It seems to be getting worse

As my readers would know I am a keen watcher of all things real estate and that makes me a very interested in the Queensland market. As tourist destinations, places like the Gold Coast and Cairns have always had large percentages of holiday homes and holiday “investment” properties. They are therefore fringe markets and in my opinion a leading indicator of what is going to happen to the broader market if the economic environment stabilises at a particular level. That is, they rise heavily in the booms and dive heavily when trouble starts and if the economic situation continues these effects will slowly show in the broader market ( just not at the same amplitudes). These fringe markets are already suffering and that is even before the flow-on effect of the Japanese disaster has had an impact.

Today I note that the Gold Coast has got so bad that the local marketeers are actually seeing foreclosure action by banks as a positive sign.

Receiver-initiated sales have delivered a minor shot in the arm for the Gold Coast’s battered high-rise unit market, according to the latest Midwood Report. The report for the February quarter reveals 69 new apartments were sold unconditionally, an improvement on the previous period when sales slumped to a two-year low of 47. While it is the most significant rise in unit sales since late 2009, the February figure is well short of the long-term average of about 300 deals per quarter, let alone the bumper 522 sales recorded in the three months to February 2008.

I was on the Gold Coast last weekend. Guess what?  There are still cranes in the sky because they are still building even more apartments. I have no idea why. I suspect everyone, including the banks, is going to end up taking huge hits on this because the final product isn’t going to be able to be sold for anything like the business cases promised they would.

Southport Central — where 165 units remain for sale — was the city’s best-selling project for the quarter with 28 sales. Apartments in the project’s second and third towers are selling from $340,000, down from the 2007 entry-level price tag of $437,000.

You can do the maths on the potential loss of revenue on just that one little project. As I posted late last year this environment has already claimed a number of projects. But there are many more.

Other projects in the hands of receivers include The Oracle at Broadbeach, which recorded no sales during the quarter, and Nirvana by the Sea at Kirra where 36 unsold apartments were launched to the market earlier this month.

Midwood reported no sales data was available from Juniper’s Soul project for inclusion in the report. More than 720 new apartments remain for sale across the Coast, equating to just over two years of stock at the current rate of take-up. Midwood’s figures do not include the 357 apartments in the H20 project on Marine Parade at Southport, which are due to be released to the market mid-year.

As I said at the top of this post the Gold Coast is a place where the peaks and troughs have a high amplitude but if economic conditions continue then I would expect to see these same issues moving into the broader market. So I wasn’t really surprised to read the following from RPData’s latest report (18th March) on the Australia-wide market conditions.

The number of new properties advertised for sale over the last week increased by 1.9% and is now at its highest level since the week ending 28 November 2010. The number of newly advertised properties for sale is 25.9% higher than it was at the same time last year. The total number of properties currently being advertised for sale is at the highest level of any week since the beginning of 2007. The elevated stock level is largely due to the difficulty vendors are having selling their properties as investors and first home buyers remain on the sidelines. The total number of properties advertised for sale increased by 1.7% last week and is 24.2% higher than at the same time last year

And as I have explained previously, once the market starts to turn the rentals on the market rise.

The number of new properties advertised for rent has fallen by -0.7% over the past week. Despite the fall in new rental listings they are currently 8.7% higher than the 12 month average and 25.2% higher than at the same time last year. With new rental advertisements falling over the week, total rental advertisements have also decreased down -1.5%. Despite the fall over the week, total rental listings are 3.9% higher than the 12 month average and 4.5% higher than they were at the same time last year.

What is most interesting about those figures is that the number of properties for rent in Queensland is actually rising when I would have expected a fall given the effects of the flood.
Although I find auction clearance rates to be a fairly pointless measure of anything given the way they are collected, they have some words on that also.
The weighted average auction clearance rate across the combined capital cities took a nose-dive last week, recorded at 48.4% following a clearance rate of 55.4% the week prior. Importantly, Vic and SA both had long weekends and the volume of auctions were substantially lower during the week, in saying this clearance rates were relatively steady in Adelaide however, rates dipped in Melbourne. In Melbourne, clearance rates fell to 55.7% last week from 62.5% the previous week. Sydney’s auction clearance rate was relatively steady, recorded at 53.3% last week and 53.4% the previous week.
In fact the only thing that actually seems to be going well is new builds.
The number of dwellings commenced during 2010 was recorded at 169,428. This represented an increase of 22.4% over the calendar year, the largest since they rose by 27.2% during 2002. With almost 170,000 dwelling commencements last year, it was a substantial improvement from around 138,000 commencements in 2009. On an annual basis, there has been an average of almost 156,000 dwelling commencements during the past 10 years which indicates that commencement in 2010 were 8.7% higher than the decade average an encouraging result given the need to deliver more dwellings.
My interpretation of that is that once again Australia managed to overbuild.  I don’t know about you but the market just seems to be getting worse and worse. My regular readers probably won’t be surprised by that given my weekly rants on credit data trends.
As an aside,  last week I wrote a post wondering why a statement by the REIV had suddenly been removed from their website after I linked to it. During the discussion of the post the communications manager at the REIV, Robert Larocca (I verified it was him) took it on himself to respond with the following comment.

I must admit I have been a little surprised by the comments here. Every week we post an auction preview. On Monday, after the results are reported on our site I remove it because it is no longer a preview.

It is very pleasing to know that people are interested.

The fact that we repeated the comment in a video would suggest we are not trying to hide anything.

Not only did we tell the public via our website but we also advised the media of the same thing and even tweeted it.

The REIV reports market results as we collect them. For instance in the last March Quarter we reported a 2 per cent drop in the median house price.

Thanks again for the interest.

Cheers

Fair enough, I do not have enough experience with the inner workings of REIV’s website to argue this point so I can only side with Mr Larocca on this. I do wonder however why media statements about the number of auctions quickly disappear from the site, even though I can find them in the google cache. This sort of thing tends to make alfoil hat people nervous.

However, after Mr Larocca left that comment, and people actually realised who he was, a number of our readers left some questions for Mr Larocca that at this time have gone unanswered.

I do hope Mr Larocca returns at some point to answer them. We would even be happy to give him a guest post.

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Comments

  1. Could you please direct me to the explanation of the following.

    “And as I have explained previously, once the market starts to turn the rentals on the market rise.”

    Regards,

    Steven

  2. It would be nice to get Robert’s point of view on some of the questions posed. You might recall my dig at the complete and utter contradiction between an online spruik and hardcopy bearish story, both running last Saturday and featuring Robert’s comments.

    I’ve kept the hard copy which is scanable if he needs further reminding via MacroB.

    • From that link

      “CAIRNS construction industry experts believe a crisis of confidence is to blame for “appalling” figures which show just 18 houses and no units were approved to be built in January.”

      Ouch !!

    • Almost certain that Suncorp and Bank of Queensland have the biggest exposure as a proportion of their loan portfolio. Suncorp may even have the biggest absolute exposure, especially on the Gold Coast.

    • Suncorp, Bank of Queensland, Wide bay , Heritage are my guesses. The Big 4 will also have exposure but it would not be at the same level ( in comparison to their total loan books ).

      • SUN is holding $8 tenaciously despite ALSO being Australia’s biggest general insurer.

        Fingernails on a cliff?

    • Don’t forget the humble taxpayer. We still have the explicit guarantee on ~ $140 billion of wholesale funding that are yet to be rolled over.

  3. I think the REIV has a problem on its hands as their numbers are being systematically dismantled by a number of watchful observers. The one I am aware of is the Melbourne auction thread at Simple & Sustainable, but I am sure there are others.

    For the weekend covering 12-13th of March, the REIV posted that were 276 auctions (218 reported, 58 unknowns). However, when the preview for the 19-20th March weekend was posted, it reported that for the last weekend: there were 249 auctions, clearance rate of 67%. I think what commentators are pointing to is that when this ‘preview’ article is removed, this number also vanishes.

    However, much to the chagrin of the REIV, these same observers have caught on to this and are now asking the question if these numbers are actually accurate as well. As the example above shows, they are right in being suspicious: clearly 249 is not the same as 276, so where are the missing 27?

    To quote one of the commentators at Simple and Sustainable:
    “67% of 249 gives a figure of between 166 – 168 sold, and when calculated out of 276 gives an actual clearance rate of 60.1 – 60.8%.”

    Unfortunately for the REIV, their troubles do not just end there. The discrepancy in the REIV data is further highlighted even when this ‘corrected’ data is compared to alternate sources, such as the RPData figures for the equivalent weekend. RPData gave 55.7% for Melbourne, however when their unreported numbers were included, it gave 118 out of 275 or 42.9%.

    Their figures are found here: http://www.myrp.com.au/showNews.do?id=454

    Whether you decide to compare the uncorrected (67 vs 55%) or corrected results (60 vs 42.9%) it does beg the question: how can two sources with similar overall numbers be more than 10% out?

    • While not trying to read too much into it you will note that RP released that result info for 13/3 on the 21/3 which is after the following weeks auctions.

      They usually release their results like clock work 4 days after each weekend on the following thursday.

      Given the poor result for the 13/3 I wonder were they trying to delay hoping that the results for the 20/3 would pick up and the 13/3 results were lost in the ether?

  4. 787 Dudliner

    Lawrence Roberts, author of “The Great Housing Bubble,” says the Securities and Exchange Commission should regulate NAR the way it regulates financial advisers. “Realtors are currently able to make any statement they wish regarding the investment potential of real estate, no matter how ridiculous,” he says.

    My sentiments exactly

    • That will be end game.

      What will the recycling journos do then? Report? Investigate?

  5. The RE lobbying of federal / local governments for more stimulus and other even more insidious policies must be getting deafening.

    With the budget now only a few months away and talk starting to emerge of ‘tax reform’ I wonder what it is that they have in store?

    Sorry for the cynicism but I know that this government WILL sell all our souls to keep the market inflated.

  6. QLD RE market is dead, compared to other states.

    ACT is doing fairly well, relatively speaking, with people responding well to increasing occurrences of reductions; but i wonder if, for the ACT, the spruik in the populce is still strong, as is the govt-mandated and protected govt wages (which, as i understand it, are still growing faster than private wages! And, not to mention, that govt wges don’t seem very subject to what is actually happening in the economy…!)

  7. Half of the R.E agency’s in QLD will get wiped out this year. They are getting no enquiries and there’s just no buyers. (Though there’s far too many RE agency’s in QLD relative to its population) If it wasn’t for the coal, they would be in the midst of a deep state recession.

    • Dead right on the number of RE agents (not sure about the getting wiped out bit though).

      Drive down the Esplanade here at Hervey Bay and there are more RE agencies than cafe’s. I’m not kidding.

      • Well hopefully these agency’s have enough equity mate buffer in their own homes to ride out this storm. I assure you there would be dime a dozen cash flow positive operating agents up there in QLD at the moment.

  8. Hi DE, Re: Suncorp, Bank of Queensland, Wide bay , Heritage are my guesses. The Big 4 will also have exposure but it would not be at the same level ( in comparison to their total loan books ).

    I wonder how much of the above was placed into RMBS held by the RBA on our behalf, the taxpayer?

    Anyone remember those “blueprints for pyramids”-wealth via property investment seminars that were all the rage and well suscribed with wide eyed acolytes, young and old? I wonder how many multiples of trouble some of these people got themselves into late in the cycle.

    Personally, I knew a person in the residential RE sector in the 80’s who had 28 dwellings in the inner west burbs of Brisbane and the entire portfolio was smoked.

    I think that a lot of RE agents, big and small are going to fall very hard. Many will be lucky to retain their personal home. In a stagnant or stalled market they are toast.

    • Hey DE and other MacroB bloggers…

      Could you guys (maybe with help from others?) keep on eye on RMBS purchases, and report semi-regularly on them?

      The reason I ask is that this is a primary angle that i can see, as another commenter above noted, the govt selling our taxpayer souls to keep the market afloat, and possibly without too much comment from many at all (partly because much of the mainstream are implicitly OK with it…)

      But would be good to keep tabs on it, if it could be done easily; perhaps a rolling, updatable RMBS (and similar?) chart(s), that can have a blurb or two of comment……tis a good general form of econobloggin, actually isn’t it?? 😉

      My 2c

  9. What makes no sense to me is why some of them in QLD still try to talk the market up. They’d be better off telling the world the sky’s falling and illicit really decent price reductions. This might promote a few transactions/commissions.

    It seems that whilst the market is dead, am I right in saying asking prices are still ridiculous in many cases?

    • Yup, the commission on $350K is better than no commission on the unsold $450K.

      Thats probably last resort type stuff for them though. Scorched earth end game tactics.

      Someone will break ranks tho when the pay checks dry up.

      Looking at some the folks that make up the industry tho, financial fratricide will eventuate.

  10. Clearly the tide has turned as we all sit in the roller coaster watching the rails start to disappear before us. Eventually, the adrenalin will kick in and the downward acceleration begins. Things to expect on the downward phase:

    – increased vehemence by RE, bank and media agencies addicted to the greed (bigger and more exciting headlines of why NOW IS THE TIME TO BUY, AUSTRALIA IS DIFFERENT, OUR BANKS ARE SAFE blah blah)

    – more and more wallywonks like the pillar’s economists coming out with even more peculiar reasoning for the “soft landing” – my favorite at the moment of the sort of poo you can expect from a Big 4 economist is http://www.startupsmart.com.au/finance/cash-flow/2011-03-16/shaky-female-confidence-in-economy-hits-spending.html >Summary:- Retail is down because women worry too much! aarrgghh

    – government financial intervention – a la US, Irish markets – my money is on stamp duty – a state by state web of complex deals that will only lubricate the coaster’s wheels – REIA is already asking for Gov intervention to save the so-called “housing industry”

    – government legislative intervention – forcing banks to do one of any number of restrictions of trade, loosening overseas buyers restrictions, more students/immigration to push up “demand side”, more zoning laws to “push down “supply side”

    – bigger developers halting or delaying projects, mid-sized falling over and government getting in on the act

    – finally the inevitable “Why did this happen in Australia – how could we not have seen it coming?’ Mea Culpas in Main Stream Media as they figure out a way to survive without the goose they have killed

    • Good post. The amount of property industry advertising on radio at the moment is unprecedented. Builders, new apartment sales, banks, RE agents. This morning I’d estimate 60% of ads. Ties in with your first dot pt.

  11. I think what will be interesting is when the housing market crashes will the govt actually step up and make some changes on how things are reported by REIA and the REI around Australia. I cant wait till Steven Keen can look at all those idiots who made him walk or whatever and have a big laugh at them because the market has crashed.

  12. Reminder: QLD had the smallest supply (construction) response, building only 0.386 new homes per every new resident. Compare that with 0.72 in SA or 0.55 in VIC.
    QLD bubble is likely to be the first one to burst but SA and VIC will be hit the hardest.

    • Funny you say that, Rav (and you have good data on your good econo blog, BTW!)

      I agree: QLD is basically already dead (and getting worse weekly…!), but SA and VIC are creaking and groaning at the moment – sales are not really healthy, and are declining, whilst simultaneously sales listings and the quantity of reductions seems to be accelerating; surprisingly, NSW still isn’t great, but it’s improved – RELATIVELY – somewhat.

      The dead-wood seems to be drifting to QLD, SA and VIC particularly at the moment…

      Stewart

      • DE and others: interesting article here.

        http://www.news.com.au/business/builders-hit-hard-as-job-losses-jump/story-e6frfm1i-1226026471145

        You’d think there would be a lot of new construction jobs “created” (sic) by the floods?

        Forgotten by the rah-rah crowd is that the mining boom requires specialised workers: you just can’t retrain indolent retail workers and high-school trained tradesmen into miners overnight.

        And the construction sector is more than twice the size of the mining sector, last time I looked (in terms of employment and contribution to GDP).

        • Anyone got a clue as to what percentage of our workforce are in the construction business?

          Ireland had 12% which is primarily why the ‘slide’ and ‘easing’ became a crash as they all were given DCM’s (Don’t Come Monday).

  13. According to my friends in the building game the flood repair is not yet really happening. Everyone is waiting! The insurance companies are basically not paying. The Government money has not arrived. Anna hasn’t a clue as to how to go about spending all the money that was donated.