Australian property crash

[Uncle Festivus]

April 28 (Bloomberg) -- National Australia Bank Ltd., the country’s biggest by assets, expects bad debts to spread from businesses to consumers next year, Chief Executive Officer Cameron Clyne said in an interview.
Clyne was speaking after the Melbourne-based bank posted a 0.9 percent decline in first-half profit to A$2.66 billion ($1.9 billion). Charges for bad and doubtful debts rose to A$1.8 billion during the six months, the company said in a statement.
“We’re now in a period of small and medium business impairments, and 2010 is likely to be when consumers will suffer some stress as we head into a rising unemployment environment,” he said. “We’re clearly going into an economic downturn now and we’re seeing that in our result today.”

Who'd have thought the CEO of NAB is a doom & gloomer? Not sure how this one slipped out - doesn't he know to keep quiet about these things . Translation - it's worse than what you think it is or what we have been told - this is not the bottom for Australia? The banks will be more stringent in their lending criteria, meaning only the best credit risks get loans on favourable terms....?

ANZ Bank today underlined the difficulties facing the Australian economy in the face of the severe global recession by predicting a higher-than-previously forecast level of bad debts for the rest of the financial year.
The bank followed up yesterday's sour loan-crunched result from National Australia Bank by disclosing a 28% fall in its net profit to just over $1.4 billion, which also saw it cut its interim dividend by a quarter to 46 cents a share in order to preserve capital. ANZ reported a 43% fall in first-half cash profit, as bad debt provisions doubled.

Unemployment to soar: Access Economics

Access Economics is predicting unemployment will soar beyond eight percent by the end of 2010. In its latest Business Outlook report, the economic forecaster said it expects close to one million Australians will be unemployed by ...

Government grant leads to inflated housing market

Tuesday, 21 Apr, 2009 – 10:27 | 2 Comments
Low interest rates and government grants have led to inflated housing prices according to Adrian Raftery, CEO of accountantsRus.
Raftery says that activities over the last few months have led to unhealthy, yet familiar symptoms as …

 

[Sean K]

So, this means we have about a 6 month run up in prices until the crash.

 

[Uncle Festivus]

So, this means we have about a 6 month run up in prices until the crash.

LOL, you got me again - plenty of notice this time 6 months or out to 2010 sounds about right?
Hey, if the bulls are calling a bottom, I'm calling a top to balance

 

[Sean K]

LOL, you got me again - plenty of notice this time 6 months or out to 2010 sounds about right?
Hey, if the bulls are calling a bottom, I'm calling a top to balance

I'm with you on this one.

Should be some bargains in the second half I think.

 

[Temjin]

Hey, if the bulls are calling a bottom

What are you talking about? There has NEVER been a bottom in the property market, none, zero. It has never stopped rising anyway.


By the way, we have too many property threads already. Let's try to consolidate this into the "falling!!" mega thread.

 

[Sean K]

What are you talking about? There has NEVER been a bottom in the property market, none, zero. It has never stopped rising anyway.

By the way, we have too many property threads already. Let's try to consolidate this into the "falling!!" mega thread.

I think UF was talking equities bottom.

And, depends on a time frame anyway. There has been a crash along the way, and we might be heading to one.

I can't see any other property threads right now.

Of course there is Aussie Property Forums, where this could go.

 

[Uncle Festivus]

What are you talking about? There has NEVER been a bottom in the property market, none, zero. It has never stopped rising anyway.


By the way, we have too many property threads already. Let's try to consolidate this into the "falling!!" mega thread.

I guess the point of this yet another property thread was that, the way I see the stats coming out, is that property will not rise for years, it will not fall for years, it will simply, crash? Anything that has been artificially inflated for years by debt & taxpayers funds eventually overshoots to the downside when the credit dries up - note signals from banks about bad debts. The banks have already shafted business in this country, why would they exempt private property if their precious profit margin is vulnerable?

 

[MrBurns]

I'm with you on this one.

Should be some bargains in the second half I think.

Should be some bargains for a few years to come actually, no rush to get in.

Once the double whammy bribe c/o you and me has gone, which only went to help vendors get rid of property at high prices, not the FHB's who were sucked into a property bubble, the market will go backwards and wait till the banks start to put mortgage rates up ...wow, fasten your seat belts for that one.

 

[Bushman]

The banks have already shafted business in this country, why would they exempt private property if their precious profit margin is vulnerable?

Err politics comes to mind. Shafting big business and its shareholder base is one thing. Shafting the mortgage-belt is another all together. Also the building industry employs many; hence ideas like the Rudd bank.

Also by 'property' a take it you mean in the $300k to $600k range. Top-end ressie has been slaughtered already, tenanted commercial is down 20/30% and land banks have halved in value. We are more than half-way i.e. pricing in the global downturn.

As for houses that are affordable to the mortage-belt, well there could be pain there as the first home-owners is ditched and umemployment ramps up (as is being rapidly factored in to the land bank vals as evidenced by 50% + devals). However the boomers have frozen out their progeny from the property market during the bull and they need to buy that secondary stock at some stage.

 

[Uncle Festivus]

Bushman, they (the banks) have already baulked at passing the latest interest rate cut on to (private) borrowers in full, and all Rudd & Swan did was pull out their Mr Potatoe Head Angry Eyes and said how disappointed they were, then went back to being a coupla spuds again

So, it's all about debt and the inability to pay it off?

According to the Reserve Bank of Australia, the aggregate household debt-to-income ratio has risen from 61per cent a decade ago to 141 per cent today, meaning that for every $100 we earn we are spending $141.
On a personal level, reining-in spending and paying back debt is the logical thing to do. But on a national scale, it's sending the economy into a tailspin.

"Paying back debt means less money for consumption," says Steve Keen, an associate professor of economics at the University of Western Sydney. "And less consumption means a smaller economy, which inevitably means less jobs and more unemployment."

It also means plummeting values in property, shares and other assets. In real terms the wealth held by Australians fell 11.8 per cent over the past year the biggest fall on record according to CommSec. It estimates wealth slumped by over $24,000 to just under $224,000 on average the steepest fall in records going back 48 years. Stockmarkets lost 45 per cent from their peak; super funds were down between 14 per cent and 25per cent and the upper end of the house market fell by up to 20 per cent.

As the deleveraging continues, we can expect more of the same, says Keen, who predicts house prices will fall 20 per cent over the next two years and unemployment will "go through the roof". "If the peak level of unemployment is less than 15 per cent by the end of 2010 it'd be a reason to throw a party."

http://www.moneymanager.com.au/articles/2009/04/27/1240684397983.html

 

[Bushman]

Bushman, they (the banks) have already baulked at passing the latest interest rate cut on to (private) borrowers in full, and all Rudd & Swan did was pull out their Mr Potatoe Head Angry Eyes and said how disappointed they were, then went back to being a coupla spuds again

So, it's all about debt and the inability to pay it off?

http://www.moneymanager.com.au/articles/2009/04/27/1240684397983.html

I would say that Kruddy & Swanny will keep bleating on about the banks margins until Tier 1s can withstand bad debt provisions. Unemployment of 8-10% is factored in and will be accepted by the populace - you know the 'once in a generation' spin; once it looks like breaching that threshhold then Krudd & Swanny will be more Batman & Robin than those old whingeing blokes from Sesame Street.

Imagine what the unions will do them if they let the building industry fall over? Lol; the 'Painters & Dockers' might be back in vogue here in Vic.

 

[kincella]

Uh hmmm....excuse me ...thought you may be interested in this article.....it confirms some of my views regarding the property market....
if you follow my posts...you will know that I believe the boomers and investors will step back into the market...both resi and commercial ...and will also use their superfunds....to pick up the bargains.....
so just dont expect it all to be plain sailing ...while waiting for the bottom to drop...

once they are ready...currently just waiting on the interest rates....oh and the May budget....to see what damage is to be done to us there....

see here...private investors spent 60 million on some commercial bargains

http://www.theaustralian.news.com.au/business/story/0,28124,25405628-25658,00.html

 

[MrBurns]

Well you cant blame them there's no where else to put your money, some are just sick of waiting. If you're careful you could buy now but I'm waiting for the time being.

 

[MR.]

"The young man who waited for the property prices to come down"
(pictured an old man)

Anyone else feelin old? (I am a little)

waiting waiting........

 

[kincella]

there were some real bargains up until Oct 08....and in hindsight I should have gone in then...but had my attention diverted by some 'time wasters'
on another project

 

[Mr J]

"The young man who waited for the property prices to come down"
(pictured an old man)

Anyone else feelin old? (I am a little)

waiting waiting........

I'm a trader, so I imagine I'd be a flipper if I was in real-estate. All that matters to me is liquidity to allow me to do so. That's also one reason I'll always prefer the markets over real-estate (ease of closing a position). I wouldn't care whether my position is over or under valued over a longer timeframe.

 

[Beej]

For those waiting for the crash, attached is the latest graph of the RP Data-Rismark National Dwelling Value Index updated to March 2009. Looks to me like the market bottomed at the same time the economy tanked (not surprising) at the end of last year.

This graph is from here: http://www.businessspectator.com.au...e-prices-pd20090430-RL83B?OpenDocument&src=is.

Coincidentally this aligns almost exactly with my (well documented in the other property threads) observations of the Sydney market.

PS: As Chris Joyle points out in the referenced article, you can argue that the current market turn-around is all about the FHBG boost, however, 75% of the market is still non FHBs. The primary drivers right now IMO are the low interest rates, and pent up demand. Just read the Aussie section on the global house price crash forum and you get a feel for how many cashed up buyers are still waiting in the wings, and getting more and more frustrated by the currently rising market!

Rising unemployment will not have the impact many people here think it will. As Kincella states, soon investors, boomers with their SMSFs will be hitting the market hard - especially the lower end, and that will make up for the inevitable return to normality in terms of FHB ratios as the grant boost is removed/redirected to new housing only.

Bottom line, in my view if someone is looking to buy their first home, waiting and saving more will probably still be OK, as the heat should come off the lower end for a while in the 2nd half of this year. However, you have to watch the market closely - I mean the actual area you want to buy in - on the ground. Know what's happening and what's on the market, how many buyers are sniffing around, what's selling, for what, how fast and watch for trend changes up or down. the ABS stats etc etc are looking in the rearview mirror!

BUT - if you are waiting/expecting some sort of great crash (falls of a further 20% or more), I think you will continue to be disappointed.

Cheers,

Beej

 

[moXJO]

Bottom line, in my view if someone is looking to buy their first home, waiting and saving more will probably still be OK, as the heat should come off the lower end for a while in the 2nd half of this year. However, you have to watch the market closely - I mean the actual area you want to buy in - on the ground. Know what's happening and what's on the market, how many buyers are sniffing around, what's selling, for what, how fast and watch for trend changes up or down. the ABS stats etc etc are looking in the rearview mirror!

BUT - if you are waiting/expecting some sort of great crash (falls of a further 20% or more), I think you will continue to be disappointed.

Cheers,

Beej

Good advice, and there are a lot of people buying up fast with the current fhog in my area. I will probably look at buying in the second half (hopefully goes down a bit more).
I really wasn't that interested in property, not until I saw some of the figures and weekly loan costs that you and kincy posted.
I don't know why I have such an aversion to property considering I'm in construction

 

[Soft Dough]

I think you are overly optimistic. I think that when the real strain of 9% unemployment hits, and interest rates start to rise, you will see the fall.

Prices are just too far inflated to not suffer a fall.

And when wages drop ( which they are doing faster than unemployment is rising, due to full time employees recieving less hours and lower wage growth ) the corresponding wage to house price ratio will even be more distorted, meaning a higher fall in prices will be required to move back to the long term average.

There is one factor that could save house prices though.. the fact that Kevin Rudd is likely to sell the country before he lets house prices fall, and hence could affect his approval ratings, and his ego.

 

[Gillie]

I think it might be more prudent to see the housing data figures after the 30th June 2009 when the government grant is abolished for new and existing homes. Maybe Q3 & Q4?

It will also be interesting to see what the impact of the budget is on the building/construction sector for these next two quarters and what incentives (ie funding to employers for apprenticeships) the Rudd government will provide to boost or maintain that sector.

Even so, will there be reduced spending on homes/renovations? I believe so, credit crunch; tightening of household expenditure and unemployment will affect people to the point of defaulting on mortgages. :alcohol:

Defaults on mortgages due to unemployment? Especially with access economics stating that it might pass 8%. People defaulting on more mortgages due to unemployment will mean the banks harshen up on their lending and payment criteria, thereby putting a stand still on the economic turn around. But this might mean that the banks sell the foreclosed properties at a premium discount only to recover their costs, waging war against the debt on their balance sheets. :bonk:

Looking forward - might be a good time to get a bargain in 9 months!
:jump: