Australian Property Down 6.7% Over The Last Year

6416.0 - House Price Indexes: Eight Capital Cities, Mar 2009

Australian Property Down 6.7% Over The Last Year

Well those that said it couldn't happen, are unfortunately seeing the figures starting to reflect the reality that many of us thought might dawn on us.

So it would appear that despite the FHOGs and the interest rate cut's best intentions prices are falling regardless, and with unemployment on the rise and the FHOGs due to expire in 8 weeks the future of property prices is looking pretty grim.

 

These figures are somewhat flawed. They fail to divide the market into the sub markets that are very obvious. eg top end, first home buyers etc. The top end has fallen significantly and being of a greater value then the lower end, this creates a 'significant' fall in the combined index. This top end has seen a mass exodus from troubled stock market players having to meet large margin calls etc.

However the lower up to the middle property prices has seen real strength, driven by low interest rates, high rental returns, low entry prices and first home owners.

There is a very clear divide in the market and an index of property price on the whole is somewhat short sighted.

 

Jimmy I agree, and if they also focus on median price which will come down again this year because of first home buyer activity they'll convince themselves that prices are falling.

 

Chris,

Only 6.7%?

You should be dissapointed because we'll need an additional 33.3% fall to reach your -40% benchmark.

Meanwhile, our property portfolio is appreciating nicely this year.

 

You don't have to wholly subscribe to trickle down economic theory to know that if the top end of the market gets smashed, indirectly everyone else is eventually going to feel the pinch.

My point is simply that there won't be isolated segments of this market that outshine the rest. Sure some will be better insulated than others but the general trend is down for all the property markets at the moment.

Also if the stock market crash caused the pain in the top end of the market, you can reasonably assume that rising unemployment is going to be what hurts the lower end of the market. So I don't think we should be counting our chickens just yet, let's wait and see the Q3 results (me thinks they are going to be quite bad).

I never said property prices WOULD fall 40%, there are a lot of others who will argue that position though. If you look through my previous posts you will see that my estimations were for a 10% - 15% fall, though I'll be honest and say that I'm now just starting to worry that I may have undershot the price falls and maybe 15% - 25% may have been a better target.

With all this said I think we can all thank our lucky stars we don't live or invest in Dubai property (sorry if anyone does) because their property falls of 30% - 40% in Q1 on top of a 25% fall in Q4 last year make our 2.2% contraction look like a "who cares" figure!

 

There was also an article that came out at the same time as this which highlighted increasing rental vancancies. As people move back home, get a room mate and are generally seeking lower rental payments (from memory in Sydney its moved up from 2.5% to 5%).

If you look back at the articles about declining clearance rates, and fewer properties for sale. if you then couple that with predictions of an unemployemnt rate of between 9% - 10% and tougher lending criteria (no more 100% lends) things aren't looking too good for property at the moment and I personally wouldn't be racing to buy a "bargin" at the moment.

Those that wait will be rewarded. If you read the propaganda from real estate bodies about future property growth, they'll all say in 12 months time they expect the market to recover etc etc. This is a code word for they don't know what the hell will happen and they have their fingers crossed.

I was in the -40% camp for a while but I'm now favouring years of stagnent growth. Which is just as bad and probably worse.

For sustained growth in property values you need the following:

- An environment of low or falling interest rates
- An environment of increasing Wages
- Low or falling unemployment
- Easy credit
- Strong demand & supply fundamentals
- Postive outlook on the economy

You can't tick too many of the boxes above and until you can I'd hold off.

 

I think 5 out of 6 could be ticked because

- We do have low interest rates and will probably stay low for a while
- Wages will increase as per CPI just like they did the year before and the year before that.

- Higher unemployment doesn't mean people will live in tents
people will keep renting so that's good for us landlords
- Easy credit will continue to be easy despite the return to responsible lending

- strong demand and supply is a given, We are not building enough houses and people continue to come to our shores (skilled migrants, ex pats returning, boat people etc).
And there are less Australians migrating overseas because of worse economic conditions elsewhere. Don't look at the reported 5% vacancy rates for a couple of suburbs on Sydney's expensive north shore, look at vacancy rates overall and you'll find that they are still falling or staying low.

- The economy is a worry but only because of mishandling. (Too much spending, rushed and panicky decision making by the government stimulating the same people by up to 3 times ).
IMO the climate change legislation should be put on the back burner and the promised tax cuts should not be implemented because we can't afford them and in fact taxes should increase to reduce our budget deficit.

 

I’m going to have to disagree with you on this topic

Your right, we might have seen the last interest rate cut for a while yet and its unlikely to rise in the near future. (but it will have to given all the spending!)

Highly doubtful, I know of many industries (IT, Banking & Finance, Resource, etc) that have had pay freezes & pay cuts. Businesses are tightening their belts and CPI increases are less than guaranteed.

People won’t live in tents, but no job = no money. So you won’t be able to afford $300, $400, $500+ in rent (Newstart is about $453 per fortnight for a single, which even with rent assistance wouldn’t allow someone to pay much rent at all). Which means young people moving back in with parents, breaking leases, not paying rent, moving into share houses etc. All of which reduces demand for rental properties and hence would lower yields, which is bad for investors.

Credit isn’t easy for FHB without equity, (and these are the guys propping up the market) ask a mortgage broker. If you’re a FHB you would be stuffed without the FHOG. Watch the budget if its reduced or cancelled you’ll see the arse fall out of that market.

I’d suggest that given the current clearance rates & house’s being sold demand is weak and so is supply. London has many more skilled migrants, even less land and even less new houses than we do and it didn’t stop their market falling over.

That old S & D argument has been drummed into people from RE for the last 20 years and it’s really quite flawed. It’s really just a con job to convince the next person in the housing ponzi scheme to buy from the last.

If you’ve studied Economics the supply and demand curve for property isn’t as simple as they would portray it. It would be worthy of an entire post, but I’d have to dust off my old text books to give it a go.

A Real Estate S & D explanation will go as follows: There is high immigration (skilled of course, we don’t count all those migrants doing minimum wage jobs), we’re not building enough houses, so therefore demand is high, supply is low and prices must go up to meet the demand. Oh and today’s the best time to buy/sell, would you like my business card…..

This is an easy to understand explanation that works for the uneducated as it omits many of the factors which determine supply and demand for housing. For instance demand is determined by the income of the individual, the LVR a bank is willing to lend, cost of renting, how much of someone’s income they are willing to spend on housing, etc etc. It’s not black and white. Eventually prices reach a ceiling which they cannot breach until income increase’s substantially or other factors help push it through. The Sydney market is a prime example of this, it reached a ceiling and has had difficulty moving through it for years.

 

Ok let's dissagree on a couple of points.

Wage freezing was announced by some CEO's and applies to senior management wages or to CEO pay packet only.
I have yet to hear of any Oz company not making people redundant and freezing their wages instead.

The London employment market has been contracting as many finance companies shed staff and many foreign workers including Oz expats decided to go back home. The housing market is turning around though. check it out.

 

Wage freezing applies to the whole organisation in general.

My company has done that! But i don't see your point here anyway? There are plenty of companies who have frozen wages and retrenched staff as well.

 

EDS the largest IT employer in SA has a pay freeze at the moment and has asked staff to take a voluntary 5% pay cute.

Another mate had his team at a large industrial company cute from 7 to 3, A financial planning company that I know has asked their staff to go on a 4 day week.

Holdens has stopped their night shift and the are working one week on, one week off.

Many other examples are out there they are just not in the press.

 

I concur, I know plenty of people in finance and its related fields (IT, admin, marketing) and this is indeed across the board. At the lower end of the scale they are re-applying for their jobs half of them finding out they are 'no longer needed'

Now seeing the next wave of forced leave without pay from some of the big consulting firms...

 

Dude... the figures are really not supporting your argument. What's worse is that the property downturn is yet to really hit... now is not the time for living on a prayer. The sooner we as a nation wake up and smell the roses the sooner we can drag our sorry assess out of this mess.

We temporarily have this... wouldn't be expecting this to last longer than 2 - 3 years though.

This dream is over, with unemployment to reach 8% next year the weakness in the demand for labour will no doubt keep a lid on wage price growth.

Nothing about unemployment is going to be low or falling over the next two years.

This shop is shut for at least a few decades.

This is the only feather in the cap of property, we have an undersupply, but unemployment, reduced immigration, and reduced credit growth should limit the influence of this under supply. It is also important to remember that the government largely controls the supply of land and its zoning - so this under supply could quickly be turned into oversupply should the government have a change in policy. Not something I'm likely to base my future on given the tough times ahead for government.

This will come but it is probably at least 2 years away.

 

I see... Well it hasn't come my way yet.

We did have some redundancies at work
but now that work came in we can't manage and we'll need to get some of them back.

 

Wow I didn't realise I'd be so quickly proven wrong on this point! Australia's unemployment actually dropped over April.

I find the result amazing given the circumstances, but being a guy that always tries to base and support my arguments using facts and figures, I'd be hypocritical to dismiss these figures as anything but a positive sign. That said I don't look at the figures as a suggestion of a reversal in trend.

I will be VERY interested to see May and June's figures, especially given that the financial aggregates are continuing to show a contractions in business investment...

 

Perth's housing slump | Negative equity

In relation to the market rally we are seeing it is a quite an anomaly, in "normal" (cough) times a 1% daily movement is massive, let alone those crazy days of 7% down and 11% in a day!!!

Check out the Vix ^VIX: Summary for CBOE VOLATILITY INDEX - Yahoo! Finance
Don't confuse it with the Vapourub!

Cheers,

Dan

 

A big part of me believes that some funky statistical reporting had something to do with it, but with that said maybe March's figures we are bit skewed the other way with a very unexpected increase of 0.5% unemployment. Even some of the Labor party politicians are humbly not trying to piggyback off the figure to score political points rather are suggesting we all should focus on the trend rather than single data points.

Of course I fully expect Kruddy and Swanny to capitalise come budget time...

The problem is there is very conflicting figures floating around, my gut is still saying that this rally is still a bear market rally, and we are just seeing a bit of consumer and business confidence given nothing too bad has happened recently.

Alan Kohler suggested that the general public is just bored with all the talk of the recession, yet this is not a reason for optimism or rallying and ultimately business conditions are still terrible, and this reality will eventually dawn again.

I only have to chat with my dad (who runs a small business) and he quickly reassures me that orders are lower than ever despite people being a little more upbeat about things. So as long as the optimism isn't this isn't largely translating into increased revenue things are unlikely to get better especially given that he, like many small business owners, are still is very focused on aggressively reducing costs, including labour costs.