House prices to keep falling for years

[CamKawa]

No doubt listening to the same clowns that underestimated this crisis in 2008.

Like Stevo at RBA who kept jacking up % rates in the misguided belief that China will save us. LOL

If it's not a fast recovery, Australia will receive higher taxes, higher levies, and high inflation with the added kicker of low growth. All this spending will get him re-elected with an early election, but when the monetary restraints really kick in to pay down this thing, it'll soon wear off on the public in the 2nd term as that is where the nasty decisions will need to be made.

What mystifies me is why the moronic public are happy with all these bails outs. Can't they see Kev hasn't got the money to hand out. He is borrowing it plunging current and future tax payers into world pain while trying to support an aging population. The young ones here with half a brain will go and work overseas just for the tax advantages. I know I will, buggered if I want to be a sucker PAYG worker getting the shaft to support a government sponsored ponzi housing scheme.

 

[Beej]

I think just to say it's not as bad as the others doesnt make it good, it's freeking awful that a virtual monopoly can drop a third of it's profit, it's first loss since it's inception...........just like that.

They still made a massive profit, not a loss. Their profit has dipped plenty of times in the past. I think you are thinking of their revenues when stating that this is their first "loss" in their history.

To add more - if you know anything about Microsoft and their current market positioning, you would know that they have an absolute marketing and sales disaster on their hands with their bungled Vista operating system - at least half their profit fall and revenue decline could probably be attributed to that (Ie their own poor product development and marketing), rather than the "GFC". Really, the bottom line is this: pick better examples in looking for conformation of your uber-bearish views on everything!

For a real bellwether of the global economy, watch the Cisco results when they are announced in early May.

The young ones here with half a brain will go and work overseas just for the tax advantages. I know I will, buggered if I want to be a sucker PAYG worker getting the shaft to support a government sponsored ponzi housing scheme.

LOL - and which western country would you go to that will have a lower level of government debt (as a ratio of GDP) to be repaid through their humble residents taxes than Australia, even given our current situation?

If the AU government debt ends up at $200B or $300B or whatever after 4-5 years, the cash hand-outs (whatever you think of them; I do not support them) will only represent < 10% of that figure at about $21B. The bulk of the coming deficit is purely and simply from reduced commonwealth revenue due to plunging corporate and personal income tax, + GST receipts.

PS: As far as the tax payer component going into housing grants, that's an even smaller $1.5B total or so. So really focusing your bitterness towards the housing sector stuff (even though you are obviously distressed that house prices are rising not falling) is very mis-guided.....

Cheers,

Beej

 

[kincella]

Burnsie, I am with Beej on this one....we have had almost 2 years of media freaking gigantic proportions of bad news....blah blah blah....the world was going to turn upside down....blah blah :sheep:

yet the reality is quite different....
now a load of small businesses are struggling,, thats for sure...they have tightened the belt....they are like me...we do not upgrade to the latest honky tonk new toy that microsoft churns out.....so it must affect MS bottom line...

I use xxxx software....it was very good, they sent me an invoice for 495 recently..they want me to pay an annual fee to keep my program up to date....no thanks....they do not make changes that actually affect me...
and if I do want to update...I will just pay about the same and buy the new product...off the shelf....

 

[kincella]

talking about vista...that new wireless bb that telstra changed me over to...has died after 3 weeks....and the new nokia mobile that was supposed to access the web...did not work either....and believe most of the problems lie with vista....telstra tell me I have a good case to have the break fees on the contract removed....ie with all the notes on the accounts of the breakdowns
now back to the old ADSL service....
now back to the subject....360,000 population increase in one year.....and 75,000 for Melbourne....puts a bit more pressure on housing....its nice to see the kids heading out into the sticks, where its cheaper, it will be interesting to see how the centre of the city moves....
I cannot see it going lower.....just sideways for awhile...then back up again as recovery takes place
ps remember I have another 30 years to support myself.....not actively looking lately...but will be on the lookout for another commercial prop....I like the income and growth from that source
cheers

 

[Beej]

Yes Kincella - all interesting data and views re population, movement, location etc.

On a related note - a lot here like to go on about how bad things are in the UK and how we will follow etc etc. Here's a chart I stumbled across from that uber-bearish site GHPC (so it must be OK! ), which shows how house prices in LONDON have hardly fallen at all - only -4.1% in the last year in fact, after years of stellar growth:

http://www.housepricecrash.co.uk/indices-rightmove-london.php

This shows how major cities property markets can really hold up well in the most dire environments. Sydney and Melbourne have the resiliency factors here in AU I believe.

Also more data out re current "mortgage stress" levels from Fujitsu Consulting: mortgage stress levels by their measure down 2.8% in April - probably due to the stimulus cash handouts:

http://www.news.com.au/business/money/story/0,28323,25375131-5013951,00.html

And more - mortgage default rates according to another article I saw by Christopher Joyle from Business Spectator running still below long term historical averages at 0.48%.... tiny tiny rate compared to the US and the UK.....

Still waiting for more price data for Q1 2009, but all evidence still pointing to moderate rises in the 2 major cities at least....

So those waiting for the big price crash in Sydney and Melbourne - wait all you like, but it's not going to happen....

Cheers,

Beej

 

[explod]

So those waiting for the big price crash in Sydney and Melbourne - wait all you like, but it's not going to happen....

Cheers,

Beej

Now that's a big statement.

Overall statistics from the last year or so may not be reflected in the next lot of quarterly figures. The contraction of the super companies, though already impacting on unemployment have not emerged yet on the reporting of the smaller businesses and down the line yet. My observations would suggest that after the rule off of the financial year we may hav e a very different perspective. But to say it will never happen is more than a tad brave IMHO

 

[singlefished]

Well we shall see.... I think you will proven wrong, as have all the great house price crash pundits thus far. Median prices moving UP right now pretty much everywhere except Perth/Brisbane.....

No less wrong than the vested interest spruikers pumping into the same media outlets.... It would be nice to have access to a parallel universe to see what would have happened if the boost hadn't have been implemented when it was.

Got to remember that if the market was in such good shape prior to the stimulus then the boost wouldn't have been required - surely the "pent-up-demand" theory with cheaper prices and lower interest rates would have seen to this, but it didn't, so it's obviously a makey-upper, a misnomer, especially since it can't be quantified or proved.

Simply pulling forward future demand (as it was intended to do) doesn't solve the problem though.... it's just squeezed more people into the airplane before the big bumps in the road start rocking the boat (love that last sentence )

 

[MACCA350]

Money Morning mentioned that Fujitsu/JPMorgan Australian Mortgage Industry held a survey both in June 08 and January 09 asking two questions

1) Can you afford to enter the market?
2) How important is the first buyer grant?

Below are the resulting graphs

What is interesting is that the percentage of people who believe they can afford a house has more than doubled, I guess that is due mostly to low interest rates..........problem is if they act on this now when they couldn't afford it only last year they'll be screwed when interest rates go back up.

Add in the increased 80% of people find the FHB vital or very important, it looks like there are many who shouldn't really have jumped in, have or will jump in........I mean seriously if you can only now afford a house because of the (once in a life time) low interest rates and government grants you really shouldn't do it because you'll most likely fall in a heap and be worse off in a couple of years when the banks takes it back

cheers

 

[singlefished]

Money Morning mentioned that Fujitsu/JPMorgan Australian Mortgage Industry held a survey both in June 08 and January 09 asking two questions

1) Can you afford to enter the market?
2) How important is the first buyer grant?

Below are the resulting graphs

What is interesting is that the percentage of people who believe they can afford a house has more than doubled, I guess that is due mostly to low interest rates..........problem is if they act on this now when they couldn't afford it only last year they'll be screwed when interest rates go back up.

Add in the increased 80% of people find the FHB vital or very important, it looks like there are many who shouldn't really have jumped in, have or will jump in........I mean seriously if you can only now afford a house because of the (once in a life time) low interest rates and government grants you really shouldn't do it because you'll most likely fall in a heap and be worse off in a couple of years when the banks takes it back

cheers

I wonder if the results would have been the same now that a lot of the big banks are looking for genuine savings for the deposit and rejecting the FHG+boost as such. The FHG+boost is very relevant to the purchase decision of if/if not to buy especially if it can't use it towards the initial deposit.

Note that the big banks are now also tightening up their lending criteria with Westpac the latest to adjust their LVR down to 90% for new customers I believe... pretty sure I read something about that yesterday.

 

[helicart]

There's other variables that confound the Fujitsu results.

- FHBs have had time to save a bigger deposit so now qualify.

- They might still value the bonus because they are looking for more expensive houses.

- there's a strong subjective/emotive aspect in asking FHBs how important the bonus is....the response is open to interpretation and subject to prevailing economic sentiment.

 

[michael_selway]

Money Morning mentioned that Fujitsu/JPMorgan Australian Mortgage Industry held a survey both in June 08 and January 09 asking two questions

1) Can you afford to enter the market?
2) How important is the first buyer grant?

Below are the resulting graphs

What is interesting is that the percentage of people who believe they can afford a house has more than doubled, I guess that is due mostly to low interest rates..........problem is if they act on this now when they couldn't afford it only last year they'll be screwed when interest rates go back up.

Add in the increased 80% of people find the FHB vital or very important, it looks like there are many who shouldn't really have jumped in, have or will jump in........I mean seriously if you can only now afford a house because of the (once in a life time) low interest rates and government grants you really shouldn't do it because you'll most likely fall in a heap and be worse off in a couple of years when the banks takes it back

cheers

Hey very interesting

Btw do you have an exact link to that article/graph?

thx

MS

 

[singlefished]

gotta love google

http://www.moneymorning.com.au/20090424/how-the-property-market-is-preparing-you-for-inflation.html

 

[ROE]

Stop this gloom and doom stuff
Buy now before you are price out of the market forever.

here is some fun reading .... I couldnt stop laughing...

"I'm so mad at my neighbor. I bought my new home here in Ashburn last summer and plan to sell it next year (after holding two years to avoid taxes) to make a nice return on my investment. The problem is my neighbor is trying to sell his house (very similar to mine) right now and he keeps lowering his asking price. Each time he lowers his price, I see my potential profits next year getting squashed. Doesn't he realize he's hurting the comps for all of his neighbors by doing this? I don't think he is acting very "neighborly" by doing this. I want to say something to him and tell him he should stop putting his interests ahead of his neighbors. It's people like him who are ruining the market for the rest of us. If he would just refuse to lower his price, we could maintain our comps and everyone would benefit. What can I do to stop him?"

- Question during a real estate chat held by the Washington Post.

I want to sell my CBA shares at $50 but people keep lowering price infront of me..I'm SOOOOOOO MADDD...

 

[singlefished]

Stop this gloom and doom stuff
Buy now before you are price out of the market forever.

here is some fun reading .... I couldnt stop laughing...

"I'm so mad at my neighbor. I bought my new home here in Ashburn last summer and plan to sell it next year (after holding two years to avoid taxes) to make a nice return on my investment. The problem is my neighbor is trying to sell his house (very similar to mine) right now and he keeps lowering his asking price. Each time he lowers his price, I see my potential profits next year getting squashed. Doesn't he realize he's hurting the comps for all of his neighbors by doing this? I don't think he is acting very "neighborly" by doing this. I want to say something to him and tell him he should stop putting his interests ahead of his neighbors. It's people like him who are ruining the market for the rest of us. If he would just refuse to lower his price, we could maintain our comps and everyone would benefit. What can I do to stop him?"

- Question during a real estate chat held by the Washington Post.

I want to sell my CBA shares at $50 but people keep lowering price infront of me..I'm SOOOOOOO MADDD...

What can she do to stop him : buy the neighbours place at the inflated price ASAP so he can also maintain his profits

 

[MrBurns]

What can she do to stop him : buy the neighbours place at the inflated price ASAP so he can also maintain his profits

Precisely

 

[Aussiejeff]

**IDEA!!**

The Gummint should introduce an "uptick" rule relating to RE, so that no RE can be sold for a price less than 20% higher than what it was bought for!!

Problem solvered!

Prices always up, UP and A-W-A-A-A-Y-Y-Y-Y!!!

*Wheee!*

I'm such a genius.....

 

[Temjin]

Precisely

Yep, that would definitely works.

There's other variables that confound the Fujitsu results.

- FHBs have had time to save a bigger deposit so now qualify.

No, the increase in affordability was largely due to the interest rate drops. If FHBs have had time to save a bigger deposit, those who have accumulated enough would have gone into the market anyway. It's not like they were, at least those in the surveys, were ALL WAITING and ALL WERE SAVING to get into the housing markets.

- They might still value the bonus because they are looking for more expensive houses.

They are looking for more expensive houses BECAUSE they were rising due to the mini boom caused by the grant.

But regardless, there is no proof that those surveyed were all looking to buy a larger / more beautiful houses than they were several months ago. Your variable here is too subjective and has no solid evidence.

- there's a strong subjective/emotive aspect in asking FHBs how important the bonus is....the response is open to interpretation and subject to prevailing economic sentiment.

As above, that is YOUR interpretation of it and there is no proof. Again, too subjective.

The question asked in the survey was more likely to mean that if you don't have the grant, would you be able to afford to buy the house you were originally looking for? If not, would you look for a cheaper suburb or wait longer to save for a larger deposit?

 

[Judd]

As has probably been somewhere in the preceding 189 pages, "Since when has throwing money at something ever made it cheaper?"

And now a few doubts on the wisdom of the FHBG is starting to creep into the media.

I've read somewhere that Saul Eastlake, economist for the ANZ, advised the now PM in one of those talk fests not to provide a FHB subsidy for existing housing but only for new housing. I don't consider that any subsidy should be given for residential housing it's not as if it is productive in providing an income for the residents. Adam Smith rules OK.

Still, it doesn't matter what we think as the dic&heads will do what politicians have always done - look after their own interests.

http://www.theaustralian.news.com.au/story/0,25197,25390502-5013404,00.html

FIRST-HOME buyers Lee Brown and Jessica Tompkins are desperately saving for their first home. So, at first glance, it seems odd that they are hoping Kevin Rudd does not extend the boost to the first-home owners grant in the coming budget.

But the Sydney couple say that rather than give young investors a much-needed leg-up in the property market, the grants - which are worth up to $21,000 for those wanting to build a new home - have driven up prices and created panic among those trying to beat the June 30 cut-off.

Prompted, perhaps, by speculation last week that the boost will not be extended beyond June 30, there was a marked increase in the numbers of people at auctions and home inspections in all capital cities over the weekend, despite the Anzac Day holiday.

Auction clearance rates were significantly higher than last weekend in Melbourne, Sydney and Adelaide.

But while there appears to be a last-minute rush among home buyers, the recently engaged Mr Brown and Ms Tompkins are determined not to get in over their heads.

Since they began house hunting last October - when Mr Rudd announced the doubling of the $7000 first-home owners grant for established homes, and a tripling for new homes - the asking price of the house and land package they are interested in has risen by $44,000.

Now they hope prices will fall back to more reasonable levels once the boost ends, as property analysts predict.

"A lot of young people are panic buying, that is what we have found, particularly in the last couple of months," said Mr Brown, 26, an environmental consultant. "We feel a lot of pressure to buy now or lose out on the $21,000."

Ms Tompkins, who works in marketing, said the couple had expected prices to fall as the global financial crisis took its toll.

"We would be better off if they cut the grant because there won't be so many people out there trying to snap up houses," she said.

In Port Melbourne, Ana Laskova, 24, and Dean Pavlickovski, 31, attended an auction for a two-bedroom apartment yesterday, only to watch the property sell for a significantly higher price than they were prepared to pay.

"We would like to buy given the extra stimulus, but the grant is not going to make the difference in our decision," Mr Pavlickovski said.

The home buyers have joined a queue of experts condemning the scheme as counter-productive and a waste of public funds.

SQM research managing director Louis Christopher said there was a panicked rush of first-home buyers due to speculation the boost was unlikely to be extended. He said couples such as Jessica and Lee should wait. "Now is not the time for first-home buyers to rush in. If they wait, demand will dry up and prices will fall," he said. "The first-home buyers grant doesn't help housing affordability at all."

Critics argue the grant has artificially raised prices for homes under $500,000, pitted investors against first-home buyers and disrupted the rental market.

"The first-home buyers grant has been counter-productive," said Kevin Lee, head of Smartline Mortgages.

Property analyst Michael Matusik said there were no more first-home buyers in the market than a decade ago and the boost had simply exaggerated prices.

"It should be called the vendor's grant," he said. "In the outer suburbs of major capital cities the prices went up between $7000 and $14,000 in a 24-hour period immediately after the announcement. There's anecdotal evidence that it has boosted housing construction, but over the longer term all it has done is bring forward construction."

However, Housing Industry Association senior economist Harley Dale said the tripling of the grant for new dwellings had been highly effective in boosting the property market.

"It has done a lot to stimulate the property market and has been especially successful in driving first-home buyers to build their own homes," he said. "In the case of first home buyers who are building new homes it isn't just a situation where demand has been brought forward, demand has actually increased."

Open houses across the country have been inundated with potential first-home buyers eager to enter the market before the boost is shut down or decreased.

In Melbourne, real estate agents were surprised by the strong turnout over the weekend, as a higher than anticipated numbers of house-hunters braved heavy downpours and blistering winds to attend inspections.

Real estate agent Craig Stephens said the Prime Minister's hints that the grant would expire had prompted a "massive spike" in numbers attending open-house inspections over the weekend.

 

[MrBurns]

From Crikey, aint it the truth...........

First homebuyer grant was nothing but a gift to vendors

Adam Schwab writes:

It appears that the awful truth of the much celebrated First Home Owners boost is becoming more apparent, as feverish bidding continues to increase the price of "affordable" property. The panic set in last week when Prime Minister Kevin Rudd intimated that the Boost would not be extended past 30 June 2009, noting, "...the first home owner's boost, as you know, we have indicated that will conclude within a very fixed and finite time frame ... it's had strong, useful results so far, but I have got to say all good things must come to an end."

It has taken a while, but property commentators have finally realized that the FHOG doesn’t actually benefit first home buyers, but rather, lines the pockets of (often wealthy) property vendors, including investors who have already benefited from negative gearing and who can then collect concessional capital gains upon the sale of their investment asset. The Australian reported today that Kevin Lee, head of Smartline Mortgages, noted "the first-home buyers grant has been counter-productive" while, property analyst Michael Matusik claimed:

It should be called the vendor's grant…in the outer suburbs of major capital cities the prices went up between $7000 and $14,000 in a 24-hour period immediately after the announcement. There's anecdotal evidence that it has boosted housing construction, but over the longer term all it has done is bring forward construction.

Matsuik’s comments resemble what this column noted back in October 2008, shortly after Rudd unveiled his vote wining FHOG boost:

The most obvious problem with the grant is that it doesn’t actually benefit home buyers. Most recipients of the grant will be purchasing lower-end properties, probably in competition with each other. Giving them extra money will have the effect of "bidding up" the property up by the value of the grant. It is inflation in its purest form.

Not only does the FHOG cause the price of sub-$500,000 properties to be bid-up, but through the use of leverage, first home owners are required to spend far more than the value of the grant on their new property. Consider a young couple who have managed to save $50,000 to purchase an established property. Without the FHOG and using a loan-to-valuation ratio of 80 percent (the lowest level before mortgage insurance is required), the young couple could afford a property which costs approximately $250,000 (for the purposes of this example, we will ignore associated costs such as stamp duty, legal fees and mortgage establishment charges). However, with the "benefit" of a $14,000 grant, using the same LVR, the couple would be able to spend $320,000 on a property.

The $14,000 grant has effectively inflated the purchase price of a property by $70,000 through the multiplying effect of leverage. More worryingly, even using a relatively conservative LVR of 80 percent, the grant would also allow the young couple to borrow $270,000, rather than $200,000. Using an LVR of 90 percent, the same couple could have acquired a property which cost more than $600,000 and increased their purchasing power by $140,000. That debt needs to be serviced -- even using today’s relatively low rates, at the higher LVR, the value of the boost would be almost completely absorbed by higher interest payments in the very first year of home ownership.

Anecdotal evidence appears to be indicating a market quickly reaching tipping point. Melissa Singer in The Financial Review reported this morning that Sydney agent, Sebastian Bonaccorso, claimed "there’s fierce competition and a lot of buyers are going past their limit. We’ve had a lot of properties priced between $350,000 and $550,000 that are selling for more than their asking price and if you wanted to, you could sell some of them within 48 hours."

Like a dry forest at the end of a long summer, the lower-mid end of the property market faces a perfect storm -- the end of the FHOG boost, interest rates approaching the bottom of their cycle, near record low unemployment and low inflation -- a disturbing mix of ingredients.

How will it end? Probably not well for taxpayers. Dan Denning of the Daily Reckoning suggested "RuddBank will end up buying these [first home buyer] mortgages from the banks over the next few years. The government will directly negotiate mortgage payment moratoriums and 'foreclosure prevent programs' to keep people in houses they simply can't afford at these levels."

The first home owner’s grant, especially in its boosted form, is not a policy which benefit first home buyers, but one which will lock them into a lifetime of possibly unserviceable debt forcing them to pay more for a property than would otherwise be the case. But that’s what happens when politicians make decisions which are popular, but make no economic sense.

 

[gfresh]

With fear of legal action, lenders are going to be even stricter than they are currently already starting to be. The credit landscape is going to be totally different in the next 5 years. I don't think the sort of environment that allows such massive competing for prices will be back for some time.

You can look at the demand and supply for housing, but nobody even buys a house unless they have finance to start with. In isolation none of the reason developments such as removal of 95%+ loans, 3%+ genuine savings, and now this probably would have a large effect, but together they must do leading into the next few years.. Unless they are progressively wound back as conditions improve of course.

http://www.theage.com.au/national/government-moves-to-punish-dodgy-lending-20090428-aks5.html

MORTGAGE brokers, bank employees, payday lenders and retailers offering credit will face fines and even jail under new "responsible lending" rules set to become law in November.

The provisions, in draft legislation to be introduced in June by Corporations Minister Nick Sherry, will, for the first time, require all credit providers to be licensed and will make it an offence to supply unsuitable credit that cannot be repaid.

Maximum penalty will be five years' jail and fines of up to $220,000 for an individual and $1.1 million for a corporation.

The new laws will bring some state-regulated practices under Commonwealth control and will see the Australian Securities and Investments Commission gain 200 more staff to oversee credit providers.

"I can assure you that we will be extremely proactive in administering these laws and vigilant in their enforcement," ASIC chief Tony D'Aloisio said.

"We will have to register some 10,000 entities. Around 5.7 million households have some sort of debt. Around 2.9 million have a home loan; 750,000 have an investor loan and 2.3 million households have a credit loan."

Banks, credit unions and building societies attacked the new provisions as "heavy-handed", saying they would result in higher loan fees and a longer delays in approvals.