I believe that most people have irrational ideas when properties are concerned on their finances. Something I learned from my parents doing anything possible to keep the house when interest rate was 20%, Second job, skimping on everything etc. alas by the time my father lost his main job and we sold, house price went down much more and all our saving had gone into the mortgage. Had he sold in the beginning, we still would have had some equity in the house left. And I’ve also seen the same irrational behaviour with my friends. A school friend who grew up later in life just bought a first home in April, all of us said don’t do it, but alas.... Too many people wait until there is no choice left to them but to sell quickly. Usually this mean they have lost their jobs or closed their business and are getting foreclosed. For example, many people who bought off the plan two years ago, are underwater at the moment but if they can get finance they will buy it, while a rational view would be to walk away lose the deposit. Scenario is A. Already paid $100,000 deposit on a $800,000 off the plan list price, have $200,000 deposit, need to finance $500,000 to buy a apartment realistically worth $700,000 now and falling. B. Logically it would be better to walk away and lose the $100,000
Lose the deposit and wait a year and the same apartment is $600k, or even $500k. Then you'd only need to borrow 300k-400k instead of $500k. Winning move, assuming the prices keep falling. You could also use the year to try and make low-ball offers and snap up a real bargain from the glut of units available and wait to find that desperate seller. I'm not seeing how the off-the-plan apartment boom (and now bust) is going to end up as anything other than a bloodbath?
Posted October 14th, 2018 at 10:57 AM (CST) by Jim Sinclair & filed under Jim's Mailbox. Jim/Bill, The problem is that asset values will fall when you get an implosion of your asset values, though your debt values don¹t fall, they stay nominally the same! This might seem logical, until you take a couple of minutes to think it through. So, on the way up the values of assets and debt (in terms of size) go up in tandem, whilst on the way down — NOT! Hence why you get huge deflation and wealth destruction! And don¹t forget that because of these year long ultra low interest rates, companies that wouldn¹t be financeable with normal interest rates of say 4%-6% got loans, and thus will be destroyed with much higher interest rates (because of their weak financials). And this time it will not be the real estate market it will be all industry groups that go under. And all the rescue measures have been used up, so guess what there will be left in the toolbox in the next crisis to rescue the system? Only gold and silver! No counter party risk, and it stands for value on its own and is real, not fake like most valuations and representations these days. A lot of the BRICS are already severely correcting and since everybody loans to everybody the western banking system is doomed to go under for several years especially considering the traditional fractional (not backed by 100% collateral — in fact it is more likely backed by only 10% or less) banking system. Remember in the end it is about the purchasing power of the money you use: paper currencies or physical (ounces) of gold and silver. ________________________________________________________________________________________ 20 min video worth watching IMO......
