UBS: Liar Loans Surge in Australia’s Housing Bubble, Pose Risk to Big Four Banks, “Financial Stability”

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“Misrepresentation is systemic.”

UBS Securities Australia reported today that about 28% of Australian mortgages issued in 2015 and 2016 are what we in the US have come to call “liar loans,” which played a big role in the housing boom and the collapse and subsequent bailout of the global financial system.

The last phase of a housing bubble needs liar loans to keep going because buyers have to reach beyond their limits, and the only way to do this is lie now, or miss out forever on buying a house to live in or get rich with quick as investor.

Evidence that home buyers are lying about income, assets, expenses, and other things on their mortgage applications has been surfacing for a while, along with fears that this would eventually lead to a “Mortgage Meltdown.” The US-style mortgage fraud would be a “Nuclear Bomb” to Australia’s banks. Hedge funds are betting on this meltdown by shorting the big four banks.

But everyone else wants these bank stocks that dominate the Australian stock exchange to rise. They’re in everyone’s portfolio. And they’re all doing what they can to turn shorting the banks into a widow-maker trade.

To get “hard evidence,” UBS Securities Australia and UBS Evidence Lab surveyed 1,228 Australians who’d taken out a residential mortgage in 2015 or 2016. Participants, who remained anonymous, were asked 63 questions.

The survey was broad based, covering all states and territories in Australia. Given the size of the sample and broad spread of respondents we believe the results are representative of Australian mortgage borrowers. Conclusions based on the total sample have a potential sampling error of just ±2.71% at a 95% confidence level.

The resulting report, “Mortgages – Time for the Truth?” found that 28% of the respondents admitted that they’d lied on their mortgage application:

  • 21% claimed their applications were “mostly factual and accurate.”
  • 5% stated they were “partially factual and accurate”
  • 2% “would rather not say.”

How many of these liar-loan applicants lied on the survey to hide their lies on the mortgage application? We don’t know. But the actual percentage of liar loans could even be higher, given the propensity of liar-loan applicants – just my hunch – to lie on surveys to cover their tracks.

And it gets worse: 32% of respondents who’d obtained a mortgage through a mortgage broker admitted they misrepresented some element of their application. That’s nearly a third!

More concerning, 41% of respondents who used a broker in 2016 and misrepresented elements of their application stated they did so based on their broker’s suggestion (vs 13% for bank channel equivalent).

That’s up from 24% in 2015! Brokers are getting more aggressive in pushing liar loans as the advancing housing bubble requires ever more finesse to be taken to the next level so that everyone can profit from it for as long as possible, before the whole construct collapses.

And this is how folks lied on their mortgage applications (multiple liars could check more than one box):

  • 14% overstated household income (18% via brokers, 5% via banks)
  • 13% exaggerated other assets
  • 17% understated other financial liabilities
  • 26% understated their costs of living
  • 11% admitted to lying on “other”
  • 31% “would rather not say”
  • 12% admitted they lied on multiple factors.

There are more red flags: The survey found that many borrowers who lied on their applications were already struggling financially – that’s why they were lying on their application, to get the house they can’t afford, no? They were more likely to admit to these “risk behaviors”:

  • Make only the minimum monthly payment on their credit cards
  • Get cash advances on their credit cards
  • Shuffle outstanding credit card balances between financial institutions.

And buying homes as an investment is surging. For 2015 vintage mortgages, 28% of the properties were for investment; for 2016 vintage mortgages, it jumped to 33%.

This surge in investment use is contrary to what the banks, Reserve Bank of Australia (RBA), and the financial regulator Australian Prudential Regulation Authority (APRA) had claimed. According to the report, it suggests that the banks, RBA, and APRA were relying on the borrowers’ declaration on the mortgage application that this would be for a residential property, when in fact it was just another lie.

The motivation for this particular lie: “The higher interest rate which has now been introduced on Investment Property compared to Owner Occupied mortgages.”

But near universal bullishness about house prices reigned: only 4% of the respondents expect them to fall over the next 12 months, under the motto that you can’t lose money in real estate:

  • 45% expect house prices to rise up to 10%
  • 13% expect house prices to rise more than 10%
  • 31% expect house prices to remain the same
  • 7% of people selected “Don’t know”
  • Only 4% expect house prices to fall.

The report summarized (emphasis added):

Unfortunately survey results suggest misrepresentation is systemic with findings similar across the 2015 and 2016 Vintages, price to income levels, LVR [loan-to-value ratio], owner occupiers, and investors.

The results are “disturbing,” the report found, given that:

  • The housing market is re-accelerating after the RBA cut rates twice this year
  • The debt-to-disposable income ratio is 186% (among the highest in the world)
  • Mortgages account for 62% of bank loans (up from 40% in the 1990s)
  • Mortgage debt has soared from 15% of GDP in 1985 to nearly 100% in 2015.

This leaves the big four banks – Commonwealth Bank of Australia (CBA), Australia & New Zealand Banking Group (ANZ), Westpac Banking Corp (WBC), and National Australia Bank (NAB) – enormously exposed to even minor sniffles in the housing market.

And bailing them out is going to be tough: the combined assets of the Big Four amount to A$3.6 trillion, or 227% of Australia’s GDP!

The report refers to the RBS’s “subtle, but material, elevation of the importance of ‘financial stability’ in the operation of monetary policy.” Given that this liar-loan data “casts a statistically significant doubt over the accuracy of home loan applications, there could be some ground for more concerns over perceptions of financial stability, particularly in the event of a sharp fall in house prices.”

Everyone profits from liar loans: the banks, the brokers, governments at all levels because they get their cut, the sellers, stock market investors, bondholders, the construction industry, developers, pension funds even, and the buyers too, because it allows them to buy that house they can’t afford and get rich. Everyone benefits from housing bubbles, and no one wants them to burst.

Everyone benefits … except, well, those who can no longer afford to buy a home despite liar loans, and those who rent, and then of course the innocent bystanders that will get hit by the shrapnel when it all implodes while the beneficiaries of these bubbles get bailed out.

Vancouver probably outdid Sydney and Melbourne in terms of inflating a housing bubble. But it’s running into hard times. Read… Vancouver Housing Bubble Bursts, Hot Money Flees to Toronto

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  53 comments for “UBS: Liar Loans Surge in Australia’s Housing Bubble, Pose Risk to Big Four Banks, “Financial Stability”

  1. Bryce Nelson
    October 7, 2016 at 12:26 am

    Does anyone know what % of our loans during the US housing bubble were made up of liar loans? Either way, these numbers are shocking, and Australia’s housing market is too big to contain. Australia would have to print a boatload of money to paper over these losses. I would assume they will continue to cut rates to kick this can even further down the road.

    Both Canada and Austalia’s housing markets rely on money flowing out of China. When China’s debts finally come home to roost, it will take Australia and Canada with it.

    • AGXIIK
      October 7, 2016 at 10:47 am

      Bryce 100% of the loans made in America during this era were liar loans. Even those who had good credit, provable income, a 20% down and reasonable financing situation were lumped into the same tranches of supposedly AAA rate junk mortgages.
      There were few, if any, quality loans offered because those did not have the terms that produced the biggest rebates and premiums to the brokers and the best return in the collateralized mortgage backed securities market
      Quality was moot when these low quality loans offered ‘de jour’ were the best income for everyone who was in the production food chain.
      What percentage of the loans produced today are the quality type is unknown but still quite likely to be low. Quality loans are not that profitable because they don’t produce the huge premiums and rebates to the loan production machinery.

      The loans made over the last 25 year are reflective of the gross lies and misrepresentations of the political leaders, crony banksters and blatant criminal fraud that infests America.

      People who are offered money for a home they cannot afford, without a scintilla of veracity; using liar loans, NINJA loans, no doc, low doc, Alt A and other iterations of mortgage manipulation magic, are just going with the kulture smog of dissimulation and deceit.
      If a person is encouraged to provide low quality, unverified and false data to get a loan for a home, (buying a nice home is a really big deal for someone who could never afford a nice casa by other means) and that fraudulent data is encouraged by the broker, banker and securitization agent, aided by rating services completely unaccountable in their AAA ratings, you have liars and criminals operating from the lowest level to the top echelon in the C suite offices, all part of the same scam.
      The present day bubbles and ensuing crashes of the mortgage industry, commercial and industrial financing world, central bank debt, national debt, Too Big to Fail bank debt and every other form of debt ensconced in the $150 trillion debt bubble will fail in such ways that the entire world faces global bankruptcy when the debt bubble bursts. Best idea to avoid complete calamity on the personal level is be debt free, with no counterparty risks and own precious metals as a strong component of your safety net.
      My credentials in making these statements?
      I’ve been through 5 major crashes since 1970, 40 years in the credit, lending and brokering world and a former/recovering banker.
      Nothing has changed in the last 45 years except that which has gotten worse for all parties who are part of the debt bubble.

  2. d
    October 7, 2016 at 12:30 am

    Australian “Liar loans” are nowhere near as bad as American “Liar loans”.

    In comparison Australian loans could more fairly be termed “Exaggeration loans”.

    Still dodgy loans, are dangerous to everybody, no matter the size of the %.

    People who get loans that way, really annoy me.

    Admittedly anything with an independent broker in the middle, is not good in Au, as most people who deal with independent brokers, have issues that prevent them dealing directly with mainstream bank’s. In the Au market.

    Australia does not yet have a NINJA loans problem, which is where the real US, walk away problem subprime loans, came from. As they combined with the BLATANT LIAR (actually Totally Fraudulent) loans in the US market implosion.

    All Au Mortgage loans have a compulsory life cover and income protection insurance component. Another way for the bank to milk the client.

    The Australian market, simply dosent have that many fraudulent (US Standard Liar) loans.

    • nick kelly
      October 7, 2016 at 3:37 pm

      What ever the ratio of exaggerated apps ( does anyone not do this) the Australian banks are far more exposed to mortgages than US banks.
      Australia is not a hub of finance- even the big miners raised a lot of their money in New York and London.
      The Australian banks are basically mortgage companies.
      Their collapse ( if they do) will resemble Ireland’s.

      • nick kelly
        October 7, 2016 at 6:53 pm

        ‘There can be no doubt that Australian banks and Australian banking had an overly concentrated lending book in housing after looking at this chart Wayne Byers, chairman of Australia’s prudential banking regulator – APRA, presented at a lunch to the Australian Business Economists today. (Aug.2016)

        The chart wouldn’t copy but it shows the ratio of mortgage loans to all loans is double that of US and triple UK, i.e., highest in the world.

        If RE prices were to fall 20% over half ANZ bank mortgages would have negative equity.

        • d
          October 7, 2016 at 10:37 pm

          “If RE prices were to fall 20% over half ANZ bank mortgages would have negative equity.”

          How many of those are,

          owner occupiers.

          rentals owned by Australians.

          ANZ is already talking about forming a REIT. to deal with any potential fallout.

          They have done it before.

          I am not saying there isn’t a problem

          I am saying there is a lot of misconception, about who the problem will effect, and how.

      • d
        October 7, 2016 at 10:21 pm

        ‘The Australian banks are basically mortgage companies.
        Their collapse ( if they do) will resemble Ireland’s.”

        No, as most of the bond holders in Australian banks are foreign. The state will not bail them, or the banks out.

        Or allow the Au banks to go into bankruptcy.

        it will simply place them in statutory protected management, and the bond holders will be told to WAIT, the they will be told to accept restructure term’s..

        When things get ugly, Aussies are very good, at putting Australia first. No matter what ugly or underarm tactics, they have to use, to do so.

        There wont be huge default on owner occupied homes in Australia, unless the global collapse event is huge. Then it wont matter anyway.

        At the end of the day, if there is no big default in owner occupied homes, there will be no big social problems.

        If speculators and particularly foreign speculators, get nailed in a correction event. “oh dear, how sad, never mind” will be the attitude from Canberra and the nation as a whole.

        The real problem in the ANZAC markets, is that foreign speculators, have driven prices in the major centers, beyond the reach of ordinary citizens.

        A situation Paulines people will not tolerate, as it is starting to effect rural Australia.

        The corrupt Poloticians and their crony’s put her in prison, for something she didnt do, and it was proven they did that.

        Hence she is back in office in Canberra, with over due political accounts to collect.

        There will be no bank bailouts, or foreign instructed bankruptcy’s, of Australian banks, with that girl in town.

  3. John Doyle
    October 7, 2016 at 12:41 am

    Back when I was seeking a loan we had lo-doc loans. These seem to have morphed into today’s liar loans. The difference was we didn’t have to lie, beyond massaging our income. They didn’t ask such questions. Lo-doc loans were popular with self employed people whose businesses were somewhat erratic in income and not guaranteed. Mind you the numbers were a fraction of what the asking prices are today for housing.

    • d
      October 7, 2016 at 9:17 am

      And the lo-low doc loans were generally only for up to 60 or 66% of the valuation.

      I used them a lot didn’t need to lie. approval was normally a less than 24 Hr Formality.

      08 effectively killed them

  4. Bman
    October 7, 2016 at 1:22 am

    You can easily interpret these statistics differently:
    – 93% of applicants stated that their responses were either totally accurate or “mostly factual and accurate”: not a bad level of accuracy, especially given the complexity of the forms
    – Only 58% expect prices to go up over the next 12 months: a remarkably low percentage given only recent property buyers were surveyed (if you surveyed existing home owners or renters, the percentage would obviously be much lower).

    While interest rates are low, asset prices will stay elevated. And interest rates are going to stay low for a long time. We’re living in a low interest rate world were central banks are more concerned about stimulating inflation, rather than taming it.

    The biggest asset bubble is bonds. I’d like to see a survey of recent buyers of 10 year German, Swiss and Japanese bonds (which are still trading on negative yields). Presumably most think that bond yields will move even further into negative territory.

    • nhz
      October 7, 2016 at 3:34 am

      agree, although it may sound shocking for those who don’t know this has been the new normal for years everywhere in the West; Oz is just late to the party.

      I remember from a survey on British TV about 10 years ago that in London over 90% of the loans were liar loans – it had to be, because otherwise almost no one would be able to afford a home and yet they were selling like hotcakes. They had cleaning ladies making 300.000 Pounds per year, illegal migrants with fake identies, supposedly owning thriving businesses etc. etc. And yet, London RE prices are way higher than they were at the time, all the crooks were bailed out by central banks largesse. You are stupid to play by the rules …

      In my country over 75% of buyers expect prices to increase again next year despite the fastest price growth in 13 years. Of course, after more than 25 bubble years, people don’t know better. When the bubble stops growing, politicians will simply invent another fraud to take money from the financially prudent and hand it to the speculators.

      Yes, as long as interest are low (and keep trending lower) this fraud will continue. Politicians and Central Banksters love nothing more than blowing huge bubbles, there are SO many people who love it! All parties from left to right in my country (except a few very small ones) cheer the housing bubble and the policies that produced it – the socialists even more than the ‘capitalists’. And when it collapses, you simply blame someone else (the renters who didn’t want to buy, probably …) for the carnage.

      Oz could still add some Dutch tricks like a government guarantee against loss when selling the home (remember: everyone benefits because we want the banks and those pension funds to do well), full mortgage cost deduction from income taxes and huge zero-interest starter loans that you only have to pay back if after 5 years the home has significantly appreciated (if I remember correctly they had some flavor of that a few years ago?).

      And there is plenty of room for mortgage rates to go lower, Europe (Denmark and Netherlands, although numbers are really small for now) is already experimenting with negative mortgage rates.

      • walter map
        October 7, 2016 at 8:06 am

        “You are stupid to play by the rules”

        One wonders how long a civilization can last that adopts avarice, fraud, corruption, and mayhem as its organizing principles.

        Let’s find out, shall we? Numerous models show these perversions, taken to their logical conclusion, must eventually lead human society to use its technological capabilities to exterminate itself through the sheer weight of its own iniquities. All the defining trends are headed that way and are accelerating. It is as if self-destruction is the actual goal, and alternatives and mitigations are systematically obviated in the desperate need to achieve it.

        You can watch it happen in real time, the ultimate in slow-motion train wrecks.

        • nhz
          October 7, 2016 at 9:25 am

          yes, the housing bubble is just one of the many examples of how we are killing our society by rewarding stupidity, greed and other types of irresponsible behavior.

          It is being anchored in our genes too, the government makes sure that the most stupid / irresponsible multiply like rabbits and have the few productive ones bleed for it so they will not start a family due to financial hardship. In my country single moms on welfare, migrants and the LGBT group are always at the top of the list, they get the best social housing for the lowest price and all kinds of other free goodies because they are ‘disadvantaged’. The irresponsible ‘unknown’ fathers (many of foreign origin) of all those children reared on welfare probably have many other unofficial children, modern life rewards them and this means there will be lots more irresponsible / stupid offspring in the next generations!

          And don’t get me started on medical innovations like ‘fertility assistance’ for people that often should not reproduce for obvious reasons (like age or fatal medical issues). Of course even the pill and condoms are a problem in a society where welfare and entitlement without any questions is the norm…
          Plus all the ‘technological’ assistance for killing ourselves with countless poisonous chemicals, nuclear waste … maybe we have to be happy that many of those chemicals are soon going to kill our fertility and make us so stupid we will definitely no longer be able to do something about it ;-(

        • kitten lopez
          October 7, 2016 at 10:03 am

          Mr Walter Map…

          your entire post is pure poetry. you said it. those are the exact words for the constant state of bewilderment i’m living in here in san francisco at this time in history. the cynicism has not only leaked into every human interaction, but cynicism has become the caulking now.

          even the so-called rebellious “this is fucked up!” types are full of shit when they talk. action has become irrelevant and as rare as faeries and unicorns. “real” ones; not tech startups valued into the “billions.”

          i believe NO ONE when they say anything anymore. i’m not even a crusty old 50 yet, but i’ve become a “we’ll wait and see…” old lady already.

        • Wim Scheyltjens
          October 7, 2016 at 10:22 am

          Well that’s a great comment. You written my thoughts down better than I could have.

          This reminds me somewhat of reading In The Garden of Beasts, a biography of the US ambassador in Berlin during the 1930s. Slowly it seemsed that every sane, rational voice was marginalized, and at each turn germany turned more criminal, more violent. It feels like the horror of the world war, just had to happen. In the book there’s a quote from I think it was Max Plank or Niels Bohr, saying to his friend Fritz Haber, that what was happening almost felt like an inevitable, natural process. Fred Harrison writes: there was a systemic imperative for an all-out war – the cathartic relief for a continent that could not apply orderly means to bring the economy under control.

          If ever there was need again for such cathartic relief, it seems now.

          Your comment also made me think of a passage in the book Dirt:

          After deciphering the environmental history of both Tikopia and Mangaia, Patrick Kirch suspects that geographic scale also influenced the social choices that shaped these island societies. Tikopia was small enough that everyone knew everyone else. Kirch suggests that the fact that there were no strangers on the island encouraged collective decision-making. By contrast, he suggests, Mangaia was just large enough to foster an us versus them dynamic that fueled competition and warfare between people living in neighboring valleys. Easter island supported a larger and less cohesive society, leading to even more disastrous results. If Kirch is right and larger social systems encourage violent competition over collective compromise, we need to take a sober look at our global prospects for managing our island in space.

          and a few quotes:

          Although mankind was able “to become the most successful type of animal that has ever existed . . . The reward of success in that direction is death.” H.L. Hawkins – Quoted in Raymond Pearl, The Natural History of Population (from the book Overshoot – William Catton)

          I can’t find the original quote but I was something along the lines of ‘human are no different from other species, in that faced with extinction, we don’t do anything special to preven it.

          There’s some amazing technology out there, see dennis bushnell for instance ( but I do wonder how we will survive this century or the next. Feeding 9.5 billion people in 2050, year in year out? Time will tell.

        • Wim Scheyltjens
          October 7, 2016 at 10:48 am

          Sorry for the typo’s, had to be fast.

        • Petunia
          October 7, 2016 at 11:02 am

          I’ve always thought that keeping the crematoriums from WWII as a remembrance was a bad idea. Now they are museums, but they keep the mechanics of human destruction alive and accessible. Next time, maybe sooner than we think, it will be the Muslims doing the burning.

        • Chicken
          October 7, 2016 at 12:00 pm

          I’m just waiting for this all to blow up, it shouldn’t be much longer based on the growing level of lunacy I see in the streets it’s getting ugly.

          Did our POTUS neglect to explain his promise to unite, involved divide and conquer?

        • Mike G
          October 7, 2016 at 12:08 pm

          Most people are herd followers, not thinkers.
          Everybody is selling something.
          Everybody lies.

    • nick kelly
      October 7, 2016 at 3:53 pm

      You may not make much return ON capital on these bonds but you are a heck of a lot more likely to get the return OF capital than Australian, Vancouver or SF real estate.

      PS: the condo my niece was renting in Vancouver sold a month ago just before the 15 % foreign buyers tax came in.
      It had sold about 6 weeks before the second sale.
      The first sale was for 350.
      The second was for 470- 20 over list.
      It’s 540 sq.ft, ok but not fancy, No pool etc.
      They evicted her saying it was for owner-occupier.
      Now it’s for rent on Craig’s for 300 more- 1800
      (this is going to cost them 2 months rent to my niece )

      Then a few days ago the govt announced much tougher mortgage qualification rules for the entire country- shocking even those who wanted a tightening. You have to qualify at the BOC’s posted 5 year rate- about 4.4% or about 2 % over the bank’s rate.
      You still pay at 2.9 or whatever but you must qualify at 4.4

      The guys who paid 470 for that condo- that’s the high water mark.
      They are stuck.

  5. nhz
    October 7, 2016 at 3:46 am

    “Everyone benefits … except, well, those who can no longer afford to buy a home despite liar loans, and those who rent, and then of course the innocent bystanders that will get hit by the shrapnel when it all implodes while the beneficiaries of these bubbles get bailed out.”

    Exactly, that’s the big problem. Instead of punishing the speculators, we punish those who didn’t participate in the madness.

    We had a minor hiccup in the epic Dutch housing bubble after 2008, with median home prices declining 15-20%. Given that most people start out under water here that could have been a big problem but politics rewarded the speculators by taking over the banks, forgiving problem loans or forcing the banks to be extremely lenient in other ways; and of course by lowering rates to the lowest value in history. At the same time, rents in the free market were jacked up by all kinds of new government measures like never before, it was a real War on Renter (and on savers). Renting is now 2-4 times more expensive on a monthly basis than ‘owning’. Buy a home or we will take your money!!

    Even the clueless understand what is happening and buy, with OPM. As they say here ‘when the sky falls, everyone will have a blue hat’ which means that if there are so many people who get in trouble, the government will do something to make the problem go away.

    We NEED to have massive numbers of ‘clever home owners’ on the streets due to losing all their money, because they were irresponsible. We NEED all those banks who made the liar loans to fail, and all the banksters, politicians, RE agents, e-con-omists etc. who pushed this bubble to the max in jail. It will be a long wait, and it will probably take one generation before the market is normal again, so not in my life :-(

    And I’m worried that with the next downturn, they might invent even more crazy policies to reward the speculators and punish innocent bystanders… with a huge majority of a country fully invested in the bubble, anything goes.

    • william
      October 7, 2016 at 7:42 am

      The U.S. could have done something similar to the Dutch. One of the banks’ tricks here was to take ownership of thousands of homes that were foreclosed on or abandoned, then NOT sell them but just hold them off the market as ‘shadow inventory’. This distorted to market to make it appear less homes were unused and available for purchase. Then these vacant bank homes were moved into different REIT to become massive single family home rental companies since publicly traded REIT can often trade with a market value of 2-3X the value of the underlying asset.

      • October 7, 2016 at 7:50 am

        US banks did exactly that, MASSIVELY. They could since money was free and since no regulator forced them to dispose of non-bank assets. They’re still holding some of this inventory – though they’ve been busy selling it down over the past few years.

        • Ptb
          October 7, 2016 at 9:45 am

          Ive bought many fanny Mae foreclosures in fly over country. I can tell you that there are many house that are still ” in the system” and have been sitting empty for years, but they will not put them on the market. This is in smaller suburb areas as the metro areas seemed to have been processed by now. I estimate a couple more years before they get on the market. And of course, new one are still getting foreclosed on all the time.

        • kitten lopez
          October 7, 2016 at 10:17 am

          whoa… i had NO idea. so there’s a whole other shadow looming, then. i’m fascinated by the truth of these perpetually-empty houses and condos–whether it’s by companies holding them back, or off-shore owners just sitting on such places—and the huge amounts of homelessness.

          the tiny homes movement started out adorable, cool, and radical, but now i fear this tiny stationery RV-living will become the new (expensive) norm–like how women entering the workforce just made things THAT much more expensive.

          like the other commenter here talking about how seattle’s micro apartments without ovens and kitchens were barely more than the declining, old apartment stock (that is not being built anymore).

          it fits with the old cars being taken off the road in “cash for clunkers.” this site overwhelms me with graphs, BUT now i finally see the heavy outlines pointing the same direction: we’re being bled every which way but loose.

          it’s FASCINATING. because people have been bred from screaming out in pain.

          now i see those poor free-roaming “breeders on welfare” everyone loves to kick, as the only last humans doing truly animal human things–like defiantly having children in this world– even as they’re forced to fill out all that constant paperwork and pee in cups just to have what little they have.

      • nhz
        October 7, 2016 at 9:37 am

        I would have no problem with the banks taking the homes and renting them out or even ‘keeping them in shadow inventory’ (instead of selling them on the market), as long as there was no government and central bank assistance for those banks…

        But I’m sure they would not even try, because even in our current smarket with rents sky-high (often around 50% of income), the gross income from renting out a home is only 2-3%. With a few % for vacancy periods, upkeep and taxes there is no income left, only risk.

        The recent Dutch approach is extremely unfair towards renters (who pay many times more for similar properties, and who DO end up on the street if they are more than 3 months behind in payments) and towards other homeowners who do pay the mortgage. A bit similar to the many US sub-prime homeowners who stayed in their home for years without making any mortgage payments, and who had far more disposable income than their neighbors who tried to be responsible citizens ..

        • kitten lopez
          October 7, 2016 at 10:28 am

          a lot of those squatters staying in homes that’d been foreclosed on had also trashed these places. i know of one who stripped the house in santa rosa clean like a bone. such places taint the neighborhoods. and all the emptiness and overgrowth and abandonment…and the rampant homelessness in parks and wooded areas… and CRIME!…and streetlights going on rotation to save electricity in more down-and-out hoods… the suburbs are already like the cities of the 1970s to me.

  6. MC
    October 7, 2016 at 5:37 am

    I wonder how Australia will manage to punish those hedge funds… the trend worldwide now is to crush short sellers one way or the other.
    I am not saying Australian authorities will haul “malicious sellers” in chains in front of the cameras and subject them to a struggle session, but there are monetary means to make people think twice about shorting a stock if they don’t want to lose their shirts.

    Regardless, it seems the close ties between Australia and China continue.
    Like China managed to reinflate her housing bubble to prop up an economy that’s most likely in recession already (and if loan data are to be believe it’s one ugly recession), so Australia is reinflating a housing bubble that needs to cover for China’s reduced appetite for iron ore, coal and other commodities, not to mention the continuing slump in natural gas prices.

    The big problem is how loans work in the two countries.
    In China most loans are political in nature. Beijing will simply order its banks to keep on swooping Non-Performing Loans (NPL’s) under the rug until said rug looks like it’s hiding Mount Everest or somebody trips over it and breaks his neck.
    In Australia most loans are financial in nature. Like in most other countries mortgages gets sliced, diced and packaged into financial products which are sold to people who expect said financial products to give them a yield, no matter how small.
    In short China can “extend and pretend” for longer because even if people stops servicing loans, Beijing will simply order its bank to extend and pretend. This causes truly major problems down the road, but people nowadays are not known for planning beyond the immediate future.
    If people in Australia stop servicing their debt, those financial products their mortgages went into will become toxic waste, and we know what that means. Insurance companies and pension funds (not necessarily Australian) take a big blow, accusations about “failure to enforce rules and impose standards” start flying left and right and taxpayers get dragged into the picture.

    Of course there are ways to cover the shortfalls. Banks such as MPS and Deutsche Bank are experienced in using accounting “practices” that make Lehman’s “Repo 105” look positively mundane by comparison.
    If local authorities close both eyes and turn around the game can be extended a few years more but eventually the levee breaks.

    • d
      October 7, 2016 at 8:45 am

      You need to understand a fundamental difference between markets.

      In Australia and some other country’s banks borrow against their loan/debtors ledger or sell bond’s. They keep the loans on their book’s and carry the risk themselves.

      In some countrys it is illegal for banks to sell loan’s.

      But the basic of your complaint is still correct, banks borrow against their debtors ledger ,and intend to fund that loan, from the return on their debtors ledger.

      NPLS = default by bank or other messy issues on its debts.

      Further Au bank;s can not pull 25% of the dirty trick’s American bank’s can due to the different legal fundamental’s.

      Au property’s have higher % deposits and most new housing loans also have a vendor recourse component against the developer. (as the banks know the developers are overpricing new property’s.and the developer need the cash flow to keep the development train rolling.)

      You need a downturn of over 40% before any sting to the Au bank’s turns into serious hurt possibly requiring some Govt assistance.

      In 08 Au bank’s had no real problems, one of the few nations where the banks had no real problem’s.

      Australian banking is not like America or Canada, its structured differently, there could be a banking crisis in Au.

      If there is, it will be nothing compared to what will be going on around the rest of the planet so all the Aussie kickers should get the other cans lined up first as Aussie will be far down the list when the SHTF in the interconnected global banking system.

      Iron ore went from 100 + to 30 -. It stung, but there was no big implosion.

      Many claimed there would be.

      Australia has had 25%+ property correction before, in the last big one, the Japanese speculators got Hammered. Au itself wasn’t really effected at street level.

      If it happens in this cycle a lot of chinese speculators will get hammered, and most of them have borrowed their money in china. Australia has the same problem as New Zealand. There are vacant property’s in every upmarket street, owned by chinese speculators, who borrowed their money in china @ 1 or 2 %.

      So if there is an implosion in the ANZAC property market. I would be looking for, and more worried about, the knock on from the the banking hit in china, as they are the people who will be loosing the most.

      Many chinese are borrowing in china, laundering the cast in export transactions, buying in the west, with no intention of paying in china.

      Australia exports more than raw materials, and its products are in demand. It is self sufficient in most thing’s. It does not have a large, have not population.

      If Australia gets hurt, in some negative financial event, most of the northern Hemisphere, will already be on its knees in the gutter..

      • nick kelly
        October 8, 2016 at 5:10 pm

        In 2008 Canada also had no real problems re:housing. Doesn’t mean the govt is crazy to take steps (altho late) to prevent one- quite the opposite.
        One of these sites about Oz real estate had a photo of 135 year old shack that had just sold for 2.2 million. Somewhere outside Darwin Not sure if that was OZ $ but a much nicer but still a tear down went in Vancouver’s Point Grey for 2.2 million C$,
        The difference- the surrounding area. The house next to the OZ shack is a shack- behind it is a low end apt. building.
        The one in Point Grey is surrounded by mansions.

        As with Canada, the fact that Oz did not have a big correction is not the good news, it’s the bad news. These things build up until there is a regression to the mean, and to rental income. Always.

        There was no hint of the coming crash in iron ore in 2008, in fact the whole artificial price was kept afloat by insane Chinese credit expansion, that saw it pour more concrete in the next 7 years than the US had in the entire 20 th century, with more re-bar. This is also in the process of regressing to the mean, although for China, this regression may also involve the regime.

        As for all this stuff about how honest all the Oz loans are ( i.e, the WS post is nuts) how the houses are rented to good Ozzies, or lived in by owner- occupiers who of course would not dream of embracing the national characteristic of stiffing a lender.
        how the government will do this or that…

        The main asset of the Oz banks are their mortgages. If Oz real estate falls by 50% the banks will have to be nationalized. This will not prevent a severe recession.

        • nick kelly
          October 8, 2016 at 5:23 pm

          PS: as of June 2014, iron ore was still 100 US$ a ton. The crash is recent and shows no signs of recovery- quite the opposite.
          The last few days there was a piece in Canada’s Globe and Mail that the much anticipated oil price recovery isn’t going to happen and oil sands company prices like giant Sun-Cor have yet to reflect this.
          The same applies to Australia and iron ore- the economy is in a holding pattern waiting for a recovery that isn’t coming.

        • d
          October 8, 2016 at 10:11 pm

          The shack that sold for 2.2 in Darwin. Had how many square miles of land, or transferable 100 year pastoral lease at 1 or 2 cents per square mile with it???

          Or how many tens of acres that have just been rezoned for development or lifestyle block’s???

          You are simply playing dont look here look over there its worse than here. Using the wrong place as over there.

          The only people who didnt see (or want to see) the iron ore correction coming, were juliar gillard and her leftist cronys. Who did what they were told not to. By everybody.

          That no other Australian Government, has ever been stupid enough to do before. They borrowed hugely, against future mining revenues, at the then current high rates, and spent the lot on leftist social program’s.

          Then Read

          October 8, 2016 at 6:02 pm

          Again about time for one of those stories about the ‘sky is falling or going to fall’ on Australian real estate.

          Then read this very carefully.

          If Australia goes under, the northern hemisphere Economy’s, will all ready, be on their knees in the gutter, begging for food.

          The ANZAC States, are too many peoples bread basket, to allow them to go under alone.

      • tkp
        October 10, 2016 at 3:41 am

        ‘In 08 Au bank’s had no real problems, one of the few nations where the banks had no real problem’s.’

        except for the 4.5BN bailout of CBA by the FED Reserve, and the *$ BN the RBA and the 3.4 BN to NAB…

        • tkp
          October 10, 2016 at 3:43 am

          *typo 64BN to the RBA

    • nhz
      October 7, 2016 at 9:43 am

      “In short China can “extend and pretend” for longer because even if people stops servicing loans, Beijing will simply order its bank to extend and pretend.”

      That’s exactly how it worked in the Netherlands. The big difference is that over here people start with 103% mortgages, while in China a down-payment of 20-40% is still the norm. Now tell me which is the more responsible system? I don’t think China is much different than my country, here too most loans are ‘political’ in the sense that politicians make sure that bread and circuses continue forever – otherwise they are toast. And mortgages are the biggest form of ‘bread and circuses’ for the masses.

  7. October 7, 2016 at 6:27 am

    Ford manufactured their last car in Australia today after 90+ years of manufacturing and General Motors Holden today manufactured its last car in Adelaide – a sad day for Australian manufacturing.

    12 months and a couple of weeks until all large scale auto manufacturing in Australia ceases.

    Thank goodness for that strong housing and construction industry!

    RIP Ford Australia.

    • d
      October 7, 2016 at 9:02 am

      Every car manufactured in Australia ,has been costing the AU taxpayer big money for Decades.

      GM ran first because the Au Government and the state governments would not increase the subsidy per vehicle produced.

      In today’s world 20 M people is not enough for 1 plant, let alone 2 manufacturers producing unique vehicles, for the local market.

      Yes there will be job losses and some pain.

      there will also be less demand for more unskilled/low skilled immigrants.

      Immigration requirements are tightening in Au and will continue to.

      The Auto industry is no longer the huge employer it was.

      This has been on the table for over a decade.

      it also ties in with the run out, of the current falcon body style.

      If America dosent ratify TPP Ford and GM will be completely out Of the ANZAC States. As NZ gets its Ford’ and GM products from Australia.

      The last good Falcon was the XY and the WB was the last good Holden. Chrysler the VC.

      The Australian Auto industry died 35 years ago, today Ford turned off its life support system, that’s all.

  8. shaba
    October 7, 2016 at 8:38 am

    It will just keep on keeping on over here. Absolutely every sector of our society is involved and pushing it: banks, politicians, agents, insurers, construction, websites, financial commentators, tv stations.

    Bricks and Mortar = always safe

    (Unless of course you are in WA or Darwin where the mining slowdown has driven prices backward).

    So many half competent nits have turned their hand to property investment – rent out property, deliberately taking a loss for the tax benefit.

    Building & reno tv shows stain your eyeballs year round, and are only rivaled by cooking shows for their stark examples of the vapid yuppie culture of Sydney & Melbourne; it is the main way our middle class know how to build wealth and every law & regulation is designed to encourage & benefit doing so.

    Haven’t had a recession in over 25 years and it will probably take an external shock to deliver one, finally.

    wouldnt particularly want to see families suffering due to a downturn, but feels like our society needs a cold bucket of water to the face.

    • d
      October 7, 2016 at 9:07 am

      “but feels like our society needs a cold bucket of water to the face.”

      And enough know its coming to put Pauline and co back in the house.

      Not nice people Paulines people, but a lot of what they say, and want, is wright for Australia, outside the eastern city’s.

      This time I think most of the unemployment will be in those big eastern a and southern city’s.

    • kitten lopez
      October 7, 2016 at 10:37 am

      “Building & reno tv shows stain your eyeballs year round, and are only rivaled by cooking shows for their stark examples of the vapid yuppie culture of Sydney & Melbourne; it is the main way our middle class know how to build wealth and every law & regulation is designed to encourage & benefit doing so.”

      Beautifully put, Mr Shaba. that was mad but TRUE POETRY.

  9. Ptb
    October 7, 2016 at 9:52 am

    As the money gets looser, the party gets closer go the end. I still remember that the county of San Diego was 85% ARM loans, many interest payment optional as well, in 2006. Having done a few liar loans in 2005, it dawned on me that everyone was clued into doing them by 2006 and the party may be coming to an end. I still managed to lose $200k by not getting out in 2007. But, 2003 to 2006 were very good years for me and everyone else.

  10. anonymous
    October 7, 2016 at 11:38 am

    Chain of Title, by David Dayen is a good companion book to read for more information not only about the NINJA loans and the US Crash. It also opens eyes to the shady practices and incompetence that are rampant at US financial institutions.

    The results of such chicanery vary by country, whether Oz or other, but the theme is largely the same. A well-informed citizenry is a defense against serfdom.

  11. Bobo
    October 7, 2016 at 11:41 am

    John Templeton said (about the US market), when prices drop to 10% of what they were at the peak in former bubble markets, then you buy. I saw properties for under 10% of former value the last time the oil bubble burst in OK. You had to pay cash from 1988-91 or so because few banks could or would lend. Real estate is just the current most popular pyramid scheme at current prices, everybody thinks that prices will go up forever. After the collapse few people will remember what happened, most will just dust themselves off and go chase the next get rich quick scheme. When the banks go all in it just means that the banking system will go down when the thing inevitably collapses.

  12. Bobo
    October 7, 2016 at 11:56 am

    One takeaway from all the bubbles is that there is a shortage of innovation and new business formation, a stagnant economy outside the bubbles, so lenders lend on existing assets. Few new businesses these days are revolutionary or capital intensive. A house is worth what a lender will lend, and lenders follow each other over a cliff, time after time.

  13. Chicken
    October 7, 2016 at 2:55 pm

    I’m pretty sure UBS would be interested in leading a few bears off a cliff if they thought they could mislead and front run a coming trade.

  14. Lee
    October 8, 2016 at 6:02 pm

    Again about time for one of those stories about the ‘sky is falling or going to fall’ on Australian real estate.

    A story based on a survey?

    Come on UBS – is that the best you can do?

    Just be brave and short the Australian banks – a simple, easy way to bet your money based on your opinion. See how fast you can lose your own money and clients’ money as well.

    With dividends and franking credits that alone is going to cost you about 8% a year even before any capital gains or losses are concerned.

    Maybe you should just wait to short the banks when the dividends are cut…………that would be a real sign that the tide has turned……………and not on the results of some ridiculous survey.

    Given the demand for houses as a result of population increase I doubt that there will much of a correction for some time.

    Furthermore, most people would need to see around a 50% or more correction in prices to go to negative equity if they bought prior to 2011………………

    And for those interested in the state of the real market here are a couple of stories:

    Note mostly about Sydney market:

    “Fewer than 20,000 dwellings are for sale across Sydney, less than half the number listed five years ago, CoreLogic says. The costs associated with selling a property and buying another, such as agent commissions and government taxes, climb with the value of the home. That’s discouraging ever more homeowners from moving, CoreLogic said.”

    It will need another 726,000 homes between 2016 and 2036, it said.”

    Note: That is one reason why people are moving to Melbourne: cheaper housing.

    And one about Melbourne:

    “Melbourne does tend to lag behind Sydney so it doesn’t surprise me that they had stronger growth than Sydney,” she noted. “Melbourne has had strong growth, it was named most liveable city yet again, Sydney has run out of steam … the growth was unsustainable in previous quarters (19.9 per cent in Q4 2015), but it’s still seeing great population growth and significant spend on infrastructure.”

    Basic economics: increased demand as a result of population growth. Reduce demand via reduced population growth and prices will fall. Reduce demand via stupid government actions (Vancouver) and see prices fall.

    Increase the supply of houses in the market and see prices fall.

    • tkp
      October 10, 2016 at 3:50 am

      ‘Given the demand for houses as a result of population increase ‘

      Its neg gearing and speculation, overseas buyers abusing our country as result of the govt NOT passing the Anti Money Laundering Bill by Property thats been sitting for 10 years.
      Even China has just ruled that people can buy only 1 house in the city they are registered. Time we had and that rule, sorts foreigners, the lot.

    • tkp
      October 10, 2016 at 3:58 am

      ‘Increase the supply of houses in the market and see prices fall.’

      cant see how you can do that. Homes are what are needed and near workplaces..especially homes for the 30 plus year olds who want to have kiddies. That does not mean a 2 bedr train within backyard and no sun.

      Tell me how do you intend to build those in Carlton, East Melbourne, North Fitzroy????? every block of land is FULL UP.

      Any block in Brunswick is filled up with rubbish high-rise boxes to sell to “investors” and empty. one lonely brain cell.

  15. Robbie
    October 9, 2016 at 7:20 am

    Beware Australian housing speculators. They are desperate to keep negative news out of media and post frantic comments to many discussion boards. Eventually reality will bite them in the backside, despite desperate attempts to stave off the inevitable. At the end of the day, debt has to be repaid.

    • d
      October 9, 2016 at 11:31 pm

      Yes they do, and the speckies, will in the end ,get justifiably hammered.

      They are not the sector of the market that concerns me, and a correction in the spec, and particularly spec Apartment market. Will not hurt anybody except them, and the second tier lenders they deal with, justifiably.

      An implosion in the spec market, will not take down the Australian bank’s, they have been through too many of these cycles, they know how to manage the risk. Deposit requirements on “SPEC’ apartments are increasing.

      Foreign Speculator/investor Income claims, must now be Substantiated, to Australian Standards, where previously they were taken on face value.

      These are the same bank protection measures, that have been used, time and again, to a certain extent they drive the correction event.

      As they slow the SPEC market.

      To anybody familiar with the market in question, and its longer history, this is all very “Deja vu”.

      As I have said before the 20-30 % coming correction in the apartment and Spec Markets (Last times 2 it hit those markets, it had very little effect on the owner occupier Markets). Will hurt more in china, than Australia. Apart from some of the more stupid/greedy Australian second tier lenders (who get most of the finance from Offshore.) As that is where so much of the “Spec” money has come from, most of it against nonexistent or grossly over valued “Assets ” in china.

      The Japanese got hammered “Specuating” In Au property. The numbers say, the chinese are going to get hammered even harder. When the Spec market correction event occurs.

      And it is a when.

      The proof being. ANZ putting the brakes on spec lending.

      Every time they do that, a correction follows, just as night follows day.

      And the ANZ does not get burnt.

      “Deja vu”

      • Lee
        October 10, 2016 at 4:58 am

        Yes, CBD apartment/condo markets are in over supply. The single family house is in short supply.

        Totally different markets and totally different situations.

        • d
          October 10, 2016 at 5:28 am

          As your somebody who understands the difference in the markets, we can ask a simple, intelligent question.

          What % of ANZ, and Big four Mortgages, are in the Speckie Apartment an condo sector.

          The sector where 50% + decline could occur (as it has before), making the total market movement, in the direction of – 20 Something % (as it has before). Which really = the only sector that went down was the spec Apartment Condo sector. WHICH HAS HAPPENED BEFORE.

          I dont know what that % is.

          But History and experience tell me, its small and getting smaller by the day, as how ANZ, and Westpac play. I am very aware.

          Believe me they dont play nice or helpful in good times, let alone in a potentially correction property sector.

  16. Lee
    October 12, 2016 at 4:21 am

    I don’t know off the top of my head and I’d have to do some research.

    I do know that the big four banks here have changed their lending criteria quite a bit as far as loans to foreign based investors/buyers are concerned.

    I also know that many of new CBD residential buildings require 70 to 90% of the units to be bought before construction starts.

    I did talk to a customer of ours today – she is a RE agent that sells mainly to Chinese buyers – both foreign and domestic. She said that the foreign segment that relies on loans has fallen off quite a bit. The other is doing ok.

    She also said that prices in the Glen/Mount Waverley in Melbourne have gotten to the point where sales are not going through. These are houses in the A$2.5 to $3 million range.

    Buyers are looking at other areas where they get more bang for their buck.

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