I've missed this one when it was aired back in last month.
https://www.youtube.com/watch?v=hYMiTlZ9iN4
I know the property market is crazy, what i didn't know is a couple with a mere 60+75k pa income can borrow over $1.2m for 5 investment properties? How?
This shows the bank themselves are well exposed with 60% of their book solely on home loan market.
The whole banking system could go down easily if the housing market decides to slide.
That's definitely what they've said, but there's so much money tied up in it now that I wonder if they would really be willing to do that. It would be better if they let them crash; if they bail them out, they'll essentially own them, and so will have every incentive to reinflate the bubble so as to recoup their losses - the exact opposite of what should happen in the case of a crash, where the policy should be to suppress price growth as much as possible.
I know the property market is crazy, what i didn't know is a couple with a mere 60+75k pa income can borrow over $1.2m for 5 investment properties? How?
If you go in with 135k salary and no assets they won't lend you anything. If you have significant equity in those properties (because you bought them years ago and they've climbed massively in price) and will be renting out the investment properties so will deriving income from them, then they'll lend you a lot. Income is not the only relevant thing, income plus assets is
So it does make economic sense in that way.
The housing crisis is an absolute disaster though, one that's going to be even more catastrophic in the future whether it bursts or not. Best case is a massive crash and a more sane growth pattern, worst case is no crash and the inequality and economic consequences of that with the massive shift of wealth from young to old. Nobody has the balls to fix the problem by triggering the crash though, so bullshit like the capital gains discount, negative gearing, foreign property investment and exemption of the family home from means tests ensures that money keeps on flooding in. A triggered crash through appropriate taxation, with the revenue gained going to assist recent owner occupiers (not investors) that find themselves in negative equity would be the best way forward.
That kind of releveraging 'equity' after unsustainable price increases is what ended up crashing the US market. What happens when the price drops? The equity drops and those borrowers on 75k or whatever find themselves overleveraged.
https://qz.com/1064061/house-flippers-triggered-the-us-housi…
Absolutely, but everyone says "it's different this time because [insert some reason why Aussie prices will go up forever here]" and evidently the banks buy into that. They're insanely profitable so far so, like the paper property millionaires, they feel like it's working well for them. It will eventually end in tears, but who knows when - as one quote (regarding stock markets, but same idea) goes "the market can stay irrational longer than you can stay solvent".
I have never subscribed to the notion that there is irresponsible lending by the banks.
There is only irresponsible borrowing. The onus of responsibility in this transaction is 100% on the borrower.
The borrower needs to be responsible for ensuring they can service the loan over 30 years, taking into consideration all facets of life :
Banks are there to make money, they only need to make sure they don't lose on that exposure. They do that by ensuring you have enough of a deposit, or security or LMI.
Blaming the banks for irresponsible lending is akin to blaming Audi, BMW, and Ferrari for road deaths attributed to speed.
You ask any of the people who defaulted when they first signed the mortgage whether they were concerned about causing the bank to collapse? The answer would be no.
To me there are no irresponsible lenders, only irresponsible borrowers.
What a bizarre position to take. And when banks do collapse (and they have; see the massive GFC bailouts in the USA, for example), I take it you think that the banks had no responsibility?
It's definitely not all the banks' responsibility, but if nothing out of self interest and financial duty to their shareholders banks absolutely have a responsibility to lend only to those that will be able to pay it back, to the best of their knowledge. Likewise borrowers have a responsibility to only borrow what they can repay.
In a bubble like this though, both banks and borrowers accept that the valuation is real and the borrowing behaviour by both is responsible if they assume that. When it eventually bursts that will seem like insanity, but it has worked well for many banks and borrowers until now.
There is only irresponsible borrowing. The onus of responsibility in this transaction is 100% on the borrower.
That might be true if the federal government hasnt guaranteed to bail them out. They should be responsible because it is you and i that will ultimately pay when things go bad.
I hate these kinds of discussions because when people comment there is such a severe lack of understanding in the most basic economic principals - people just assume "the prices are so high" "everything must crash now, purely because the prices are high". You can't even comment on something like this unless you know "why" the prices are high. Unfortunately in Australia there is actually no hard statistics available to policy makers or the commentators to actually determine the reasoning and hence predict or comment on this situation accurately. For example, go to the ABS and have look for your self as to whether there is a breakup of what type of home sales have occurred in Australia (there isn't one). By it's very nature, home loans are only broken up into owner occupied and investment loans, when you purchase these is no survey or questionnaire determining why you purchased, so how on earth someone can accurately comment on a situation without knowing why, is beyond me. Everything is just pure speculation at this point.
Also the notion that 2 people earning $70k can get a $1 million mortgage is bullshit. In that particular case study it is more than likely that they received a $1 million loan on their $140k income + the positive rental return on any existing property investments. I.e. they could be earning $140k + $100 per week from investment 1 (after liabilities) + $150 per week from investment 2 (after liabilities) = Their final income which determines borrowing capacity.
Bikies, bitcoin
Immigration is driving our growth.
What an absolute mess we have got ourselves in.
Why couldn't people who wanted more in life, work for it or save. Instead they took the easy option and the government has been a willing allies.
No it won't.
Sometime after 2008 the Australian Government guaranteed that the four largest banks in Australia would be bailed out using tax payers money (that is increasingly paid by individuals rather than enterprise).
So Australia's banks cannot go out of business and they're acting like it.
This country is run to benefit a tiny number of wealthy people at the expense of every other individual.