News that drives me mad

Herald Sun - Property - - OPINION -

town in a 2004 Ba­rina. This kind of sen­sa­tion­alised news drives me mad.

Any­one who has tried to se­cure a home loan in the past few years will know it isn’t easy get­ting credit.

Un­less you have a good de­posit, a spot­less credit rat­ing and sta­ble in­come, get­ting a mort­gage can be a chal­lenge.

In my ex­pe­ri­ence, lenders have not turned the clock back to the days of easy money.

It’s im­por­tant to recog­nise that this in­vest­ment-gonewrong story was in a min­ing town. A home in some of th­ese min­ing ar­eas could be worth $100,000 one day and, a short time later, priced at more than $600,000.

Th­ese types of mar­kets are boom and bust. They’re high risk. You buy know­ing the prof­its could be high but so could the losses.

If you were plan­ning to buy mul­ti­ple in­vest­ment prop­er­ties you might take a punt on one or two homes in a re­source-driven lo­ca­tion, but not more.

The next thing I want to clar­ify is the dif­fer­ence be­tween “value” and “price”, which are of­ten con­fused.

The prices of typ­i­cal Aussie homes have never fallen 50 per cent in one go. Never.

Imag­ine if they did. Any­one sen­si­ble would start buy­ing where they could. Sellers would refuse to sell. Even­tu­ally prices would go back up.

What can oc­cur dur­ing boom years is that buy­ers pay ridicu­lous prices for high-risk prop­er­ties, like an off-the-plan pen­t­house, a new McMan­sion back­ing onto a six-lane high­way or, of course, a house in a min­ing town.

Then the gen­eral mar­ket soft­ens. Stock ex­ceeds de­mand and buy­ers dis­ap­pear. All that can lit­er­ally hap­pen overnight.

Sadly, a hand­ful of home­own­ers over re­cent decades have been hit by losses of up to 25 per cent, but in many cases the falls were from prices paid dur­ing the height of the boom. The prices they paid at the time of pur­chase were nowhere near the value of the prop­erty they were buy­ing.

Ul­ti­mately, some lo­cal­i­ties will ex­pe­ri­ence more volatile hous­ing mar­ket: sea or tree change lo­ca­tions, towns with only one in­dus­try or min­ing towns.

But th­ese ar­eas don’t mir­ror the rest of Aus­tralia. In most places it is usu­ally only a mat­ter of time be­fore your home that lost dol­lars bounces back.

An­drew Win­ter hosts

on the Life­style chan­nel

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