House prices to keep falling for years

pepperoni said:

Surprise surprise .... there is only so much debt you can pile on money renters, and there was always going to be a finite supply of them.

Click to expand...

And to think that only 12-18 months ago "the world was awash with capital". Most people to have not been able to join the dots.

pepperoni said:

What about the decoupling theory ... anyone making policy or investing on this basis deserves what they get.

Love this story ...

http://business.smh.com.au/lending-finance-plummets-20080714-3erj.html

Surprise surprise .... there is only so much debt you can pile on money renters, and there was always going to be a finite supply of them.

Click to expand...

China's inflation is the elephant in the room. In the short term, yes we have benefited from rising commodity prices. The RE market, in turn has been an indirect benefactor of this.

We have a choice: Hyperinflation or years of deflation. Either is inevitable. Deflation is obviously the lesser evil.

FWIW...IMO..anyone who subscribes to 'decoupling' theories, is taking a very one dimensional view.

U.K. Unemployment Jumped the Most Since 1992 in June (Update3)

By Svenja O'Donnell

July 16 (Bloomberg) -- U.K. unemployment jumped the most in June since the aftermath of the last recession in 1992 as the economic slowdown forced companies to cut jobs and stop hiring.

Claims for jobless benefits climbed for a fifth month, increasing 15,500 from May, the Office for National Statistics said today in London. Economists predicted 10,000, the median of 29 forecasts in a Bloomberg News survey shows. The unemployment rate on that basis was 2.6 percent.
...

Homebuilders announced more than 4,000 job cuts since the start of July, with Redrow Plc and Bovis Homes Group Plc each saying they will slash their workforces by 40 percent. HBOS Plc, the U.K.'s biggest mortgage lender, said last week that house prices fell in June from a year earlier by the most since 1992.

Banks are shedding staff after the collapse of the U.S. subprime mortgage market, which has cost financial institutions worldwide more than $416 billion in losses and writedowns. Barclays Plc, the U.K.'s fourth-biggest bank, said July 8 it cut about 300 jobs because customer demand is drying up.

Click to expand...

This is what happens when finance companies and construction companies are forced to lay off staff. Of course that would never happen here, it's all going fine .. er, isn't it.. hello... echo

At the very best, 1991 is coming right at us.. where the US, UK, and Australia dived head-on into a rather nasty recession.

Looks like the trend is down .. even according to former property bulls RP Data..

Total listings up nearly 50% from the same time last year. New listings starting to fall below the average, as people give up hope in getting a good price for their sale.. Next may come the forced sales..

Volume of sales nearly the lowest in a decade, nobody is buying.. and it could get worse. What happens if you *must* sell however to very few buyers? no prizes..

Even property pumpers Residex are facing reality.. (source of the "worst in 100 year" story)..

residex said:

The speed of the decay in all housing markets is an issue. I am concerned to draw Government's and the RBA's attention to that decay. It is an exceptional situation to see all markets as one moving into adjustment. It would be normal to see some markets adjusting, but not all.

Click to expand...

and

residex said:

The areas where we will find most stress and adjustment will be in our new home suburbs where we find our young Australians who have been allowed to take on far too much debt. At the moment the mortgage default rates are relatively low but will soon increase as these default rates are being artificially kept in place by excessive use of credit cards to meet costs. The limits on these credit cards will soon be maxed out. This is potentially where our banks are going to see some significant problems which will flow into some housing markets.

Click to expand...

Their figures..

Surprisingly, our biggest "resource story" states are suffering the most.

Brisbane Houses median values down 1.52%
Brisbane Units median values down 1.04%
Perth Houses median down 1.69%

Melbourne Units down 1.17%
Sydney Houses down 1.05%

and this is just for June so far..

From one of the developers I hear from occassionally, well, he was saying he was laying staff of back in February.

Only keeping the good tradies, and only looking at having enough work to keep them going. A lot of tradie rates are falling heavily as well anecdotally - not before time either.

Mirvac having a heap of trouble selling properties in a lot of areas. Near us, they've only sold 40% of their development, which has been on the market for 18 months.

Might be a bit obfuscated in Perth however, considering the infill. Cockburn look to be catering for another 30-40k people alone over the next 2-3 years. So what happens in those developments will say a lot I reckon. Seems to be a lot of people interested to see what happens in these areas, development wise.

One of the developers down here (could be Stockland) has big signs up on the main highway now, advertising "$10k free fuel if you purchase one of our developments" or something along these lines. Fighting their own concern by feeding off another (to me) seems to smack of desperation.

Many of these estates on the north gold coast have just been finished after a few years of construction - not the best timing to be finding them new owners.

New listings in my area have been almost non existent all year. Total listings are pretty normal, but only because actual sales are like hens teeth.

Much has been said about residential housing here and I certainly agree with this thread (vs the other one that robots loves)

Everyone talks of the AG boom, and how we are running out of food. I happen to have thoughts and opinions on this, and as they differ to a lot of what I hear on this site, I'll keep them to myself.

Just thought I would post up an Agent's view of rural property in yesterday's Queensland Country Life.

Ray White Rural

Any vendors pricing their properties to hang on to or not genuinely wishing to meet the market should not consider selling at this stage. The property market looks like it has entered a plateau stage after the excellent growth phases of the early 2000s.

In the property market there will always be exceptional and strong sales and each district has these.

This year has really been a mixed lot, but all properties have had buyers at a level.

The vendor's expectation has continued to increase each year, but the market has not.

Factors such as fuel prices, higher Australian dollar and interest rates all impact on the rural property market. But then again, if you want to be a primary producer, these are daily issues that you live with.

The only advice for a Vendor is that if you wish to sell and move on to something else - your agent can only sell in the current market.

There is no magic wand in this type of environment.

If you are prepared to ride the market out - fasten your seatbelt!

Click to expand...

This is the first bit of sense I have heard written about rural property for quite some time. In our area, rural property peaked 12 months ago. I see places now with Auction cancelled, not even one inspection. Our costs have gone up 50%, but income has only marginally climbed.

If it were not for the listed PrimeAg buying up, there would have been very few sales in the last 12 months in our area!

grace said:

Everyone talks of the AG boom, and how we are running out of food. I happen to have thoughts and opinions on this, and as they differ to a lot of what I hear on this site, I'll keep them to myself.

This is the first bit of sense I have heard written about rural property for quite some time. In our area, rural property peaked 12 months ago. I see places now with Auction cancelled, not even one inspection. Our costs have gone up 50%, but income has only marginally climbed.

If it were not for the listed PrimeAg buying up, there would have been very few sales in the last 12 months in our area!

Click to expand...

I like your post and input. I grew up on a farm and have maintained an interest. Also worked in central Qld for some years as well so appreciate some of where you are coming from.

If you have water or rains that are reasonably reliable your day in the sun may come sooner that you realise. Yes the rising dollar is a considerable problem which is mainly attributable to the US dollar which because they are broke will continue to fall off the cliff. However the value of other currencies are appreciating also. Europe, India and China (the latter two are expanding exponentially) will grow in need of food, the cost of which is already going through the roof. The combination in my opinion will soon see a whole new view of rural values. It has begun here in Victoria where small rural holdings near water are almost unnatainable.

Hang in there and for one moment dont' hesitate in speaking your mind, feel sure you will have backers and support.

explod said:

Hang in there and for one moment dont' hesitate in speaking your mind, feel sure you will have backers and support.

Click to expand...

hello,

great words explod, everybody can take something from those

thankyou

robots

robots said:

hello,

great words explod, everybody can take something from those

thankyou

robots

Click to expand...

Robots old pal good to have your vote.

Pommie you have achieved what no one else ever thought they could, now perhaps finding the bottom will be the tough one.

Stevens sounded batterred, bewildered and confused the other day. The line to the US Fed though still open is crackling with morse code type stuff. Done with short and longs I thunk.

Some interesting reading.
Debunking housing myths

The Age on the other hand has sold out to it's REA advertisers.
Surprise auction action bucks the tepid trend

hello,

yes great article CamKawa, love that second line:

"rents to rise", while we into name calling its going to be great as the "slumlords" keep pumping up the rents for the "poverty pack"

thankyou

robots

The rents will rise myth needs to be debunked as well. These is figures are the number of rental properties advertised on Domain.com.au in the Melbourne area. As you can the number of properties has increased on average by an extra 66 every week for the last 7 weeks. I can't see rents going up in the face of increased supply, though I'm sure you can robots.

07.06.2008...7770
14.06.2008...7949
21.06.2008...8100
28.06.2008...8158
05.07.2008...8185
12.07.2008...8166
19.07.2008...8236

hello,

thats right,

do you rent CamKawa? please let me know when it goes down or up

thankyou
robots

CamKawa said:

The rents will rise myth needs to be debunked as well. These is figures are the number of rental properties advertised on Domain.com.au in the Melbourne area. As you can the number of properties has increased on average by an extra 66 every week for the last 7 weeks. I can't see rents going up in the face of increased supply, though I'm sure you can robots.

07.06.2008...7770
14.06.2008...7949
21.06.2008...8100
28.06.2008...8158
05.07.2008...8185
12.07.2008...8166
19.07.2008...8236

Click to expand...

Whatever the truth of the matter, you cannot rely on those stats in the form you present them - you have to seasonally adjust the figures.

Statistics 101: I'll give you an example; I bet around xmas time/new year, the number of properties advertised for rent will drop dramatically - would that tell us anything about any *change* in the fundamental supply of rental accommodation? No way, as everyone is on holidays, planning family dos, parties etc. Hardly anyone moves house, plans to move house, looks for a new place etc at that time of year. This an extreme example but demonstrates nicely why you have to compare the figures with the previous years at the same "season" or time of year to determine if supply is actually increasing or decreasing.

Cheers,

Beej

Beej said:

Whatever the truth of the matter, you cannot rely on those stats in the form you present them - you have to seasonally adjust the figures.

Statistics 101: I'll give you an example; I bet around xmas time/new year, the number of properties advertised for rent will drop dramatically - would that tell us anything about any *change* in the fundamental supply of rental accommodation? No way, as everyone is on holidays, planning family dos, parties etc. Hardly anyone moves house, plans to move house, looks for a new place etc at that time of year. This an extreme example but demonstrates nicely why you have to compare the figures with the previous years at the same "season" or time of year to determine if supply is actually increasing or decreasing.

Cheers,

Beej

Click to expand...

Agree ... rents are all over the place ... and they are nowhere near a level that will support property prices.

Which is why we have this property price fall topic.

CamKawa said:

Some interesting reading.
Debunking housing myths
[/COLOR][/URL]

Click to expand...

Great article ...some eerie similrities to our threads .... especially like this "Rents will rise and house prices fall until housing returns are comparable with other assets."

When rents plus realistic CG are near 10% houses will rise .... but prices will fall then recover gradually before that happens.



* Economist says house prices can and will fall
* The number of unsold houses on the market is rising
* International markets have already seen sharp price drops

THERE are two housing myths worth debunking. The first is that house prices never fall. The second is that because underlying demand currently exceeds new supply, house prices will keep rising.

Neither is true, Australian house prices can and will fall.

US house price falls of 15.3 per cent over the past year get most publicity, but Irish and British house prices are also falling sharply.

Ireland is down 9.5 per cent and Britain 8.7 per cent. Forecasters predict falls of 30 per cent in US and British house prices and 15 per cent in Ireland.

New housing starts have halved in Ireland and dropped about 30 per cent in the US and Britain.

ANZ economists claimed recently that Australian house prices have never fallen and there is no reason why they will. They are not historians. The house price series they use only starts in the mid-1960s.
Related Coverage

* Price predictions gloomy reading for rentersNEWS.com.au, 16 Jun 2008
* Rates drive fall in house pricesNEWS.com.au, 30 Apr 2008
* Home buyers unmoved by BudgetNEWS.com.au, 19 May 2008
* Rates bite at home loan numbersNEWS.com.au, 14 Apr 2008
* Rents heading up as housing sales tumbleNEWS.com.au, 17 Jul 2008

Nigel Stapledon from UNSW has published house price data back to 1880 showing Australian house prices fell sharply several times.

You may think house prices never fall because you have never experienced them. However, Australian house prices have fallen previously and house prices are falling overseas.

Of course that does not necessarily mean Australian house prices will fall now, but there is no law of nature that says they cannot fall.

The optimists argue that underlying annual demand for Australian housing is 180,000 units and new starts are only 150,000. They conclude that house prices are likely to rise.

However, underlying demand is a theoretical concept using long-run trends in population growth and household formation. In practice, high house prices mean kids stay home longer, rather than buy new housing and students rent houses together rather than separately.

Actual demand for new houses is currently below underlying demand.

The house price surge was largely due to people bidding up prices of existing housing as interest rates fell and they could access funds more easily.

The rise in interest rates and tightening credit standards reverses the incentive to trade up to better housing. Home loan approvals have dropped 23 per cent in four months, so demand is falling and rates are still rising.

The number of new houses built does not determine supply. About 10 per cent of houses, or over 800,000 houses, are vacant at any time, for example holiday houses.

Financial pressures push empty houses onto the market. Lower clearance rates mean the number of unsold houses is rising. Supply will rise further as share prices fall and unemployment rises, forcing sales of existing houses.

Australia has rapid population growth and mining is boosting income growth. We did not have the large influx of new low-income house buyers that more lax US credit standards allowed. So while house prices may not fall as sharply here as overseas, they will still fall.

Investors renting out houses will be squeezed by rising rates and realise capital losses are possible.

Rents will rise and house prices fall until housing returns are comparable with other assets.

That will improve housing affordability for first-home buyers and eventually stimulate the next upturn.

beej said:

Hardly anyone moves house, plans to move house, looks for a new place etc at that time of year.

Click to expand...

Maybe works for property sales, but most renters have a fixed term lease, you cannot simply "pick and choose" when you wish to leave during the year. If you lease is up, you have to move within that period, doesn't matter when in the year it is. It's probably much less seasonal.

Personally, I can observe no large rental increases in my area yet, and still plenty of supply. I can see some properties available with what seems a higher rental (num bedrooms, compared to other cheaper properties) but these seem to remain un-tenanted for weeks. Seem to be the flashier ones recently built, but they've picked the wrong area for high-paid tenants.

I hope for them the foregone rent ($900 - $1200 or so + listing costs on a $300/wk property, weekly $23/wk increase) is worth it as a result of setting an unrealistic price. It's an uncertain environment, those that can keep rents low will continue do so to provide certainty to their income. Tenants will choose those properties, not the more expensive ones.

Renters will be fine, they can adjust their habits a lot quicker than home owners, they can move to cheaper areas in 6-12 months at low cost, they can lock a rental price in for 6 or 12 months, they will go where there is more work. They can effectively refuse a rental increase if they see another better property for a cheaper price nearby, etc. In economic terms, I believe it's called Elasticity