Nerfonomics

beeb

Dr. Beebenson, PhD HA, ST, Offset (hons)
Australia's largest home builder Metricon almost went under last week. Currently being propped up by the CBA and some justifiably panicky shareholders.

You know the market is having some "issues" when a company responsible for over 10,000 homes in the last couple of years is in that kind of shit.
I read that more as them not having anticipated the exponential rise in material costs, rather than a lack of market demand. Given the massive delays in building generally, if you signed the contract pre-pandemic and it took them months to start building and the purchase price was locked in but material costs have doubled that's gonna root a business pretty hard. Really they should purchase all the materials at time of purchase so their costs are (relatively) fixed, but until the last couple of years they wouldn't have needed to and would've been able to keep overheads/stockholding low.

If rates continue to jump, obviously people at the bottom end of the market are going to feel the squeeze as cost of living expenses pile up and the housing market cools, but IMO overall demand will remain strong - it just means the people with money will buy more rentals and accelerate the divide between the haves and have nots.
 
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Asininedrivel

caviar connoisseur
I read that more as them not having anticipated the exponential rise in material costs, rather than a lack of market demand.
Basically, yes:

An Association of Professional Builders (APB) report stated that by October 2021, it was clear that the increasing price of construction materials, supply chain delays and COVID-related labour shortages were impacting the profitability of every single building company in Australia.

Still telling that these issues can be big enough to knock around the biggest fish in the pond though.
 

Flow-Rider

Burner
I read that more as them not having anticipated the exponential rise in material costs, rather than a lack of market demand. Given the massive delays in building generally, if you signed the contract pre-pandemic and it took them months to start building and the purchase price was locked in but material costs have doubled that's gonna root a business pretty hard. Really they should purchase all the materials at time of purchase so their costs are (relatively) fixed, but until the last couple of years they wouldn't have needed to and would've been able to keep overheads/stockholding low.

If rates continue to jump, obviously people at the bottom end of the market are going to feel the squeeze as cost of living expenses pile up and the housing market cools, but IMO overall demand will remain strong - it just means the people with money will buy more rentals and accelerate the divide between the haves and have nots.
People want cheap houses so it opened the market up to the multi-build spec homes, some of these companies have 200 builds going on at any one time, it would be a total cluster fuck to preorder material and store it on site, if possible, even worse if the supplier has to store it.

Then there was the issue when companies went broke and the insurance companies paid out x and the cost for the next building company was z because they already have a ton of their own work and they put off the next build.
 
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Squidfayce

Eats Squid
They basically end up in the same boat as people with high LVR's
Edit -
You have completely missed the point.

My point was that there is typically equity in homes upfront (by virtue of deposits and capital gain) that absorbs any movement in the property prices. The only scenario that this is not true is extremely high LVR loans taken out recently (say in the last 3 months), which there is less and less of due to these exact conditions we are in now being forecast for a better part of a year. Many lenders have been limiting their high LVR lending to 85-90% rather than the traditional 97.5% max.

I get the impression that you're also implying that high LVR positions lead to poor outcomes that are the same as those with crippling debt, which is just not the case. While these two issues can occur in tandem, they are not exclusive. You can have high LVR positions and weather 10% (or more - the sky is the limit really) worth of rate rises without even breaking a sweat. Its all relative to the loan value, your income and expenses.
 
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Squidfayce

Eats Squid
I'm sure there will be plenty of people who bought houses at the very top (maybe even a bit over) of their budget because "keeping up with the Jones". Instead of being sensible and buying well within their means.

These people will be absolutely crapping their collective pants.

For sure. Though that's got nothing to do with those houses ending up worth less than their loans.

Edit - the other consideration however is that even if they bought at the Hight of the market - assessments account for rate rises and considder your debt levels before approving stil. SO while people will "feel" it because they will have to make adjustments, most of those adjustment should be coming from disposable income and not necessities like food or utilities regardless of where in the market they bought in at.
 
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Squidfayce

Eats Squid
Australia's largest home builder Metricon almost went under last week. Currently being propped up by the CBA and some justifiably panicky shareholders.

You know the market is having some "issues" when a company responsible for over 10,000 homes in the last couple of years is in that kind of shit.
Those shareholders mentioned are the actual owners. The company is a private company. The 30m injection was a condition required by the banks and govt that the owners needed to have skin in the game if they were going to provide support. 30M is a drop in the ocean across the 4000+ homes they have in the pipeline, but its not an insignificant part of the shareholders wealth. Metricon could still well go under. Almost counting on it. Builders hahve been operating as quasi Ponzi schemes ever since the pandemic.

There's also some rumors of fraud coming from inner circles there. Interesting one to watch for sure.
 
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Flow-Rider

Burner
Edit -
You have completely missed the point.

My point was that there is typically equity in homes upfront (by virtue of deposits and capital gain) that absorbs any movement in the property prices. The only scenario that this is not true is extremely high LVR loans taken out recently (say in the last 3 months), which there is less and less of due to these exact conditions we are in now being forecast for a better part of a year. Many lenders have been limiting their high LVR lending to 85-90% rather than the traditional 97.5% max.

I get the impression that you're also implying that high LVR positions lead to poor outcomes that are the same as those with crippling debt, which is just not the case. While these two issues can occur in tandem, they are not exclusive. You can have high LVR positions and weather 10% (or more - the sky is the limit really) worth of rate rises without even breaking a sweat. Its all relative to the loan value, your income and expenses.
I think you're ignoring the fact of high household debt and the high price of living, people will be forced to sell whether they want to or not. It's only Brisbane and Adelaide that are still going up, but I suspect that will neutralise soon too. A lot of people have borrowed against the equity in their home, I've seen it with members of my own family.



390262



https://www.news.com.au/finance/real-estate/buying/proof-australias-property-boom-is-over-as-house-prices-slow
 

Squidfayce

Eats Squid
I think you're ignoring the fact of high household debt and the high price of living, people will be forced to sell whether they want to or not. It's only Brisbane and Adelaide that are still going up, but I suspect that will neutralise soon too. A lot of people have borrowed against the equity in their home, I've seen it with members of my own family.



View attachment 390262


https://www.news.com.au/finance/real-estate/buying/proof-australias-property-boom-is-over-as-house-prices-slow
im not ignoring it at all. Its just not relevant to the comment i made to rockmooses post. People will be forced to sell if they cant afford to pay their mortgages. That's not a function of the LVR of of your loan/equity in your house.

That graph you've posted shows house prices are still growing just at a slower rate (its a moving average). Its not going backwards in any material way yet and eating into equity contained in the market as a whole until that graph hits the negative numbers, like it did briefly in 2019. May capital city prices dropped 0.15%. so after 35% of gains, its kind of a non event (yet). They will go down, but i don't think that its going to be a bloodbath. Even if it falls the predicted 15% its still a net gain of 20% for most who've held property since covid started. With rental vacancy being at an all time low and supply still being an issue, demand is still there. Its just going to be harder for people to borrow and the gap between haves/have nots gets wider again.

I cant comment or make assumptions about members of your own family or what their circumstances were, but Borrowing against equity in the home still requires there to be equity left. You cant strip the lot out. Typically banks wont let you leave less than 20% equity when you access equity and you still have to be able to evidence you have the capacity to make re-payments at a stressed rate. Obviously its not ideal if you are accessing equity to do anything other than build wealth, but, again cant comment of you specific scenarios.
 
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indica

can sometimes count all the way up to 3
Electricity prices are set to rise apparently, I have not seen anything yet..
 

goobags

Likes Dirt
Electricity prices are set to rise apparently, I have not seen anything yet..
Mojo put theirs up 50% on a single rate. Moved to AGL and they put me on a demand charge (was over the phone and I got stitched up will change towards end of billing cycle) which has a rate less than what I started on with Mojo but a demand charge to make up for it.

Most retailers are seem to be lowering the purchase rate for electricity but moving to a demand charge. Pulling 10kW in the peak period for half an hour then stings me 23c/kW/day for the whole month. Going to add a lot to my bill in demand charges but should make people more considerate to conserving power during peak times.


Sent from my iPhone using Tapatalk
 

Flow-Rider

Burner
391009



People like Sarah Ibrahim and her partner made life decisions based on that.
During the pandemic, as average house prices in Sydney and Melbourne crept over $1 million, the couple took out a $1.5 million loan with a 10 per cent deposit on the expectation that interest rates would not rise for about four years.


As Ms Ibrahim told ABC News, in late 2020 she "definitely took the message [from the RBA] that you can start making plans, knowing that interest rates are going to remain stable and low".

Like thousands of others, Ms Ibrahim and her partner, who have two young kids and already were struggling with the cost of living, went out on a limb. But only because they believed they were encouraged to do so.

They had factored in interest rates rising. Just not earlier than 2024.


nterest-rates-are-rising-and-australians-are-hurting-is-the-rba/
 
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Litenbror

Eats Squid
View attachment 391009


People like Sarah Ibrahim and her partner made life decisions based on that.
During the pandemic, as average house prices in Sydney and Melbourne crept over $1 million, the couple took out a $1.5 million loan with a 10 per cent deposit on the expectation that interest rates would not rise for about four years.


nterest-rates-are-rising-and-australians-are-hurting-is-the-rba/
How many of these people actually read the statements by the RBA or did they read/listen to the media reports of those statements?

I read this article this morning and there is absolutely no mention of the media's role in interpreting and publishing these statements. I alway though the 2024 date was wildly optimistic but didn't see much in the media talking about it.
 

Litenbror

Eats Squid
Comments from economists are worth less than from tarot card readers.

I always use a fudge factor; could I afford to pay this mortgage if interest rates went up by 2% and my income stayed the same ?
Also all of these mortgages were supposedly stress tested by the banks before being granted. We have gone up less than 1.5% and it's panic so what were they stress testing to?
 
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