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Happening here in Sri Lanka. Still waiting for the market crash to happen. People are spending upwards of 70% on all their leasing across housing, expensive car

by nstart 9y ago

Happening here in Sri Lanka. Still waiting for the market crash to happen. People are spending upwards of 70% on all their leasing across housing, expensive cars, and luxury items like 65 inch TVs not to mention CC bills. Banks have started buying up debts and offering refinancing plans. Meanwhile I'm hunkering down and saving cash wondering if I'll get lucky

Danieru 9y ago
Sounds like the kind of situation which will crash once interest rates rise. I hope your cash is in USD or another solid currency. At this point I do not think it is a question of getting lucky, if anything you want it to keep going. Longer it goes on the more cash you have and the higher the discount rates. My worry would be that once prices crash two challenges will appear: 1. Once the crash starts there will be tons of attempts to stall the inevitable. It could be months before prices hit a true low point. 2. Credit is going to dry up. Domestic banks will not have the balance sheets to allow for further lending. What loans will be available will be hard to get and more expensive than is "fair". Which speaks to how difficult it is for consumers to benefit from conservative behavior in times of folly. Unless you save enough to buy discounted assets in cash out-right consumers buying at the bottom of the market are also buying in the context of restricted credit. For my own situation, me and my wife are buying a house here in Japan. Over here bank's balance sheets are super-healthy and banks are extending large volumes of credit easier than they would in the past. My friends and co-workers got accepted for large home loans at reasonable rates. I have studied the bank balanace sheets as part of my stock investing so I am not worried of us being in a over-credited state. In fact japanese banks home loan load has been decreasing on a percentage basis over time as old bubble era loans get paid off. Yet it appears to me that Japan is in a phase of expanding home credit. Or atleast expanding home credit to lower/younger quality borrowers in response to fewer traditional borrowers starting families and buying homes. The net result in Japan is that buying a home is a massive good deal. We were careful with the location and builder but I needed to put no effort to get a loan at an insanely low interest rate.
- DamnYuppie 9y ago
  Problem with Japan's housing, last I checked, is that there is no resale market. This is due to their culture were they want it new so they usually don't buy used houses. Not sure if that has changed but it would be something I would want clarity on.
nikanj 9y ago
Hope you’re saving cash in a foreign currency.
FreekNortier 9y ago
Here in South Africa I am also hunkering down and saving money. People are getting behind on repaying unsecured debt at an alarming rate. I'm just concerned that the value of cash will become useless if the economy crashes. I also keep some in Etherium, physical silver and a little bit of USD.
AlexCoventry 9y ago
You could be waiting a while. If a government with good control over a sovereign currency doesn't want a housing crash to happen, it can forestall it for a long, long time by keeping interest rates low. People were predicting a housing crash in the US starting in 2003, and people have been predicting one in Australia for a decade.
- brad0 9y ago
  What can force an interest rate rise? Right now I can’t afford a house and would love to know the conditions that would increase interest rates.
  - lotsofpulp 9y ago
    Defaults can cause interest rates to rise, which happen when expectations aren't met. Such as labor costs rising more than expected, causing businesses to default on their loans or shortage of a natural resource causing it's price to spike. It can then cause a chain reaction of defaults and interest rates rise to reflect the increased risk premium. Unfortunately, due to lags in the feedback loop, this is inevitable as you can never accurately predict the future.
  - AlexCoventry 9y ago
    If inflation gets too high, the government needs to find a way to take money out of the system, and raising interest rates can help to do that. Raising taxes can, too.
- Qwertious 9y ago
  >People were predicting a housing crash in the US starting in 2003, and people have been predicting one in Australia for a decade. That's because of negative-gearing. Basically, mortgage payments are tax-deductible. So if you have a house and rent it out, then you can take the tax, use it to pay off the mortgage on the house you're renting, and not pay any tax on it at all. This, naturally, makes investment housing a much better deal than it should be, and discourages selling a house (thereby driving up housing prices, and therefore rent prices, thereby making investment housing more lucrative). It's broken bullshit. Blame the (main right-wing party) Liberal party. Sometimes I wonder whether the parties in Australia are named just to screw with Americans - the Liberal party is conservative, and the Labor Party is officially spelled with the American spelling, despite "labour" normally having a U in it, here.

by nstart 9y ago

Danieru 9y ago

Sounds like the kind of situation which will crash once interest rates rise. I hope your cash is in USD or another solid currency. At this point I do not think it is a question of getting lucky, if anything you want it to keep going. Longer it goes on the more cash you have and the higher the discount rates. My worry would be that once prices crash two challenges will appear: 1. Once the crash starts there will be tons of attempts to stall the inevitable. It could be months before prices hit a true low point. 2. Credit is going to dry up. Domestic banks will not have the balance sheets to allow for further lending. What loans will be available will be hard to get and more expensive than is "fair". Which speaks to how difficult it is for consumers to benefit from conservative behavior in times of folly. Unless you save enough to buy discounted assets in cash out-right consumers buying at the bottom of the market are also buying in the context of restricted credit. For my own situation, me and my wife are buying a house here in Japan. Over here bank's balance sheets are super-healthy and banks are extending large volumes of credit easier than they would in the past. My friends and co-workers got accepted for large home loans at reasonable rates. I have studied the bank balanace sheets as part of my stock investing so I am not worried of us being in a over-credited state. In fact japanese banks home loan load has been decreasing on a percentage basis over time as old bubble era loans get paid off. Yet it appears to me that Japan is in a phase of expanding home credit. Or atleast expanding home credit to lower/younger quality borrowers in response to fewer traditional borrowers starting families and buying homes. The net result in Japan is that buying a home is a massive good deal. We were careful with the location and builder but I needed to put no effort to get a loan at an insanely low interest rate.

DamnYuppie 9y ago
Problem with Japan's housing, last I checked, is that there is no resale market. This is due to their culture were they want it new so they usually don't buy used houses. Not sure if that has changed but it would be something I would want clarity on.

nikanj 9y ago

Hope you’re saving cash in a foreign currency.

FreekNortier 9y ago

Here in South Africa I am also hunkering down and saving money. People are getting behind on repaying unsecured debt at an alarming rate. I'm just concerned that the value of cash will become useless if the economy crashes. I also keep some in Etherium, physical silver and a little bit of USD.

AlexCoventry 9y ago

You could be waiting a while. If a government with good control over a sovereign currency doesn't want a housing crash to happen, it can forestall it for a long, long time by keeping interest rates low. People were predicting a housing crash in the US starting in 2003, and people have been predicting one in Australia for a decade.

brad0 9y ago
What can force an interest rate rise? Right now I can’t afford a house and would love to know the conditions that would increase interest rates.
- lotsofpulp 9y ago
  Defaults can cause interest rates to rise, which happen when expectations aren't met. Such as labor costs rising more than expected, causing businesses to default on their loans or shortage of a natural resource causing it's price to spike. It can then cause a chain reaction of defaults and interest rates rise to reflect the increased risk premium. Unfortunately, due to lags in the feedback loop, this is inevitable as you can never accurately predict the future.
- AlexCoventry 9y ago
  If inflation gets too high, the government needs to find a way to take money out of the system, and raising interest rates can help to do that. Raising taxes can, too.
Qwertious 9y ago
>People were predicting a housing crash in the US starting in 2003, and people have been predicting one in Australia for a decade. That's because of negative-gearing. Basically, mortgage payments are tax-deductible. So if you have a house and rent it out, then you can take the tax, use it to pay off the mortgage on the house you're renting, and not pay any tax on it at all. This, naturally, makes investment housing a much better deal than it should be, and discourages selling a house (thereby driving up housing prices, and therefore rent prices, thereby making investment housing more lucrative). It's broken bullshit. Blame the (main right-wing party) Liberal party. Sometimes I wonder whether the parties in Australia are named just to screw with Americans - the Liberal party is conservative, and the Labor Party is officially spelled with the American spelling, despite "labour" normally having a U in it, here.