Trouble spreading ?

As I have been commenting on recently the “edges” of the real estate market are showing sure signs of capitulation. I was going to begin my week with a bit of an inspection of first home buyer areas because I had heard some anecdotal evidence that housing stress is becoming very apparent. However I need not have concerned myself with extensive research.

This morning I received an e-mail from a reader, Carl. (Note: I have edited it a little because some personal details were given)

Hi DE.

I really like your new superblog but I have to admit I don’t understand half of it. 

I used to read your old blog and you actually helped me convince my wife not to buy until we had done some more research. Thank god we did because if my cousin’s experience is anything to go by then you just saved us from big trouble.

I live in Brisbane, I think you do as well right ?  I went to my cousin’s house over the weekend in North Lakes. If you don’t know that area is one of those Delfin areas that attracts lots of young families and is really big with first home buyers.  My cousin just had a new baby so has been looking to upgrade.  I don’t know about his finances but he is really starting to panic.

His house has been on the market for 3 months and the only offer he has had was $40,000 under his asking price. He told me that the market has died since Christmas and there is heaps for sale out there with more being added daily. He said that he has heard that lots of stuff is selling way below asking price.  When I got home from his place I checked out SQM you can see that is correct. I haven’t shown him that graph because I think he will have a fit.

As long as the market doesn’t fall too far I think he will be OK because he built his house a few years ago. But I reckon recent first home buyers in that suburb are screwed.  Thought you would be interested to hear my story.

After I received that e-mail from Carl I checked the recent sales list for North Lakes. The news certainly looks bad for Carl’s cousin. As far as I can tell everything was OK up until Christmas, however the latest registered sales ( for January) are another story. For example, the house at the top of the sales list is this place. It was listed at $419,000 but actually sold for $365,000 on the 24th of January which was $27,500 less than it was purchased for in January 2009.  That certainly sounds like first home buyer territory to me. After adding legals, stamp duty, interest and real estate fees that is a big loss.  This place is another example, sold for $505,000 which was $32,000 less than in August 2006; probably not first home buyers but still a problem for the market.

Now these maybe special cases and not truely representative of the overall market in that area, but I certainly didn’t have to try to hard to find them and that is a bad sign. I just wonder whether there are similar stories starting to pop up all over the country in first home buyer suburbs.

But it doesn’t look like it is just houses that are a worry for Aussies. Today I note that they are also struggling to even meet their tax obligations.

The number of Australians failing to lodge a tax return has blown out to about 4 million and small businesses have racked up a crippling $9.4 billion in Tax Office debts.

In a grim picture revealing many families are doing it tough, about 700,000 taxpayers entered into special repayment plans with the Tax Office in 2009-10 – an increase of 32 per in four years.

And while big business posts record profits, the Tax Office expects 260,000 small business owners – many of them struggling corner-store operators – to default on these repayment deals.

This represents an increase of 100,000 in just two years, reinforcing concerns of a “two-speed economy”. 

Looks like the trouble is spreading.

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  1. Some interesting examples DE.

    The large number of FHBs who entered the market over Oct 2008 to Dec 2010 is a serious concern in my opinion.

    ABS data shows that over Oct 2008 to Sept 2009 there were 185,500 FHBs, compared to 123,500 over the same period a year prior, that’s around a 50% increase!

    Many of these buyers were able to buy with little of their own money down. Fujitsu statistics showed that in early 2009 over 55% of FHBs were borrowing at a 90% LVR, with 30% at over 95%!

    These same FHBs are now potentially paying 30-40% more in interest costs on their mortgage (assuming variable rate) with their rates having gone from 5% to 7% (in some cases with 4% honeymoon rates available in 2009 the increase has been more significant).

    I posted these and other stats to my blog last year (posted Sept 2010, written Feb 2010):

    I suspect the true damage this government program has caused will not be completely revealed for some years to come.



  2. Just to note, I was listening to ABC Radio 774 this morning (Melbourne) with Red Symon and Jon Fein and they were reading out address after address of multi-million dollar properties that have recently sold for 30% less than their previous purchase price.

  3. I’ve been following RE a bit around the Sunshine Coast. Anything towards $1M is unsaleable.
    I’ve been to a few auctions in the $360K to $500K range. Example House, 4BR brick solid, large house with big rooms, good design, good area, decor a bit dated, first listed at $595K late 2010. Sold at auction in Feb for $480K. A bloke standing next to me said he had offered the owner $545K in November and had been knocked back.
    At the low end, about 4 weeks ago, a house auction reached $380K. Reserve was $390K. No successful sale after auction. House then put on market at $390K, then reduced to $380K, now at $360K.
    Another place, bought about 2 years ago for $1.9M. I couldn’t see the value but that’s not unusual. Recently auctioned. One genuine bidder at $1.3M. Fake bid (almost certainly from a family friend)at $1.4. Property passed in. I spoke to the $1.3M bidder after the auction. They were new to the coast and had not looked around much. When i told her what I’d seen available she was most pleased she had not been successful.

  4. P.S. I have a friend has a RE office on the West side (further out) of Brisbane. After a year of selling almost nothing, November he said he was making more sales because vendors had finally started to get realistic and prices had dropped 10%.

  5. The situation with Aussie Small Businesses is particularly concerning, since today’s Small Business is often tomorrow’s Major Employer. Downward pressure on the Small Business sector directly equates to a downward pressure on innovation – Small Businesses are where the majority of innovation takes place (in the last Century, the vast majority of World-changing inventions arose from small businesses). Once the World loses interest in Aussie resources – and it will lose interest at some point, where will be our future export trade? Without significant innovation, exactly what businesses do we have now that everywhere else has not got already (and probably developed to a far greater extent, with wisely-directed investment!).

    This could be THE major consequence of our housing obsession – forget the (short term) financial inconveniences soon to be faced by the “Newly Indebted” – what about the long term economy? Do we even have a Strategic Plan? Say what you like about the Communist System, they at least did have long term planning – the Aussie Capitalist system seems to lurch from one crisis to another – and Steve Keen’s modelling of the “Boom-Bust” oscillations has a very bad ending!

  6. Devilled Advocate

    Its anecdotal as well but there has been a big drop in the prices of 6-700m2 houses in Balwyn North.

    You would have struggled to buy at under 1.2m up till November last year whereas now they are advertised for 900 – 1m with quite a few selling below 900k.

    There are also the dreamers still hoping for the greater fools to come along but even these vendors seem to be dropping thier prices each week.

    For the non Victorians – North Balwyn is classic Baby Boomer territory

    I also note that a very large percentage of the houses are now being sold by private treaty whereas last year auctiosn were 90% + of sales and anything over 1.5m languishes for a very long time.

    We have saved bewteen 250 – 300K by “losing” out on an auction last November.

    Never been so happy to “lose” out on an auction.


  7. From my viewpoint it looks like we are seeing the start of the end of the bubble in Melbourne as well; and it is happening without any floods here (as most people here would expect 😉 ).

    In my little road in Highett there are two blocks with 18 units, out of which 4 are up for sale (including one we rent). Around the corner (~300m) there are another 3 units up for for sale. It is a nice area (location^3) and investors wents nuts to buy here in the boom.

    Now it appears they want to get out, but it’s not going to happen because nobody wants to pay their “phantasy” prices. One unit (private sale) has been on the market for 3 months, auctions for 2 units have failed so far (no bidders). An agent admitted to us that unless the vendor lowers the price the property might not sell for a while.

    I’m curious how long it takes for vendors to realise that they must lower prices. Very interesting to watch this unfold. Unfortunately, this might turn into a very sad story for many people…

    BTW thanks for this excellent blog, I have become a regular reader!

  8. Well, if it means anything, and everyone else can tolerate a self-plug, then here’s a chart of mine featuring an index i’ve whipped up to indicate the responsiveness of buyers to price reductions.

    Currently i’ve just got a combined chart, done for Aus-Total and the states and territories.

    Just a correlative indicator, but it definitely shows that buyer responsivity to price reduction in QLD in the comfortably the lowest in the country dragging along the bottom of the chart, rather flat.


    Apologies that the data doesn’t go back further, but i’ve only just started collecting some particular data in Feb 2011, that now allows this sort of analysis and presentation.

    Hope that’s interesting.