Attack of the housing “pessimists”!

Not that we needed another survey to tell us, but the Melbourne Institute Westpac quarterly Consumer House Price Expectations Index is sinking.

According to the index, a majority of the house-loving Australian population remains convinced that price rises are ahead. But the number of realists (strangely, Westpac refers to them as “pessimists”!) is rising fast:

Also interesting, housing as an investment is theatening to plumb all time lows, which doesn’t really sit well with the rest of the survey, given the number of optimists still at large:

Perhaps the truth hurst so much we can only face it in an oblique way. Full report below:

Houses and Holes
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  1. Pessimistic…people who think that house prices will return to more affordable levels.

    Optimistic…people who think Australia’s housing bubble can continue, further pricing out the poor from owning their own home

    It is a twisted thing the Australian housing market!

    • Hey Stav, don’t you mean “…further pricing out the middle income class..”?


      …and by middle income I’m referring to households with salaries well under 100k.

      • Very ture Kate, and because it has now reached the middle class and upper-middle class, then we know the bubble is over.

        In relation to the other comments below on why this has occured, I put it down to two reasons:

        1) Economic naivety – most people do not understand even the most basic economic concepts. We are taught about all kinds of things in school, but as someone that left year 12 in the year 2000, I can tell you economics is not studied at school by 98% of people. Therefore, they are very pliable later in life to fall for simple ideas such as ‘if your house goes up in value, you are richer, so high house prices are good, because we will all be richer’. I am such a cynic that I actually think the Government does not want its population to be well versed in economics…so they fight over making sure we learn about Ned Kelly or The Dreamtime

        2) The conditioning brought on by the media…in particular Fairfax and the TV channels. All have fuelled the bubble by perpetuating the myth discussed above in 1) and by downplaying the risks of a housing bubble existing in Australia.

        • I’m in a similar vintage to Stavros: when I was in school, I was forced to take economics due to a timetable clash.

          Looking back, it worked out quite well. Having had a good teacher who forced us to think critically, I am grateful to have had some early exposure to the subject. Otherwise, it’s likely I’d be one of those people who would be mortgaged to their eyeballs right now and repeating the “houses double in 7 years mantra.”

    • Torchwood1979

      Perceptions of wealth and status are inextricably linked to housing in the Australia psyche, however irrational those perceptions may be. When even the economists can’t see past the obvious absurdity and add such emotive language to reports such as this with you know your society has lost the plot.

    • Yes, it is a good thing for your next home to be increasingly more expensive than home you currently own…

      • Torchwood1979

        But it’s not a problem if the one you own has also gone up in value. It’s the gap between what you have and what you want to buy that matters.

    • yeah, it weird …

      Housing is the only living expense item that people like when it goes up.
      Why people feel good when price of a house they already bought goes up, but they don’t feel the same about cars or furniture?

      • How is it that the majority of people still expect house prices to go up when they are already generally falling?

        (I expect a response along the lines of ‘conditioning’, which I accept).

        Someone actually trotted out the old favourite to my wife the other day “Houses increase in value every seven to ten years”.

        GOOD LUCK.

        • Torchwood1979

          I still hear that one too. The only way to stop these people in their tracks is to tell them that we have $1.2 trillion in mortgage debt, growing at 6% YOY which results in the median house price falling 2.7% YOY. The amount of debt needed to keep this flaming Hindenburg more-or-less afloat is huge, but doable.

          But growth? Not for a long time. And doubling this decade like it did last one is pure fantasy.

      • Torchwood1979

        Hi john cage. There are a few reasons houses are viewed differently to other necessities:

        1. Houses appreciate in value and although they can be high maintenance they don’t usually need to be replaced in one’s lifetime. Even if they do, the land is still valuable. Your car, couch, TV or computer all depreciate over time and need to be replaced regularly.

        2. There’s a wealth perception that comes with having a valuable home and particularly lots of equity. A friend bought in Brisbane in early 2007 and has over $100K equity in his home said to me “$100K just for sleeping in a house that I’d have bought anyway, how good is that?”. “Building equity” is a prime reason the folks are always pressuring the Wife and I to buy up, even if it means we’d be financially stretched and taking on too much risk. Which leads me into point #3…

        3. Equity loans. If you’ve got plenty of equity in your home the bank will practically throw money at you to tack a new car, a boat, some renovations or even a holiday onto your mortgage. It seems like a cheap way to get the good life without having to build up large reserves of cash or other liquid assets. Using the family home as an ATM has been an Aussie pasttime for a decade. But what happens if you end up in negative equity territory and don’t have the cash for another car? I’ll be asking a mortgage broker that question next Thursday night.

        • “Using the family home as an ATM has been an Aussie pasttime for a decade”

          good point. not just Aussie though, i would say there are a fair few countries guilty of this. Too many people have too much to gain from rising property, so everyone gets greedy. Problem is that after everyone has effectively dipped into the pocket, someone is left getting hurt. Unfortunately in this instance all the focus has been in tempting the young generation to bring their purchase decision forward, when they havent got the means or education to repay the debt. Ask the broker what he will do for work if the young generation walk away from home ownership completely and become life renters? oh there will always be investors thats right, ready to debt ridden themselves further.

      • Housing has become a Veblen good : as price goes it, it’s desirability increases. Nobody complains about the price of a Lamborghini either. This is bad since nobody needs a Lamborghini, however everyone needs a place to live in.

          • I have in-laws on mining wages who’ve had to settle for a corolla because they’ve gotten in too deep on the mortgage.

          • Lefty, a common story. A workmate has just bought apartments to fund his future wealth. Where? The Gold Coast and Cairns. When I expressed doubt on the wisdom of this, his reply was…

            “They’re bargains. In two years they’ll be worth what they were at the top of the boom. Money for jam.”

            Still plenty of Greater Fools out there in mining land.

          • ” workmate has just bought apartments to fund his future wealth. Where? The Gold Coast and Cairns”

            Oh noes!

            Then again, they do say that the burned hand is often the best teacher.

            Assuming that you’re not totally wiped out by the lesson.

  2. Victoria & WA have the most stupids – people who believe house prices will rise >10% in next year.

  3. Just the fact that such an index exists and people who expect house prices to fall are described as “pessimists”, is proof enough that we are in a housing bubble!

  4. Disillusioned Aussie

    There are many reasons why I do not expect to see house prices move at all for some time. I think a lot of people that have not already bought are more cautious about debt and might be thinking about some of the following:

    Against rising

    1) It is unaffordable to enter the market unless prices are rising, renting is just a better deal.

    2) Some people will find they have overextended and will need to pull out.

    3) Baby Boomers cashing out, though I expect this to hit in another couple of years.

    4) Australias economy is very weak right now, however this is covered up by the resource sector which keeps money pumping about. A lot of the resource jobs are construction, the mining process has been streamlined and automated to require little labour. The demand for resources only needs to maintain its requirement and not expand for the sector to drop off in time. That said there is still a few years left yet of major projects. One eye on China.

    Against the fall

    1)Where do you put your money, house prices are stalling but whilst there are no other solid investments out there money will not pour out of the market. Stocks have barely moved and are considered much riskier, Gold/Silver is I believe tied to the emotional state of the US and people are not used to dealing with it, though will be a good bet if the US destroys its currency.

    2) Whilst unemployment is low and wages go up servicing the loans is not an issue.

    3) If owners can service the loan they will not realise the loss (stamp duty + fees + loss of grant/incentives + selling costs).

    4)Emotional/status attachment, people want to own a home, as long as people can service a debt there will be some buyers unless confidence falls off a cliff.

    • The other week, i saw what looked like a builders labourer by his attire and the company name on his and his mates shirt in the perth mint buying blocks of silver.

      Times are changing, but we’re nowhere near critical.

      Further the purchase of gold or silver gives one a currency hedge too.

  5. Disillusioned Aussie

    Arghh more rant left in me.

    For a simlar balance too I do not expect to see any major movements in the rates, it would be poor policy to move drasticly in either direction, I still believe there are strong external inflationary pressures and internal deflationary pressures. A slow deflation of private sector debt is a good thing for our economy right now as a lot of this debt is in property and it is not productive. We need to balance the books so that we can invest in productive areas, can someone please invest in some value adding to the resource sector, selling Iron Ore and coal to buy back steel does not make sense in a carbon economy.

  6. hey ill join the “comrades” we are in a BOOM….its BOOMING, keep buying guys nothing to worry about, worry is for the weak. Do it for your country, do it for your fellow people, do it for yourself, just do it. Buy BUY BUY, BOOM BOOM BOOM.
    The pessimists are weak limp wristed trolls, be strong keep buying debt is good it will set you free.

    signed chairman moa.