It is 2008 again

It is beginning to feel eerily like 2008 in Queensland. In case you were asleep back then this is what was occurring in the land of real estate.

Average house price values have fallen for the first time in 17 months as interest rate hikes begin to bite. Prices across the nation’s capital cities fell 0.7 per cent, latest research from RP Data shows.

But experts say there is unlikely to be a significant downturn – as constantly predicted by a range of overseas experts – because of a national housing shortage. In the three months to June, all capital cities experienced virtually no growth or a fall in values, with the exception of Adelaide.

Most of that article could be re-published today with revised dates and I doubt anyone would even notice, except for this one little point.

Mr Lawless said with pre-listing activity slowing down, buyers could expect fewer properties entering the market. “We may see further declines, we may see some further increases, but it’s essentially going to be a flat market going forward,” he said.

Yes the “flat” story is the same, but the listing activity is definitely not slowing down this time which suggests the dynamic is at least a little different. However, just like today there was a rolling discussion about what would or wouldn’t occur to prices which was ended later in the year with the introduction of the first home buyer’s grant boost sending the bears back into their caves for another 18 months.

Yesterday I was discussing with a friend that the only thing missing from the media was the HIA complaining that they didn’t have enough houses to build. Then today I noted.

New home sales rose slightly in February but growth remained weak, as the pace of the housing market slowed.

The Housing Industry Association – JELD-WEN new home sales report rose 0.6 per cent in February, following a 2.5 per cent rise in February. House sales rose 1.5 per cent in the month, while apartment, units and townhouses dropped by 7.6 per cent in the month.

“New home sales are running at volumes considerably below those experienced during the stimulus-driven run of 2009 and early 2010, while both local government building approvals and new housing loan approvals are trending down once more,” HIA chief economist Harley Dale.

Although the federal stimulus boost ended more than a year ago, other signs of weakness in Australia’s housing market have surfaced. Auction clearance rates in Sydney and Melbourne have hovered in the area of 60 per cent in recent weeks, compared to highs of 80 per cent seen last year.

Australia’s high house prices have also prevented would-be first time buyers from entering the market, while slowing the creation of new stock needed to relieve the nation’s undersupply of affordable dwellings, some commentators say.

“At the very time when new home conditions need to be continually improving we are faced with compelling evidence of a considerably weaker 2011 compared to last year,” said Dr Dale.

New house sales in New South Wales rose 0.9 per cent in February and 2.9 per cent in Victoria. In flood-hit Queensland, they dropped 13.3 per cent. They also fell 4.3 per cent in South Australia and 2.2 per cent in Western Australia.

Once again Queensland  takes the wooden spoon.

I have made it very clear that I think that the housing market is in trouble across the country for various reasons, but in my opinion Queensland is reaching an inflection point. At this time I simply cannot see anything apart from direct government intervention stopping Queensland from seeing some significant falls in house prices. Obviously my analysis may be off, but due to it I find myself constantly on the lookout for any evidence that some form of government intervention is on the way.

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  1. One can only assume that REIQ paid the appropriate licensing fee to Lionel Richie for the (ab)use of that song

  2. To see them back waiting on tables, pulling beers, plumbing and selling rubber dog shit door to door will be so sad.

    • I’ve heard good things about those rubber dog turds 787! With current demand for rubber from China causing a shortage, industry experts are suggesting a doubling in price every 7-10 years is likely!

  3. But wait, there’s more! Be sure to check out the full 8 min and 32 sec clip on you tube.

    One would think these guys were humanitarians or volunteers with doctors without borders listening to the drivel:
    – “REIQ is the leader educator for real estate in Queensland”
    – “increasing integrity in the real estate industry”
    – the ‘Community Service Award’ goes to Ray White Surfers Paradise!
    – “we can influence and shape the markets we work in”
    – “we are proud of our profession and the contribution we make to our communities and the economy”

    Give me a break.

  4. When you said “In case you were asleep back then this is what was occurring in the land of real estate”, actually people were asleep back then. Many are still asleep not knowing where their finances are heading.

  5. On the GoldCoast most prices are back to 2005 level.Quite a drop, and of course those who took the Rudd First Home “Buyer” Grant are now deeply underwater, they are not going to upgrade anytime soon.

  6. That “Corporate Support Person of the Year” is pretty hot. Apart from that I agree with Prince- vomit inducing.

    • How can a taxpayer funded government body be prosecuted/sued/held to account? Who will pay the fine? taxpayers!!
      However, the genesis of the “undersupply” meme/narrative can be laid firmly at the door of Saul Eslake (Yes, the same guy who wrote an article about about FHVB). It seems it started off as a private venture at ANZ and then moved on to NHSC (National Housing Supply Council) when Saul moved there.
      You can read more about it here:

      • I mean financial advisers, economists, journalilsts etc. One day someone who loses their shirt in property is going to seek recourse from one of these spruikers for advising them to pile into property.

        • Simple answer is that they can’t seek recourse from the spruikers.
          The spruikers can always claim in court that they got the “undersupply” numbers from NHSC, which is a government body. And the spruikers really did – they wont be lying if they said that in court.

      • This is the prime reason why every single property promoter, journalist (masquerading as promoter) and real estate agency should be required to have a full Australian Financial Services License (AFSL).

        Because under those conditions, you can be sued by the investor and/or ASIC for providing false advice.

        Real estate agents should be made to provide written down Records of Advice (ROA) whenever they speak to a vendor or buyer so this is all recorded for prosperity.

        • I agree completely.
          I recall attending a property auction (some years ago now) where the auctioneer actually said “this house is guaranteed to increase in value” (might not be exact words, but “guarantee” was used). How do they get away with it?

      • ‘Mav’, if your’re going to call me names, at least please get my real one right – it’s “Eslake”, not “Eastlake” (I am no relation to Darryl). And, less seriously, it’s the “Grattan” (as in Michelle) Institute that I work for part-time, not “Gratton”.

        I may well be a “strange chap”, but I don’t think that’s because I advocate the establishment of a sovereign wealth fund, on the one hand, and bewail the impact of stupid regulations (eg regarding airport security or corporate governance) on productivity on the other.

        I am not an Australian version of the Tea Party Republicans, opposed to regulation or government intervention of any kind. I support sensible regulation, designed to achieve wortwhile public policy objectives, and formulated to achieve those objectives at least cost to those required to comply with those regulations. And I oppose dumb regulations, imposed for no good reason, and without regard to their adverse consequences.

        I’m really not sure what point ‘Mav’ is seeking to make here about the imbalance between supply of and demand for housing. He asked me at the Economic Society function, after the formal Q&A time, what I meant by ‘underlying’ demand, and my response was that it was based on ‘household formation’, which is in turn largely a function of population growth plus or minus changes in the average number of people per dwelling (the National Housing Supply Council actually does this in a more sophisticated fashion). The average number of people per dwelling has actually been rising since the 2001 Census, breaking a seventy-year downward trend. It is one of the main ways in which the discrepancy between ‘underlying’ and ‘effective’ demand for housing has been resolved in practice.

        • Saul, as a frequent reader and contributor, sincere thanks for coming forward… and fair enough that you correct those mistakes and give your view on things…

          I, for one, don’t see you as a strange chap… but a pretty good guy (nope, not brown nosing, just saying it as I see it)…

          But I do believe at times you show some conflicts given your recent past employment history…

          For I recall you writing an article in a paper not longer after leaving your former employer where, responding to concerns about the public debt issue, you compared the nations private debt levels to a person entering into a bank to apply for a loan with $100K in their pocket… and you made a joke that, after the bankers checking with Austrack, that person would not only leave the bank with a mortgage but also likely with a margin account to purchase shares…

          Now we all here know that is, quite sadly, very true of recent times… in fact, most here think that is a major problem…

          Do you not think that it is a huge problem that it is nowadays comical to people working in the finance industry that somebody might actually have the sum of cash equating to LESS than a 20% deposit on the median priced home in most of our capital cities… when 20% deposit was standard just a decade or two ago… and don’t you think that the attitude that you displayed then was characteristic of a laissez faire system which has brought economies unstuck in the past, even quite recently??

          • I don’t mean to single you out with that comment, Saul… and most certainly my intention was not to mock you… rather I said it to demonstrate just how clearly out of whack your thinking was having stepped out so recently from a very senior position within the financial services industry… so out of whack that you would, essentially, kick an own goal and be completely clueless that you had done so…

            The point is that it is not at all an indictment of yourself… but of the culture within the wider financial services industry in Australia… and you don’t need to be an insider to know that… it shows up in the data on private debt, and shows up every day in the media and the spruiking to which we have all been bombarded in recent years… all that was needed was an open and flexible mind…

            This is the problem that those now attempting to keep the property bubble alive now face… the market that they are trying to influence with their stories (as per Shiller) is the general public… people in the community… and they have lived in the community as the bubble has blown larger and larger… they are the ones that have been bombarded with property investing advertisement on the radio, at times every second commercial… they are the ones that have been at BBQs when everybody is talking about who owns what properties and how many… they have been at open houses and seen the masses of people, young people with fear in their eyes that they will never own, baby boomers hastily seeking to expand their portfolios… and they have caught the taxis and been told by the driver where is the next property hotspot…

            The general public knows that this has been a massively speculative bubble… and they now realise what that means… and they are completely unreceptive to those same tired old stories aimed at proving it is not a bubble, many of which have only a thin vineer of validity to them if any at all… it is not disimilar to the public suddenly seeing through the image of a politician which has been carefully crafted over many years, and then there is absolutely nothing that that politician and their supporters can do about it…

            Finally, I should say that I also recall Mike Smith, your past boss, going on record (on “Business Insider” I think) as saying something like “I think we all recognise that negative gearing is something that we should be seeking to move away from”… and if that very rational statement has anything to do with your own work behind the scenes, then you are to be complemented…

          • “Homes for Aussies”, thank you for your kind comments. Your recollection of the article you refer to is correct. It was published in the Age on 14th January last year. My point in that article was that lenders don’t judge the credit-worthiness of individual borrowers by the ratio of their debt to their income, but rather by ratios such as debt to assets (LVRs) and interest+principal repayments to income (debt service rations); hence, it is wrong to judge the sustainability or otherwise of the financial position of Australian households in aggregate by the ratio of aggregate debt to aggregate income, but instead one should look at ratios such as aggregate debt to aggregate assets, or aggregate interest payments to disposable income. And neither of these aggregate measures give any particular cause for concern about the capacity of Australian households to meet their financial obligations.

            Mindful of what has happened in other countries, one should also check to see whether these aggregates or averages conceal some “fat tails”, that is extreme values at one end or the other of the distribution of these ratios across income groups. This is something the Reseve Bank does regularly, for example in its Financial Stability Reports, the most recent of which was published on 24th March: and these show that the vast majority of Australian household debt is held by higher-income households, and that only a very small fraction of Australian households appear to be at serious risk of default. This assertion is backed up by the fact that fewer than 1.3% of Australian mortgagees got more than 90 days behind in their mortgage repayments, even after mortgage rates got to nearly 10% just before the onset of the financial crisis.

            This framework for thinking about household financial metrics (including the jocular reference to bankers offering my hypothetical customer an additional $100K for a geared investment into the sharemarket) was one I regularly told audiences at presentations I gave throughout my 14 years as ANZ’s Chief Economist. My views on these questions, and on questions like the futility of paying cash grants to would-be first-time home buyers, or the iniquity of negative gearing (which I have written about in my last two Age columns) are ones which haven’t changed since leaving ANZ.

            I know that there are lots of people who belong to discussion groups like this one who are concerned about the sustainability of Australian household finances, or about the level of house prices. I share some of those concerns insofar as they relate to housing affordability; but I have never believed, either when I was at ANZ or since leaving, that Australia was likely to suffer a US-style housing price crash. I think the kind of valuation metrics that the Economist magazine and others keep using to justify their assertions to the contrary are simply wrong, because they ignore the fact that the vast majority of the Australian housing stock is owned by people who hold it in order to live in it, rather than primarily as an investment, and who are most unlikely to find themselves in circumstances of being “forced sellers”

          • Hi Saul. Thanks for providing such detailed comments. I do have an issue with one point that you raised: the meme that the majority of debt is held by those most able to service them (i.e. the top two income quintiles). According the the RBA, much of the increase in debt has been taken on by higher income baby boomers that are about to enter retirement. From the FSR:

            “Almost two thirds of the increase in aggregate debt reported between 2008 and 2009 was accounted for by an increase in the amount of debt owed by households aged 55 and over, even though they were only one fifth of all households with mortgages. Both the share of these households with debt rose and their average loan balance grew more strongly than for younger households”

            My concern is that these indebted Boomers, many of whom are negatively geared, are not going to be able to carry their debts into retirement. They will, therefore, need to divest their assets (most of which are in housing) in order to both clear their debts and to fund their lifestyles. This retirement effect, which I have written about many times before, will be a major headwind for both economic growth and house prices going forward. I would personally be more comfortable if the bulk of the debt was held by 30 year olds – at least they would have 30 years of work ahead of them in order to pay it off.

            On another matter, I would be interested in your thoughts on the RBA’s practice of using the National Accounts to estimate household disposable income. I have been a harsh critic of this method since it includes imputed owner-occupied rents, employer superannuation contributions (locked away until retirement), and income from non-profits (e.g. churches, sporting clubs, and charities).

            Cheers Leith

          • Thank you for your reply, Saul… I did understand completely where you were coming from with that “joke”… but, for me, your explanation does not really take away from the point that I was making… And I know that you are saying that the risks are well understood and analysed, but I’m also mindful of the constant recalibrating of asset values that Deep T. has been discussing here… if asset values do fall, not so much because wealthy people suddenly become stressed, but because marginal sellers are stressed and yet others decide its time to get out (following the old investment maxim of buy low sell high), when there is a paucity of buyers (essentially because people decide it’s not worth buying a home at that price), then there is potential for serious problems…

            Afterall, I’m not certain that Dutch people had a tulip affordability problem 400 years ago, causing the end of that bubble…

            Having said that, I do recognise that the institution in which you formerly worked was one of the more conservative with respect to mortgage exposures… (though it is still quite high by international standards, if I recall correctly)…

            I do not have as sanguine a view of the market as you… I tend to agree with Shiller’s views on what propels speculative, or bubble, markets… “epidemics” of ideas… and as I’ve said, I think any objective person living in Australia in recent years would say there has been a fairly large dose of that…

            Once again, thank you for your considered thoughts… it’s not everyday a stay at home dad gets to talk with a top notch economist… (but I must say that I have also been fortunate to have a few chats with Steve Keen)… take care…

            BTW, nice article on about the flaws of negative gearing…

        • It is false to assume that just because there are more people per household that it implies a latent demand for housing. For instance, national fertility rate increasing in 2005 after a long decline, kids leaving home later, people living longer etc

          • Yes but why are kids leaving home later? One of the reasons is because they can’t afford to buy a home of their own. It’s not the only reason, I know; but it is an important one.

          • Saul, To use a term popular with some property vested interests (looking at you Joye and James) some of these things point to “structural” changes in underlying demographics and not unfulfilled demand for housing. For example Gen X couples married later and started families later than the previous generation. This resulted in a temporary dip in fertility rates followed by a well documented increase in fertility rates starting from 2006. This could partly explain the increase in the number of people per household we are seeing now. Now unless the banks want to start tapping into the toddler market to give credit to then that will not immediately translate to a demand for housing or the implied lack of supply. The same goes for kids staying longer at home, which is sort of related (kids, this is actually a bad idea…get out there and start lviing your life!)

        • Saul. Umm.. I am not the person who posted on bubblepedia.
          You may want to go there and quarrel with the individual concerned (TPL001).

          • My apologies, Saul, it is Eslake as you state, and Grattan, as you also state. (That was a sloppy effort on my part.)

            Yes, I did refer to you as a “strange chap.” This is because I find your policy propositions incongruous: you will recall that I did concur with you at the end of the lecture with your spiel on stupid regulations; but to then turn around and advocate a sovereign wealth fund, a redistributive policy measure, I feel is inconsistent. This is a conflation between the economic and political. However, you are entitled to your opinion and I am entitled to disagree. (Vigorous debate is of course allowable, but not name calling: referring to you as a “strange chap” is rather gentle.)

            I do disagree, however, with the notion of underlying versus effective demand for housing. (And yes, you can accuse me here of differentiating between an “is” and an “ought”, housing as a durable consumption good and nothing else, unlike the mantle it has taken on in recent years, as a speculative commodity.)

            As I noted in the bubblepedia spot, demand for housing comes from two sources: (1) residential and (2) investment. This has widened in recent times. The problem is the amount of credit that has forced its way into housing, for investment, as (it is now) a speculative commodity, thus distorting the market price. There are causal elements for this, of course, which I will not touch on here.

            Housing is not a production good. It is a durable consumption good. For the government to stand by and allow, encourage and advocate this excessive redirection of capital, as credit, in the form of consumer debt, to so distort the valuation and pricing of a consumption good, is reprehensible.

            Perhaps the question of determining underlying verses effective demand is a technical question, and (at least for my part) subject to a different discussion.

        • Saul, can you tell us why 2001 was selected as a base year?
          I have actually read the NHSC report end to end – But the key data underpinning the whole thing is the selection of 2001 as the base year. IMHO, the report beats around the bush without attributing any reason as to why 2001 was selected. There is a nice little chart showing 2001 as the “equilibrium” year – the source is attributed to ANZ and this source is marked unpublished.
          Since when does a tax payer funded public body base its findings on unpublished private third-party source (ANZ) with a vested interest in housing?

          • ‘Mav’, that’s a good question as to why 2001 was selected as the ‘base year’ from which to cumulate the difference between the growth of ‘underlying’ demand and supply of housing, and to be honest I can’t remember what the answer is. I’ll find out, and report back here.

            NHSC uses essentially the same method that we (that is, my former ANZ colleagues Ange Montalti and Paul Braddick, who are still there, and I) used for many years before the NHSC was established, and that methodology was in turn based on that which had been used by the Indicative Planning Council for the Housing Industry (which was abolished by the Howard Government shortly after it was elected), except that we used completions (net of estimated demolitions) rather than commencements to track additions to supply. We used to do these calculations on a State-by-State basis, starting from whatever point we could find when prices had been reasonably stable for a year or so, taking that as evidence that the market in that State was ‘in equilibrium’. Thus we had no fixed ‘starting point’ for the national estimate of housing over- or under-supply.

            NHSC uses much more sophisticated methods (applied by demographic researchers at ANU) to project ‘underlying’ demand for housing than we did at ANZ. But the method for projecting future growth in supply is essentially the same.

            My understanding is that Westpac Economics, and BIS-Shrapnel, who also produce estimates of housing demand, supply and ‘net balance’, use similar methods, and come up with broadly similar answers.

        • And I don’t see you as a strange chap either. I must commend you on the excellent article about FHVB.
          But I do see you as the (unwitting?) creator of the “undersupply” Frankenstein – Every Aussie RE agent/ developer/lobby group/bank/bank economist/spruiker justifies high house prices by saying there is an 200k “undersupply”
          As a taxpayer, I am only questioning how my tax dollars are spent – Nothing more, nothing less, nothing personal.

          • I undertook yesterday to find out why 2001 was selected as the
            base year for the National Housing Supply Council (NHSC)’s calculation of the balance between the ‘underlying’ demand for and supply of housing.

            I put this question to Dr Owen Donald, the NHSC Chair, who responded that “the 2001 starting point IS arbitrary, although it was a moment of reasonable convergence between supply and demand at least nationally”. Owen went on to note that the REIWA argues that there was a significant surplus in their State at that time, which the NHSC’s national approach implicitly ‘writes off’. (I noted earlier in describing the way we used to do these at ANZ was to seek to identify an ‘equilibrium’ point to use as the base year for each State, rather than nationally). Owen says that “After a full 10 years, however, one might argue a la swings-n-roundabouts that shorter term fluctuations in supply should have been corrected in a well performing marketplace”.

            I would also reiterate that all the other researchers who have attempted to estimate the ‘net balance’ of the housing market, of whose work I am aware, also come to the conclusion that Australia has a significant shortfall of housing relative to the underlying demand for it. (There may of course be research pointing to a different conclusion, but it hasn’t thus far come to my attention).

  7. Really, what service do RE agents provide? They just make it harder for buyers and sellers to come together. Technology will increasingly make this industry obsolete. Overpaid door bitches in my opinion.

    • In The Netherlands the main reason why people still use RE agents is because they have a monopoly on the domain/realestate like website Every single buyer uses that website as the sole and only entry point and the only way for seller to advertise on that website is through a RE agent (which is a member of a certain industry group).

      That said, we sold our house during the GFC and were pretty happy with our agent. You can imagine he had to show our property to quite a few people before it finally sold. They couldn’t have made much money out of that.

  8. Sam Birmingham

    I’m with The Prince when it comes to AFSLs — particularly for real estate agents and, perhaps even worse (if it was possible) the dastardly property seminar spruikers.

    How likely is it to happen though?

    Perhaps moreso than you might think… After all, whenever something goes wrong, everyone wants something or someone else to blame. If/when the property market collapses, you can be sure that Governments won’t cop any blame (despite its role – FHVB, negative gearing, supply constraints) and they can’t really point the finger at banks (been there, done that) or mortgage brokers (they’ve regulated them now).

    So who is left in the firing line…?

  9. The QLD labour government intervention may be underway already: didn’t the treasurer just 2 weeks ago not announced he wanted to abolish stamp duty on properties ?

    Now, what would be the motive for such a move be for a state that already has a total public debt of AUD 17,000 per QLD resident ????

    • I just came here to post the same one…

      Either this journo is really naive or he’s trying to wash his hands in innocence. Good story though.

      On thing’s for sure… something is definitely happening out there! Too many signs to ignore/dismiss.