Why agents are nervous

I think most people would appreciate that the Australian property market is struggling at the moment. In most cities house prices are falling and the stock on market is high by historical standards. It seems fairly intuitive from these two observations that housing sales volumes would also be down. As I have posted on previously market turn over ( or “Churn” ) seems to be tightly coupled with house prices, but although credit data is publicly available actual sales volume data isn’t so easy to come by.

In that regard the latest newsletter from RPData has some very interesting information. It also hints that the real estate industry could be struggling a little more than it seems on the surface.

Largest fall in dwelling transactions in more than a decade

The gross value of real estate transactions fell by just over 18% over the 2010/11 financial year, the largest fall in the value of real estate sales for at least ten years.

The total value of dwelling sales over the 2010-11 financial year equated to $193.5 billion. Although this sounds impressive, the total value was the lowest over a financial year since 2008/09 and the total value fell by -18.2% from the previous financial year.

When comparing the total value of sales, houses accounted for $141.8 billion and units for almost $51.7 billion. The result shows that the total value of house sales is worth just shy of three times as much as the total value of unit sales. It is important to note that sales are only included once settled, so off-the plan sales are not included and as a result the unit statistics are likely to be subject to some upwards revision.

Looking at the annual change in the total annual value of dwelling sales versus the annual volume of dwelling sales, the graph shows that these two measures move in almost perfect unison. In fact, over the 10 years analysed, the correlation between the two is 95.2%, which shouldn’t come as a surprise. Sales volumes are currently sitting at a similar level to what was recorded during the depths of the financial crisis so it is no wonder that many property professionals are experiencing some financial challenges.

The results indicate that transaction volumes have consistently been the main driver of the total value of sales, however in more recent times the value at which properties are transacting has become just as important. This is demonstrated by the fact that the annual number of home sales is back at levels not seen since June 1997 while the total value of sales remains slightly higher than what was recorded during the depths of the GFC.

This is important for property professionals to understand. Falling home values have not historically been accompanied by such large falls in transaction volumes. Today’s market is characterised by a modest fall in home values (down 2.1% over the financial year) and more importantly, a significant decline in transaction volumes.

As reported in our Property Pulse earlier this year, state and local governments are heavily reliant on property transactions as a source of revenue. Stamp duty, council rates and land tax are calculated off either the unimproved value of the land or the value of the transaction. With the total value of sales down -18.2% over the 2010-11 financial year, there is going to be a substantial hole in state and local government budgets.

The -18.2% decline in the total value of dwelling sales nationally is the largest financial year fall recorded across the years highlighted, more severe than the downturn in 2008-09 (although the total value of residential home sales fell lower between the 12 months to October 2008 and the 12 months to May 2009 during the GFC). In each state except for New South Wales the decline (or growth) was the slowest recorded.

Given the marked decline in the total value of sales, you can expect that state and local governments will look to find other ways to raise revenue. The Queensland Government has already slashed stamp duty concessions for owner occupiers which adds approximately $6,575 in costs to purchase but is likely to provide a revenue boost for the State Government. Of course the Henry Tax Review suggests that we should look to a blanket land tax rather than relying on stamp duty. If Government was to choose this method of taxation the volume and value of transactions would have much less of a bearing on Government revenue than it currently does.

I guess that means we can look forward to more of this sort of behaviour then:

Desperate real estate agents are cold-calling people pleading for them to spruik auctions to friends and family. Agents are also using jazz bands, coffee carts and champagne to lure nervous buyers …

Editorial note: My local agent rang me this week to inform me he’d sold his car. I don’t know him from a bar of soap so it seemed a bit odd. H&H

70 Responses to “ “Why agents are nervous”

  1. BotRot says:

    Next time a receive a flier (flyer?) from the local real eastate agents in my area, I’ll scan it and send it to you DE & OHB.

    The last one I received was a long letter on how “alternative media sources” were scaring people away from property, as certain vested interests are trying to (hell bent on) bring down property prices.

    Residents were cordially invited to a seminar (refrehments supplied), for their due re-education.

    Every week my mail box is receiving more and more (un)real estate propaganda.

    • indo says:

      What about the scaring which involves property prices are always going up. Get in now or lose out.

      • BotRot says:

        That is a common theme as well. Short of a few months ago, a unit above my floor sold. I had no idea there was a unit for sale until the real estate agent, after knocking on everyone’s door, fianlly came to mine and thus spoke,

        “We would like to tell you that Unit 313 upstairs sold for $482K, that is a record for this apartment complex…”.

        Oh boy! I pondered, then said, “OK thanks”.

        Real estate agents are certainly making themselves known around here. I never imagined these people were capable of being humbled.

    • Junkyard says:

      If “alternative media” had the power and influence to effect the whole herd, then by definition its no longer alternative media right?

      It’s a tiny, insignificant proportion of the population that frequents these sources.

      I still say its the high prices scaring the market, not a hand full of web blogs.

      • Well if HnH and the MB crew were to share their GA data we may will find they have a bit more than ‘light traffic’ … so with this in mind lets have a look at Alexa and also remember this is panel data via installed Alexa users but with a large lump of salt it is an OK guide.

        http://www.alexa.com/siteinfo/macrobusiness.com.au

        OK, here goes

        “1 month 103,745 -56,479 Change in Traffic Rank over the trailing 1 month period (A negative change means the site is getting more popular)”

        That is not chicken feed with visits at 100k, but I would suggest it is more around the 30-4k a month.

        Ranked: 2165 in Australian sites

        This is really interesting where people go after MB:

        % of Unique Visits Downstream Site
        27.94% google.com.au
        23.53% google.com
        10.29% news.com.au
        8.82% facebook.com
        7.35% realestate.com.au
        4.41% refindhouseprices.com
        4.41% scribd.com
        4.41% twitter.com
        4.41% yahoo.com
        4.41% youtube.com

        And before:

        % of Unique Visits Upstream Site
        31.43% google.com
        27.14% google.com.au
        20.00% news.com.au
        8.57% facebook.com
        8.57% theage.com.au
        4.29% nakedcapitalism.com

        Who is NakedCapitalism.com – think MB needs to build/expand their relationship with that site!

        And check out the Audience data:

        http://www.alexa.com/siteinfo/macrobusiness.com.au

        So, would you call MB ‘Alternative Media’? Well yes and no.

        Yes, it is an alternative media source but in now way is this a passing fad or crank site looks like MB (with a grain of Alexa salt) could be doubling its traffic every 3 months!)

        The MB site IS and will be influential with the ‘powers that be’ and in time those that have more than a passing interest in Finance and Housing will flock here.

        Well done MB!!!

        I think for me MB is really starting to “keep the bastards honest” this is why we have the printed word – god bless text and the web!

        :)

        TM.

      • Nathan Webb says:

        They’re big in Finland!

        Interesting site, but comparing the “reach” to smh.com.au, it’s only 1%. Given the smh.com.au is really only for NSW, it’s fair to say that they’re reach in Australia overall is probably much less than 1% of the MSM. Especially when you take out the Finland audience :)

      • Yeah, well Alexa can be a bit random.

        In regards to the 1%.

        1% of which audience?

        I would suggest a well read, influential and critical audience whom may well be bigger players than average MSM commentary!

        +1 Nathan Webb.

      • Mav says:

        Who is NakedCapitalism.com – think MB needs to build/expand their relationship with that site!
        .
        NC has already cross-posted a few posts from MB, especially those that appeal to an international/American audience.
        .
        And their daily “Links” post frequently has links to MB.

      • Coolio but the Bblogroll and cross posts + some other strategies could be an opportunity.

        Just sharing ideas – but noted and yes I have read/been to the site.

        :)

        TM

    • The Bear Jew says:

      I would hardly call myself an “alternative media” source.

  2. Russell says:

    “Editorial note: My local agent rang me this week to inform me he’d sold his car. I don’t know him from a bar of soap so it seemed a bit odd. H&H”

    Must admit, I always find it a negative to wander into a house inspection past the agents very latest euro dazzler parked in the driveway. Particularly when most of the agents don’t appear to actually know anything about the property they are trying to sell.
    The fact that some of the richest people here are real estate agents implies to me that society is rewarding the wrong people….call me biased, but I would be happy to see an agent turn up to a home open date on an old bicycle.

    • Jon says:

      Agree, RE agents are over-paid for what they do:
      “This is a kitchen,
      That is a patio,
      And here is your wallet.
      You are probably wondering how it got into my hands.
      Secret my friend, secret.”

    • Deo says:

      And do you also notice that the arrogance level of RE agents were determined by their choice of car ? I noticed that junior agents who drives Toyota or Hyundai were more polite and ready to talk with you while the ones driving Audi or Lexus were so arrogant and they would not reply your phone / email if they thought your offer / question is too low etc.

  3. AxelF says:

    Sales should be ramping up during September – November, but from what I’ve seen/read so far September has been another slow month. If buyers don’t return in far greater numbers soon the falling property prices will have some serious momentum.

    I would also guess that the FHB purchase numbers would closely resemble the total number of sales in the above charts. A big contributor to the sales volume downturn is that vendors selling to each other isn’t enough to push prices up without equity growth. Without FHBs bringing new money into the market vendors can’t flip houses between each other at current price and leverage levels, and I can’t see that happening this year at least.

    I think strong annual rises in land tax is a given now. There’s little chance of the Federal Government increasing their handouts to states to subsidise the falls in stamp duty revenue.

    • First Home Buyer says:

      Many of the potential first home buyers I speak to are now starting to get SCARED to buy a house.

      It seems that the “protection” of ever increasing house prices is no longer there and suddenly the paying off the huge mortgage is an ominous task.

      It also interesting to see that friends with slighlty older siblings who have bought recently are seeing them struggle and don’t like the thought of that happening to them.

      Fellow young couples seem to be taking a ‘wait and see’ approach rather than a buy it now attitude

      • runalltheway says:

        Yep, I’m Sydney-based and am seeing a lot of this concern among my circle of acquaintances, too.

        But to be fair, I still think we’re very much a minority, e.g. I chatted last night to a legal secretary (late 20s) who was excited, because she was heading off this morning to inspects $500K-$500K units around North Sydney…..

      • First Home Buyer says:

        Yep still the minority, but still a very noticable change from just 6 months ago.

        I have to say the “advice” from others has changed very rapidly as well.

        6 months ago – “Buy as soon as you can”
        3 months ago – “It’s definitely a buyers market”
        Now – “Make sure you can afford it”

      • Velociraptor says:

        “SELLERS are racing to list their homes in Sydney’s west this spring, hoping to nab a first-home buyer before January 1 when the stamp duty concessions cut out.”

        Nab? Where predator packs (Raptors, Wolves, Lions etc) meet Greater Fool Theory. Are we going to sight David Attenborough in Blacktown this spring?

      • Mining Bogan says:

        Yes, those stories are still out there but take a note of the comments section…well, when they’re allowed.

        Story in the Cairns Post today with a real estate type saying the bottom was here and the market was about to turn. Not one comment agreed with him. In fact, some were downright rude. Good. People are learning. Slowly but surely.

      • TSpencer says:

        nothing quite like losing $ to make people learn quickly

      • AnonNL says:

        Yeah, I too notice a change in sentiment amongst FHB’s. At the very least the unquestioned belief in property has given way to a more healthy approach with people actually putting in some research first.
        (We spend weeks researching the latest $500 gadgets before we take the plunge but a $500,000 property is bought after a 15 minute inspection…)

        I never really get suckered into debates knowing you can’t win if you’re going up against a belief system. I just say that for someone from Europe the situation in Oz seems unsustainable and that prices seem high, after which I point them to this site and say they have to make up their own mind. Seems to be quite powerful.

      • First Home Buyer says:

        I think that FHB’s are also starting to realise that global condtions can change so that they need to be prepared for the next ten years not just the next RBA decision on interest rates.

      • Michael of Sydney says:

        FHBs go to bank, ask how much I can borrow. Bank tells them and they buy at this limit. They trust the bank, always the same.

      • AxelF says:

        The other facto keeping a lid of FHB activity is that a lot of FHBs who would normally be in the market this year bought in 2008/9 when the First Home Owners Boost was available. I would also guess that a large % of the more risk ignorant potential buyers bought then too.

        As much as it anecdotally seems lenders are competing strongly for mortgagee attention, there’s simply less of them, especially in the current market conditions. And with the stickiness of property prices it’ll take awhile before prices fall enough for FHBs to consider entering the market in decent numbers.

      • JPK says:

        It’s not only first home buyers. We sold our house at the peak of the market and moved to a different suburb but rather than jumping straight back we decided to sit on our hands in expectation that the bubble can’t go on forever. We have been happily renting for 18 months. We are not very keen on catching the falling knife only to see the value of our home going down next year which seems to be inevitable.

      • RaglanParade says:

        We have decided that we will not purchase until:

        - We can afford a house on a 1/4 acre block in the outer eastern suburbs.
        - Our mortgage is less than $300,000
        - If my partner ends up pregnant we won’t lose the house.

  4. flawse says:

    State Land Taxes scare me. My Land tax (in Brisbane) is now some 15 times what it was 8 years ago. Between that and Council Rates they could drive us out of business.

    I guess they are ideal forms of revenue as they don’t appear (immediately) in the CPI and only affect businesses so Govts can keep ramping them up without voter backlash.
    Hence also Land Tax on all land, including residential, is a no-no. Politicians are far too cunning about raising money to fall for that one.

  5. Mav says:

    Editorial note: My local agent rang me this week to inform me he’d sold his car. I don’t know him from a bar of soap so it seemed a bit odd. H&H
    .
    Perhaps he is holding you somehow responsible for his fate, by bringing all the bloggers together and publishing this superblog.
    .
    On another note, SMH’s Ask Noel (h/t bubblepedia) had this question :
    .
    We have a very large mortgage of $470,000 with no other assets. We have a 60 per cent fixed mortgage at 5.99 per cent for another 18 months. We are coming to the realisation that we will not be able to pay the monthly mortgage payments when the fixed rate is gone (we are struggling now). Should we cut our losses, sell the property, rent and invest the money we have made, or sell and buy something more affordable. We are both 29, with a combined income of $110,000 a year.
    .
    Unlike the mega mortgage mugs, this couple appear to be prudent, given the 60% LVR. But I am not surprised they are still struggling.
    .
    I think you should point out to your new-found REA friend that it is just a down payment for selling such couples down the river into debt slavery.

    • Janet says:

      Don’t you just love the blind confidence these financial advisors have in the housing market, when the advice given to the first question in your captions article, Mav, is:

      “..it would make sense to wait for the upturn — that’s assuming you can continue to afford the repayments”

      No possibility that (1) it won’t turn up or (2) how long that might be.
      It’s just a given that “property always goes up!”

      • hamish says:

        “..it would make sense to wait for the upturn — that’s assuming you can continue to afford the repayments”

        Errr – they just told you they couldn’t….

        Obviously living like paupers whilst having a well above average household income, is worth the privilege of paying the mortgage on a below median house according to Noel.

    • drsmithy says:

      I don’t interpret that as a 60% LVR, I interpret that as 60% of the $470,000 is fixed (ie: their mortgage is split into two portions – $282k fixed-interest, $188k variable-interest).

      $110k combined income (wonder if that’s including super ?) with a $470k loan ? Scary stuff.

    • First Home Buyer says:

      The reponse to the question was criminal!!

      “I think you need a financial counsellor more than a financial adviser. It would be very sad for you to lose your house at a time when the market is down and you could be severely out of pocket if you sold on a down market and then had to buy back when it was much higher. You should look at all your expenses and try to cut out anything that is not essential. As a last resort consider moving and renting the property out — the tax deductibility would reduce the effect of the mortgage payments and you could be absent for six years without losing the Capital Gains Tax exemption.”

      • Dave From Pakenham says:

        That advice if followed would likely see greater cash outflow and hardship.

      • Dan says:

        I agree with your sentiment – but it’s not criminal (unfortunately). This is where we do need more regulation. The fact that real property is excluded from Financial Services regulation is one of the biggest oversights we have seen. The “politico-housing complex”, mainly real estate agents and “advocates” won the lobby game on that one.

        At no point was “sell your house, get out of the market and rent” entertained as a possibility in this piece of advice, despite it being part of the question!

        If some of us here gave that sort of advice to a client with a margin loan (rather than a mortgage), and neglected to mention the option of selling the stock and closing out the position, we may well be sued/fined for being incompetent and giving incomplete advice.

        Why they can get away with it, without so much as a disclaimer, when it comes to the “average Jack and Jill’s” biggest financial commitment is beyond me.

      • JC says:

        Exactly. I work in the FP industry, and they think we are under-regulated (reason for FoFA), yet the real estate industry can make any claim they like without any repercussions.

        Can you imagine if a financial planner told a client that his share portfolio would double every 7-10 years, and the consequences if it didn’t? He/she would be getting sued for the difference.

      • Marcia says:

        Personally I think it’s reasonable advice to at least investigate whether it’s possible to reduce expenses or increase income. The costs of downgrading, or even just selling a house that otherwise suits their needs, would be quite substantial and IMHO should only be considered as a last resort.

        Personally, our household has a similar sized mortgage with a higher interest rate and not that much more income, and we live very comfortably. There could well be some expenses in their budget that could be trimmed, or they could consider renting out a spare room.

        Of course if their house is likely to fall in value substantially over the next couple of years, they’re better off selling, but that would be true if they were struggling financially or not.

  6. footsore says:

    I just saw the agent of the house across the road from me stand around while nobody came to inspect the property. There was an auction a few weeks ago with the reserve at $600k and the bidding beginning at $530k. One vendor bid to push it to $540k and a hesitant bid of $550 before it passed in. Obviously the owner didn’t want to take it. There is a definite increase in the number of for sale and for lease signs in this area of Melbourne (Coburg, Brunswick).

    • Alex Heyworth says:

      There is an old saying, “your first offer is usually your best offer”. The only times this is not true is when housing is in such high demand that buyers gazump each other.

    • RaglanParade says:

      Those for sale signs extend all the way east as far as Doncaster.

      Theres a lot of people aged 70+ across that belt (Coburg, Preston, Heidelberg, Bulleen, Doncastor), so many families will be pushing their older parents to sell “before the market crashes” so they can use the proceeds to put them into a nice retirement home / nursing home.

  7. Michael of Sydney says:

    Interesting as it goes, but the new boom in housing is around the corner. It’s always led by stock market crash follow by monetary easing. Like in the 2008, we see perfect positive storm for housing market, with the Sydney houses performing best!

    • Dave From Pakenham says:

      Hi Michael,

      Could you tell me which corner the boom is coming from? Is there a bus stop there?

      Also I am curious, would an imperfect positive storm be similar to an imperfect negative storm? Ie both being close to a perfect neutral storm?

    • Marcia says:

      I was wondering if you were the same Michael of Sydney who posts on Fairfax blogs!

  8. Bubbleboy says:

    My folks just came back from a family friend’s auction in Bayside (Melbourne). Not a single bid even though the reserve had been lowered significantly. Agent noted afterwards that we are in the midst of a property crash. I thought this admission was quite interesting. Meanwhile Melbourne stock levels continue to skyrocket.

    • Bubbleboy says:

      Said property was not reported in the APM figures yesterday, although listed on the Domain website. The cynic in me suspects this may not be a coincidence.

      • endrortsonhousing says:

        APM figures are based only on reported results – as I understand it, they do not even make an attempt to measure the total number of auctions that were scheduled each Saturday. For example in my local market (Canberra) there is only one major real estate website and you can easily see the number of scheduled auctions every Saturday morning. Over the last nine or so months I have been following this, the number of scheduled auctions is far higher (often by 50% – 60%+) than the number of auctions reported by APM on Saturday afternoon.

  9. PhilBest says:

    I am continually needling RE Agents on the point that their profession needs to get involved in following academic analysis on housing cycles, and in lobbying for reform on things like urban growth restraints. Same goes for the building industry.

  10. Dan says:

    I notice the second chart (value and volume) shows that values tend to lead volumes on uptrend while volumes tend to lead values on downtrend. I would have expected that to be the case, but interesting to see it on the chart, nonetheless. Thanks again DE.

  11. Hugh Pavletich says:

    These trends are the best I have seen yet that the Australian housing bubble is fizzing big time.

    No doubt many of the “stretched” will be educating themselves on what happened to their counterparts in Ireland, Florida and California…..as just three examples.

    The problem is that the Multiples are just so elevated in Australia ( refer http://www.demographia.com ).

    The “bubble value” in the market is simply horrendous.

  12. Goldilocks says:

    Michael of Sydney, I take it in your experience rising unemployment is a sign of a property boom about to reignate?

    Monetary easing leads to rising inflation. Rising inflation laid on overly indebted private & public sectors is surely again a sign of a property boom?

    Gee it’s good to get such expert advice…

    • chrisr says:

      Hi Goldilocks,

      It is true that if monetary easing leads people to borrow more then inflation will follow, but if people become wary of further borrowing, then even at low interest rates they may be so keen to pay down debt that credit does not grow and therefore inflation does not follow.

      This is the stuff the Japanese lost decade(s) have been about.

      Of course, our poor productivity record could push inflationary forces throughout the economy regardless of interest rate policy..

      • Goldilocks says:

        Stagflation in which interest rates remain relatively high, productivity low and unemployment high is poisonous for house prices in the setting of high private sector debt and banking crises.

        Interest rate policy versus real bank rates remains to be seen. Banks may well need to charge high rates due to funding problems. This has happened before elsewhere.

  13. Puntpal says:

    House prices are falling, credit is slowing, supply is exceeding demand, owners of assets are sinking into negative equity, goverment budget is gone, no more stimulus, international credit crunch.

    I am going to invest, work and save to try and buy a house in 2015-6 with 40% of purchase price in cash. Rest debt. That is how it should have always been.

    I cant see houses not being put on the market without a rise in house prices – which at the moment look highly unlikely.

    • poid says:

      Its important to note that credit is slowing due to a lack of demand for credit, not supply. The banks are throwing credit around at the moment.

      For example, a couple going for a new loan with current mortgage of 460k, combined income of 230k and a cash deposit of 170k can get a further loan of $1m+ for another purchase. This is from personal experience.

      $1.5m of loans requires 100k just to service the interest, which is around 65% of combined after-tax income and well above the usual 35% of gross income threshold that used to apply for prudent borrowing. I’d put this level of borrowing into the “sub-prime” category given the interest burden of the loans, and thats why i think that mortgage stress is higher than reported and the quality of loan books far worse.

      The lack of demand for credit is why the market is not going to turn substantially even with a couple of rate cuts.

      • BotRot says:

        The world certainly has become so weird with such things. From personal experience, I was told by my bank (CBA) that I was eligible for a home loan of $1.15 million. This was on the basis that I am a good customer.

        I run my own (small) business, and my revenue flucuates from real good to very little on a monthly basis, regardless of the time of year. It really is that random. Still $1.15 mil is a burden bigger than Hercules lifting the Acropolis. They would know that too.

        They were politely insistent for my consideration for the loan. I asked them if we could engage in this business exclusively on my terms and conditions. They said they can’t, and that’s where it ended.

        Regarding sub-prime levels, its’ not just some first home buyers in this, I know a few (like two) third home buyers that put themselves (with a little help from their bank) in this category too. It generally involved, sell your $470K house, pay out the outstanding mortgage on it, with what is left over, we will lend you this money so you can buy the $1.1Mil house. House prices always go up, and their income is (was) high.

      • Hugh Pavletich says:

        Poid – so you are basically talking about a lending multiple of 6.53 times gross earnings. $1.5 million lent on a gross income of $230,000.

        I think it would be fair to call this a “Governments Mortgage Slavery Program”.

        Texas is a little different of course, where housing costs about 2.5 times household income, so the motrtgage loads are about 2 times.

        So there is a truly massive difference between 2 times income mortgage loads and 6.53 times in Australia – as you are indicating above.

        I sure would like to learn of more readers experiences with their Banks – and in particular – the Mortgage load Multiples they are attempting to con their customers in to.

        Hugh Pavletich
        Co author – Demographia International Housing Affordability Survey
        http://www.PerformanceUrbanPlanning.org

      • PhilBest says:

        Another thing to consider, is that as the US Federal Reserve has been doing their low interest rate thing, the Texans must have been getting better and better off, seeing their house prices do not rise, but their mortgage rates keep dropping. No wonder their economy is beating the “LIBERAL” (high regulation) States hands down.

      • hamish says:

        Hmm, I’m a single guy on $64k a year, no dependents, and I’ve never bothered asking, but it could be interesting to see how much they are willing to lend to me. I’m comfortable with $200k, but I’m fairly sure they’d give me more than that.

      • Hugh Pavletich says:

        Hamish – Its worth bearing in mind that on your $64,000 income, you would have a mortgage of about $128,000 if you lived in Texas.

        So thats about $70,000 excess mortgage plus interest costs.

        In essense you are making gifts to the Bank, instead of other things you would no doubt prefer to spend on.

      • BotRot says:

        In the 2000-2001 financial year, I earned just over $74K (Net). The CBA asked me to discuss the prospect of a home loan. I had a one and a half hour sit-in with the branch home loan manager. She punchd in my financial details, and came up with a little more the $475K the bank would be willing to lend me.

        I was only there out of interest so I said no. Then the amount increased a little. During the course of my sit-in, the ammount broke the $500K limit, went into the $600K level, paused at $640K, after a while the said she could go into the $700K, up to $730 *but*, she (we) would need to get that amount approved for me. To which she said, “you will probably get it”.

        I walked out of there stunned thinking to myself, I wonder how many people would have walked out of there on cloud nine, grinning ear to ear. And people did. From that day on, I was never interested in buying property.

        She went into, during the next ten years property prices would increase this much, your salary would increase, you would find a partner to contribute, my savings I had at the time, I could break my term deposit for the home loan, all the stats in the world, and oh yes! A juicy credit card to boot that is tied into the mortgage.

        Australia didn’t have sub-prime loans…

      • hamish says:

        Hugh, I doubt I’d be paid $64k for my job in Texas either, at a guess it would be $10k less. So maybe $170k would be the eqivalent size mortgage in Texas. Still a lot more than $128k, and I would get a hell of a much better place than I would in Sydney. $300k buys you very little in Sydney, a block of land and a nice shed, not that council would let you live in a shed… even though it would be an improvement on a lot of what’s for rent in Sydney. I’m looking for a rental at the moment and It’s amazing how crappy a lot of Sydney’s housing is. For the prices charged, rent or buy, you would expect them to be of the highest standard.

  14. rocco madaffari says:

    In today’s real estate liftout in the West Australian, one agent has written this (I’m not joking)for a property they have listed in Subiaco.

    ” Who wants to make $300,000 when the market bounces back? This location will pretty much guarantee it. The cottage is cute, but comes free!”

  15. Janet says:

    Have a look at all the pent up anger being vented in the OWS movements, worldwide. The answer to indebted citizens problems is not to ‘make things more expensive’ – inflation- but to reduce prices, that’s deflation.The banks are going to be deflated, which is another way of saying-get a haircut – and that will be passed on to their customers through the lower levels of credit provision, and hence less available to pay for speculative assets eg: property. As the world is now realising, there is little choice others than asset price deflation. ( well, in public, anyway. “They’ have been fighting deflation on all fronts for 3 years now)

    • JPK says:

      I tend to agree. Some political commentators expressed the opinion that the main reason for the US Fed refraining from QE3 has been political backlash. If the OWS movement keeps growing as it has so far politicians will have to bite the hand that feeds them and turn against the banks.

  16. Mark Jones says:

    I can see how a global backlash against the elites is on the cards and I have alot of sympathy. However turning on the news last night and seeing people in Melbourne with socialist placards and unions marching as one has turned me off the movement. This movement is being co-opted by the left just like the tea party was co-opted by the right.

    When the middle class finally wakes up and sees the problem is not the left or the right it is the elites (bankers, politicians, big business, big labour & big NGO’s) that has stolen their future then we will have real change.

    • JPK says:

      If you listen to what many participants of the movement in the US say it’s neither on the left nor on the right but posed exactly against banking and political elites. There have been already attempts to hijack the movement by unions but it has not quite worked. Sooner or later there will be many opportunists among politicians who will go along and support the movement’s agenda. There are also been politicians in the US opposing the current system, who may raise to prominence on the wave of discontent. The end result will be no more bailouts and QE’s with the current financial system likely collapsing with pretty grim consequences, at least in the short term. Whatever is born on the rubbles will have to be different and hopefully go back to more organic and decentralised ways where work and talents will be the way of living rather than speculation and gambling the markets. If this happens in the US it will spread like a wildfire throughout the western world. It is patently obvious that the current system reached a certain chronic disease steady state and is unable to reform itself from within and needs some external shake up.

  17. A_C says:

    Phil isnt the state texan government heavily indebt

  18. Monkey says:

    Hamish – the big four would offer you between $325K and $375K for thirty years, based on the information you have provided. This is less than what was on offer a couple of years ago.

    Michael of Sydney – your suggestion that first home buyers will simply buy at whatever level the bank suggests is not correct. I know plenty of first home buyers who have assessed their finances and the offer from the bank, and have then concluded the available loan would lead to a life of endless misery, suffering and penury.

    • hamish says:

      On a $350k loan thats $564pw just on the loan! I nett $950pw, which leaves me $386pw to pay for everything else… as you say, a very austere existance. Mate calls, ‘hamish, feel like a beer? – sorry mate, not this month, got a mortgage to pay’
      And you say this is after tightening up… high lending standards, my arse.