Frank Bures contributed these words of wisdom on 10/04/08 22:11:
> Stan R wrote:
>> So how are the US-based correspondents coping with this?
>>
>> Both Charlie Cross and George Zimek live in California, which seems to
>> have been not only on the forefront of the green madness, but also
>> leading the pack on the residential property bubble.
>>
>> With $1 trillion of losses now becoming the "accepted" wisdom and with
>> literally tens of millions of Americans looking down the barrel of
>> negative home equity and the "jingle mail" option looking more
>> attractive by the day, how have you guys been affected?
>>
>> To be honest, Australia has had even more of a property bubble than
>> the US and the blow up is only just beginning here - like in the UK &
>> NZ and elsewhere. This will be exacerbated by the recent election of a
>> totally inept Labor government (in Aus.) and I have no doubt many
>> Australians will be in for a rude shock when they discover property in
>> fact does not always go up in value, nor are their jobs guaranteed to
>> last forever.
>>
>> It will certainly be interesting to see how it all develops, given
>> that "jingle mail" is not an option for Australians (the banks do have
>> recourse to your other assets if your home auction does not cover the
>> debt).
>>
>> The word "depression" seems to be gaining traction, however. If/when
>> the $145 trillion credit derivative sector blows up, then it's all
>> over and anything is possible.
>>
>> Stress levels at work over the last three or so months do make me look
>> wistfully at islands for sale in Tonga/Vanuatu, with no power, no
>> Internet and no phones, so as to get away from it all...
>>
>> Your comments would be welcome.
>
> Has Australia had the same type of mortgages offered in the States, the
> below prime mortgages that caused the problem in the first place?
Not quite, but the very cheap credit that was available over the last 5
years or so, coupled with very strong economic & income growth and the
fact we have been the "miracle economy" for the last 15 years has meant
too many people have borrowed way too much.
Due to favourable tax laws with regards to investment income losses
after loan interest costs - called "negative gearing" here - plus
various government incentives (first home owners grant which amounted up
to $14,000 at one stage) we have had a massive property price bubble.
Thanks to that, a record number of people now find themselves with
record debts, which are getting harder to service.
We also have the most unaffordable real estate in relation to incomes of
anywhere in the developed world. The median house price here across the
entire country - various outback towns included - is now well in excess
of $400,000 (not that much less when converted to USD or CAD).
> Here in Canada nothing like that happened. It seems that our financial
> institutions are much more conservative.
Yes, your property prices are some of the most realistic around.
> No real estate bubble either. Property values have been going up quite
> steadily, but reasons were not cheap money, rather an economic expansion
> in several provinces, namely BC, AB, SK and NL.
As I said, Canada seems to have escaped the speculative property frenzy.
I haven't come across a satisfactory explanation as to why it has
happened that way though. It's not that much dissimilar in its economy
to Australia - particularly with respect to the resource sector.
> If there is a recession in Canada it would be nothing of her doing. As
> thay say, if USA sneezes, Canada catches the cold.
And this applies to the whole world.
> However, this time
> and with oil prices at current levels, the recession would probably be
> structural and hitting only some of the provinces, namely ON and QC.
That depends on how bad the world wide credit crunch is. It could get a
lot worse than that.
> Anyway, I carry no debts and the majority of my assets is in precious
> metals :-)
Good strategy for the current environment!
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