Property on the rocks

[cantab]

Aspex, IMO it's too late to do anything. The logic seems to be that the housing market is going to continue to go up and up. When people start talking like that it probably signals the end of this cycle. The horse has already bolted, and has run its 2 miles.

[Mick100]

FROM THE SUB-PRIME TO THE RIDICULOUS
by Peter Schiff
Euro Pacific Capital
March 14, 2007

With the meltdown in the sub-prime mortgage sector now laid bare, many on Wall Street desperately cling to the notion that the pain will be localized. The prevalent delusion is that the overall mortgage, housing and stock markets will be little impacted by the carnage ravaging the sub-prime sector. As such, renewed stock market weakness is seen as an over-reaction and a great buying opportunity. These assumptions represent wishful thinking in the extreme.

Those who think that the sub-prime market is unrelated to the broader economy do not understand that the problem is not just the fiscal responsibility of marginal borrowers, but the inherent weakness of the entire U.S. economy. It’s just that the sub-prime sector, being one of the most vulnerable spots, is where the problems are first surfacing.

Think of the U.S. economy as an unstable dam. The first leaks will be seen in the dam’s most vulnerable spot. But there will be many more leaks to follow. Before long the entire dam will collapse. It would be a fatal mistake for those living downstream to assume a leak is an isolated event, unrelated to the integrity of the dam itself. But that is exactly what those on Wall Street are doing with respect the horrific data emanating from the sub-prime market.

The bottom line is that far too many Americas, not simply those with low credit scores, have borrowed more money then they are realistically capable of repaying. The credit boom was created by initially low adjustable rate mortgages, interest only, or negative amortization loans, and an appreciating real estate market that allowed homeowners to extract equity to help make mortgage payments. Now that real estate prices have stopped rising, and mortgage payments are resetting higher, borrowers can no longer “afford” to make these payments.

Significantly, most sub-prime loans involved low “teaser” rates that lasted for only two years. In contrast, teaser rates for most prime ARMs typically last for five years. This difference, rather than any inherent distinction in the fiscal health or credit worthiness of the borrowers, explains why the delinquencies are so much higher in the sub-prime sector.

Of course, the vast majority of home loans in the last few years, sub-prime or otherwise, should never have been made in the first place. However, when real estate prices were rising, no one cared about the wildly optimistic assumptions or the out-and-out fraud inherent in the loan process. Everyone was making money. Borrowers, regardless of their ability to pay off their loans, thought they were getting rich as real estate prices rose. On the other side, home builders, real estate agents, appraisers, mortgage brokers, mortgage originators, Wall Street brokerages that securitized the loans and the hedge fund clients who bought them, were all getting rich as a result of booming credit. For the charade to continue, borrowers pretended they could pay and lenders pretended that they would be paid.

The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Their legislative proposals will require that lenders make potential borrowers verify their incomes and restrict credit only to those who can afford the payments after the teaser periods end. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels. There is just no way to crack down on lenders without causing a crash in the real estate market. However, continuing to look the other way is no panacea either as the real estate market is already in the process of collapsing under its own weight.

It is also typical and very disingenuous for lawmakers to feign outrage, or to have waited until a collapse occurs before taking action. Just like with the Internet bubble of the late 1990’s, the government refused to act in advance of th

[tricha]

Good one Mick, how does this apply to NZ [?][?][?]

Scenario 1 - Will NZ property prices crash [?][?]

Scenario 2 - Inflation rampant and as we know 1, 2 and now 5 cent pieces gone, cash is trash [xx(][xx(][xx(]

[arco]

For those with time on their hands heres
a little light reading from the UK

House Price Crash forum

http://www.housepricecrash.co.uk/forum/

Serious stuff

[Dazza]

Fellow investors.

My young age has not given me enough experience with regards to economic melaise and crashes.

I'd like to hear some experiences of how much the property prices on average fell during the 87, 97, 00 crashes of our century.

I was too young and unaware of the situations and outcomes.

I have done some calculations and it seems with regards to east auckland, i'd need a 20% fall in houses ie 500k down to 400k in order for me to even contemplate about investing / buying my first house.

that includes having a 100k downpayment.


So i'd like to know roughly how much does the prices fall,

when they say a housing slump, does that generally mean a flat growth in capital gain, or just a minor fall in prices?

my dad says to me, that property in nzl neva falls, at worst its just flat.

if that is so.... is discouraging for me.. as rite now i guess im waiting for the fall.

many thanks,
dazza

[Dazza]

ic

would he have sold it to me for say 80k :P

i guess when they are desperate, they will sell if cash comes up eh ?

all these freaken baby boomers and cash they have, not to mention overseas cash coming in.......

[Steve]

quote:Originally posted by aspex

It may not be so much the amount of the fall as the lack of liquidity in the market.
No buyers so the vendor is stuck with massive outgoings and nowhere to go.
1. It does not need a large fall in the general market.
2. It is all to do with cashflow.
3. Ultimately the banks own you.
Some think that because they have say five properties, they can sell one to relieve the pressure.[B)]
Boy, have I news for them when the market turns.[}]

Very well explained, Aspex.

If you are one of those people who have only recently (say up to last 2 years) got into the property market by being leveraged to the hilt, then you are probably not in a strong position.

It used to be that the property 'experts' always said "only buy cashflow positive properties" as the key was to have the tenants pay the mortgage for you.

Personally, I am waiting for some bargins from desperate sellers, hopefully not in the too distant future...

[Jess9]

See latest property investor mag shows a small decline in median house price for Tauranga. Also - looking in that area's current Property Press, I noted several houses advertised with a "price reduced" banner in one corner. Properties were mostly in Papamoa, Welcome Bay. Drops ranged from 10 to 40K - off bases over 500K however. Is this just the next phase of house marketing i.e. tricking buyers into an over priced "bargain" - or the wind actually changing in this property cycle?

Any others noticed price reductions making it into advertising elsewhere yet?

[Sideshow Bob]

It's been happening here in Dunedin a bit, but maybe were over-priced to start with. A pretty unscientific survey of the property press and local rag over recent weeks seems to indicate generally houses aren't moving nowhere near as fast, especially at the top end of the market.

If interest rates go again, there have got to be some people hurting when the fixed interest setting rolls around again.

[Dazza]

i want them to burn lol

as i await for my house deposit to grow into a beast on the ASX...

i await...

mind u signs are aussie housing market heating up supposedly?

come on kiwis, feel the burnnnnnnnnn