secret Agent, said many inner-city buyers were holding off from making offers at auctions as part of a game plan to pay less.”

“He said until the market began to cool in mid-2017 home owners looked at comparable property sales and then added 10 per cent or 15 per cent more to their asking price.”

“‘Now it is the other way,’ Osborne said. ‘People who are buying are looking at a property and arguing that if three or four comparables sold six months ago for Y, then we are going to discount the price to X. We haven’t seen that in a long time.'”

This Post Has 50 Comments
  1. ‘Thomas makes a little over $100,000 a year but has managed to buy and sell several family homes in Sydney’s harbourside suburb of Mosman’

    ‘With about 10 years left in the workforce, Darren can’t see how he’ll ever pay back the more than $600,000 he still owes on his family home. Thomas: ‘I don’t think I feel wealthy. That’s the scary part is that you have the trappings of wealth, but not the real wealth and the knowledge of, that the mortgage will never be paid off’

    When the numbers get really high, like in California, nobody plans to pay it off. The whole idea is to sell. Sure they may refinance a few times or flip some shacks like this guy, but nobody can get up every day at a regular job and knock down $600,000 with interest. It’s just a dead end unless it never ends, which is impossible.

    1. “With about 10 years left in the workforce, Darren can’t see how he’ll ever pay back the more than $600,000 he still owes on his family home.”

      It’s easy to create a spreadsheet of anticipated future income and expenses, and reconcile it annually at tax time. Of course flippers and speculators can’t see more than a couple of years out, and they’ll shamelessly toss in the keys if a greater fool doesn’t appear.

      “…but nobody can get up every day at a regular job and knock down $600,000 with interest.”

      Deep down every mortgage broker breathing air knows this too, but they all go to work every day and pretend while quietly looting the country deeper into the abyss.

      1. “they’ll shamelessly toss in the keys if a greater fool doesn’t appear”

        From my understanding, Australian bankruptcy laws do not allow someone to walk away from mortgage debt.

        1. Sounds like good incentive for banksters to loan more than households will be able to repay, if future debt collection procedures are likely to be fruitful.

        2. “From my understanding, Australian bankruptcy laws do not allow someone to walk away from mortgage debt.”

          That’s why their beer cans are larger than ours. 🙂

    2. nobody can get up every day at a regular job and knock down $600,000 with interest.

      The American corollary to Darren is the $50,000 regular job earner trying to knock down $300,000. That pretty much describes America.

    3. Millions around the world, including a majority of Californians who bought over the past two decades, used loans which were too big to repay unless future appreciation allowed them to sell at a higher price than when they bought. I guess home prices will either have to indefinitely keep climbing into the stratosphere, or else a lot of recent buyers will never be able to repay their supersized loans.

      1. Not unlike a Ponzi scheme where you buy an overpriced item then sell it to the next sucker for an even higher price. Once prices stall out or reverse, it’s curtains.

      2. I guess home prices will either have to indefinitely keep climbing into the stratosphere, or else a lot of recent buyers will never be able to repay their supersized loans.

        TPTB figured that out in 2008 and decided that an infinite climb was the best solution.

  2. “‘Now it is the other way,’ Osborne said. ‘People who are buying are looking at a property and arguing that if three or four comparables sold six months ago for Y, then we are going to discount the price to X. We haven’t seen that in a long time.’”

    Welcome to 2007 (USA)… we all know whats gonna happen next

        1. The end result of a grossly mismanaged government and economy. There’s nothing that says the US can’t end up in such a fragile state, either. The Fed’s monetary policies are more dangerous than people are giving them credit for.

  3. “‘In my father’s generation, he could actually see a finish line and say, ‘Okay, well, I will pay off my mortgage by whatever date.’ However, I don’t see that finish line. I don’t ever think I will see that finish line. ‘”

    Then maybe you should’ve bought into a housing bubble, Darren.

    1. Darren Thomas makes a little over $100,000 a year but has managed to buy and sell several family homes in Sydney’s harbourside suburb of Mosman

      Sounds like he didn’t simply buy into a bubble, he was one of the speculators blowing the bubble!

  4. Buyer’s advocate Paul Osborne, of Secret Agent, said many inner-city buyers were holding off from making offers at auctions as part of a game plan to pay less.”

    If Paul was really a buyers’ advocate, he’d be telling his clients that the cratering is just getting started, and they’d be best off to sit tight and wait for the market to hit bottom. But of course Paul wants his commission just as much as the sellers “advocates” do, so they collude to get the highest price they can get out of the buyers.

    1. “But of course Paul wants his commission just as much as the sellers “advocates” do, so they collude to get the highest price they can get out of the buyers.”

      Actually they collude to get the deal done. If their collusion results in a higher price then so much the better. But still they collude to get the deal done. Doing the deal is what’s it is all about.

    1. “I got this listing in an email today:”

      Oops, they forgot “investors dream” in the description for that little beauty…..

    2. That’s a nice snapshot of the Bubble’s trajectory over two decades. The price was up by about 50% in 2004. But after factoring inflation and ownership costs into the calculation, whoever subsequently owned it appears to have lost a lot of money. The inflation-adjusted final sale price is likely lower than where it started in 1999.

      1. Once depreciation is factored in ($4/sqft/yr), it’s still massively overpriced.

        Yes it’s a dump for sure but all houses are depreciating dumps. That’s why it’s never advisable to pay too much for them.

        1. Mafia,

          There is some real truth to this. My wife’s parents bought a house that, at the time, was the best on the block. It truly was something of a statement. Twenty years later and a nasty divorce and the house was let go on the cheap. It was nothing special. Tastes change, properties age. It kind of reminds me of an old joke I once heard: What is the difference between a good haircut and a bad haircut? About 2 weeks. Good house or bad house, over the long-haul the difference is diminished.

    1. I see they brought up CLOs repeatedly. A couple of months ago Taibbi said that was the stuff to watch this time around.

      1. Money is part of the commons and it has been privatized. Public commons are part of inelastic markets, and hence must be government owned, or regulated. It is clear that bank “regulation” is not working, because regulators have been bought off. Money power has to be isolated behind strong constitutional law, as a fourth pillar of government.

  5. “The departure of the investors, particularly cashed-up Chinese buyers have hurt sales of luxury apartments on the Gold Coast“

    Well they also created the mania that drove it through the roof in the first place so….

  6. Headlines on CNBC at 8 PM PST…

    “China just reported ‘ugly’ industrial output and retail sales growth that missed expectations”

    “Record $46 bln pulled from US-based stock funds in a week, according to Lipper”

    “US auto sales are expected to drop below 17 million for first time since 2014 ”

    Just might be a slowdown on the horizon…

    1. Stock market seems to be turning up based on the Fed backing off its rate hike schedule. Time to buy the dip?

    1. This fresh-off-the-press headline is none too rosy:

      “Global markets are tumbling after shockingly weak data out of China shows wounds of Trump’s trade war
      Callum Burroughs
      4h”

      I’m curious about the image of a Chinese woman in the article with her head bowed down. Why is she touching her forehead, and what does the fuzzy bank of red lights in the background signify?

  7. It may require considerable luck for many financial asset HODLers to get out of 2018 unscathed by downside volatility.

    Wealth
    December 13, 2018 / 2:58 PM / Updated 14 hours ago
    Record $46 billion pulled from U.S.-based stock funds in latest week: Lipper
    Trevor Hunnicutt

    NEW YORK (Reuters) – Record cash streamed out of U.S.-based stock funds and billions more fled bonds in a week of apparently escalated caution, Lipper data showed on Thursday.

    More than $46 billion thundered out of U.S. stock mutual funds and exchange-traded funds (ETFs), the most ever, while a near-record $13 billion poured from bonds, according to the research service. Relatively low-risk money market funds pulled in $81 billion, also the most recorded, the research service’s data showed.

    The withdrawals appeared to show investor confidence cracking in the waning days of a wild year of up-and-down trading that has left many people with losses across both stock and bond funds, a rare occurrence.

  8. It’s official, there is a special place in hell waiting for Larry…
    —————————————————————————————-
    While the housing market was a centerpiece of the 2008 financial crisis, its stagnant recovery could actually save it from a downturn in another potential recession.

    “Because of the fact that it has been underperforming during the economic recovery, there is less room to go down,” Lawrence Yun, chief economist at the National Association of Realtors, told FOX Business. “I think the housing market would not see any big negative hit if there was an economic recession.”

    1. “Because of the fact that it has been underperforming during the economic recovery, there is less room to go down,”

      It’s already starting to go down, even though the economic boom remains in full swing. This portends for a much worse housing downturn than usual if the labor market weakens at some point. And given that prices have surpassed the pre-2007 bubble peak, there’s plenty of downside potential.

  9. That’s the scary part is that you have the trappings of wealth, but not the real wealth

    They’ve got you right where they want you Darren. Almost like that was the plan all along.

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