subprime mortgage crisis

[Lolly]

Is WA experiencing a housing bubble akin to the US?

From Wiki:
Steeply rising house values during the 2001–2005 United States housing bubble tempted new buyers to borrow beyond their means, and existing owners to borrow money by re-financing their existing mortgages, using as collateral the increased value of their real estate. In the case of loans made to marginal credit-worthy customers, commonly known as subprime loans, the lenders tended to "look the other way". Then prices began to turn around. So the subprime mortgage Financial crisis was born, and caused a sharp rise in home foreclosures

This sure sounds familiar.

What do you think will be the impact (if any) on WA's housing market.

[sathid]

If it happens, I might be able to afford a house in a few years.

[Sunshine & F'n Rainbows]

I don't think it's quite the same, but I'm pretty sure we're headed for something of a recession.

Not that I'm too bothered, I'm not mortgaged to the hilt. Recession would be a good time for me to finally buy some stocks maybe.

[Aphex]

I dont think we'll see the doom & gloom that alot of scare mongers are predicting. We're already seeing a slight adjustment in the market in some areas and certainly a slowing of the same across the board. IE: 12 months ago, most homes sold within a couple of days of listing, now its more like a couple of weeks.

Property prices are always going to increase in the long term. In the scheme of things if they drop 5 to 10% over 12 months its no biggy. It will affect only those that have borrowed beyond their means in the first place thinking that it was the only way to get ahead.

I agree we may be headed towards a recession however I dont see it being anything like the late 80's early 90's.

[Satan1]

We should see a downturn ala Sydney. We usually follow closely albeit 3 years behind. The minerals boom should see to softening the fall.

[19andrew59]

This is by Steve McKnight, a successful property investor.

If your plan for making real estate millions involves waiting for property prices to crash a la what's been reported in the US then, I'm sorry, there's little to no chance of that happening here.
Unlike the US where there is excess housing stock, here in Australia we're suffering a severe housing shortage. In their latest report on housing affordability, Paul Braddick, head of finance at the ANZ Bank, has forecast a national shortage of 200,000 homes by 2010. Braddick attributes a simple cause - we're simply not building enough houses. The conditions aren't currently right for an Australian housing correction.
That's not to say that property values will remain unaffected by interest rates increases - higher rates will further reduce affordability and shrink the pool of available buyers. Sooner rather than later, homebuyers will downsize their housing expectations rather than borrowing more to get their dream home.
A good precedent is what happened when interest rates reached 18% in the early 1990's. Homeowners knuckled down and worked hard to pay off their mortgage which meant house prices stabilised and drifted rather than crashed.
It was a different story in commercial property though. Values in that market fell sharply, resulting in banks calling in commercial loans so that mortgages and debt facilities remained at preset loan-to-valuation ratios. For instance, if the LVR was 70%, then banks wanted clients to repay $70,000 for each $100,000 drop in value. With no buyers around, values plummeted and those forced to sell often lost their financial shirts.

[M_Green]

Is WA experiencing a housing bubble akin to the US?

From Wiki:
Steeply rising house values during the 2001–2005 United States housing bubble tempted new buyers to borrow beyond their means, and existing owners to borrow money by re-financing their existing mortgages, using as collateral the increased value of their real estate. In the case of loans made to marginal credit-worthy customers, commonly known as subprime loans, the lenders tended to "look the other way". Then prices began to turn around. So the subprime mortgage Financial crisis was born, and caused a sharp rise in home foreclosures

This sure sounds familiar.

What do you think will be the impact (if any) on WA's housing market.

Thats only part of the story though, another contributing factor was that the loans were being offered at well below market rates for a honeymoon period. once that period was over (say 12 months) The interest rates reverted to a higher than market rate. interest rate rises during this period also contributed. To my knowledge the main lenders here do not have such lending products available.

[ButtNekid]

the young man that waits for house prices to fall before buying will be an old man without a house.

Just do it, everyone has been saying to me for the last 2 years, oh just wait until next year, prices will come down, blah blah blah, well here I am 2 years later and just bought a house that cost me about 150k more than it would have done 2 years ago.

You wait you lose, as long as you do not over extend yourself so you can make your repayments even if interest rates rise (I locked mine for 3 years 100%) just in case Rudd severely screws the economy, you should not wait. I read wise and afar and the majority 'experts' seem to suggest that the only suburbs that will have any noticeable correction will be the lower socio-economic ones that boomed late 05 2006 (for eg thornlie/clarkson etc) and will not be able to maintain their over inflated values.

If you buy close to river, city or beach I doubt you will see much of a downward trend.

If you can, try to buy a subdivisable block where you can retain the front house while you subdivide, live in the front, get subdivision through, sell the front house, move into a mate's, family, GF's place, use the proceeds from the front house to build on the back/side house, move into that house for 6 months, sell that one with no capital gains and you should come out a fair bit ahead as long as you did not pay too much for the original purchase or building the house.....

I plan to do this a couple of times along with hopefully a couple of well chosen off the plans investment apartments to make enough money to move into somewhere swish without having to mortgage myself silly.

5 year plan, clock been running for 2 months now, I guess we will see. If I am wrong, can someone lend me money for some mee goreng??? and maybe a cardboard box hehe

[hokoyo]

Well blow me down with a feather, those people that overextended themselves with low doc loans were a risk and did not re pay their loans. Amazing.

[sathid]

the young man that waits for house prices to fall before buying will be an old man without a house.

Just do it, everyone has been saying to me for the last 2 years, oh just wait until next year, prices will come down, blah blah blah, well here I am 2 years later and just bought a house that cost me about 150k more than it would have done 2 years ago.

You wait you lose, as long as you do not over extend yourself so you can make your repayments even if interest rates rise (I locked mine for 3 years 100%) just in case Rudd severely screws the economy, you should not wait. I read wise and afar and the majority 'experts' seem to suggest that the only suburbs that will have any noticeable correction will be the lower socio-economic ones that boomed late 05 2006 (for eg thornlie/clarkson etc) and will not be able to maintain their over inflated values.

Not waiting for house prices to drop really, rather waiting until I'm no longer a uni student making $25k p.a.

lol

[Scoundrel]

the young man that waits for house prices to fall before buying will be an old man without a house.

Just do it, everyone has been saying to me for the last 2 years, oh just wait until next year, prices will come down, blah blah blah, well here I am 2 years later and just bought a house that cost me about 150k more than it would have done 2 years ago.

You wait you lose, as long as you do not over extend yourself so you can make your repayments even if interest rates rise (I locked mine for 3 years 100%) just in case Rudd severely screws the economy, you should not wait. I read wise and afar and the majority 'experts' seem to suggest that the only suburbs that will have any noticeable correction will be the lower socio-economic ones that boomed late 05 2006 (for eg thornlie/clarkson etc) and will not be able to maintain their over inflated values.

If you buy close to river, city or beach I doubt you will see much of a downward trend.

If you can, try to buy a subdivisable block where you can retain the front house while you subdivide, live in the front, get subdivision through, sell the front house, move into a mate's, family, GF's place, use the proceeds from the front house to build on the back/side house, move into that house for 6 months, sell that one with no capital gains and you should come out a fair bit ahead as long as you did not pay too much for the original purchase or building the house.....

I plan to do this a couple of times along with hopefully a couple of well chosen off the plans investment apartments to make enough money to move into somewhere swish without having to mortgage myself silly.

5 year plan, clock been running for 2 months now, I guess we will see. If I am wrong, can someone lend me money for some mee goreng??? and maybe a cardboard box hehe

How much should one really expect to contribute to a mortgage from their income?? I'm on $60K and people keep on giving me conflicting advice.

[Dyno]

When I first purchased I was using around 1/3 of my paycheck to pay my mortgage. Now I earn more its down to about 1/4. That is the minimum. Since I can afford it though I've upped repayments to around 1/3 of my pay again. It depends how much you earn. If you earn 35k after tax then using 11.5k of that in your mortgage will hurt more than if you use 1/3 of a 60k after tax salary.

what can you afford to pay?

edit: hopefully your pay will increase as time goes by. so a painful mortgage right now will hopefully be relatively painless in a couple of years

[19andrew59]

How much should one really expect to contribute to a mortgage from their income?? I'm on $60K and people keep on giving me conflicting advice.

The current suggestion seems to be that if you're spending 30 - 35% of your income on your mortgage, you're regarded as being in "mortgage distress".
This is a generalisation and doesn't take into account individual situations.

[Scoundrel]

Hmm. So putting half of my income away on a mortgage will soon put me against the wall then!!

[19andrew59]

Hmm. So putting half of my income away on a mortgage will soon put me against the wall then!!

I'd be wary of putting 50% against my home mortgage, but by the time you take investments into account, we're above that figure. Again, horses for courses.