MENU

Why SMSFs could start a housing crash

There were many reasons for why the housing market did so well over the past six years:

  • Foreign buyers
  • Lower interest rates
  • Interest only loans
  • Lax lending standards
  • Investors
  • Population growth
  • Poor government planning
  • Negative gearing
  • Money laundering?
  • And so on

Quite a few of those reasons are now headwinds with new taxes, higher interest rates and better AUSTRAC reporting.

Some commentators, like Forager Australian Shares Fund’s (ASX: FOR) Steve Johnson, attribute the key reason for the rise to the amount that banks were lending to people. People’s hands only went down at auctions when the price went above the loan amount they were approved for.

But, house prices are now heading down in an orderly fashion much to the relief of Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

Australian house prices should hold up nicely if Australian employment levels stay strong.

However, there is a large amount of interest-only loans that will be switching to capital repayments and interest in the next few years. Estimates place it at around $500 billion over the next five years which will add around $7,000 of additional repayments to budgets.

Economists seem to think that most households can weather an additional $7,000 of repayments with little effect to the economy. I’m not so sure, that money has to come from somewhere on households that are already struggling.

But, a key problem could be for SMSFs.

Why?

SMSFs are limited to the amount of money that they can put into their account each year. If the amount they have to repay is more than the net rental plus contribution limit then they could be forced sellers.

A get-out-of-jail card could perhaps be non-concessional contributions but that assumes they have the money to put in.

Not only are property’s returns not as good when you consider the transaction costs and any additional capital put into the property, but debt makes it a very messy picture. You’ll never go bankrupt with zero debt on your balance sheet.

I’m not predicting a huge crash is likely but this is something to watch out for.

This top ASX share could be a great one to own if a recession does happen, as it will likely do even better in bad times than right now.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.