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Looking forward to the figures for the next 3 months. Obviously the MSM will just run with the “everything is back on” mantra for now.
Increased FHB activity in November and December is consistent with falls in housing stock in December and January.
Unfortunately for property owners/investors, the increased activity did not translate into higher prices, actually the opposite occured (prices fell in December and January). This is a promising sign that the market is functioning (a prerequisite for prices falls because transactions must occur for price falls to be recorded), sellers are accepting lower prices and the “slow melt” will continue throughout 2012.
Quite astonishing the effect the withdrawal of “free money” has on people.
Actually the free cost of everything has some special effect on human behaviour.
This has been discussed extensively and funnily by Dan Ariely in his best-selling book “Predictably Irrational”
Let’s look at it this way: I save around $15k by bringing my decision forward to November or December. The alternative is a price drop of 1% – or roughly $5k – come Jan. Also, I happen to be coming to the end of my lease at my current property, so I save on having to extend that for longer.
I know that doesn’t apply in all cases, but my observation was that prices didn’t go stupidly up 1 – 2% in the FHB bracket to counteract the free money of the stamp duty concession.
(disclaimer: I’m a FHB who signed contract two days after the withdrawal of the concession was announced. My purchase was driven by a need to get a place)
So when you said this morning that…
“The ABS housing finance commitments, which are due for release this morning, should provide a solid indication of where the housing market is headed.”
…you meant only if they were weak, which you were expecting, based on AFG numbers? Given that they were strong, now you “urge caution in reading too much into these results.”
As you remark, “Predictably, this announcement led to a surge of buying from NSW first home buyers, which has acted to push-up the national figures in the process”, so it can’t have been a surprise to you.
I guess it’s not only the “housing-addicted broader media” that sees what it wants to.
I think the obvious spike in NSW FHB commitments up to December 2011 does provide a solid indicator of where the housing market is headed. Where do you think this figure will be headed now the concession has ended?
Phil I think that the market in NSW will be subdued, although some residual sales will feature in NSW for January(you have to appreciate that contract dates are not settlement dates) but there is an uptick in the mining states that should continue. Qld would benefit in comparison to 2011 regardless.
A Brisbane agent who I know well has told me that he expects sales in January and February (based on current levels) will exceed the sales in the first 6 months of 2011.
There is quite a bit of infrastructure spending in WA especially, but also in Qld this year. When it kicks in exactly isn’t known, but it will.
Peter, would be interesting to know if that uptick in Brisbane is just due to a flood affected low base, or something more real.
Would be interesting to compare Brisbane volume over the first quarter this year to 2007, 2008, 2009 and 2010 levels.
Having lots of friends and relatives in Brisbane (and growing up there), my own feeling is that Brisbane isn’t going to get any worse, but neither is it going to get too much better, either.
I am far more comfortable with Brisbane and Perth than I am with Melbourne, mainly because they have already experienced larger price corrections. In Perth’s case, the economy is also clearly benefiting from the mining boom, which you would expect would flow into housing demand/prices at some point in the near future. That said, I can’t see prices going gangbusters in either location. But their fundamentals are better than Melbourne.
I’d agree with that assessment. I’d also rank maybe Brisbane and Perth ahead of Sydney as well (despite Sydney’s flat years from circa 2003 to 2007) as, I suspect, Sydney and Melbourne will likely face higher increases in unemployment that Brisbane and Perth over the coming year.
Of course, Sydney isn’t nearly as bad as Melbourne appears to be.
I think that you will be pretty close to the money on this and your subsequent post booboo. Also I think that UE is right about Melbourne. Maybe in the region of 6% to 8% falls in Melbourne.
I live in Melbourne, so my views are influenced by what is going on down here. While I always try to be as balanced as possible, and analyse the data objectively, it’s hard not to project Melbourne onto the rest of the country. It’s only natural to do so.
I suspect this is also why some Sydney-based ‘housing bulls’ disagree with me so strongly. They see Australia through the Sydney lens, where house prices have been relatively flat since 2004 – the polar opposite to Melbourne.
Well it’s not easy to stop projecting local conditions onto other areas. That’s why we have had a procession of “experts” from overseas projecting their experience of flailing economies instead of comparing us to similar resource economies experiencing a mining boom. I’m sure that if we had a visiting economist from Brazil we would get an entirely different perspective than one from the USA or Ireland.
Having watched Brisbane and the Gold Coast undergo slight falls to large falls respectively, it’s hard not to think that an uptick isn’t around the corner, especially when I can buy perfectly good homes for under $300,000 within 18 klm to the cbd.
I’m also a believer in the household income standard rather than the 1960’s single income standard which conveniently overlook advances in birth control that took place half a century ago, as well as a stratospheric social mindshift that has since taken place. It’s now almost a Victorian era belief, well Edwardian perhaps.
Even David’s antiquated multiples are accomodated in Brisbane, although David is as yet unaware of that.
The universe is not Melbourne centric, although having many relatives there does mean that I’m all too aware that the belief still exists today.
the upcoming infrastructure spending will save some individuals when it comes to housing not a state or country and the same goes for mining.
If the uptick was broad-based and not concentrated in one state, I would have acknowledged the increase as being a strong result. But as I have clearly shown, the increase is concentrated in NSW only, with the extra demand being from FHBs rushing to beat the 31 Dec deadline for stamp duty concessions – a temporary policy change.
Please explain to me how I have mis-read this result? You obviously see something that I have missed.
I fail to see the point you are trying to make. UE pretty much showed that the increase from August to December was dominated bym NSW FHBs.
From my point of view, he pretty much proved his point that the uptick was mainly due to FHBs, so caution should be taken when reading the numbers at face value. In fact, I agree entirely with his conclusion that we can expect a blow-off in the coming few months.
Now, you have criticised UE for interpreting the data the way he wants. That is pretty baseless in my view, unless you show where his analysis of the numbers is wrong – which you haven’t bothered to do.
you’re kidding right?
There’s no evidence of trolling here folks, we are watching comments very closely, particularly those of tagged trolls and the troll nest.
Let’s keep it civil.
lol tagged trolls/trolls nest ? thats a new one to me haha.
bellyboyau had a point and I agreed with him till UE qualified it with the NSW FHB charts to which what belly says now is bonkers and a pot calling the kettle black
I wonder how much of QLD surge is due to the (recently extended) end of the building boost in Jan 12 (though now until end of April).
Not a lot it seems. Most of QLD’s increase in finance commitments has been for established dwellings.
UE’s analysis is spot on, and contains no contradiction at all. I’ll be interested in the next 3 month’s figures to see where we are really going.
Thank you for the great analysis UE.
Just a slightly view
My fear is that it only takes a slight incentive to start this whole RE mantra up again. Throw in a few grand and people rush in. So throw in a couple of interest rate drops…Bob’s your uncle and we’re off to the races in RE again?
Agreed Flawse, but consider that NSW had a moderate government incentive in the form of the stamp duty concessions, and yet NSW prices have been flat to down. Demand has already been pulled forward by that incentive. Any new incentive should have a smaller effect as there is less potential demand to pull forward, so I would bet on prices in NSW to continue downward.
A big government incentive on a nationwide basis might have the potential to reignite things again, but can the government afford a big incentive? Also it’s becoming less politically popular to prop up the housing market – the First Home Buyers from 2009/10 must be pretty scared right now. Who would want to put themselves in that position now, having seen what can happen when the big incentive ends? I suspect the government might save a big incentive measure to avert a bust, but not to avert a slow-melt. But by then it might be too late – or maybe its already too late.
FHB concessions from the Federal Government are very expensive in a budgetary sense.
Given the commitment to a 2012-13 surplus, there is absolutely no capacity to roll out any further financial incentives to the FHB sector until at least 1 July 2013 (barring a significant global implosion – when all bets are off).
Agree Grai…but suppose the incentive is not Govt but a 0.5% drop in IR’s. We are doing so well we deserve low interest rates! Back up the truck for RE.
I’m just not as convinced as the rest of you that RE is dead. I’m thinking it will be necessary, as with all blood sucking vampires it will not be without a silver dagger through the heart!
Anyway …just thinking!
I’m with you flawse. I don’t think there are enough silver bullets to kill this beast. Australians love property come crash or boom. It’s going to take a major shake up to change this mindset.
Silver bullets are for werewolves. Wooden stakes through the heart for vampires.
One cannot kill the beast without a proper understanding of the beast one is fighting.
Nice analysis UE. People can take what they will from your breakdown of the data, but for me it clearly shows the NSW stamp duty changes having an impact on the national figures, with the 2011 trend otherwise intact.
Guys, slightly off topic – an anecdote on the housing market. I am currently looking at the premium end of apartments ($1m+) in Sydney.
I agree with the general theme on here from most players that housing is expensive and also beleive in the slow melt.
However, perversly, I think for me, it may now be a reasonable time to buy. I feel I am about to get a good deal on a property I really like. There is no competition against me in some of the places I am interested in (i.e. none). That means I have been able to get large discounts on offer from a couple of vendors (so ~15-25% on 2010/11 sales for comp propertys).
I think property as a class maybe 30% overvalued so I am still paying above the odds for my view of where it should trade, but I am getting my pick of the bunch and a reasonable price on the most recent market. Plus I dont want to wait 5-10 years for the market to come to me.
REA feedback is high end volumes are dead in the water. I am competing mainly with people who own existing property who cannot come to terms with lower prices than they expected and so cannot sell. Alternatively, no one is there to buy (interest rates, white collar job uncertainty).
So while volumes arent moving at the high end, if you want to buy I think you can get something nice and demand a chunky discount which gives you some protection.
Thoughts? Other people experiencing this?
experiance is telling me that the biggest hit is the 3rd upgrader market ie, people wanting to buy the 900k to 2 mill property. This sector was hit pretty hard in other countries experiancing property falls in previous years (think USA etc, … oh but I forgot Aust is different)
My real thought is watch your borrowings
harder in percentage terms??
anicdotially yes to larger %, but even if it was less the numbers are bigger (hence scarier) ie -10% x $2mill = $200k (or a nice merc) while -20% x $400k = $80k (or a nice commodore)
blah blah blah re deminishing % returns etc, you get the point
Yep that’s the Sunshine Coast…I can’t speak for the really high end but the $900k to $3m hit hard. % wise much greater than cheaper property.
The state of the rental market is so dire that I can only see the slow melt unfolding. Went to open inspections on the weekend about 4 for rent and another 4 for sale. Ratio of renters viewing versus buyers viewing was about 20:1. There are just so many people not willing to buy at these prices, yet there are very few quality rentals on the market that are value for money. Seems investors are having a field day!
how so, investors also rely on sales to ‘prop up’ the value in their home..
4-5% gross yields arent exactly an investors delight either… seems investors are hurting the most to me
Gross yields based on today’s value? Or what the investor actually paid? Consider the price they paid and the rents surging by around 8% in my area over the last year and it would seem some existing investors are going ok.
The FHB of NSW has had a flow on effect and therefore we canexpect a few months of reasonable activity in NSW. Why ?
Well those FHB who bought a PPOR off a potential up / sideways / down grader have cash in their pockets to burn and therefore are buying their next place. Evidence my business partners house on the market for 2 years and then at new year sold to someone out of sydney that managed to sell their PPOR to a FHB (who had their property for sale for 9 months). so the money go round transactions will continue for a little bit longer then just the initial nov/dec/jan upticks
Good point. I hadn’t though about that. NSW might then see 3 months of increased activity from upgraders that sold to the FHBs.
That’s pretty much the way it worked with the increase in the FHB grant thanks to Mr Rudd. (I’m referring to the FHB bost payment that effectively doubled the grant for existing homes and tripled it for new)
The increase in FHB activity trickled up and the whole market got a boost even though the grant only directly funded poperties at the lower end of the market (being purchased by FHB’ers)
Possibly, but i havent seen evidence of it on the ground. At least not in my area (maybe its not sought after by upgraders? who knows).
I would expect that people will keep their powder dry in an environment of rising (out of control?) rates and rising unemployment, but it depends very much on the individual.
Yep, that depends if the seller had the property as investment or as primary residence, or if the sale was more to pay off than to churn. Keeping powder dry is not an option if you need a place to live!
Definitely more tyre kickers around the open houses in Parra recently.
Prices are varied some of the stale stuff is down 5% listed price but there are still plenty of dreamers who want to sell but ‘on their terms’ .
One agent explained that a vendor expected a high price because they had relaid the postage stamp grass in their investment town house.
It will be interesting to see what happens at the auctions over the next few months.
For some reason parra auction results rarely make it into the SMH website results.
I totally agree that there is going to be a downdraft but until the bottom of the food chain (the renters) are hurting how can the market drop a lot? Coming from the US I saw lots of properties built and prices rise in areas where rental vacancies weren’t as tight as, say, here in Sydney so when prices did fall and jobs were lost as well people took the hits they deserved. What needs to happen here is for unemployment to rise significantly. There are many renters who are waiting to get into buying property I would assume and with vacancies so low wouldn’t they buffer the drop in prices a bit? If jobs are lost this won’t be as influential. I also believe that the elimination of the LAFHA tax break will have very detrimental effects on the upper end of the market. I know MANY who use it and who are now thinking of downgrading. I’m amazed that many have yet to discuss it?
G’day Marcomarco. Can you tell me what LAFHA stands for? Is it a FHA scheme operating in LA?
Temporary worker middle-class welfare by another name.
Great pick up about LAFHA. After it’s abolished, it won’t take long for high-end rents to drop from 1-1.5K to 500-600pw, and low-end rents will follow.
What do you think will happen with housing investors’ ROI when they struggle to find a tenant for 200-300w?
And not so many of those willing to take over their investment I would personally bet on plenty of quality apartments available in 3-5 years.
Unlikely, LAFHA is just one way of structuring accommodation, relocation resettling and living expenses. It is generally liked because the recipient gets a lump sum to play with and it simplifies the Fringe Benifit Tax Issues for the company.
A simple alternative upon abolition is for companies to provide these items for the employee on a need/ reasonable level basis. So in fact high end rents may be in more demand (since the receiver now can not spend a part of the received funds on less opaque items) and one may as well get nice digs.
Hey UE. It’s a tax break salary sacrifice a lot of my mates in finance use. (I am not in the industry). It was being misused for years as its original intention was to help offset the cost of Living Away From Home (LAFHA) here in Oz mostly for interstate travel but the finance/RE complex took it for a joy ride. I know lots of ibankers and traders from overseas claiming $100K+ in ‘allowance’ which is UNTAXED. This helps them ascend the rental ladder from say $1000/week to $2000 and more. Once this is removed it will have repercussions in the high end market no doubt.
I actually welcome the change as this is mostly a ‘rort’ used by those with wealth to gain even more at the expense of the taxpayer. I think Macrobusiness should look into it more (I can help and maybe we get Steve Keen involved for analysis as he would probably enjoy it))since not much has been written about its effects on the market. The termination of LAFHA is putative but I think they will go ahead..or at least I hope.
…and now for the first home owners discount (FHOD)…
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