Australian property prices to fall
COMMENT, Australia – The International Monetary Fund have just said that property prices in Australia, like the UK, are so intrinsically overpriced as to be a high risk to fall.
Long-time readers will know that I have been predicting this fall for some time. Friends will recall I have held the belief that Australian property has been strongly overvalued in recent years.
Why will house prices fall in Australia?
Property in Australia is globally overvalued. It is simply more expensive to purchase or rent an equivalent home here than most other cities globally. And there really is a large expanse of unoccupied Australia, which does not support high prices.
Visits even to pricey-property cities like Paris, Vienna and Boston highlight how little any of us receive for our property dollars in most Australian capitals.
There is a disconnect between market value and how much of the price is comprised of:
a) intrinsic value
b) market distortions like capital gain taxes or stamp duty
c) speculative value
d) area/city value
The reality is that speculative component is too strong, and a tax regime in Australia that favors asset purchases over wage income has enhanced the upward rise.
Which is what I have been saying for the last 4-5 years about Sydney, and last 2-3 years about Melbourne. The Howard government created these artificial over-valuations, encouraging speculation, via tax, fiscal and monetary policy influence.
No Real Shortage of property or land…
But, in the end, fundamentally there is no real shortage of housing.
There is instead a shortage of available housing, with landlords or property sellers behaving in a manner that does not fit with ‘economically rational’ behavior.
One example of economically irrational behavior
Instead of selling or leasing at the market price many landlords and vendors are waiting for very long periods of time to sell a home or investment property.
One investment property vendor waited 18 months to achieve an extra $40,000.
So many land-owners are achieving their above market rates by waiting. They have wealth to wait. Something of a luxury with falling share market values and rising credit costs, so this may not continue.
But the average property investor is emotional about the price, and does not want to accept anything less than ‘top-of-the-cycle-price’ so he/she is holding back, but will have to release soon.
Land Supply
There is a land-release issue with around 50% of Australian land still owned by the Crown, i.e. the Queen of England! But this primarily affects large homes in suburban fringes, and new estates.
Much Australian suburban land is “controlled release” by property developers, building in waves.
Release of land would have the effect of lowering prices in poorer or new suburbs only if it was developed. It’s what Australians call ‘mcMansions’.
However, there is a shortage of builders. And prices in estate areas are contracting mostly, it is established areas mainly that contribute to growth, where infrastructure such as schools and transport are part of the pricing.
Prior to the IMF report, 2thinknow nascent trends identified a downward trend in property prices.
An earlier and fuller 2thinknow analysis of the probable fall in property prices is here.
When your house price falls, what to do.
Well inevitably, good properties in good areas will one day catch up to the peaks of today’s market. Who knows whether that will be 5, 7 or 15 years.
And in lesser, new suburbs the value increase when the State Governments finally create infrastructure such as trains, trams, roads, hospitals, schools and services in those areas. Despite a slow approach to infrastructure, this will improve eventually.
So long-termers, or those not highly leveraged, may simply sit tight, even wait for the trough and a drop in demand for builders, then renovate at lower cost.
Those who are highly leveraged, and behind on payments, as is being reported in the Australian news would be best to sell now, before 2 things happen:
a) more forced sales further depress prices (likely to hit poor suburbs first)
b) baby-boomers retiring sell assets to cover drops in their superannuation (likely to hit established suburbs over the short to mid-term).
The rest would need to assess whether they want to sell their home and whether a loss of 25% of value, depending on area, may actually cause them to have negative equity.
Further share market falls may contribute to and magnify losses, and it seems the Australian market has ventured into over-optimism, when our dependence on foreign credit is very high.
The big concern is there is property being ‘held back’. A major risk is that the land supply being held back by reluctant vendors, retirees, baby boomers, developers and government will be released suddenly into a market where credit has tightened.
Also, there is the characteristics of an aging population changing as baby boomers retire.
Specific 2thinknow predictions for major Australian Capital Cities
It seems highly probably, based on these factors, that within the window between now and 2011, properties in excess of $300,000 will fall by a margin of 20-25%.
I see little upside in an over-valued market for property until after 2011.
Intrinsically, the property worth is not as high as the prices being paid, and until incomes catch-up to asset prices a fall is nearly inevitable — if indeed this is a free market.
Any political fixes to keep house prices elevated; will exacerbate supply-side infrastructure issues. Smart government will let the house prices fall, for if they don’t the inevitable economic effects will be worse.
Banking Analysts sit on the fence
Most analysts are fence-sitting on this. As was said recently, hope is not a strategy, and one cannot take rising prices with excitement then say that falling prices are a mistake.
If Australian property prices fall, this will assist with housing affordability; a major issue limiting Australia in terms of innovation.
Falling prices will also see the Australian population turn back to labor and productivity as the only true long-term drivers of economic growth, and away from an obsession with speculative asset-driven wealth.
I found your blog on MSN Search. Nice writing. I will check back to read more.
Eric Hundin
[...] Christopher Hire sure knows how to captivate the audience. A recent post was published on Australian property prices to fallHere’s a brief excerpt of what was written: [...]
wow!this explains us the property market of the australia.this explains the rates of the houses in the australia.this explains the rates of the australian houses will fall and the reasons for this are also explained.
http://www.anz.com/documents/economics/Housing%20Snapshot%20April%202008.
Dr Alex Joiner from the ANZ has a very different view in his just released property report for the ANZ.
Would anyone care to comment?
Thanks for the ANZ link, Keith.
Look there are a lot of people analysing financial information out there at all the banks.
So, we analyse specific scenarios using a different method. And our trends support this analysis.
In the end, one of us shall be right! Obviously I think it is 2thinknow, but the remarkable thing is that it really is beyond control.
And most economists have bad track records on predicting, none of them (that I’m aware) picked the top of the Australian stock cycle. Our nascent trend analysis did. So…
So we shall see. History will prove one of us correct!
But none of us are an omniscient God, so either way…!
Christopher
Editor
I wanted to make a comment on your alarmist claims that imply that the property market can expect to shed 20-25% of it’s recent gains over the coming years.
I don’t think you can claim that Australian property is overvalued across the board simply because there’s an abundance of land that is ‘underutilised’. Most of the spare land is now a long way out of capital cities, and with peak oil now approaching (or already passed depending on who you listen to), it just doesn’t make any economic or social sense to be pushing land releases as a viable option to lower prices. Maybe I misunderstood your point, but it seems to me that increasing oil prices are going to have the effect of reducing affordable travel distances, which would have the same effect as an actual scarcity of land. People aren’t going to be able to continue to drive their cars the way they have been until now.
I read with interest your article about capital cities overseas; comparing the value proposition of cities like Paris, New York and London with the value on-offer in Australia. While it’s undeniably true that Paris, London & New York are all cities with immense cultural heritage, it’s a little unfair to dismiss Australia’s capital cities so flippantly. Melbourne and Sydney for example both have a very rich heritage and are increasingly becoming multicultural melting pots, full of warmth, charm and diversity that cities like New York and London are often perceived as lacking. I can’t honestly say I’d prefer to live in any of the cities that you listed above over what we have here. In fact, you only need to look at the international ranking of Australia’s cities to see how lucky we are.
If anything I would say that there is still a lot of intrinsic value in Australian real-estate, particularly in the inner city and city-fringe locations. These are the areas where people can reduce their dependence on the oil economy by walking or cycling to work. The areas that are close to public transport, shops and amenities. The areas with diverse local communities. The areas, in short, that have been responsible for much of the boom over the past few years. As oil and energy prices rise, I believe these areas will continue to do well.
If your predictions do come true, sadly, I think it’s going to be mainly the battlers in the outer suburbs that bear the brunt of the downturn, and not so much those in the areas that have been seeing the recent gains.
Christopher Hire is wrong.
Quite simply real estate prices have factored in high growth rates for the economy and high levels of immigration.
While our Anglo – American cousins continue revising their growth rates ever lower.
Doomsayers have been predicting a collapse in prices for decades.If you follow their advice then you lose money – as simple as that.
David Hume
Why is it all these commentors have to get personal & attacking??
Some simple economic truisms:
a) US economy spends more than it earns
b) China makes money selling goods based on US demand (ie Walmart & CostCo)
c) Australia sells steel, coal & resources to China to make goods for the huge US market, and other countries
d) US economy and firms drive growth in other markets
Without a) then c) does not happen. USA is an extremely important, the most important, world economy.
I agree Australia has a long term bright future in the 21st century, but not, I suspect for the same reasons as David and others…
Mid-term, there is one alarming risk factor the most current reports on global warming, indicate the need for drastic cuts in productions of greenhouse gases (caused by coal, steel.) China adds one new coal-powered station a week. 1 a week! Is this whole cycle sustainable? Not really. According to IPCC, we apparently have around 10 years before this all gets very serious. The effects of global warming are one foreseeable ‘unforeseen’ event that is obvious if one is looking.
Our whole economic structure is based on consume and produce, and if the latest reports of the IPCC are correct, and if Tim Flannery is correct, then this cycle is not sustainable. Politicians will need to take drastic action to reduce greenhouse gases, with resultant economic effects. If it does not last then demand for resources falls.
Most of the rebuttals of my argument that prices will fall, are using induction-based arguing to assume the graph will move in the same direction. Will go up, because ‘always has’. And I have worked on numerous risk and financial models, and realise that most are merely induction based. Many are educated guesses.
We shall see who is wrong and right, but this analysis is based on a confluence of trends… there are enough spreadsheet jockeys predicting the movement of a line based on past performance. Wait until September’s cycle is over.
Growth is based on consumption growing as it does. And that’s based on a different oil price than the current price, and that’s based on the assumption we can continue the current over-produce and consume mentality. Rising house prices are only sustainable with rising wages, and the RBA have indicated inflation will not be allowed to take hold.
Most of you are ignoring the effects of global warming, US recession, high oil price, and any global recession. The US is broadly regarded as in recession, included by Warren Buffett. 2thinknow predicted the US recession ahead of UN and Goldman Sachs, on this journal. And we are using the same analysis to predict falling house prices.
This is another prediction, you are free to believe as you choose! The reality is that 2thinknow believe house prices in Australia are over-valued. And we believe that perhaps conditions are improving in Australia for property prices, since this article was written. But we do not believe asset bubbles are sustainable.
Christopher Hire
An interesting further writings on the topic from The Age’s Kenneth Davidson.
High house prices are really defended mainly by people who have most of their money invested in houses.
Anyway read Davidson’s article:
http://www.theage.com.au/opinion/greed-is-at-the-root-of-the-housing-crisis-20080618-2sub.html?page=-1
Christopher
Thanks for the link to Kenneth’s article Chris.. it was an interesting read.. I guess depending on which way you read it, it could be seen to bolster either of our arguments.. In actual fact, I don’t think we’re necessarily as far apart in views as my first post may have implied (apologies for not being as clear as I maybe could have). I think what I was trying to say in a nutshell was that if there does end up being an overall decline in prices, I suspect that city-fringe suburbs will end up less scathed than the outer suburbs.
They’re all good points that you make.. US drives China, China drives Australia… it’s all a big money-go-round driven by US debt.. it’ll be interesting to see how far the US recession really does spread.
I watched an interesting documentary a few weeks ago called “The end of suburbia” – about the American appetite for large (’McMansion’) homes and the resulting urban sprawl and dependence on oil that this has created. While I don’t necessarily agree with everything that was said (or the sensationalist way information was presented), it made some very good points. One of they people that they interviewed, an author by the name of James Howard Kunstler, is particularly scathing of suburbia and went as far as calling it “possibly the greatest misallocation of resources that the world has ever known”. He even went as far as predicting that the outer suburbs would end up becoming the slums of the future and that America would go into a long-lasting depression when peak-oil hits. It was pretty confronting, and while it concentrated on America, a lot of parallels can probably be drawn with the way other western nations including Australia have been building their cities outwards.
I understand what you’re saying about the ‘asset bubble’ – that prices have been pushed up by favourable conditions (tax & otherwise), but I still believe that property close to any Australian capital city (by close I mean within biking or walking distance, serviced by public transport) currently offers reasonable value for money. It’s only really been during the last 50 years that Australian cities have spread out as far as they have, and this sprawl has created an unhealthy dependence on cheap oil (which is now but a memory)…
Please don’t take any of this as a personal attack. I hope it wasn’t me that you were referring to in your post above! I also hope that I’ve clarified my position a little – that I wasn’t necessarily challenging your viewpoint (that prices overall may fall), but rather attempting to clarify where I thought they might fall hardest, and where there might still be value.
Dave.
Dave, it wasn’t you! This & related articles are getting commented on in more than one location. Some interesting points you raise, I’m a bit more optimistic than Kunstler, we may have a re-villaging of suburbs, but more likely we just need good public transport to make suburban cities workable. Transport works in Germany, so it can be done. Christopher.
This may also interest you…
One of the problems with housing as they stand, is oil prices. High oil prices, coupled with global warming, effects the long-term value of assets in the outlying suburbs, as Dave is implying above. Inner city property may in turn be effected by air-conditioning, as many building over 8 stories need air-conditioning to function, and air-con uses a great deal of energy.
If the IPCC are correct the next 10 years will not be ‘business as usual’.
An interesting partisan read about energy futures in the USA & world; although all of the points raised don’t support the 2thinknow view; is here.
http://www.politicalaffairs.net/article/articleview/7063/1/340/
Christopher
Very interesting insight, Chris
Cheers!!
households now owe 100% GDP – as much as the entire US economy can produce in a year
I agree with Christopher Hire about Australian house prices being so artificially overvalued compared to global cities which do not run out of -
1) millions of tourists who rent very short-term
2) millions of migrants who rent for very long-term
Even Sydney and Melbourne do not compare well with global cities (including current top cities in Scandanavia) in terms of high house prices and lower migrant (plus tourists) rentals.
Rents even in eastern suburbs and northern suburbs of Sydney have seen a bit of up and down in very recent months. There have been comparisons of the same addresses’ rents being compared to previous months.
As an example, the area around Macquarie University in the Northern Suburbs of Sydney which is supposed to be experiencing increased rental demands have had particular addresses monitored. One address was being offered for $390/week in May 2008. In late September 2008, this very same address was advertised for $365. Then again down to $360.
There simply are no takers, as most students or employees in the area just do not have the money to pay what is considered such a high rate.
Agents were wise of course to advice landlords to lower that rent from $390 to $365, because the vacancy is obviously impacting on the agent’s maintenance fee/commission and landloards annual rental income. Two weeks vacancy would hurt by almost $800/year.
That’s if the tenant stays 12 months. A lot do not finish their 6-months lease these days and a growing number of landlords would be fortunate if a short-term tenant leaves without trashing a property, as they leave without trace as students and short-term migrants head off for overseas.
Geoffrey
hi i just want to say that guy “dave” is a f***n idiot, hes got nothing better to do but diss the guy who made this article, i am 21 looking to buy a house and this guy gave me the exact advice not to follow and just agreed with everyone to get attention, article was good everyone who says different is just an old person with nothing better to do with there time … jake out
UPDATE – PROPERTY PRICES
The 2thinknow View that:
> property prices would fall by 30% in Australia
> in most markets stocks were around 30-40% overpriced
> The true value of the stock market is around 4500 for the Australian All Ords
> the Australian peak was November (as we predicted)
> There would be a SEPTEMBER shock event (predicted in OCTOBER 2007)
See:
http://2thinknow.com/innovation/index.php/2007/10/02/3-predictions-for-life-in-australia-in-2008/
http://www.2thinknow.com/innovation/index.php/2007/12/27/2008-depression-economic-recession-usa-australia-america-uk/
In other words, our preduictions, using nascent trend analysis were VINDICATED.
We out-predicted almost all ‘names’ ANZ, Goldman Sachs, CBA, NAB, and internationally the IMF.
Economic analysts are great when in a clear bull market or bear market, but not in volatility. New techniques are needed.
We did this using nascent trend analysis, a new technique that allows for complexity, and uses ‘trigger’ events to allow confident predictions of outcomes.
WHATS’ NEXT?
IN USA, greater loss of wealth, widespread unemployment increases, property at ridiculous prices.
Exact range of results dependant on US election.
In UK, the UK is in recession. This will deepen. property prices will stabilise at new lower levels.
IN AUSTRALIA, more specific predictions are possible due to increased research by 2thinknow.
The fall in Australian property prices & stocks will be exacerbated by excess supply as baby boomers retire.
Property prices should fall to 2004 levels in aggregate.
NSW will not recover until 2010, with Victoria being the nation’s leading economy until 2010. WA condition will worse in 2009.
2thinknow analysis believes that the Australian All-Ords have now reached the correct value of 4500 (under 4000 is overshooting, but we may over-shoot further).
The Australian stock-market should move sideways in a band for some time. There will be a number of slow-rolling bankruptcies. Some corporates (eg CBA) will buy future assets cheap.
Nationalisation (eg. The Future Fund) may become more common. Especially infrastructure.
There will be substantive increases in white-collar unemployment, and infrastucture gaps will be exposed, exacerbating under-utilisation of labour.
Macquarie Infrastructure Model will be put under serious strain, as will PPPs. Macquarie Bank may be a casualty in March 2009 or thereabouts.
Unemployment will increase in 2009 by around 2% in Australia.
GLOBALLY, Most stock-markets will have various 30-120 day lags after the USA, and markets should move sideways once bottom is reached.
Any global Depression (see below), will force the stockmarket dow to the next floor of 3100 in Australia & a DJIA around 6700, with similar effects elsewhere. This would render the above predictions conservative.
2thinknow believe there is now a 40% chance of an extreme depression at current. This event will be foreseeable in December, as both US presidency hand-over begins, and Christmas cycle is complete.
Inflation cannot be predicted as the CPI based figures no longer represent any version of reality in terms of day-to-day living.
The main problem with the bailouts in progress is:
> unintended side effects (eg. Australain bank guarantee)
> competition for funds
> sovereign risk on massive debt
> strategic considerations.
Already there has been numerous geo-political manoeuvering on behalf of nations, and this may exacerbate causing increased volatility. The accuracy of numbers published by various governments will need increased scrutiny to prevent further surprises.
In 3 years, citizen taxes globally will generally rise.
Further predictions will be made in December.
Right now, that’s the 2thinknow view.
Hi Chris
You’re right, none of us know with certainty what will transpire.
But I thought it is possible that, just as you say people in the property market are downplaying suggestions it will drop 30%, isn’t it possible those not in the property market are just as passionately wishing it would fall 30%?
I take it you don’t have a lot of money invested in property yourself.
Thanks Brendan.
Our projections are based on trends & related psychology. The prices in the market are unsustainable long-term. A few reasons, but not all:
1) house prices are (for a decent house) up to 8 or more times annual pre-tax wages.
2) house prices assume 2 incomes, and a marriage of the length of the mortgage
3) real estate agents have told me the REIV & agencies are talking up the market
4) delinquincies & bankruptcies are rising
5) baby boomers will retire, releasing stock on the market
6) Debt to GDP.
7) Widespread USA defaults & crisis. Many areas of the USA are performing like 3rd-world economies, without functioning markets.
I think we can say, that as 2thinknow predicted, the USA froze up, China demand fell, and now resource demand fell. There are also striking similarities with the 1920s, but more institutions & maturity to prevent such a crisis.
And, finally, speculative investors drove the market up. they are leveraged. Leverage is now expensive.
So that is 2thinknow view.
Property will fall to sustainable levels. It is healthy that it does. Why?
a) Because sustained bull markets lead to far worse recessions. If we ‘dodge’ the bullet on this one, it will be wrose. We are having a double recession, because we dodged the tech crash.
b) Property is more readily available in Australia than anyone admits. unlike Europe, there are many under-utilised spaces.
I CANNOT give specific financial advice on behalf of 2thinknow. Our view, using trend analysis is that prices for property will fall.
People who create wealth by building or inventing like Bill Gates or Steve Jobs, create true value. The 2thinknow view is that the computers, PC, networks, cellphones & internet were drivers of genuine growth & value during the 1980s-2000s period.
There is no equivalent innovation driving the growth now.
Making a bubble by driving up property is a ponzi scheme. If it doesn’t crash now, we will have other economic symptoms like the 1970s. This is the second possibility.
Wealth will now be created by sustainable technologies, like the Australian company being supported by Gov Schwarzenegger, in California.
The reality is property prices WILL ultimately represent intrinsic value. Unless the world is willing to underwrite property price peaks driven by a debt binge (it’s China & Arabia’s money after all) in the USA, UK & Australia, they will fall.
Of course, tulips are still more expensive in Holland than anywhere else. And Australians love property. So there will always be a floor of support here.
In the same way Americans prefer stocks as an investment class, which is why there stock market has not fallen as far as itr might.
This is another complex psychological factor. 2thinknow select all these trends & psych factors.
Brendan, you obviously believe in property, as do most Australians. I get quite a few emails from property true believers.
Good for you. Time will tell who is right.
From The Age
“New home sales slump again”
http://business.theage.com.au/business/new-home-sales-slump-again-20081031-5f1b.html
Christopher
Chris I have to agree that the property market is due for a crash. There is no real value and valuations are way above property development and construction costs (even considering proximity to infrastructure factors). Especially for some ‘old’ properties being offered in the older suburbs.
If a new property is worth $500k ,then a building that should be demolished is worth the land cost less the demolition cost. Only an absolute optimist or a misguided agent would believe it is worth the same as a new building on the same block.
The likely (mid-end 2009)demise of GM and Chrysler in the US , along with the 166,000 jobs to be lost and the 600,000 pensions that will fall onto the US Gov is only a small sign of what is really just around the corner.
The depth and severity of this ‘recession’ will hopefully wake up those who believe that selling balloons is any diferent to selling shares and properties at the values of the past anywhere in the world, not just Australia.
I am very interested in your ‘nascent trend analysis’.
I believe you should look at developing and promoting its use more broadly.
I have lived in China for the past 12 months but hope to return to Aus soon. I have watched the world financial system unravel with great interest , fortunately not at great expense.
Conservative warnings and sensible forecasts are a far cry from negative rantings..
Keep up the great work.
hi chris, your post are really helpful and explains a lot of things in property market. i am willing to buy a first home in melbourne, just wondering, what would be the best time to purchase, as your posts says, the property market is still going to go down. so would it be a better idea to wait or will it boom again in near future. thanks
Thanks for these & many other positive comments I have received on the prediction in October 2007 of the ASX stock market crash, and December 07 predictions of a US & broader recession.
At the time I made those predictions for 2thinknow I was a lonely voice.
Our nascent trend analysis believes property prices are still fundamentally overvalued relative to income & are being paid for debt.
Psychologically howeverm the media & government talk about high house prices as ‘positive’, even though propping up house prices long-term is in danger of creating a long-term economic malaise.
A lot of government intervention is haphazard & creating contradictory forces in the economy, as none of the actions fit economic theory per se.
Many prominent economists would say low-cost money, the governments primary action, runs the risk of creating another bubble (with worse down side) or a long malaise.
2thinknow believe the contradictory trends (downturn & over-stimulation) will give a clear indication by the end of December.
Neither I nor 2thinknow are able to give financial advice to individuals. Each situation is different. The key problem though with financial advisors is most want the market to go up, to ‘return to normalcy’, that they forget a bull market is a phase, as is a bear phase.
In property, many financial commentators & those 50+ want house prices to rise to preserve their wealth, but locking out young generations from property (except their kids).
Asset bubbles that are artificially propped up lead long-term to artificial hereditary wealth. We assume high house prices or high prices are good, when in reality stable markets, predictable markets are better over the long-run.
Stability & predictability make it easier to make investment decisions, such as buying a house.
Those who have asked me should you buy a home, I am not a financial advisor, so I cannot give you an answer.
2thinknow believe that there is a 4 in 5 chance Australian house prices will fall. Or, as a less likely scenario, based on the effects of govt intervention enter a long stagnant period until incomes catch-up.
But this is trend analysis, and does not account yet for unprecedented government interference in the markets to prop them up. (There is no data yet on the impact of the intervention, the first data takes about 3 months). The sure side is government intervention will have many unintended side effects, because the actions are not from the Friedman nor Keynesian playbook strictly.
The stock market at the moment is telling us the price people feel is fair for companies, and is overshooting on the negative a little.
And besides CPI is not a reliable indicator of inflation in Australia, so inflation is a nonsense, as everyday supermarket goods are rising far more than 2-5% per annum.
In short, nobody knows for sure the effect of the Government’s economic intervention, because the circumstances are so unique. Also many of the ‘indicators’ are lag indicators, based on very inaccurate data (house prices) or simply flawed indexes (such as the CPI). After 3 months from the September shock we can see more clearly.
You can’t tell how you’re car is performing, and your speed, or the road ahead with a foggy windscreen and a dodgy tacho & speedo. Governments on both sides (and the IMF, World Bank) politicise the stats, making them unreliable.
A lot of people decide what they want the stats to appear (spin) rather than measure what they are. So until some solid lag indicators come through around Christmas we won’t have solid data to know where we are, and how we’re driving.
Christopher Hire
[...] year there have been a few claims that house values will fall significantly, including this one from Christopher Hire (20% fall) or this report on Steve Keen (40% fall). Such a drop in property seems credible on face [...]
Houses are overpriced. In Brisbane the sort of house I would want is about $500,000. For a fairly modest house too.
The amount of time, money and effort to pay off a loan for half a mil is considerably more than the value of the house. I hope we have a MAJOR housing collapse to bring house prices back to reality.
We are Australians. We don’t deserve better, but we bloody well expect better.
Valid points raised and property prices will drop but not buy 30% or 40% across the board.
More like 10-15% in property between the $300-$500k range with bigger drops of 20-30% in the $1000K+ range.
Yes the US are in a recession and they are in big trouble. Their housing market is up sh*t creek and the FED is pumping over a Trillion dollars into their economy with fiat currency which is only devaluing the US dollar, adding to inflation and hyperinflation.
Things to bare in mind though is that even if China is exporting less to America, China has enough people living in it to consume its own goods.
China will slow down however I can’t see our commodities boom moving to a stand still as China is still well into growth stage and there are other developing countries like India, Vietnam etc etc. still requiring a shi*tload of our commodities.
I would like to raise some points about Australian property against Americas:-
1. Australia does not have an oversupply of property like the US does. We actually have an undersupply.
2. Banks here have not been lending 100%+ against the value of a property like in the USA.
3. here in australia, banks lend to the borrower and not solely against the property (like in the US).
The reasons why I can’t see property dropping substantially is:
A. interest rates are moving down
B. Australians love owning property
C. we still have low unemployment
D. we have the backing of our commodities unlike other countries.
E. rentals are increasing even more
F. there is an undersupply of housing in Australia
I take your point that Baby boomers offloading investment properties to assist with their retirement will mean more houses on the market. But because of reasons A, E & F, I really can’t see it being a detriment to housing prices.
With interest rates at all time lows, undersupply of property and low unemployment I believe there will be confidence restored in our housing market by Qtr 2 or 3 of 2009. Especially with the govt. stimulus packages because they will stimulate the economy if need be. (as we have already seen).
Property is at a discount by 10-15% in some capital cities already and with the first home owners grant and low interest rates it won’t be long before the housing market starts steadying itself.
Yes property is not at affordable levels in Australia however there are too many factors which I have pointed out above which will save our housing market.
I believe that we will be saved this time because of our commodities boom, strong banking system, low unemployment, low interest rates, and undersupply of housing.
But like Chris has mentioned, although I know we will be saved this time. The bubble is going to burst eventually and it will be alot worse.
“Things to bare in mind though is that even if China is exporting less to America, China has enough people living in “it to consume its own goods.”
Average Chinese can’t afford to buy their own goods, and also have a strong culture of frugality – they do not have the money nor the inclination to buy their own goods anywhere near the level of outside nations.
“A. interest rates are moving down
B. Australians love owning property
C. we still have low unemployment
D. we have the backing of our commodities unlike other countries.
E. rentals are increasing even more
F. there is an undersupply of housing in Australia”
A, B is correct.
C is temporary, when you posted we had 4.5% unemployment. The govt’s optimistic view is 7% unemployment in 2009 which means more like 10%.
D our commodities are now worth a quarter of what they were worth last year and with China in the box seat to push them down even further.
E ? over this one, what effect will unemployment have (in the 90s recession people who were renting moved back with their parents)
F the undersupply of housing is due, in large part, to strong immigration which will decrease in 2009. The other pressure on demand will be increased unemployment and further cuts to family confidence.
Hi Chris,
Just came across this article you wrote last year and the comments that followed. Facinating. What do you think about what is currently happening – first home buyers seem to rushing in and propping prices up. People say that’s only at the ‘lower end’ – that’s a relative term. In Sydney it seems to be propping up even properties in the 600ks. Today’s data (RP-Rismark) shows a 1.1 % increase in prices. A bit alarmed because we sold last year and have been waiting for the market to slow down. Is this the property equivalent of a ‘bear rally’ or is it the beginning of a turnaround upwards?
Having read from top to bottom, I am also amazed at some of the predictions of mid to late last year coming true. Though I read many predictions to what may or may not happen, let me explain the situation from the trenches. I am a Real Estate agent within the CBD of Brisbane, basing myself in a popular cosmopolitian area with a median price of $750k. In the last 2 weeks I have been witness to our Auctions fall so dramatically, that I’m embarrassed of having talk up our market over previous months. Though I consider the ‘talk up’ almost necessary to sustain a career within the industry, we sold a property last week for $865k that was bought for $875k 3 years ago. The house was beautiful in all aspects, a large crowd arrived, 6 registed bidders. All signs for a good Auction…..but….time after time this is what we are witnessing. Today we tried to sell another beautiful property for a little of $800k. The property was bought last year for $849k. We had 1 registed bidder, and we couldnt even get $700k. The property did not sell.
We all predicted that anything above the $600k range would struggle, but not to this degree. The other end however is manic. A property we introduced today for mid to high $4’s welcomes 20 groups. 3 offers eventuated by the end of the day and sold above sellers expectations. Sold in 1 day….We just cannot get enough of these properties. Agents who in recent times decided to target upper-end stock are certainly wishing they hadn’t. Its like a grudge match, as we all fight for these little, tired and unattractive properties.
This is a market unfamiliar to us all. We dont spend much time predicting the future of Brisbane property sector but more at explaining what is happening in the NOW!
Psychologically, confusing for all. My wife and I have bought many times before and we would like to buy again. When I come from those buzzing ‘open homes’ as mentioned before, it excites me to the point of getting involved. However within the next hour my opinion of the market and its confidence is deflated with being subject to the demoralizing outcomes to the homes that exceed the $700k barrier. My thoughts as an agent in this ever-changing market is if you were thinking of selling an investment property under $500k in the not too distant future, do it NOW! Unfortunately you have missed its best potential but the boat has not left without you…. however, it will very soon. Use this manic behaviour from first home buyers whilst they believe the government incentives will cease in June.
For higher end properties, its really about crossing your fingers in hope that you will at least find someone that wants to call your property home. If you want sell to either upgrade or downsize expect a $20,000 – $60,000 hit from prices of last year. If you have a property in the Mil+, expect $100+ hit. This is not a prediction, this is fact.
This is not really a time to entertain the market. If you dont have to sell, then dont, but if you have really got past living in the home you own, make sure you have a very reputable agent backed by a very highly regarded agency. This is only relevant to homes over $600k. Its the dialogue and trained script work from your agent that will only help assist you getting over and beyond the current decline in sale prices.
Paul
i have also found this stream very interesting and although i have little knowledge on the subject, i agree that a fall in the property market seems very likely. It has been mentioned that mid range ($300k-500k) properties will be reduced in price fairly dramatically but what of the lower end properties between $150-300k? Is there a prediction as to how much they will drop?
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