Is it a bad thing if house prices crash?

[David]

We all know that house prices are out of control in Australia. Case in point: the property we’re renting sold for $2.2 million this year after going for $180,000 in 1989. Even adjusting for inflation, that’s crazy. Pretty much nobody of my generation that I know is in a position to think of owning a house, and many never will, despite otherwise having okay middle-class incomes. Even those who do have a bit more money and are able to put down a deposit find themselves bidding against rich investors with cash to burn and who just want their fourth Airbnb property. Meanwhile, a great many houses are sitting empty, and the landlord class is amassing ever more wealth without contributing to the economy in any meaningful way. Clearly, there’s something wrong with this picture.

On the other hand, there’s increasing talk of a coming housing market crash, and it’s usually spoken of as a thing we should be scared of. Obviously Liberal-voting house collectors would be terrified of this because their livelihoods are at stake, but should the rest of us care? Might a crash not be in fact a good thing, in that it would restore the housing market to some level of functionality in which ordinary people on ordinary incomes can actually buy a place to live in? Would be interested to hear people’s thiughts.

[Wokko]

Most people only own one home and that house is often used as collateral for loans. A housing market crash means no more credit which leads to lower spending and a crashing economy.

You wont be able to slide into the housing market because banks will stop lending (see the USA housing bubble crash). It's a nightmare scenario really. Rents would go up too because of raising interest rates on huge loans for houses that are now worth less than the loan.

I've been a landlord too, we owned a unit which we sold to cut our debt burden and use the equity we had to fund some time off to raise the Boy and believe me, it's not easy money. We had an awesome tenant and an interest only loan and barely broke even. If landlords bail on the their investment properties then rental supply drops even more than now.

[Culprit]

Investors will pull out and first home buyers will move in. Those with rental properties will be forced to drop rents or sell. I am ready to downsize and whilst I lose value on my house the properties I am interested in are dropping by more. Supply and demand will still be what dictates the markets.

The big one is Interest rates are going to rise and that will see those over committed become an increasing problem.

[stui magpie]

First home buyers can already get in the market, just not in the older inner suburbs where the prices are ridiculous.

You want to own a home, head to the new estates on the fringe, you want to live in the inner burbs, you rent.

In regard to a price crash, the biggest danger I see is all the people with large mortgages suddenly owing more money than the house is worth, with interest rates going up. Could be scary.

[Culprit]

^^That's pretty much it. I don't mind if housing crashes as I am buying and selling in the same market. I have the capital to ride this out.

If your an investor in property and you owe the banks, the smart move would be to sell and get rid of the debt or reduce it to a manageable level.

[thesoretoothsayer]

Do we remember what a recession looks like?
A proper 1990s "recession we had to have" type of recession?

Personally, I wouldn't care if house prices halved and the speculators got screwed over, except:
1. It will ruin many young people who got lured into the housing market by the "prices are going up, up, up forever - get in while you can.." spiel.
2. The very real threat of a recession.

[Culprit]

^^I remember paying around 20% on my housing loan. A recession we have to have again. People over committing, banks over lending etc. We didn't learn.

[think positive]

My inlaws house has been on the market for 2 months, when we listed we had three agents tell us it would get close to $850- $900k, even though its very old and needs a massive amount of work, basically for the land as it’s big enough for 2 units and on a corner on a major road that has a history of big sales. It’s literally on the Westgate entrance, 10 min to the city. No one bid at the first auction and the estimate has crashed to $650-$700, in just 2 months. A doctor looked it over 3 times for a surgery but the market scared her off. I asked the agent straight will this continue until the next election, and he said probably. I doubt we could rent it for much without major renovations. The cash is needed for the nursing home. It’s not just crashing, it’s burning. Going back to auction in 3 weeks. The area has been a unit developers dream for a decade, and we can’t even get bargain hunters through.

[Culprit]

^^We just sold the Outlaws farm, quicker than we thought (within a week). Money straight for their RAD for aged care. Strange market.

[think positive]

yeah it is strange, but its a buy to live market, investors are worried about interest rates, and buying in a decreasing value market.

i think they need to sell, even if it means cutting a loss, there is a reverse mortgage, the weekly aged care payments are eating his savings, the house IMO isnt rentable, not without risk, and i know the heartbreak of renting an emotional property all too well, and its been a family home for over 50 years. there will be enough left over that there wont be a weekly charge. My FIL has dementia but is in fair health otherwise, He might last a few years. ( i know thats sounds a little callous, but after watching my mother suffer, well its not going to get any easier, and I can see him fading fast into oblivion, its heart breaking.)

its really only going to be attractable to a developer, and its an odd shape, and a little hard to access because of the freeway. I dont think the family hold many cards right now. and its already been broken into once. TBH i think their expectations are too high.

where was the farm?

[stui magpie]

Was it Warren Buffet who said the best time to buy was in a falling market?

[think positive]

Common sense if your buying to live in and will hang on to it for a while, but investing to flip fast better to wait til it bottoms

[Culprit]

TP it was in Gruyere, they didn't even get it to the advertising. A young family has purchased it which I am happy about as the Chinese wanted it.

The sad things:
2 x 23 m3 skips to take basically all their stuff away and the remaining stuff to be sorted through is 7 plastic boxes which when sorted through will be one box. So 90 years and you still end up with nothing.

The family took them up there to show them the place for the last time. The Mother, "who lives here?" The Father goes to light the fire and when told he can't as they sold the place and he said "well where do I go?" Dad you have to go back to aged care. His reply, "oh back to prison".

The good thing is someone who loves hoarding has finally agree to throw stuff out. I have the 3 year rule, don't touch it in 3 years it's out.

[think positive]

[Culprit]

^^I hear you, all her Dad wants to do is die. He has to be taken off blood thinners due to a wound on his back that won't stop bleeding. This is likely to cause a stroke and when not if that happens he will go into palliative care and they will make him comfortable with morphine and we all know what that means.