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House of cards

Discussion in 'Real Estate' started by Simon Hampel, 12th May, 2008.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    House of cards

     
  2. Jacque

    Jacque Team InvestEd

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    One street in a Sydney suburb that's had 4 mortgagee sales does not make for a mortgage "meltdown" Sydney wide; let me assure you. When you look more closely, you'll discover that Seymour Ave, Kellyville, has had four resales in the period 05-07, three of which lost their owners serious money.
    The facts:

    No 48 bought for $950K in 08/05 resold 01/07 for $490K
    No 43 bought for $950K in 08/05 resold 12/07 for $519K
    No 42 bought for $950K in 09/05 resold 03/07 for $490K
    No 55 bought for $620K in 12/05 resold 11/07 for $572,500

    The sad truth is that the 2005 buyers of no's 42, 43 and 48 grossly overpaid for their houses at the time, by some $200-300K. No doubt they were swayed by fast talking agents or developers (two of these houses had the same vendor) the valuers subsequently relied on the first overpaid property (no 43) to set a benchmark and the uninformed purchasers (who obviously didn't conduct enough DD or shell out a lousy $60 on a postcode report to see the other comparables in the area) didn't do their homework and ended up overpaying. Switch to 07 and some 5-6 interest rate rises later (besides other circumstances which we may not be privvy to) and the buyers collapsed, having to resort to MIP sales on their overpriced mansions.

    Interestingly enough, the three lowest sales (42,43 and 48) were all auctions, as opposed to no. 55 which sat on the market for some mths at $649K before eventually selling for what would be seen now as a modest loss.

    I recently compiled some stats for a Kellyville client of mine and, out of house re-sales in the $600-900K price bracket between 03-08 less than half of them went on to achieve less than what they paid at the height of the boom in 2003/04- and, even then, the largest loss was under $100K. Most who resold for less than what they paid lost between $5-50K.

    There will always be exceptions in every market, in every cycle, and it's sensationalist stories like this one on 60 Minutes that will keep the masses uneducated and believing that all Sydney prices are going to fall 50%. Give me a break!!! The media will find the exception, pump it up and extrapolate those few examples to build a story.

    In the meantime, the investors who ignore the hype and study the numbers and the market signs instead will recognise current conditions for what they may well mean- opportunity.

    Isn't it amusing that no one wants to follow the herd, but when it comes down to it, the pull of the flock is too strong? :D
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    Hi Jacque,

    I think it's interesting that 60 minutes is blaming the "Americans" (very general) and Steve Keen knows that it's the actual predatory lenders who are to blame.

    Cheers,

    Dan
     
  4. Jacque

    Jacque Team InvestEd

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    Keen is simply another economist offering another opinion. Like all media shows determined to get their preferred point of view or particular storyline across (in this case Property Doom and Gloom which definitely sells news) 60 Minutes will find the professional who supports the case studies they have to make the story attractive to viewers. How boring it would have been if they'd found an economist who only predicted 5-10% falls or a levelling off of prices... ho hum.

    As for predatory lending, I agree that there are unethical lenders out there who took advantage of uneducated and trusting home buyers. However, some degree of self responsibility also needs to occur as with any borrowings, whether it be for houses or whitegoods- read the fine print and get it checked over by someone (eg solicitor) if you don't understand it. Allow a buffer zone for interest rate rises (2% suggested) and don't borrow beyond your capacity. Yes, it sounds simplified, but there are way too many purchasers who didn't run the numbers themselves and work out that borrowing over 1/3 of your income (allowing for 2% on top) is not a smart option.
     
  5. Billv

    Billv Getting there

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    The things is, if people see and hear doom & gloom all the time,
    in the end a large majority of them will believe it and prices could come down more.
    Perhaps I will be able to afford 1 more IP soon. :D
    Cheers
     
  6. Adamzski

    Adamzski Member

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    What a load of crap, I have driven past those houses a lot recently while building the Lynwood Country Club - Home website, Developers bought the kellyville golf club site for a load of cash and are building them a new course and Clubhouse at Lynwood a bit further out. There will be a whole golf course sized estate open within a year next door to these former 900k properties so maybe this has to do with these houses dropping.

    Was amazed the first time I saw those houses.
     
  7. D&K

    D&K Well-Known Member

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    Hey Jacque,
    There's predatory lending and then there's PREDATORY LENDING. Some of those in the US got caught by a honeymoon rate close to the Fed rate but conditions were that they'd revert to a so called variable market rate after a few years. That variable rate was based on who held what mortgage securities that week and people got slugged with rates in the order of 12%. There was a good 4-Corners article on it late last year.

    Anyway, even if people had factored in a 2% rise, they were just completely blown away after the honeymoon period. This was really a big time scam. Sad thing was, the bank contracts couldn't be swapped for reduced rates and when the banks tried they got targetted for 'manipulating the market'! At least we have some regulation of the sector.

    However, you 2% is good advice for us here. I've been using a 2% calculation for years.

    Cheers, Dave
     
  8. perky

    perky Well-Known Member

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    Being a keen golfer, you got me excited - then I see that this new golf course is at Pitt Town - hardly what I would call next door to Kellyvile :rolleyes:

    That story is old news - the people who bought those for 950k in the first place have no idea. My house (IP) is in the next street , and at the height of the boom in 2003 was valued at 650k, and has been sliding back in price since. I think it may have bottomed around 550k and is starting to come back a little.

    The annoying couple from Melbourne got to me and my wife.
    They claim hardship - but had enough money to buy one of those new trampolines and play gym - and what were those mag wheels hiding in the front yard under the cover? A nice new car I bet.
    That guy was also not working - of course you will have a hard time paying a mortgage !!
     
  9. Adamzski

    Adamzski Member

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    Kellyvile golf course was at Kellyvile, now they have dug it up and are moving it to pitt town.

    You make me feel better about my unit staying at the same price for years while i pump money into intrest.

    What kind of returns do you think you will get at kellyville over 10 years? would you think the price might go close to doubling?

    Im thinking of getting a 300k house somewhere around there.