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The dud Kangaroo bounce thread


sancho panza

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I lived in Brisbane for over five years, I'm an Ozzy citizen.

Been back here a few years now. I will go back post crash, pick up something cheap. I can tell you from first hand knowledge, the country is obsessed with property.

Most Queenslanders I knew and worked with were so ignorant to the fact that property could ever crash. I say bring it on, the place has lost its identity I felt. Shoddy build quality, the cost of renting in Brisbane, well its crazy.

But the sun does shine. If the dollar plummets, and property plummets, well for me its no brainer to go back. But I await with baited breath, I'm pretty sure they will try all the props and more. Its been a long way up....

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2 hours ago, Sugarlips said:

Latest bear food from Perth from the so called ABC (of all places):

 

http://www.abc.net.au/radio/perth/programs/focus/mortgage-stress/10264282

'They are among the 40% of Australian homeowners who are in some sort of financial crisis.'

 

That's a stunning stat from the article.And that's before LTV's start going through the roof as prices fall-no pun intended.

2 hours ago, Ponty Mython said:

I don't have figures to the penny, as the bragging stopped as the renovation costs soared, but here goes:

Purchase price mid-2000s: $1.4m (good suburb, period property, in need of refreshing); I thought this was bubblicious at the time...

Renovation (impractical loft conversion and small extension to rear): est. $750k - I can't see that the work would have cost more than £100k here in the UK. On another thread, the $50k fridge is mentioned; no fridge this time, but a light fitting was quoted at $8k, something which could be had for a few hundred quid here.

Agent's recent valuation: $3m+ - in reality, I can't imagine anyone paying more than $2m today, which is still a mental amount of money for a 3 bedroom house.

Joint salary has gone from $300k+ to $100k - and the shortfall is not coming back. Natch, there is also a BTL in the background ($1m for a boggo 2 bed flat).

Until you spend a decent amount of time in Australia, it is difficult to comprehend the addiction to property, it is far worse than the UK. The weekend papers are at least 50% property (I think the big media companies own the equivalents of Rightmove, but can't be arsed to check) and chunky home sales routinely make the national evening news. Almost every home in any decent suburb has been extended and/or renovated to within an inch of its life (or within an inch of its neighbour, usually). Costs of both stuff and labour are eye-watering, no tradie will get out of bed for less than $100 an hour and the really skilled demand far more.

Compound the brain-washing with incredible amounts of financial engineering (see MacQuarie for details), lax lending standards with liar loans absolutely the norm (pushed through brokers to keep the banks' hands clean) and daft tax concessions on BTL and you arrive in Australia. A country that, even 20 years ago, maintained its larrikin charm - no more. In that time, the population has increased from 20m to 25m. OK, it's a big place, but everyone moves to one of the principal 4 cities, making them increasingly unliveable. Melbourne, even now, often tops the list of most desirable cities, but the population has increased massively, the majority of new entrants coming from China, changing the underlying dynamic from European to Asian - this may or may not be a good thing, depending on your taste. 

If Australia didn't have shit in the ground to dig up and sell, it would be a banana republic. I believe that the country will continue to sell entry visas to Asians, pumping the population to keep the wheels spinning. It is far too expensive a place to make anything and long has been (eg car manufacturing all gone). In theory, a high wage economy can be beneficial to the majority; in reality, of course, those high wages get hoovered up by the credit providers.

Despite being economically inactive here in the UK, I have turned down a lucrative offer in Australia (ironically, to work on building the infrastructure that the burgeoning population requires) as the juice is not worth the squeeze. The only place I would consider living now in the country is Hobart - and I haven't been there for years, so might well be disillusioned with today's Tasmania too.

It is all such a shame.

 

Thanks for taking the time to paint such a detailed picture.

In a way it makes me consider whether the bubble there was far more entrenched and it certainly looks that way.

I think there's an assumption that all bubbles pull in a certain proportion of suckers but then when you consider oz has not had a rcession in 26 years,it makes it a lot more likely that risk aversion will be lower.

The detail you give on the refurb is breathtaking.$100 AUD per hour for a plumber?Incredible.

AI also think there's an age thing as well.People enter their 30's generally in good health and feel quite free to lever up.It's when you get the first major illnesses and job losses that are harder to recover from in your mid 40's that things can get out of hand.

Not necessarily for tradesmen or people with a ticket,but for more professional types.I have friends who are senior management and they freely admit that after 45-50,if you haven't made the board then the chances of not getting another similarly paid job are much higher.

I was chatting with Mrs P last night about the Aussie video @darkmarket posted and told her to watch it.Her eyes glaze over when I bang on about fractional reserve lending but that show really brings the idea home that a lot of people are running huge risks they don't fully appreciate.She has family in Oz.

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All that easy money the nation has took from China buying up its resources and the best they could was leverage to the hilt with it to give even more money to those born at the right time or into the right families.

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2 hours ago, Panda said:

I lived in Brisbane for over five years, I'm an Ozzy citizen.

Been back here a few years now. I will go back post crash, pick up something cheap. I can tell you from first hand knowledge, the country is obsessed with property.

Most Queenslanders I knew and worked with were so ignorant to the fact that property could ever crash. I say bring it on, the place has lost its identity I felt. Shoddy build quality, the cost of renting in Brisbane, well its crazy.

But the sun does shine. If the dollar plummets, and property plummets, well for me its no brainer to go back. But I await with baited breath, I'm pretty sure they will try all the props and more. Its been a long way up....

50% off today's achievable prices and $3 : £1 would indeed be tempting. As a resource-backed currency, AUD is volatile, but I am not sure that GBP will ever grow the legs to get back to those heady levels. Even with property at 70% off in Sterling, as you state, there are still issues with Australian property - terrible build quality, general energy inefficiency and ever-shrinking plots.

1 hour ago, sancho panza said:

'They are among the 40% of Australian homeowners who are in some sort of financial crisis.'

 

That's a stunning stat from the article.And that's before LTV's start going through the roof as prices fall-no pun intended.

Thanks for taking the time to paint such a detailed picture.

In a way it makes me consider whether the bubble there was far more entrenched and it certainly looks that way.

I think there's an assumption that all bubbles pull in a certain proportion of suckers but then when you consider oz has not had a rcession in 26 years,it makes it a lot more likely that risk aversion will be lower.

The detail you give on the refurb is breathtaking.$100 AUD per hour for a plumber?Incredible.

AI also think there's an age thing as well.People enter their 30's generally in good health and feel quite free to lever up.It's when you get the first major illnesses and job losses that are harder to recover from in your mid 40's that things can get out of hand.

Not necessarily for tradesmen or people with a ticket,but for more professional types.I have friends who are senior management and they freely admit that after 45-50,if you haven't made the board then the chances of not getting another similarly paid job are much higher.

I was chatting with Mrs P last night about the Aussie video @darkmarket posted and told her to watch it.Her eyes glaze over when I bang on about fractional reserve lending but that show really brings the idea home that a lot of people are running huge risks they don't fully appreciate.She has family in Oz.

I do like the word "systemic", as used in the video posted earlier, certainly it describes beautifully the level of corruption in Australia; it flows through all tiers of government (certainly from state level downwards, doubtless the Feds are at it too), through all aspects of the financial services industry and into the provision of large private works contracts. Jokes about the country's convict past aside, this is all very much at odds with the commonly-held impression of the country. Australians possess a heady and dangerous mix of arrogance and ignorance (won't happen here, mate) and most are blissfully unaware of what is happening around them, what is about to jump out of the closet and make them shit their pants. The fact that 60 Minutes is giving such extensive air-time to the debt problem suggests that the Aussies are being softened up for the hammer blow; I suspect though that most will blithely ignore the warnings (won't happen to me, mate).

I can't remember whether this has been posted on this site before, but enjoy this bad boy from Australia's largest bank:

 

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55 minutes ago, Ponty Mython said:

The fact that 60 Minutes is giving such extensive air-time to the debt problem suggests that the Aussies are being softened up for the hammer blow; I suspect though that most will blithely ignore the warnings (won't happen to me, mate).

I can't remember whether this has been posted on this site before, but enjoy this bad boy from Australia's largest bank:

I was wondering if much of the recent Lehman's anniversary coverage hasn't been produced with that in mind. Australians, it seems to me, know very well they're fucked, it's just a question of who does well in the rush for the exits now.

As regards timing, the Ireland comparison bears repeating. Everyone is fully aware it's a rerun and yet they all think they can sell before it's too late.

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9 minutes ago, darkmarket said:

I was wondering if much of the recent Lehman's anniversary coverage hasn't been produced with that in mind. Australians, it seems to me, know very well they're fucked, it's just a question of who does well in the rush for the exits now.

As regards timing, the Ireland comparison bears repeating. Everyone is fully aware it's a rerun and yet they all think they can sell before it's too late.

Interesting counter-view, thanks - I can only say that you must move in far more enlightened circles than I once did!

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6 minutes ago, Ponty Mython said:

Interesting counter-view, thanks - I can only say that you must move in far more enlightened circles than I once did!

Ah I think it's just a niggling voice in the back of their minds for now, a reality that takes some adjusting too. I don't doubt the horrorshows you must have had the pleasure of meeting.

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5 hours ago, Ponty Mython said:

I don't have figures to the penny, as the bragging stopped as the renovation costs soared, but here goes:

Purchase price mid-2000s: $1.4m (good suburb, period property, in need of refreshing); I thought this was bubblicious at the time...

Renovation (impractical loft conversion and small extension to rear): est. $750k - I can't see that the work would have cost more than £100k here in the UK. On another thread, the $50k fridge is mentioned; no fridge this time, but a light fitting was quoted at $8k, something which could be had for a few hundred quid here.

Agent's recent valuation: $3m+ - in reality, I can't imagine anyone paying more than $2m today, which is still a mental amount of money for a 3 bedroom house.

Joint salary has gone from $300k+ to $100k - and the shortfall is not coming back. Natch, there is also a BTL in the background ($1m for a boggo 2 bed flat).

Until you spend a decent amount of time in Australia, it is difficult to comprehend the addiction to property, it is far worse than the UK. The weekend papers are at least 50% property (I think the big media companies own the equivalents of Rightmove, but can't be arsed to check) and chunky home sales routinely make the national evening news. Almost every home in any decent suburb has been extended and/or renovated to within an inch of its life (or within an inch of its neighbour, usually). Costs of both stuff and labour are eye-watering, no tradie will get out of bed for less than $100 an hour and the really skilled demand far more.

Compound the brain-washing with incredible amounts of financial engineering (see MacQuarie for details), lax lending standards with liar loans absolutely the norm (pushed through brokers to keep the banks' hands clean) and daft tax concessions on BTL and you arrive in Australia. A country that, even 20 years ago, maintained its larrikin charm - no more. In that time, the population has increased from 20m to 25m. OK, it's a big place, but everyone moves to one of the principal 4 cities, making them increasingly unliveable. Melbourne, even now, often tops the list of most desirable cities, but the population has increased massively, the majority of new entrants coming from China, changing the underlying dynamic from European to Asian - this may or may not be a good thing, depending on your taste. 

If Australia didn't have shit in the ground to dig up and sell, it would be a banana republic. I believe that the country will continue to sell entry visas to Asians, pumping the population to keep the wheels spinning. It is far too expensive a place to make anything and long has been (eg car manufacturing all gone). In theory, a high wage economy can be beneficial to the majority; in reality, of course, those high wages get hoovered up by the credit providers.

Despite being economically inactive here in the UK, I have turned down a lucrative offer in Australia (ironically, to work on building the infrastructure that the burgeoning population requires) as the juice is not worth the squeeze. The only place I would consider living now in the country is Hobart - and I haven't been there for years, so might well be disillusioned with today's Tasmania too.

It is all such a shame.

 

Pretty much sums up my 2012-2017 Oz experience and observations. Still picked up a nice wife and a passport along the way with $250K banked in super and cash. 

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1 hour ago, Kurt Barlow said:

Pretty much sums up my 2012-2017 Oz experience and observations. Still picked up a nice wife and a passport along the way with $250K banked in super and cash. 

Kurt - I have zero faith in their being any money left in my Australian super when I am old enough to retire.  I reckon a number of them will have gone belly up and a big MF global type raid to happen.  You?

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6 hours ago, Kurt Barlow said:

Pretty much sums up my 2012-2017 Oz experience and observations. Still picked up a nice wife and a passport along the way with $250K banked in super and cash. 

Don't forget you're entitled to half her losses on her flat when she sells it...

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5 hours ago, wherebee said:

Kurt - I have zero faith in their being any money left in my Australian super when I am old enough to retire.  I reckon a number of them will have gone belly up and a big MF global type raid to happen.  You?

I have about 85K in Super. The rest is in cash and a small amount in shares. 

We are likely to buy in the Uk in the next 1-2 years so we will shift the money over - whether that will be the right time who knows but you only live once and I'm 46.

7 minutes ago, sancho panza said:

Don't forget you're entitled to half her losses on her flat when she sells it...

At current prices she has at least 140K in equity in it. We can also go and live in it as OAPS. 

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WRT west coast property, at current exchange rates its not hard to find a reasonably nice detached 3 or 4 bed 2 bath house within 30 mins of Perth on a decent 800sqm plot for less than the price of a run down semi on a council estate in the rougher parts of east Dorset.

Wages can still be favourable in Perth for the skilled as long as you are frugal and dont borrow to the hilt (mortgage interest is higher here) which is why I'm still here at present.

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24 minutes ago, Kurt Barlow said:

I have about 85K in Super. The rest is in cash and a small amount in shares. 

We are likely to buy in the Uk in the next 1-2 years so we will shift the money over - whether that will be the right time who knows but you only live once and I'm 46.

At current prices she has at least 140K in equity in it. We can also go and live in it as OAPS. 

I think I've got about 20k in super, and 80k in pensions outside of Oz.  Problem is I hate the idea of consolidating them into an Aussie super (only way to do so for most overseas pensions) which will then be valueless when Oz crashes...

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18 hours ago, wherebee said:

I think I've got about 20k in super, and 80k in pensions outside of Oz.  Problem is I hate the idea of consolidating them into an Aussie super (only way to do so for most overseas pensions) which will then be valueless when Oz crashes...

I would never consolidate my pensions into 1 - too many eggs in the same basket. 

In Aus I have two super funds. The key is to make sure you are not paying for any crap like redundancy protection or life insurance. 

I have a local Government Pension scheme - final Salary. About 7600 equivalent when Im 65

A Sipp with approximately 18K in it (all shares)

An average salary pension scheme - if I stopped work today the frozen value would be a life time pension of 800 per year from aged 60. 

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14 minutes ago, Kurt Barlow said:

I would never consolidate my pensions into 1 - too many eggs in the same basket. 

In Aus I have two super funds. The key is to make sure you are not paying for any crap like redundancy protection or life insurance. 

I have a local Government Pension scheme - final Salary. About 7600 equivalent when Im 65

A Sipp with approximately 18K in it (all shares)

An average salary pension scheme - if I stopped work today the frozen value would be a life time pension of 800 per year from aged 60. 

yeah, but many governments have rules that if you take money out of a pension system in their country, you can only transfer into a pension scheme in another country.  Which - unless I want to set up a whole new super with those costs - means I have to stick it in the shitty one I have in Oz.

Except Hong Kong.  I'm allowed to have all the loverly CASH when I leave.  Nice that.  Clever old Hong Kong.

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43 minutes ago, wherebee said:

yeah, but many governments have rules that if you take money out of a pension system in their country, you can only transfer into a pension scheme in another country.  Which - unless I want to set up a whole new super with those costs - means I have to stick it in the shitty one I have in Oz.

Except Hong Kong.  I'm allowed to have all the loverly CASH when I leave.  Nice that.  Clever old Hong Kong.

Thats the risk anywhere. However my current scheme for a 5% contribution from me puts in 18%. It would be foolhardy in the extreme to not take up such an offer especially bearing in mind the 40% tax relief. For every 60p I put in I get 3.60 pounds. 

 

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Strewth!!!!!!!!

 

Didn't know they had bears in oz.

 

https://www.news.com.au/finance/economy/australian-economy/the-phone-call-that-could-drop-house-prices-by-80-per-cent-if-another-financial-crisis-hits/news-story/ca0b7f50fcb991cdf816e44d30a3ecd8

The phone call that could ‘drop house prices by 80 per cent’ if another financial crisis hits

'“YOU must save your banks at all costs.”

According to late Irish finance minister Brian Lenihan, that was the message he received on his phone from European Central Bank chief Jean-Claude Trichet on September 27, 2008, at the height of the financial crisis.

Three days later, Ireland’s government announced a controversial blanket guarantee of the banks. Over the next two years, the country’s banking and property sectors collapsed, costing taxpayers €64 billion ($100 billion).

“Our banks were very dependent on obtaining funding from other countries, and once that began to dry up we knew that would create very serious problems for the Irish banking system,” Mr Lenihan said in a 2010 TV interview before his death.

“Mr Trichet rang me and hadn’t been able to get through to me. I was at a racecourse in County Kilkenny at a (party) event. So I caught up on Mr Trichet’s message the following day, which was that, ‘You must save your banks at all costs’.”

While Mr Trichet would later deny such a call ever took place, insisting he did not “blackmail” Ireland into a series of financial measures culminating in the November 2010 bank bailout, experts have drawn comparisons to Australia’s situation a decade later.

In a provocatively titled video, “Will one phone call drop home prices by 80 per cent?”, Digital Finance Analytics founder Martin North, economist John Adams and PhD student Sean Quinn, who was in Ireland at the time, discussed what would happen here in a similar scenario.

They debated whether, in the event of a major financial crisis, Australia should similarly agree to guarantee its banks — or let the whole system collapse and “reset”.

Rather than coming from the head of the ECB, the “one phone call” in this case would likely be from the United States to Prime Minister Scott Morrison or Treasurer Josh Frydenberg.

About $260 billion of Australia’s $486 billion 90-day debt comes from Wall Street, with most of that funding held by the Big Four. Australia’s total household debt to GDP is now one of the highest in the world, at 120 per cent.

With taxpayers footing the bill, house prices in Ireland fell by 40 per cent. Without the bank bailout, Mr North believes they would have fallen by double that. In Australia’s case, that would plunge Australia into a depression to rival that of 1892.

“You’ve got to say, let’s understand what created the problem in the first place, which is the debt bomb,” Mr North said.

“If we are simply just kicking the can down the road, we’ve actually not solved anything, we’ve just moved the problem out a bit but we haven’t actually fundamentally thought about how to reset the economy.

“It seems to me at some point, there has to be an ‘alt-control-delete’ on the way the economy works. Tough though it would be, if I were getting that phone call I’d say I think that short, sharp, deep recession is probably the least worst option.”

Mr Adams said there was “no denying that there are many parallels between Australia’s economy today and the Irish economy” in 2006-07.

“If an international economic shock were to occur, it is conceivable that one or more of Australia’s banks could be placed in a situation similar to Anglo-Irish Bank,” he said.

“In this scenario, Australia has a very clear choice between using taxpayer money to bail out international creditors or to send the Australian economy into a depression that would rival the 1892 depression which was the worst economic crisis in Australia history.”

Last week, Mr North featured in a 60 Minutes episode warning of an impending property crash. The episode Bricks and Slaughter received mixed reviews.

SQM Research founder Louis Christopher, who also featured, said he was “disappointed” in the show and that it had “distorted” his views by presenting only his comments about real estate being overvalued.

In a series of tweets after the show, Mr Christopher said he did not believe the housing market was going to crash.

“Sydney and Melbourne are significantly overvalued but I take the view the overvaluation will likely unwind over a longer period of time,” he said.

“I stated in my interview with 60 Minutes the risks as well as the safety valves that are still present in the market — strong local economies, strong population growth, banks very unlikely to fail. The program covered my comments on the risks and overvaluation only.”

Mr North also clarified his position, saying he never claimed prices would fall 40-45 per cent in the next 12 months as stated by 60 Minutes.

He said he outlined four scenarios, with only a 20 per cent chance of a severe correction if the US economy stalls as rates there rise, creating a “GFC mark two”.

That would cause Australian property prices to fall 40-45 per cent over three years. “But this is not my central scenario,” he said.

It comes as US analysts warn of ballooning global debt that now stands at $US247 trillion. “We think the major economies are on the cusp of this turning into the worst recession we have seen in 10 years,” Elliott Wave International head of global research Murray Gunn said in a note.

“Should the (US) economy start to shrink, and our analysis suggests that it will, the high nominal levels of debt will instantly become a very big issue.”

Economic commentator Peter Schiff has forecast a major downturn as early as the end of US President Donald Trump’s first term.

“We won’t be able to call it a recession, it’s going to be worse than the Great Depression,” he told the New York Post. “The US economy is in so much worse shape than it was a decade ago.”''

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3 hours ago, sancho panza said:

“In this scenario, Australia has a very clear choice between using taxpayer money to bail out international creditors or to send the Australian economy into a depression that would rival the 1892 depression which was the worst economic crisis in Australia history.”

Remarkable how quickly they've come to admit things like this, only a few months ago it was going to pick up again after a quick breather. There's long been a section of Australia that resents the US in military terms, now to face absorbing their bad loans on top of the loss of sovereignty to China is going to be a bitter pill.

That explains the Australian banks as the preferred method of shorting anyway.

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The thing with tying the Banks short term funding needs with the needs to a solution is still, in my view, propaganda for the masses.  The masses think - supported by the media - that banks lend money after someone has deposited a dollar.  So that 486Bn 90 day debt is thought of as covering 486Bn of mortgage lending.  Its subtle reinforcement of that (false) narrative, in my view.  On here we all know the truth  - that the Banks have conjured up trillions out of thin air and lent it out, thus pushing up house prices.

 

Lets imagine the banks cannot roll over the debt.  Will the houses disappear?  No.  Will the mortgages disappear?  No.  They'll just be bundled up and sold onto someone else who wants them, probably at a nice discount.

 

Will the banks disappear?  Yup.  Will the executives nice bonuses disappear?  Yup.  Will the nice directorships for the ex-ministers dissappear?  Yup.

 

Kinda tells you where the fear lies, eh?

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On 19/09/2018 at 23:54, Sugarlips said:

WRT west coast property, at current exchange rates its not hard to find a reasonably nice detached 3 or 4 bed 2 bath house within 30 mins of Perth on a decent 800sqm plot for less than the price of a run down semi on a council estate in the rougher parts of east Dorset.

Wages can still be favourable in Perth for the skilled as long as you are frugal and dont borrow to the hilt (mortgage interest is higher here) which is why I'm still here at present.

The trouble with Perth is that finding a job can be nigh on impossible and if you have previously worked in Oil and Gas no one else will touch you. In 2016 I went from a salary not far off $250K to making dozens and dozens of applications for no return. Gave up after 6 months. Applied for 4 jobs in the UK and got offered interviews for all 4. Took 1st one which was a high 50's (sterling) package. 

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28 minutes ago, Kurt Barlow said:

The trouble with Perth is that finding a job can be nigh on impossible and if you have previously worked in Oil and Gas no one else will touch you. In 2016 I went from a salary not far off $250K to making dozens and dozens of applications for no return. Gave up after 6 months. Applied for 4 jobs in the UK and got offered interviews for all 4. Took 1st one which was a high 50's (sterling) package. 

Why would this be, Kurt?  In my experience Aussie employers are just as panic stricken when having to fill a job as anyone else?

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1 minute ago, wherebee said:

Why would this be, Kurt?  In my experience Aussie employers are just as panic stricken when having to fill a job as anyone else?

They assume you see the job as a stop gap. 

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sancho panza

Boom....hiss.......

Looks mlike top end blowing up first,UK following same pattern

 

BTLers still loading up at 3% gross........40% new mortgages.

And the builders are still adding stock.This will be epic.

https://wolfstreet.com/2018/10/01/australia-sydney-melbourne-house-price-condo-unit-bubble-new-construction-supply/

How a Housing Bubble Deflates: Sydney & Melbourne, Australia

by Wolf Richter • Oct 1, 2018 • 0 Comments

Every housing bubble requires the connivance of the banks and regulators.

Sydney’s housing bubble, one of the most magnificent in the world, is deflating further. So far this year, home sales volume has plunged 18.5%, according to CoreLogic. And prices have followed. In September, this is what happened compared to a year earlier:

  • Prices of single-family houses dropped 7.6%;
  • Prices of “units” – condos in US lingo – fell 2.6%;
  • Prices of all types of homes combined fell 6.1%,
  • Prices at the most expensive quarter of the market dropped 8.4%;
  • Prices at the least expensive quarter of the market fell “only” 3.3%.

CoreLogic’s Daily Home Value Index is now down 6.3% from its peak last September:

Australia-home-prices-Sydney-2018-09-30.

Melbourne’s housing-bubble deflation has been lagging a few months behind Sydney’s but is now catching up. So far this year, sales volume has plunged 15.8%. And prices have followed: Year-to-date, house prices fell 5.1% and unit prices are down 1.5%. Over the third quarter alone, prices fell 2.4% compared to the second quarter, making Melbourne the fastest deteriorating housing market among Australia’s eight capital cities

At the most expensive quarter of sales, prices dropped 6.7% from a year ago. At the least expensive quarter, prices were still up 4.1%.

For all types of dwellings combined, prices declined 3.4% year-over-year, according to CoreLogic and are down 4.5% from their peak at the end of November 2017:

Australia-home-prices-Melbourne-2018-09-

So how big were those bubbles?

“Despite the recent falls in Sydney and Melbourne, dwelling values remain 46% and 40% higher than they were five years ago, highlighting that most home owners in these cities continue to benefit from a substantial lift in wealth from the boom in housing,” explained CoreLogic head of research Tim Lawless in the report. So there’s a long way to go.

Corelogic tracks the largest five of Australia’s eight capital cities in a separate index. Sydney and Melbourne account for about 60% of the national value of housing and weigh the most in this index. Home prices in the remaining three cities in the five-capitals index weren’t hot either in September:

  • Brisbane: home prices inched up 0.8% year-over-year.
  • Adelaide: home prices inched up 0.7% year-over-year.
  • Perth: home prices fell 2.8% year-over-year and are down 13.2% from their peak in 2014 when Western Australia’s mining boom turned into a bust.

The aggregate five capital cities index fell 3.7% in September year-over-year. It was the 12th month in a row of month-to-month declines. The index is now down 4.0% from its peak in October 2017:

Australia-home-prices-5-capital-cities-2

In the remaining three capital cities:

  • Hobart: home prices surged 9.3% year-over-year, to a new record;
  • Darwin: home prices fell 3.7% year-over year and are down 22.1% from their peak in 2014;
  • Canberra: home prices rose 2.0% year-over-year, to a new record.

Investors still account for 41% of the value of new mortgage demand, according to CoreLogic. But they’re being hit by new regulations and higher mortgage rates designed to tamp down on investor enthusiasm.

And rental yields have been miserably low: In Sydney, “gross rental yields” – annual rental income of a property as a percentage of the property’s value, not including interest and other expenses – were 3.2% in Sydney and 2.9% in Melbourne.

Subtract interest and other expenses, and it’s a money loser. These losses are mitigated by being deductible from income taxes (“negative gearing”), but they’re still losses, and the only hope for investors under these circumstances is that the property will rise in value. But the opposite is happening now.

Every housing bubble requires the connivance of the banks, and Australia is no exception. A banking scandal of enormous proportions has partially come to light via the Royal Commission investigation of the banks and revelations from other sources. Just about every malfeasance imaginable has been in play for years, as regulators played ball with the banks, and politicians encouraged it. There is nothing like a big housing bubble to make everyone look good and bring in the dough.

But these things can go only so far before the whole edifice – including the banks – is at risk of collapse. So now efforts are underway to get a handle on it and tighten up lending, particularly for speculators and over-stretched households.

Among other items, there is now a new focus on debt-to-income ratios, which pull many households out of the more expensive ends of the housing market, such as in Sydney and Melbourne.

“With the release of the banking commission interim report, there is a chance that already tight credit conditions could tighten even further,” CoreLogic’s report points out:

The constant theme from the report is that regulators should monitor and enforce existing policy much better, while lenders and brokers need to place client interests ahead of profits. This implies a more conservative lending approach going forward which is likely to impact further on credit availability.

The latest credit aggregates from the Reserve Bank show housing credit growth tracking at the lowest level in almost five years, and investor related credit is growing at the slowest pace on record.

If credit conditions do tighten further from here, we can expect housing market activity to follow suit.

But supply of new construction is surging:

In Greater Sydney, 77,000 condos are scheduled to be completed in 2019 and 2020, which will increase the total stock of condos by 9.3%! In Greater Melbourne, nearly 79,000 units are scheduled to be completed in 2019 and 2020, which will increase the total stock of condos by 11.5%! CoreLogic:

With such a substantial pipeline of housing stock in the wings at a time when credit has become less available, investment and foreign buying activity has fallen materially and population growth is trending lower, this could create some headwinds for the market.

This may create some challenges for absorbing newly built housing stock, especially those dwellings targeted specifically towards investors.

The US housing market is now getting hit by rising mortgage rates. The average 30-year fixed-rate mortgage already comes with a 5% rate, and 6% beckons as the next target. Read…  What Will Surging Mortgage Rates Do to Housing Bubble 2?  

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