It’s “all so bloody predictable” says Australia Macro Business as Western Sydney Ground Zero in Interest-Only Mortgage Bust.
>Selling agents are starting to reveal the truth behind recent listings in Sydney’s west with Belle Property Strathfield’s Jimmy Kang saying up to 50 per cent of his clients were asking him to sell their homes in Sydney’s western suburbs because they can no longer afford their new principal-and-interest mortgages.
>…A couple asked him to sell a two-bedroom weatherboard home in Veron Street in Wentworthville, 27 kilometres west of Sydney, for $950,000 when it was only worth about between $820,000 and $830,000. They bought the home for $790,000, two years ago.
>“I asked them where they got that number from and they said that was the number they need to pay back the $200,000 they borrowed from family to buy the home as well as repay their interest-only loan,” he said.
>“A lot of them initially paid $2000 to $2500 a month on their interest-only loans, and now they have to pay $4000.”
>Auctions in Western Sydney’s mortgage belt have collapsed. This is exactly what happened in the 2003 Sydney bust. Western Sydney is basically a low income ghetto that occasionally catches the house price bug then is astonished when its paltry income can’t support the prices.
>This is going to melt down worse than 2003. Back then it was bailed out by the mining boom, rising rents and wages. As well, other city house prices took off and supported consumption. Today Western Sydney is the epicentre of the mass immigration wages crush and falling rents, and it’s increasingly national.
Correction Just Started
Home prices are Just Starting to Decline.
>There was a very timely article in The Conversation yesterday from Rachel Ong, Professor of Economics, School of Economics and Finance, Curtin University. She makes the point that rents have hardly risen at all over the past decade, signalling no lack in property supply.
>And I would add to the mix, too easy credit, also helped to drive prices higher, as we have discussed before. Plus, the average number of families per dwelling has not moved for years, suggesting that supply is simply not the problem.I continue to think 2019 will be the crunch year.
Real Property Index
Mean Real Weekly Rent
Property prices soared. Rent didn’t. There was no housing shortage. There was a speculative boom.
Too Late
If you need to get out, it’s already too late.
And if you were on an interest-only mortgage loan, now unable to afford higher payments, you are really screwed.
Mike “Mish” Shedlock
OK – but you used to tell them in 2007 to get out from real estate. They did not. Prof Steve Keen did much more convincing about coming collapse of real estate. How it ended? The walk with the famous T Shirt saying that he was wrong about real estate market.
It is not possible to make copy paste of situations in one or other country. Always it is different and betting money on similar market behaviours can hurt a lot.
I don’t think it looks that bad yet, just some folks who caught a falling knife due to over speculation.
Hmmm. That “Mean weekly rent” graph (clipped at the bottom as misleading graphs often are) seems to indicate Sydney rents are about what Section 8 rent is in Compton, CA.
Section 8 housing rents at market price with a direct government subsidy to the landlord, so it’s not relevant at all to the graph or your apparent point. I have no idea if average rent in Sydney is around $2,200 a month or not, or if that is the price in Compton too. However, I wouldn’t call the graph misleading without some relevant information to back that claim up given the average weekly rent is not completely unreasonable.
Nope, please explain?
Bottom-clipped graphs accentuate small changes. That may be wanted, but … they are primarily editorials … spin.
Clipping the bottom removes context. Missing context is a dangerous thing.
BTW, I introduced both spin and context with the Sydney-Compton observation. In the US, “Compton” is a brand, a label, an icon. But it’s also a rather ordinary town. I’ve lived in Compton. I spent last Christmas there. Like with “Hollywood”, there are at least two “Compton”s in this world. This is just a factoid to tuck away.
Interesting. I understand graphs can be misleading I just didn’t think this one was because rent is unlikely to be at or near zero. I grew up near Compton (Bellflower/Norwalk area) and our neighbor’s house when I was in high school was rented under Section 8. The owner said it was because he actually received slightly more rent under the program than he could get from a private party. It was your spin in referencing Compton and Section 8 that caught my attention since I thought it was more misleading than the graph. I, of course, can be mistaken.
I assumed the graph numbers were OK. My memory of Csect8 is from some months ago, so it’s approximate. That the two numbers are in the same ball park just struck me as interesting and informative, given the usual spin on Sydney prices.
Section 8, BTW, has a big plus from the landlord’s point of view: S8 filters the bad guys and leaves tenants strongly incentified to keep the place and landlord happy.
Wasn’t aware of the incentive for the tenants to keep the landlord happy, but it makes sense since our neighbors rented for around 15 years (until well after I completed college) and they were able to purchase another home. My father lived next to them longer than anybody else in his life.
Boy Perth REALLY tanked. Because of commodity slow down?
We told ’em to get out several months ago Mish.