Australia Faces Its Demons

[mattyboy1973]

More on yesterday's figures. Lending has halved from last years peak in NSW - that's usually a reliable leading indicator of prices. I know there are those rationalizing these numbers by arguing that half the properties are now being bought by overseas investors since the relaxation of the foreign investment rules. Sounds a bit desperate to me but we will see!

http://www.smh.com.au/business/housing-market-shows-signs-of-cooling-20100310-pz8t.html

Housing market shows signs of cooling

PETER MARTIN ECONOMICS CORRESPONDENT

March 11, 2010

FREQUENT rate rises and the end of the first home owners' boost appear to have broken the back of the NSW housing market with new figures showing lending in January fell to its lowest point in more than 10 years.

The Bureau of Statistics says only 667 NSW residents took out construction loans in January, down from a high of 1270 in September before rates rose and the first home owners' boost wound down.

Only 472 loans were issued to buy new houses, down from roughly double that a few months earlier.

Loans to buy established houses also halved, sliding from a peak of 19,100 in March to 10,041 in January.

The NSW slide was mirrored nationally, with only Victoria and the Northern Territory showing resilience.

''Things are likely to look weak from here on,'' said a CommSec economist, Savanth Sebastian. ''Potential home buyers brought forward planned purchases to 2009. Overall the housing sector is likely to cool for the next few months. It is understandable there would be a period of consolidation after the past year's phenomenal run.''

<continues>

[aussieboy]

More on yesterday's figures. Lending has halved from last years peak in NSW - that's usually a reliable leading indicator of prices. I know there are those rationalizing these numbers by arguing that half the properties are now being bought by overseas investors since the relaxation of the foreign investment rules. Sounds a bit desperate to me but we will see!

http://www.smh.com.au/business/housing-market-shows-signs-of-cooling-20100310-pz8t.html

Fewer loans is never going to mean increased pressure on prices as you say. Can spin it a bit, but not good news for those hoping for more big price gains I would have thought.

The overseas investor market is developing rapidly from the typical entitled european we see posting on here, which is not good news for locals trying to buy. Not sure I've mentioned this before, but another father at my child's school spends a day a week in HK spruiking sub-$1m investment properties geared 70:30 with the 70 being demoninated in HK$... busy man.

[blue skies]

Some would say that buying now is just past the bottom of the cycle. Timing these things can also be a bit tricky as no one really knows, you could do nothing and play it really safe as well I guess. It can be shown when it comes to property that time in market is better than trying to time the market.

Emphasises the folly of projecting current trends in asset prices into the infinite future. This is the famous Herengracht Index, which tracks the real price of housing on Amsterdam’s wealthiest canal from 1628–just before the Tulip Bubble–until 1973.

350 Years of data from the land of tulips

If you had been born in, say, 1735, you might have died as an 85-year-old, convinced that house prices always fall, compared to consumer prices, since for most of that period house prices did in fact fall in real terms.

Hmmm yer no ones knows, but hey the fundamentals speak volumes to those who are in tune.

Time is ticking 8 months for property to drop 10% .

I remember one yacht race, we were well behind the skipper and others thought we had no hope, I saw that our chances were small but not impossibe, I gess because of my standing the others took heart.

[ExecutiveSlaveBox]

Beware the white shoe brigade.

Savvy investors leave sexy sea-change locations to the shady

THE gap between image and reality is never better demonstrated than by the Gold Coast property market.

Because this "sunny place for shady people" is a tourism icon and the population growth capital of Australia, many assume it's a great place to buy real estate.

Its image as a place where fortunes are made is reinforced by the industry publicity machine.

On the Gold Coast, the spin cycle is always on fast forward -- while the truth is on rewind.

The reality is the polar opposite of the perception.

The Gold Coast is a chronic underperformer on capital growth, which is the holy grail for most investors.

The influx of new residents which grabs most people's attention speaks only to one side of the price equation: demand.

The other key ingredient is supply and this is where the Gold Coast often falters.

Developers flock to this population mecca and regularly flood the market with new product, particularly high-rise apartments.

Regular bouts of oversupply dampen the market and drag down the region's long-term growth average.

Nearby Logan City, embracing a swag of mostly downmarket suburbs which bridge the divide between the Gold Coast and Brisbane, consistently outshines Gold Coast City on capital growth -- by a wide margin.

This is why the industry propaganda machine has been at pains lately to convince us otherwise.

One example was a press release by PRDnationwide which would have us believe that the Gold Coast is capital growth central.

The press release devoted two pages to claims that "the Gold Coast local real estate market has experienced strong and consistent median house price growth over the past 30 years" -- but, significantly, produced no figures to support the claim.

The media release said this: "Research conducted by PRDnationwide research director Aaron Maskrey shows the Gold Coast housing market experienced almost seven full years of strong, positive median house price growth."

It did not quantify the median price growth in those years. Data from the Real Estate Institute of Queensland indicates the growth has been embarrassingly low.

The PRDnationwide material does have the good grace to acknowledge that there have been what they call "slight anomalies along the way" and that the Gold Coast is experiencing one right now -- indeed, there has been a downturn since the end of 2007.

"We have experienced a median price decline that is typical after strong periods of high growth," it says.

"Anyone who has monitored the local market for the past 10 years will acknowledge the impressive price growth the market has enjoyed."

Well, no, actually. The good markets, the ones I would want to invest in, do not suffer long periods of price decline after "strong periods of high growth". And I have monitored the Gold Coast market and found its price growth to be well short of "impressive".

The truth is the Gold Coast ranks towards the bottom of the heap in terms of capital growth in Queensland residential real estate. Figures from the Real Estate Institute of Queensland show that the median house price for Gold Coast City has grown just 20.5 per cent over the past five years.

By comparison, downmarket Logan City up the highway towards Brisbane grew 50.2 per cent while Ipswich City in Brisbane's southwestern corridor grew 57.5 per cent.

Toowoomba, despite all its water-supply problems, grew 44 per cent over five years while boom city Gladstone increased by 79 per cent.

Rockhampton did even better with 114 per cent while Townsville and Mackay both managed better than 80 per cent.

The only significant Queensland market that did worse than the Gold Coast over the past five years was the Sunshine Coast (19.5 per cent growth in its median house price over five years) -- proving yet again how overrated the sexy sea-change locations are for real estate investment.

Within Gold Coast city, many of the "prime" suburbs have done particularly poorly.

Capital growth in Surfers Paradise has been just 16 per cent over five years, while Mermaid Beach did 19 per cent and Runaway Bay only 7 per cent.

Only six of the 44 suburbs in Gold Coast city managed growth above 30 per cent over five years.

I don't view the REIQ data in isolation. I have been constantly reviewing capital growth around Australia over the past five years and each time I find similar results. Iconic locations such as the Gold Coast regularly underperform.

Much of the "research" is really nothing more than an attempt to talk up a market that's been struggling for some time.

It may be understandable but this is the kind of thing the property industry needs a lot less of.

Good information is critical to investors and developers and the data flow is constantly hijacked by an industry that turns on half truths and misconceptions.

Care to comment on the home loans slump link? Or is this the internet equivalent of sticking your fingers in your ears?

[Guest DissipatedYouthIsValuable]

In other news, most humans discover limit to borrowing as multiple of income, but a dwindling number can't stop playing chicken.

[blue skies]

Yes Bardon its just like jumping of a tall building , you get to enjoy flying if only for a short time.

[Bloo Loo]

I could also ask if you would care to comment on why you think that house prices are rising as this is the only results that I am focused on.

snip

love it....you sound like you are driving a car, accelerating into a brick wall, which the bumper has hit....but you are still accelerating and focused on the speedo.

Lets hope your airbags inflate.

[Bloo Loo]

It might sound like that to you but in reality I am more akin to a tortoise that is getting on with his life in nature's way getting from A to B without reference to the noise.

you maybe...your investments?....thats another story...course, you may never hit a wall and your car accelerates for ever.

[ExecutiveSlaveBox]

John Edwards of Residex has been on the money since he first started predicting Sydney house price growth all those years ago. Whether or not Melbourne nudges ahead of Sydney is one thing but Melbourne price growth is assured.

Housing is hotting up, but Melbourne will stay the cooler city

JAMES KIRBY

March 14, 2010

MELBOURNE house prices are on fire - $1 billion worth of auctions every weekend. And now the experts tell us values in the city could outstrip Sydney. Certainly there have been some eye-catching numbers: Melbourne's median price at $494,000 would certainly seem to be challenging Sydney's $545,000.

And though it seems like Sydney - where a car space in North Bondi recently went for $240,000 - has long been dearer than Melbourne, the gap only opened up in the early 1980s.

According to property research group Residex, as late as 1979 Melbourne was dearer, with a median house price of $46,000 against Sydney's $42,000. But around 1980 a combination of factors started to put Sydney way ahead of Melbourne - multinationals preferred Sydney, most of the ASX big listed companies centred there and the city's population began a climb to beyond four million.

Over the past decade, Sydney experienced regular lunges in prices that Melbourne simply could not match. The price gap by 2004 was huge - Melbourne had barely cleared a median of $300,000 and Sydney had broken $500,000.

Then something happened that's as regular as a heartbeat - the numbers swung back in favour of Melbourne. This time the rebalance was more dramatic because Sydney had overshot.

Just now Melbourne is having a strong run - immigration, pent-up demand, a stable state government and inevitable momentum from positive headlines push prices up. Meanwhile Sydney seems relatively flat with some weakening of population growth, a post-Olympic hangover (the full effect came after 2004 despite the games occurring four years earlier) and a series of ineffective NSW state governments.

It's not surprising to hear Residex managing director John Edwards suggest he would ''not be surprised'' to see Melbourne prices pass Sydney at some point in the next decade.

Maybe it could happen - briefly - a short-term technicality. But to jump beyond that and suggest that Melbourne house prices will soon surge to the point that Melbourne will become permanently more expensive than Sydney city for houses is nonsense.

It won't happen. Here's why: Melbourne home prices are coming to a peak. Scott Keck of Charter Keck Cramer is a valuer, not a real estate agent … a very important distinction. He says: "Prices are strong, but Melbourne certainly won't eclipse Sydney; there is just too much free land in Melbourne, it's flat at the city fringe, the residential blocks can go on forever. I believe we'll see the city prices cool soon.

''In contrast, in Sydney you have the Blue Mountains, state forests up against the city … it's a totally different market.

What's more, all the indications are that it's Sydney that is going to rebalance, very soon.

NSW is at the epicentre of the nation's housing shortage - a shortage that even the Reserve Bank is publicly worried about following comments by Deputy Governor Philip Lowe a few days ago.

http://www.smh.com.au/business/housing-is-hotting-up-but-melbourne-will-stay-the-cooler-city-20100313-q4z5.html

I seriously doubt there's a shortage of anything, land or housing. The only shortage is an artificial one due to lax lending criteria leading to speculative buying.

Hopefully the recent dip in loan approvals are sign of sanity returning to the market.

[JonoP]

I hate to be the one that dashes your hopes but the definition of insanity in your case is expecting different results from the same market cycle

Nah, the definition of insanity is letting the 4 main banks in your country hold 60% of their assets in residential mortgages. What would a 10% drop in prices do. Hmmmm. Maybe it would wipe out all of their tier one capital?

Even in the mad days in the UK, banks only held 45% of their assets as residential mortgages. No country has a figure anywhere close to Aus. There again, no country is in the situation where its consumers owe 110% of national GDP.

Aus is a two trick pony – it sells resources to China and sells houses backwards and forwards between citizens for ever increasing levels of debt. Neither of these ‘tricks’ is sustainable.

Interestingly, an increasing number of journalists seem to have worked this out. Unfortunately, they tend to write in the Australian Financial Review, and access to this papers articles on the tiniternet is limited to subscribers.

[ExecutiveSlaveBox]

I hate to be the one that dashes your hopes but the definition of insanity in your case is expecting different results from the same market cycle

Which "cycle" is this then? The one where house prices rise exponentially to infinity? I think the definition of insanity is expecting this is going to last and/or have a happy ending.

When you've got fibro shacks in the ar5e end of Melbourne selling for north of 1 million dollars you know you've jumped the shark.

[Bloo Loo]

It's called the property cycle and no don't be silly they don't rise exponentially it actually varies between 7 to 10% a year depending on location for your information.

where was that then ?

you are Bruce "Fergus" Wilson and I claim your portfolio is up for sale.

[ExecutiveSlaveBox]

It’s called the property cycle and no don’t be silly they don’t rise exponentially it actually varies between 7 to 10% a year depending on location for your information.

OK.... so in this "cycle" of yours, property rises at 7-10% per annum for how long? Heat death of the universe? The big crunch? Do you think it will ever end, as it's been going on rather a long time now, at least a decade.

[Bloo Loo]

This cycle has been going on since the end of WWII I think it will continue to do so.

Australia was on its knees in the 1980s....following a spending boom.

[Bloo Loo]

Yep I was here when we had a recession following that I think house prices dipped a couple of percent.

The figures i quoted are of course average some years are higher some are less but pretty safe to od your sums at 7% and you'll be right.

Most on here would not have been in Melbourne in the slump of 04-05 I was and it wasn't pretty.

dont mistake national averages for reality.

In our crash of 1990, house prices only went down about 20%...nationally...yet here in the SE, they went down by around 40-60% depending on the quality of the gaff.

bet you cant guess where the best rises were to be had beforehand...

[Bloo Loo]

These were not national averages they were city averages. OZ doesn't have the type of price fluctuations as the UK.

Of course it doesnt.

Ossies are superhuman.

they work harder and more efficiently every year and in fact will develop into disembodied entities in the next 10 years, capable of working 96 hours a day and consuming 4 times the current capacity of every other human on Earth.

Sidneys nice...probably coming over later this year....hotels are very very cheap...how do they do that when asset prices are so high?

[Bloo Loo]

7-10% is not bad, i think the Uk long term trend is 7%, so not sure what the superhuman remark is about.

It means a race of people are going to grow production by 7-10% every year for ever.

If you dont understand then you cant see why an acre of land in Manhatten bought for $10 ISN'T worth what theoretical growth it has experienced says its worth today...ie, more money than there is on the planet.

[blue skies]

Nah, the definition of insanity is letting the 4 main banks in your country hold 60% of their assets in residential mortgages. What would a 10% drop in prices do. Hmmmm. Maybe it would wipe out all of their tier one capital?

Even in the mad days in the UK, banks only held 45% of their assets as residential mortgages. No country has a figure anywhere close to Aus. There again, no country is in the situation where its consumers owe 110% of national GDP.

Aus is a two trick pony – it sells resources to China and sells houses backwards and forwards between citizens for ever increasing levels of debt. Neither of these ‘tricks’ is sustainable.

Interestingly, an increasing number of journalists seem to have worked this out. Unfortunately, they tend to write in the Australian Financial Review, and access to this papers articles on the tiniternet is limited to subscribers.

Pondy what you have just said is true and very profound. Yes Australia is a very dificult situation.

The situation that many fail to grasp is the value of any thing is not represented by the holders but by the fraction who need to sell.

[7clubs]

Good to know that my Big Four bank is quite willing to lend us 6 times joint salary, repayments an easy 70% of joint net income. All that without any figure-fudging, too. I've got a great idea, love, leave the paperwork to me and we'll have that dream home in no time - only a couple of mill in the hole for the next 30 years.....

Jesus wept. Back in the UK and it feels relatively sane compared to the Antipodean madness, although I was offered a 90% LTV mortgage five minutes after opening a bank account - er, no thanks.

Yes, the plates are still spinning for the wonderful wizards of Oz, but have you ever seen the mess at the end of the night in a Greek restaurant when they finally turn on the lights?

[aussieboy]

Which "cycle" is this then? The one where house prices rise exponentially to infinity? I think the definition of insanity is expecting this is going to last and/or have a happy ending.

When you've got fibro shacks in the ar5e end of Melbourne selling for north of 1 million dollars you know you've jumped the shark.

For God's sake - when will you look at the data and see how prices across Sydney and other cities stagnated in the mid 2000s.

No one is suggesting uninterrupted growth for ever. That's why people talk about cycles, no?

[aussieboy]

Pondy what you have just said is true and very profound. Yes Australia is a very dificult situation.

The situation that many fail to grasp is the value of any thing is not represented by the holders but by the fraction who need to sell.

And the buyers.

Just to finish off the excellent economics lesson.

[JonoP]

Good to know that my Big Four bank is quite willing to lend us 6 times joint salary, repayments an easy 70% of joint net income. All that without any figure-fudging, too. I've got a great idea, love, leave the paperwork to me and we'll have that dream home in no time - only a couple of mill in the hole for the next 30 years.....

Jesus wept. Back in the UK and it feels relatively sane compared to the Antipodean madness, although I was offered a 90% LTV mortgage five minutes after opening a bank account - er, no thanks.

Yes, the plates are still spinning for the wonderful wizards of Oz, but have you ever seen the mess at the end of the night in a Greek restaurant when they finally turn on the lights?

Hah hah, too true.

The other funny thing about Aus is the ability of its consumers to get absolutely shafted up the ass by corporates on a day in day out basis. And, whilst taking the rogering, they are patting themselves on the back saying how lucky they are to live in such an enlightened and sunny place.

Examples. A pint of beer is $9. A £95K car costs $338K. You want broadband with unlimited data (as opposed to a cap after X gigabytes)? That will be a $100 a month. A meal out - $20 for the starter and $50 for the main course. A reasonable pair of trainers? $160. I could go on. The average household income is about $60K PA.

The reason that Aus will be ruined is the that all the numpty consumers think that high prices are a result of ‘Australia being a big place’. Bolloxs. It is about their businesses being inefficient. However, the consumers are gullible, lacking real world experience. So , for example, that is why they are prepared to believe the property rampers in the press. They are just too dumb to realize they are being conned. They will find out, though, sooner or later. But it will not be an internal thing that shatters the Aussie dream, it will be an external event that freezes the credit markets so their big 4 banks cannot borrow. Then the whole house of cards will come tumbling down. Northern Rock on a National Scale if you like. Only difference was that Adam Applegarth was brighter than the people running the RBA……

And also, every day in the press here there are articles that articulate the concerns that economists have around the Aus economy and housing market. But, like a proper aussies consumer, Bardon does not choose to post those…..

[ExecutiveSlaveBox]

For God's sake - when will you look at the data and see how prices across Sydney and other cities stagnated in the mid 2000s.

No one is suggesting uninterrupted growth for ever. That's why people talk about cycles, no?

I see your misconception.

Take any graph which models asset prices or any other indicator of economic activity and what do you see ? A sine wave perhaps ? Up to a peak, then down to a trough.

Going up for a decade, having a pause, then powering on, from already record highs, forever doesn't conform to any of those models.

[Tiger Woods?]

Hah hah, too true.

The other funny thing about Aus is the ability of its consumers to get absolutely shafted up the ass by corporates on a day in day out basis. And, whilst taking the rogering, they are patting themselves on the back saying how lucky they are to live in such an enlightened and sunny place.

Examples. A pint of beer is $9. A £95K car costs $338K. You want broadband with unlimited data (as opposed to a cap after X gigabytes)? That will be a $100 a month. A meal out - $20 for the starter and $50 for the main course. A reasonable pair of trainers? $160. I could go on. The average household income is about $60K PA.

The reason that Aus will be ruined is the that all the numpty consumers think that high prices are a result of ‘Australia being a big place’. Bolloxs. It is about their businesses being inefficient. However, the consumers are gullible, lacking real world experience. So , for example, that is why they are prepared to believe the property rampers in the press. They are just too dumb to realize they are being conned. They will find out, though, sooner or later. But it will not be an internal thing that shatters the Aussie dream, it will be an external event that freezes the credit markets so their big 4 banks cannot borrow. Then the whole house of cards will come tumbling down. Northern Rock on a National Scale if you like. Only difference was that Adam Applegarth was brighter than the people running the RBA……

And also, every day in the press here there are articles that articulate the concerns that economists have around the Aus economy and housing market. But, like a proper aussies consumer, Bardon does not choose to post those…..

+1

We actually import half the stuff we buy. Cheaper to buy it in the US/UK/Asia and have it posted than to purchase it here. Sometimes we save 50%. Internal postage and packaging charges are barking...especially as it doesn't actually cost anywhere near what is charged. Again, it is often cheaper to have things posted from overseas than internally.

[aussieboy]

Hah hah, too true.

The other funny thing about Aus is the ability of its consumers to get absolutely shafted up the ass by corporates on a day in day out basis. And, whilst taking the rogering, they are patting themselves on the back saying how lucky they are to live in such an enlightened and sunny place.

Examples. A pint of beer is $9. A £95K car costs $338K. You want broadband with unlimited data (as opposed to a cap after X gigabytes)? That will be a $100 a month. A meal out - $20 for the starter and $50 for the main course. A reasonable pair of trainers? $160. I could go on. The average household income is about $60K PA.

The reason that Aus will be ruined is the that all the numpty consumers think that high prices are a result of ‘Australia being a big place’. Bolloxs. It is about their businesses being inefficient. However, the consumers are gullible, lacking real world experience. So , for example, that is why they are prepared to believe the property rampers in the press. They are just too dumb to realize they are being conned. They will find out, though, sooner or later. But it will not be an internal thing that shatters the Aussie dream, it will be an external event that freezes the credit markets so their big 4 banks cannot borrow. Then the whole house of cards will come tumbling down. Northern Rock on a National Scale if you like. Only difference was that Adam Applegarth was brighter than the people running the RBA……

And also, every day in the press here there are articles that articulate the concerns that economists have around the Aus economy and housing market. But, like a proper aussies consumer, Bardon does not choose to post those…..

For how long did you visit and how were the drugs?

Your "typical prices" are toppy for the most expensive parts of the most expensive parts. Why not compare with London. Been to Caprice recently? How much for a starter and how much for a main? Pint of beer in Soho? I went to the Vatican once. Do you know the average Italian pays five bucks for a can of coke?

For the prices you quote, you can head to Rockpool's one of the more fancy restaurants in Sydney. $150 gets you five courses.

And after all this you're thinking of moving here. Despite the gullible, dumb numpties who populate the place.

Why not think again: you'll find it frustrating being the only clever person on the continent especially with your fantastic Northern Rock / RBA insights.