SQM’s bear maul

Following on from Koshee’s recent delivery of bad news for the Australian housing market, Louis Christopher from SQM research appeared on sunrise this morning to give the market a full strength bear mauling. His prediction of this years damage is as follows:

CAPITAL CITIES (worst to best)

Perth (total 2011 9.8%)  – Currently down 3.8% from peak. Expected further declines in 2011 is 4-6%

Brisbane (total 2011 9.6%) – Currently down 3.6% from peak. Expected further decline in 2011 is 4-6%

Darwin (total 2011 8.3%) – Currently down 1.3% from peak. Expected further Declines of 5-7% in 2011

Melbourne (total 2011 7.5%) – Currently down 2.5% from peak. Expected further declines in 2011 is 3-5%

Sydney (total 2011 6%) – Currently down 2% from peak. Expected further decline in 2011 is 2-4%

Adelaide (total 2011 4.3%) – Currently down 1% from peak. Expected further declines in 2011 is 1-3%

Hobart (total 2011 3.5%) – Currently down 0.5% from peak. Expected further declines in 2011 is 1-3%

Canberra (total 2011 3.4%) – Currently down 0.4% from peak. Expected further declines of 1-3% in 2011.

WORST HIT OTHER MARKETS

Western Australia

Mandurah – Currently down 8% from peak. Expected further decline for 2011 is 8-12%

Queensland

Surfers Paradise – Currently down 9.5% from peak. Expected further decline for 2011 is 9-15%

Sunshine Coast –  Currently down 9.0% from peak. Expected further decline for 2011 is 9-15%

New South Wales

Central Coast – Currently down 3% from peak. Expected further decline for 2011 is 5-8%

Tweed Heads – Currently down 8.0% from peak. Expected further decline is 9-15%

Sydney’s prestige property market – Currently down 12% from peak. Expected further decline is 5-8% for 2011.

Victoria

Melbourne’s Inner ring – Currently down 6% from peak. Expected further decline of 7-9% for 2011

South Australia

Port Adelaide – Currently down 3% from peak. Expected further decline of 5-8% for 2011.

Tasmania

Launceston – Currently down 3% from peak. Expected further decline of 5-7 for 2011%

Northern Territory

Darwin – Currently down 1.3% from peak. Expected further Declines of 5-7% in 2011.

Given that it is already May , those are some very scary numbers.

Comments

  1. I’ve got to be honest – it kinda feels good to hear this on the main stream media. For 18 months i have been actively telling my mates that property prices will be falling and they all just laugh at me. It just feels good. 🙂
    Anyone agree?

    PS. your right DE, the numbers are scary (esp. what impact it will have on our country) but I’m just living in the moment.

    • For me it’s mainly the guys at work (especially the ex-used house salesmen) who wouldn’t listen. I’m lucky to have mates who will actually listen when you tell them things.

    • All the damage was done when home prices were allowed to hyper-inflate to ridiculous levels. What happens next is the inevitable correction.
      For every loser there will be a winner who may now be able to afford the roof over their heads.

    • The_Mainlander

      Steve Keen was not wrong – so yes I feel good for him… correction is till on the go and a ways to go yet!

      TM.

      PS I don’t feel good for the sheeple but there choice to buy nobody forced them and as with any purchase it is the 3 R’s research, research and research. Ignorance is a Bogan of an excuse and not acceptable period.

    • TBP,

      I hear you loud and clear. I feel the same way. I have been telling all my friends and family there be a massive correction. I really and truly believe this is just a start of Australia GFC they just put off.

  2. Yes, and No, TBP. A lot of people are going to loose everything, and more, that they have.

    • Thats it Janet the human suffering is going to be very very bad. With the budget already in deep deficit the option sto ease the pain will be short.

    • If houses were homes, not emotional speculative commodities. If only.

      Rather, we have had unregulated RA’s of extremely limited financial planning intellect pounding the emotional consumer buttons for their own brokerage benefit by getting everyday people to buy an asset+pay interest totaling 20-30 years of hard savings, using leverage, in a volatile illiquid market.

      Banks are happy, they think they have collateral against the debt.

      Government is happy as they get huge tax revenue from the party.

      The citizen is the loser.

      The economy is the loser with no productivity ever created via the exchange of property contracts.

      Sorry that many will get hurt, but clearly, the sooner the better when considering a holistic frame of reference over the longer term.

      It has all been said before.

    • dont blame the hangover, blame the binge that preceeded it. hangovers, like property recessions are both necessary and inevitable.

      • Totally agree Jimmy. Bears have every right and reason to cheer this crash. The liquidation of malinvestments is needed before a recovery. If people were really worried about the nation and its people, then they should have been worried when we cheers rising house prices for over a decade. Fear the boom, not the bust

        I have said this before – spare me the pity of fools who are in over their head!! Billions of other people for you to feel sorry for in the world.

        Its actually the last reguge of a humiliated bull – to claim they are the good guys because people will get hurt by a crash…self-serving, deceitful wankers!

  3. A few comments:

    1) these projections are akin the even Steve Keen’s “40% real drop over 10-15 years”, averaged on a YoY basis – whether they realise it or not, it is actually similarly bearish, thought I expect they would not extend the declines as long!)

    2) the fact that this sort of stuff is on MSM breaky show, with hundreds of thousands of “average Joe” watchers, is really quite a ‘bad thing”, in that it is basically announcing that the market is in decline – but what many people will hear, relative to “normal expectations”, is “significant decline”. How “oh, no, we’re next!?” and Deflationary Mindset of the masses is NOT going to set in from here, i don’t no….those things seem a near-certain psychological certainty now…

    3) Deflationary Mindset crashes bubbles –
    this sort of MSM exposure is really not good for the aussie housing market (and, consequently, for the Aussie economoy as Housing Sneeze >>> Mining Boom … comparing a ~4 Trillion market to one of several hundred billion … no competition, really…)

    • Point 3) +100

      That is why I have always watch the Kosh..

      Not because I think he knows what he is doing, but because he sets the agenda for joe average.

      You can’t under estimate the effect of a piece like this on Channel 7’s breaky show.. And it was a return visit.

      • I just hope Koshee does not do a show tomorrow on Irving Fisher’s theory of Debt Deflation.

      • Sorry, the Kosh actually said house prices would recover back in 2009. What people should have done is to sell. So, I have to say he hasn’t been spot on.

    • I agree. Back a bit I made comment on Treasury’s outlook, one of my main concerns was the disconnect between Treasury’s rosy view and how it ‘feels’ on the ground. There does appear some preparedness by Treasury for short-term pain in some sectors of the Australian economy. And in many ways, housing is the most difficult one to deal with politically.

      Getting the housing price message through to the broader population will to the RBAs job for them by further subduing the market – negating the need for a rates rise.

      The deflationary mindset may crash housing/credit bubbles but at this stage, only China can crash the strength of the resources sector.

    • Bubblelicious

      This is why, IMHO, we have capacity to experience a substantial and rapid decline. As you point out, fundamentals matter less than psychology when markets are volatile.

      The fact that we’ve just observed global carnage in property markets in the US, UK and Europe will heighten concerns and give people a benchmark of what might happen here.

      IMHO, many people will anchor expectations to these other markets and the “we’re different” meme will change to “we’re going down just like the USA”!

      • Amen Bubblelicious…I have been the ultra-bear for Oz property since 2007 for the same reasons you state…

        Every reaction has an opposite reaction.

        The mentality that houses wont go down in Australia was so strong that when it is shown to be a fallacy, the psyche will swing totally the other way and they will realise the stupidity of their mistake.

        This will cause people to fear the worst and rush to the gates.

        I guarantee you housing stock will go up massively (even more then it has been) just coz of the two Kochie pieces…

        Joe Bloggs…welcome to the Australian Housing Crash.

  4. Well that says it all property price destruction forecasts using the weather backdrop maps. I cant stand David Koche but he is in tune with the average punter this is going to be very painful. There are so many negatively geared investors on interest only loans, what happens when they need to refinance at end of the term which I believe is about ten years?

    There will be a massive amount of bankrupt people out there.

    God help us.

    Steve

    • I’d prefer to see any number of bankrupt property investors over my kids never being able to afford a house. It’s gotta be one or the other. Take your pick.

      • I know what you mean but already there is a child in my kids Kinda who shows up with no lunch. This is in a affluent part of Melbourne, I can only assume its worse in other areas.

      • Steve, a housing crash will not cause people to go hungry. It was the housing boom, the increased mortgage repayments and the lack of productive investments that will result on hard times.

        People have got to get over this mistaken belief that falling house prices will make people poorer. They will feel poorer (and house flippers will get smashed) but all in all, this correction will be a good thing for a children (as stated by Avid Chartist)

      • Falling house prices = shrinking property market = less jobs in construction, finance, banking and associated legal. Not to mention the wealth loss effect.

        Good because of less debt growth but economic times will be seriously tough for many people.

  5. Drederick Tatum

    So I guess we sit back now and wait for the Chris Joye “everything is ok in housing but the RBA must raise rates ASAP” reply.

    And will he actually name SQM in his blog this time?

  6. Wasted Opportunities

    I know what you mean True Blue, it’s nice to be vindicated, particularly if you have been sitting on the sidelines refusing to buy in for an extended period.

    Unfortunately, I suspect the feeling will be short-lived once the consequences start to hit home on over-extended friends and family, and our shell economy is exposed for what it really is.

    Let’s just hope the government learns form Irish mistakes and doesn’t jump in to nationalise all the bad debt.

    • As H&H recently alluded vis-a-vis the Big 4 bank downgrade by Moody’s (“They’re onto us”), our government has been put on notice.

      They will be given no choice but to hook up the taxpayer (and their children’s children) to bail out our TBTF’s.

      I’ll be the first to say it … in the inimitable words of Mr Faber:

      “We’re DOOMED!”

      • Why will they be given no choice?

        I have a $1 coin in my pocket, that has no secured loans against it.

        If any of the big 4 fail, I will bid that $1 for all assets the bank has, and the creditors can divvy up that $1.

        I may be outbid by someone for $2, I’ll go to $3, etc until we find a clearance price for the assets.

        We don’t actually have to hook tax payers up at all. it’s very likely, but it’s a prescriptive outcome.

      • I fully agree … we don’t *have* to. Just pointing to the (IMO) likely outcome.

        I cannot imagine this (or any alternate Oz govt) standing back while the Big 4 (thus, our entire banking system) implode, and saying “we’ll let the markets decide their fate”.

        The curse of “government knows best” mentality.

  7. Always enjoy reading the blog but not the schadenfreude.

    Why all the smug, self-satisfied finger-wagging from some?

    No family who might be retiring in the next 10 years and counting on their family home of 30-40 years as an asset for retirement, or no friends who might be under mortgage stress and having to sell their house? Or just no friends…?

    Home prices dropping 10-40% over the next 1-5 years won’t be a good thing for our standard of living, job prospects, investment income and the like for any of us.

    Good luck to those sideline-sitters without a mortgage history in 18 months’ time who try to borrow to finance a $750K property with $150K deposit after two years of falling prices.

    It won’t be “equity mate”; it’ll be “we know you’ve signed a contract of sale for $750K, but we’ve valued the property at $650K and you’ll need another $30K to contribute to your deposit, sir”.

    • >Why all the smug, self-satisfied finger-wagging from some?

      I think you’ll find it is a response to the previous few years of being called a “renter loser” by the same people we are now supposed to feel sorry for.

    • In the last 30-40 years house prices have grown by many multiples. Added to this many Baby Boomers have been exposed to this appreciation more than once (through investment properties) a ~40% drop will still bring them out with something more than what they purchased – even taking into account inflation.

      • Yes, but only marginally once you factor in stamp duty, maintenance and mortgage costs.

        They will likely be better off if they had invested in cash.

      • Yes and what is wrong with that. Why should a house be a money pot rather than a home? Prices went up too fast too quick. So if they drop it is really just going back to what they should be. If your house drops 30%, so will all the other houses. People who can afford their mortgages will not be at all worse off. They will just psychologically feel like they are. At the moment I don’t understand why people get so exited when their house goes up in price, it just means that if they upgrade they have to pay more first their next place, real estate commission and in stamp duty.

    • “Always enjoy reading the blog but not the schadenfreude.
      Why all the smug, self-satisfied finger-wagging from some?”

      The attitude is because this is the end game of something that has had dire social impacts for nearly a decade.

      You whine about the prospect of some people through choices of their own, losing money on a bad investment of their own choosing.

      The other side of the coin is the renters, young peole with naive investment knowledge lured into excessive mortgages.

      The consistent arguments of trying to inform a spouse that housing will drop in price, we will not ‘miss out forever’.

      The impact of dislocation because of ‘investors’ flipping houses, and finding yourself with a 30% rent increase or told to move in 30 days.

      I know of at least two relationship breakups due to the strain of excessive mortgages. In both cases the parties were under 24 years of age.

      The observation of year after year of doing the right thing, of working and saving, yet being punished with economic reward going to speculators.

      Warnings have been espoused, only to have sneering, self-righteous ‘investors’ disparage those views. This isn’t shadenfreude, this is the expression of all the ‘right’ thing coming to fruition.

      • >The consistent arguments of trying to inform a spouse that
        >housing will drop in price, we will not ‘miss out forever’.

        So true!!

    • J Bells…you calling the bears smug???

      HAHAHA…we have been warnig of this for years and were laughed at.

      We had people rub there paper wealth in our faces and claim our whole existance was worthless as we didnt own propery.

      Bloody oath I am going to be smug when it all turns to turd.

      Because I know history will judge the boom as the problem, not the bust.

      If someone’s house falls in value 40%…what have they actually lost?

      Presuming the fall they suffer is similar to national trend, then they are still able to sell their house and move to another similar quality house???

      Dont you people get this…!!! If the whole market for houses rise by 20%, we are not 20% better off as a result!! This is why the bears have been so vocal in our opposition to the boom…because it was a scam that didnt help anyone but the Banks, Property Flippers and Government (and media!).

      • “If someone’s house falls in value 40%…what have they actually lost?

        Presuming the fall they suffer is similar to national trend, then they are still able to sell their house and move to another similar quality house???”

        Well sure, as long as they aren’t in negative equity (and a LOT of people will/would be after a 40% fall).

        But in the medium- to long-term the country will be much better off if/when this happens.

      • If they didn’t didn’t get in within the last 5 years, and they didn’t use their house as an ATM they should be okay!

        To all the youngesters about to be f’d up, do yourselves a favour and go bankrupt.

        No one will care in a few years that you did the only rational thing left open to you, and you were under 30.

        You are the victims, not the purps!

    • “Home prices dropping 10-40% over the next 1-5 years won’t be a good thing for our standard of living, job prospects, investment income and the like for any of us.”

      It isn’t that bad. My wife and I chose to buy in a place that crashed quite some time ago. I guess we paid 25% of what the place cost to build 23 years earlier. I really don’t know, perhaps the post-bubble depreciation was only 50%, not 75%. Either way…

      We paid cash from our savings after being called a loser for renting here and there for so long.

      Our balance sheet today:

      L: $0, zip, none. We have no loans.
      A: shares 45%
      A: cash 45%
      A: house 10%

      Oops, it doesn’t balance.

      Someone else’s turn to be the looser (though I still think it is too early to bet against the house on this crash)

    • I feel for families who got sucked into this and will suffer. But I also feel for financially responsible who most certainly missed out on owning a home during the past decade as they tried to save 20-30% deposit. They could never do it as prices kept going up due to the majority willing to take on loans with LVRs of 95% (or 100% plus for investment). How this level of risk has become a social norm is beyond me.

      • This is it exactly for me.

        Never felt comfortable with that amount of exposure, due to work fluctuations etc.

        After selling my last house I had a fair deposit, but the market moved so fast I was basically priced out of my area if I wanted to keep the same sort of LVR.

        I do feel for those who will suffer, but I have been renting for years (dealing with all the unsaid assumptions that flow from that for a middle aged professional), and I am very excited I may again have the chance to (economically and responsibly) own the roof over my head.

    • Hey Jingle,

      Since when did the “family home” become an “asset for retirement”?

      Was a time when a family home was just that, a family home. The owner had a reasonable expectation that the value of the family home would keep pace with inflation, and maybe add a little bit as location and population pressure became an issue. But an “asset for retirement”?? That, mate, was an invention of the spruikers and banksters, and embraced by the dreamers.

      Friends who might be under mortgage stress? Do you feel sorry for those who take out margin loans, and then lose when the share market craters? Or those who go into the casino with a couple of grand and come out with nothing?

      Didn’t think so. Same thing.

      They went in with their eyes wide open – and countless warnings ringing in their ears from those who you now seek to portray as the villians. Do you remember Glen Stevens warning about unsustainable house prices about two years ago? How many of your mortgage stress mates were listening then?

      “Home prices dropping 10-40% over the next 1-5 years won’t be a good thing for our standard of living, job prospects, investment income and the like for any of us.”

      Au contraire, mate.

      Home prices dropping will allow our young families to put a roof over their head, and still have money left over to go out and buy things. Out of that springs a REAL economy where people have REAL jobs producing REAL things. Not some phony economy where the only people making any money are the banksters and real estate agents. Get used to it – your phony merry-go-round of pass-the-parcel real estate is dead in the water. Hopefully, after a painful but necessary readjustment, Australia can get on with taking its rightful place in the productive future of Asia, and cease being the South Pacific branch of realestate.com

      And “investment income”? How much investment income do you reckon this country will have if the proceeds from the touted mining boom are not pissed up against the wall of the housing market? Hell, we might even be able to pay off some of our debt. Oh, bummer!

      Seems to me that you are the one doing the smug, self-satisfied, finger wagging. Been caught with your hand in the cookie-jar have you?

      Nice bit of psychology though. Kinda like the bloke who gets caught robbing the bank, and tries to make the cops feel bad ‘cause he was only doing it to feed his starving kids. Neat.

      • Julius, your the drunk friend in the Bar.
        Loud, opinionated & true.
        All we can do is settle you down & get you another drink.
        But, no more drinks.
        The histronics are gone & it’s out there for all.
        I’ll buy you a few & listen to the “I told You So”, but I think we all have to relise where we are & how deep the whole pile is.
        If you (like me) believed it was a house of cards, keep your cards face down & keep your poker face on.
        We can get what we want, & if you can’t, well, you could never afford it anyhow……

      • Ripa,

        I know exactly where we are, and exactly how we got there.

        I’m not interested in “I told you so’s” – never known anything to be fixed by one of them yet.

        I can afford it, probably more than most.

        But it’s not about me, is it? It’s about the whole damn country and where it’s headed.

        I’ll have that drink now, thanks 🙂

    • Homes should never have been used as a substitute for productive investment.
      Homes are for people to live in, making them unaffordable is a stupid and selfish policy.

    • Home prices RISING 10-40% over the next 1-5 years won’t be a good thing for our standard of living (increased cost of living), job prospects (lack of investment in productive industry and retail suffering), investment income (ditto) and the like for any of us.

      Works both ways.

      • Exactly. Inflated homes prices are good for maybe 5-10% of the population (multiple house owning speculators). For everyone else they’re a disaster.

      • You’re right, thanks DE. Good article and right on the money.

        What I don’t dig on is the bitterness and vitriol towards others that some display.

        I sympathise with those who can’t get in and don’t sympathise with those who have a pure profit motive.

        Re Julian et al’s cheap shots – I’m not a property investor (never have been) nor do I work in property or finance related industries. Nor do my family. I have one friend who owns one investment property and he won’t have to sell it.

        That is – no hands in biscuit tins/cookie jars/robbing banks/running over cats/dogs etc.

        I’ve owned one flat for eight years and my mortgage is a little less than what rent would be. Before I bought I rented and saved hard for five years. Didn’t use the FHBG. No intention or need to sell in the next few years. I was in the right place at the right time, yes, and my income grew significantly during those five years after I left uni. Many haven’t had the same luxury.

        The market has been ridiculous and artificially pumped in the last six years and it’s patently not a smart thing to do to borrow ten times your salary to finance a property purchase.

        My point is that these do not give people a reason or right to dance on people’s graves saying “I told you so”.

        I worry about those families who will have to sell their family home in the next five years for one reason or another.

        And I worry for the rest of us with an economy and four major banks built on residential property price growth.

        We’ll all end up paying.

        An aside – it’s amusing people referring to themselves as “bulls” or “bears”, as if they were Catholics or Protestants. Reminds me of Jimmy and Timmy in the South Park episode where they join the “Crips”.

        Keep up the good MB work, DE. Well done to you and the team.

        Q.
        How many bears does it take to change a lightglobe?

        A.
        10. One to change the lightglobe, and nine to stand around saying they knew it would blow.

      • If only it were this easy. Just because you are right doesn’t mean you won’t blow up. Make sure you have deep pockets!

      • So far I have budgeted a run up to 5500+ on the ASX 200, which looks remote given slowdown in loan growth plus China economic slowdown.

        Also, with any luck Greece revolts, the US hits their debt ceiling and UK austerity measures blow out debt to GDP.

        I believe banks’ PE ratio will be re-rated if bad loan figures pop up in the second half of the year.

    • What comes around goes around.

      Did you complain when all the ‘home owners’ (Australian slang for ‘mortgagees’) were running around calling people idiots, losers etc when they wouldn’t buy in?

  8. good to see it on mainstream. And lets face it, just as positivity in teh media reinforced the price spikes, so negativity will reinforce downward pressure. The media always gets on the bandwagon, so no praise for them, but at least its going to accellerate the bust and make property affordable sooner. I wonder who your average battler will believe more – their local estate agent, or a Sunrise / TT / ACA presenter??? Tough call.

  9. J Bells,

    “No family who might be retiring in the next 10 years and counting on their family home of 30-40 years as an asset for retirement”

    Dont forget that another family starting out actually has to PAY for that family home’s MASSIVE appreciation over the past 40 years. Boomers worked to pay off their mortgage and deserve to be mortgage free. But their capital gains comes courtesy of young households taking on massive debt and working it off over the next 30-40 years.

  10. Torchwood1979

    Schadenfreude is deriving pleasure from another’s misfortune. If someone puts their entire financial future into a single overpriced asset class that has terrible cashflow and if they don’t bother to do a proper risk assesment it’s not “misfortune”, it’s utter stupidity. However I don’t agree with celebrating the coming correction or at worst crash (I’m fast ditching my “long slow melt” stance) as it’ll take down soooooo many people.

  11. My bet is the government will bail out the banks, too much of government revenue at all levels is dependant upon rising house values, councils regarding rates, state government with land tax and stamp duties, the federal govt with CGT.
    We have at the same time, political imperitives to balance budgets etc, i know the NSW govt was looking to pressure local govt to borrow. Interesting times, if govt is cutting back, more people lose their jobs, more pressure on house prices, feedback through all sectors of the economy follows.

  12. I’d be happier with the 2 segments if it wasn’t part of a full court press by business to pressure the RBA into keeping interest rates from rising. While it’s awesome that the public get to hear something other than the RE industry propaganda the prevalence of bearish media is likely deliberate.

    But as pointed out above consumer sentiment help inflate this housing bubble, and it’ll bring it down. The MSM is playing with fire if they think they can talk down the RBA and not talk down the market at the same time.

    • The MSM is playing with fire if they think they can talk down the RBA and not talk down the market at the same time.

      Agree totally. Once the wildebeest start stampeding, the RBA will be irrelevant.

      • IMO the RBA is already irrelevant. They cannot continue their inflation targeting policy without detonating the housing market. Besides which, much of the inflation we are seeing is external to Australia, it is not due to economic strength. Inflation targeting is ineffective in this environment.

        The only thing they can do is start rapidly cutting rates if the house prices falls are too large, by which time it will be too late, and funnel cash to the banks to prop them up once losses become too great.

      • This is a good observation. Also, the RBA does not control rates. Wholesale loan markets do.

        Let’s see what happens when the Big 4 are further re rated by Fitch et al.

      • Absolutely right, wholesale markets set rates.

        As you touched on below credit spreads are currently ticking up and a sovereign default takes us back to 2008 all over again.

        If i were in the RBA right now i’d be a wee bit panicked.

      • The_Mainlander

        “Once the wildebeest start stampeding” nice one I also like Sheeple!

        Always a good laugh this blog … might have to read some Boganomics for more of a giggle.

        😉

    • interesting comments. I have to say I’m not so cynical about the press, they are lazy and conformist as regards prevailing opinion but I think its a stretch to say that this is about an orchestarted attempt to pressure the RBA (although in fairness, the SQM guy says he’s against a rates rise).

      • the press are in the business of selling newspapers. They just want to sell newspapers.

      • I don’t usually wear a tinfoil hat re: the MSM, but when The Australian newspaper organises a press conference for Kerry Stokes & Gail Kelly to present the case against an interest rate rise, then its pretty clear that there’s a concerted effort to keep the RBA’s hands off the monetary policy lever. Just as clear is the belief that the property market “fundamentals” are strong enough to rebound with a change in tone in the MSM back to “normal”, but with FHBs mostly priced out the Wildebeest stampede might be on its way already.

      • RBA adjustment will be ineffectual in the face of an increase in wholesale lending rates.

        Wholesale rates are rising as the cost of credit is repriced.

        Also the big 4 are in danger of having their credit ratings re rated.

  13. Once mainstream media stories like this sink into people they will realise that their 95% geared investment really isn’t a good investment as many people have thought. Everyone needs to remember that the thought process over the past decade has been property is the safest investment, invest in bricks and mortar. When people realise this, the common drivers of greed and fear will come into play.

    I detest people calling me smug, not with any hatred, but the fact they have looked down their nose at me for so many years as i chose to pull out of the real estate market and rent. I, like others on this site, have firmly believed that a correction was coming, be it a deflate or a crash. We have taken flack, been downtrodden and ridiculed. Why, because we tried to explain to people that property, like all markets are susceptible to contraction as well as growth.

    So for those that now call us smug and suggest we should be shameful for expecting (and in some parts hoping) for a correction, i am going to treat your comments with utter contempt, as you have been warned on numerous occasions.

  14. My 2 c worth.
    1. Some deflation in housing market is welcome by just about everyone – except an investor looking for CG.
    2. A crash will be bad for everyone.
    3. Lower house prices and reduced house flipping will mean govts will need to re-adjust their budgets and this will be painful for everyone.
    4. Better a reversal in housing market now rather than later – I just hope it will be slow and sweet despite the fact that there are a couple of smug investors i would like to see crash and burn.
    Enjoy the slide and I hope we are right for everyone’s sake.

  15. Buy a asset when it’s price is at an all time high (RP as a whole), for a net income return of 2% per annum……????

    i don’t know how anyone could have thought that this was a good idea. Seriosuly i can’t fathom why anyone would have purchased from 2007 onwards…..what were they expecting, a median house price of 1 million Australia wide, versus a median wage of about 65-70K???

    As a young person living in Perth i hope the Perth market gets absolutely smashed……

    • “Seriosuly i can’t fathom why anyone would have purchased from 2007 onwards…..what were they expecting,”
      Perhaps they were expecting reasonable price growth and wanted their own house to live in – which is what they got.
      According to the ABS the weighted 8 cap city median price rose 27.2% from March 2007 to March 2011 – annual growth of over 6%. Melbourne prices grew 49.2% in that time. Adelaide by 34.7%, Canberra 31.1%, Brisbane 23.2%, Sydney 21.7%. I’m sure those purchasers are all very pleased that they didn’t take notice of the doomsayers and wait for a crash.
      Louis’s predictions, which are giving you all so much pleasure, are for single digit falls in all cap cities in 2011. That’ll leave the 8 city index up about 20% since 2007 ie about $100k for each house.

      • Sinbad
        8% of x is not equal to 8% of ( x + .8x). So in numbers the fall is bigger than the rise. Also Sinbad the mortgage payers payed more in interest than they would have payed in rent, and also the equity build up is much less during the start years. And this forecast is only for 2011 what happens in 2012?

      • Yes, something which rises 8% and then falls by 8% is worth 99.36% of what it was. You are nitpicking.
        People who didn’t buy in say Melbourne for say $400k in 2007 will now have to pay $600k. $200k far exceeds the difference in rent and interest payments for those 4 years. Suggesting that the buyers of 2007 were stupid is absurd.
        As for “what happens in 2012”, I don’t know. You seem to be suggesting that you do know.
        Anyway, apologies for intruding into your partying.

      • Endrortsonhousing

        Read Julius’ great post carefully to understand why there is a perfectly sound and justifiable reason for ‘partying’ Sinbad.

        This country cannot have a sustainable future on the path we have been for the last decade – Australia is not a life support system for property spruikers; real estate agents and people who swallow their snake oil.

        This is a necessary and extremely overdue popping of what will go down in the history books as a grotesque bubble of epic proportions.

      • Anyone who geared up and bought in 2007 expecting to make money was stupid. there, i said it.

  16. China Watcher

    Hmmm.
    I hope everyone here is looking forward to higher taxes to pay for increased aged pension as the boomers go broke. Let alone higher taxes to pay for increased social security and unemployment benefits as the cycle deflates. Whether you think it right or wrong that house prices got to where they are, the coming deflation will have real (not just balance sheet) consequences. Be careful what you wish for.

    • China Watcher

      And I forgot to add. If equity markets are right (BHP and RIO priced for a 45% fall in commodity prices), then strap yourselves in. Cos it will get very ugly very quickly.

      • China

        Just when do equity markets see this. Better advise Treasury and the RBA. Statements like that require some backup – perhaps a link would be helpful?

      • Dave From Pakenham

        China Watcher if it is the ‘investment boom’ to which you are referring i am not too sure many capex undertakings are modelling spot market prices.

    • China,

      If you’re paying $100-200k less for your house, a few bucks of extra tax is gonna be a breeze.

      Increased social security and unemployment benefits? Haven’t you noticed lately that both sides of politics seem to be headed in the same direction in this regard? Withdrawal of single parent benefits, stricter rules for the dole, transitional arrangements to employment, means testing the baby bonus – they’re all singing from the same hymn book. Hard to know which party is in power these days in that regard.

      We are in the early stages of dismantling of the welfare state. Let’s face it, recent developments in Europe have provided a pretty good insight into what will happen if we don’t. Even our dense politicians seem to have picked up a bit of that message.

      As for the Boomers going broke – whilst some undoubtedly will, as will many of the younger cohorts, I think you will see many Boomers who, rather than go broke, will simply be worth less than they otherwise might have been. To the best of my knowledge, the aged pension is still subject to an assets test.

      Yes, it could get ugly. But don’t pin that on the inevitable deflation, or the wishes of the excluded. That honour rests fairly and squarely on the shoulders of those who pushed it up to the bizarre heights that it is today. Now the omlette has to be unscrambled – messy, but necessary.

      What most of the people on this site seem to wish for is a sane and productive society in which real work is valued and rewarded, and wealth-sucking parasites are eliminated.

      If the fullfilment of that wish entails a deflation of the housing market, and some pain along the way, then it will have been a journey well travelled.

      • “What most of the people on this site seem to wish for is a sane and productive society in which real work is valued and rewarded, and wealth-sucking parasites are eliminated.”

        Now why is this fact so hard to understand for most people?? I think hard work and sacrifice is beyond most people and in their minds an continuously rising housing market is their ‘bradbury moment’. Take that away and it’s game over.

  17. I love this blog so much. As someone who can no longer buy a first home because I am priced out, I use to lay awake at night stressed over the thought of never owning a home for my new family. Then about 12months ago I started looking beyond what people were silly enough to pay and asked myself where and how prices could keep going up… and I thought to myself that at some point they can no longer go up, because that’s logic right?

    However, I still thought to myself that it was still only a possibility of prices cooling and maybe it would never come. But now the time has arrived and I tell myself that if I remain strong, keep working and saving that I may one day have the chance to own a modest place of my own.

    Thank you Delusional Economics and other’s.

    • Well done, you’ve managed to avoid the single biggest lifestyle expense in your entire life. In fact, if you wait till you can fully afford to pay for the house you would save yourself years of debt slavery.

      • Thanks Lloydie,

        I don’t think I can buy a place outright (I wish!) but the plan is to buy something modest yet small for my family with over 20% deposit and to pay the remaining mortgage off in about 10years to help avoid all that extra intrest. No over extending myself and failing house prices can only help this. Then I hope to start putting away as much as possible for a slightly early retirement! (27 now so I while to go)

  18. I’m suspicious. This sounds like the REI’s ‘last resort’ method of propaganda. Mass panic through the media in order to force the hand of the government into coughing up more stimulus. I bet they fall for it too.

    • exactly my thoughts …
      also i’m trying to recall the diagram of bubbles that seem to have a small bounce a bit of the way down before a complete crash how does this bounce occur… govt stimulus …

      lets hope they have had a good look at the overseas collapses and realised if 50% of the property is “supportable by govt stimulus” then that would mean heaps and heaps of govt debt… oh hang on a minute we can have a govt intent on borrow for any reason, and this is as good as any ….

      • I think that Swan’s misguided focus on a budget surplus might prevent the kind of housing stimulus we may otherwise have expected. We already had that small bounce when Rudd “stimulated” the housing market, so i dont expect another one.

        I do expect them to focus on bail outs if and when they are required. Prices may therefore fall quite quickly over the next couple of years; if we get to a situation where we are seeing 10% down across the board in Australia its likely on for young and old.

      • The goose is clueless. Gilly and Goose are the worst people to handle this economy IMO. Whatever would happen, they’ll make it worse!

      • I don’t think that we’ll see more stimulus. It’s politically untenable now. Plus, the politicians can now blame a bust on external factors.

    • Very good point.

      I sincerely hope the current & future governments of our country have been watching the fiscal policies abroad in response their crises.

      I’m not holding my breath though.

      I wonder what colour they’ll choose for the $500 note.

  19. I’ve been trying to get through to Westpac’s collections area for the past three days, giving up the first two times due to being on hold for over half an hour.

    Today I persisted and was finally connected through after 40 minutes. Got my business sorted and made a light hearted complaint about how long it took to get through, he replied saying ‘that we are dealing with an unprecedented number of customers at this time’.

    Hmmm, sounds like they must be dealing with quite a lot of delinquencies?

  20. I had made comments on here before that when the media starts to turn negative on property then the inevitable will happen. This is how it started in the US. All those guys on here DE, H & H, UE etc…. deserve alot of credit for being probably the first to print the truth of what has been going on. The question now is how far will it go. Me personally I believe it will be worse in Australia than the US. I could be wrong.

    • Negative sentiment will be difficult to stop, especially when it’s backed up by the hard data. But you can bet the vested interests will rally against it by hook or by crook.

    • +1
      I’m hoping DE, H & H, UE will still be around to give sound objective commentary when its time for an economic recovery.

    • Does anyone have any recollection of how the vested interests behaved in US or Ireland in 2008/9 ?

      Did they keep fighting ‘the good fight’, or did they give up the ghost and flee?

      • Rusty Penny

        Speaking from experience of the Irish Bubble through the VI’s eyes – what happened was:
        2001-2005 – Housing goes ballistic ‘There is an undersupply of Housing’ – ‘we need to build, build, build’ – ‘the population of Ireland will be 8 Million in 2025’ – irish banks hover up credit from outside the country
        2006 – Housing growth rates moderated in the back half of the year and a stalemate starts to show in the market – ‘Housing has moderated and has reached a permanently high plateau, this is good, allows people to get on the ladder’ – Full employment is still with us

        2007 – House Price’s pull back and sales volume go way down – ‘This is a temporary weakness’ – ‘Housing will shoot back up next year’ – we have the ‘soft landing’ – unemployment starts to creep up – Mainstream media hasn’t really latched on yet

        2008 – House price falls accelerate and unemployment increases – people turn negative and head for the exits- The vested interests say 2009 will see a rebound and this is the best time to buy – The Irish banks are guaranteed by the government

        2009 – Between 2008 and 2009 the bubble has burst – prices down 30-40% – still only back to 2001 – only buyers after that are in negative equity – Vested interests point to the 30% falls and say there are great bargains – The banks are bailed out and nationalised

        2010 – House prices continue to decline – people who want to buy can’t get mortgages – unemployment tops 15% – In first half of year some vested interests call the bottom and say this is a great opportunity to buy – Irish state is bailed out by IMF and remaining banks are nationalised

        2011 – House prices continue to decline – nobody denies it- massive unsold inventory nationwide – distressed auctions sell properties for late 1990’s prices – prices are predicted to go down another 20-30% – emigration is everywhere and the Irish state is technically bankrupt and run by IMF and EU creditors – the government raids private pension funds

  21. I think that there is one thing that needs to be made very clear:

    People are saying that a fall in house prices is harmful for the economy – THIS IS WRONG.

    All the damage to the economy was done by rising house prices. This lead to a misallocation of capital and a huge debt burden. Falling prices is a part of the cure – It’s the economy trying to repair itself. Unfortunately it’s only when this happens that the full impact of damage done by rising prices is felt.

  22. Keith MacLennan

    Mandurah down 8% from the peak!
    what a load of bollocks.
    If you get half of what was paid at the peak of the Mandurah market craziness you will be lucky

  23. There is a bit of a myth that Australia has a classless society.
    Its not true and never has been.
    In the last decade anyone who has ever
    been to a backyard BBQ knows that “renter losers” are looked upon with pity / scorn.

    Every dog has its day, they say.