Anyone that follows the Australian housing market will know that the South-East Queensland (SEQ) and Perth housing markets are in trouble. After registering above average house price growth in the years leading up to the global financial crisis, both regions are now underperforming, registering significant falls over the past 12 months.
According to RP Data, Brisbane and Perth registered price falls of 6.3% and 4.7% respectively in the 12 months to June:
And according to Residex, country Queensland’s housing markets are also struggling, registering house price declines of 4.1% and unit price falls of 9.8% in the 12 months to July, caused in part by the slowdown of tourism.
The malaise that is Queensland and Western Australian real estate is also reflected in both region’s mortgage arrears, which are showing a clear break-out for loans originated in 2008 (chart from the RBA):
With these statistics in mind, I want you to consider the following emails received last week from two MacroBusiness readers, who were kind enough to share their experiences of the Perth and SEQ property markets.
Both messages, which are presented below with permission, offer a unique insight into what is really going on in these markets and supports the weak data presented above.
The first message is from real estate agent, Bernie Kroczek, who has been servicing Perth’s northern suburbs for 25 years. Bernie first sent me a short message of support early last week, which I responded to by asking for his views on the Perth housing market. Below is Bernie’s response.
Congratulations on your fantastic blog.
Having been in the real estate business for 25 years (this month) I can say I have not seen such a dead market. I have also been speaking with some pretty experienced salespeople and they all agree. Offices are closing down and salespeople are leaving the industry in droves. After all everyone has to eat.
Real estate agents’ income is dependent on turnover, regardless of whether prices are going up or down. According to Landgate, where all property transactions are registered, turnover has fallen by 40% over the past 5 years. You could say then that income in the industry as a whole has fallen by 40%.
As for prices, they have been deflating since 2007, apart from when the Government artificially stimulated the market at the end of 2008 by doubling the First Home Buyers Grant. Anyone with half a brain could see what was going to happen when it ran out. Everyone, that is except the Government and, sad to say gullible first home buyers who were lured in to the market by historically low interest rates and some free money.
Steve Keen was absolutely right when he described the First Home Buyers Boost as the First Home Vendors Boost. The free money went straight into vendors’ pockets, plus some as first home buyers jumped over each other to get into the market.
Now you hardly ever see a first home buyer. As for investors, I haven’t seen one of those for a while.
I notice the banks are starting to loosen up their lending criteria again. That’s a worry.
However, as I always say, “there is a buyer for every property, in any market, at the right price”. My view is that it will take some time for the market to recover as there is no confidence in the economy or the present federal government.
Confidence is everything.
As for the rest of the “booming” WA economy, I was speaking to my hairdresser and mechanic this week and both of them said they have never seen it so quiet. I am hearing the same story from every small business person I speak with.
Having been through Keating’s recession I can say this feels worse, although I am not seeing any distressed or forced sales of property, which we saw quite a bit of in 1990-91.
Then again unemployment (official) is still very low, at this stage.
As I said in my earlier post, economists should get out and about a bit more, and the government is simply in denial.
Personally I am in favour of a resources rent tax, if properly and intelligently applied, something beyond the scope of this government, it seems. As for all the other issues such as flood tax, carbon tax and rising cost of living, it is little wonder consumer sentiment is down, and that is something which won’t shift overnight.
Sorry about the long winded response to your earlier email but I think my reply accurately sums up the WA economy and in particularly the real estate market.
Thanks for your message and best wishes.
I think we can all agree that Bernie’s synopsis of the Perth housing market is worrying and suggests further weakness. I wish Bernie and his wife Gai the best, and hope that their real estate agency survives the lean period ahead.
The next message comes from “Kylie” (name changed), who provides an intriguing insight into the current state of the Sunshine Coast housing market.
I just wanted to thank you for all the information and hard work with the website. It has really given me a balanced perspective of what’s actually happening and allowed me to make better informed decision for my financial future.
I thought I would share some of my history with you about my own experiences with housing and about what is happening around my area, the Sunshine Coast.
I purchased my first property at Everton Hills, Brisbane in 2005 for $289k and rented it out until December 2008 for $300 to $330 per week while I lived and worked in Central Qld in subsidised rental housing.
In late 2008, we relocated back to SEQ and my now husband and I put the property on the market so that we could relocate to the Sunshine Coast. After much heartache, we eventually sold our house for $389k after reducing the property from the listed price of $429k. Overall, we were happy and found a place to purchase at Little Mountain for $427k and increased our mortgage to $350K.
Initially, after coming across some of your work I felt that it was a touch left field for me and the housing fundamentals would see the property market through. However, I did feel that we may need to sell our property and move to a better location as Little Mountain was very over built and not stopping. However, my husband did make the key point of “but we can afford the mortgage”. We sold for $415k after 2 weeks on the market for less than what I wanted but we thought we had better not let it go by. At this stage, my husband and I are on a combined income of $150k gross – both teachers.
This didn’t sit well with my husband, and it was all but impossible to get him into the rental market. It was my preference to be cautious, but he was adamant that only losers rent and I had already made him move from where he was happy, so we purchased at Warana for $465k close to the beach in November 2010. Although the purchase was against my wishes, I felt that the location place us in a stronger position in the long term.
Fast forward to March 2011. I was broken with stress and worry and I had to break the news to my husband and parents that I felt we should exit the property game ASAP. We had a $420k mortgage by this stage and cannot afford to have kids or just live a decent life and we are witnessing prices coming down fast around us. I felt that this was not the path to financial freedom as nothing great was going to change wages wise and we would be paying over $3k per month for the next in 30 years!
The straw that broke the Camel’s back was when I rang my previous Little Mountain agent to enquire about dogs and renting. I let him know that I was thinking about selling and renting, and he proceeded to tell me that he was doing the same thing and his house was going to auction in four weeks! Naturally, I put our house on the market the next day.
To cut a long story short, we sold for $430k after two months and walked away with nothing. All that equity that we had built-up from the original property had gone through selling at a loss, stamp duty, agent fees, mortgage insurance, etc..
We are now currently renting for $420 a week in a house that could have fetched $600k at the peak of the boom in 2008. We can afford to have kids and actually live.
I feel now that the challenge lies in what we do with spare money we have from not paying the massive mortgage. But I can live with that problem as opposed to having the big mortgage noose around my neck for the next 30 years.
In the course of selling our home, I have also come across the following recent sales stories:
- Parari St, Warana: purchased for $430k in 2008. Owner sunk $80k in renovations then put it on the market in March 2011. The auction failed, with a best follow-up offer of $385k. It has since been pulled off the market and is advertised for rent.
- Peacock St, Bokarina: purchased for $470k in early 2008. Owner sunk more than $120K in renovations before listing in June 2010 at $600k. Sold in February 2011 for $430k and is currently rented for $450 per week.
- Brightwater (Master Planned Community): 1 year old house purchased for $485k. On the market for 7 months before selling for $390k.
- Coonang St, Warana: bought March 2007 for $739k. On the market for ages. It was initially priced in the $700’s and then high $600’s. Now it is under contract this week at $580k.
- My Minkara St, Warana house: sold in August 2011 for $430k. Now rented for only $400 per week.
I also spoke to my agent who sold our Little Mountain house and he reported that it getting really ugly out there. The sharks are circling apparently…
I trust that you find this information useful. Thanks again for your balanced perspective.
Thanks for your message, Kylie. Nothing beats stories from the coal face to find out what is really going on. I am glad to hear that you and your husband got out okay – albeit with less money than you had hoped. It must be a great relief for you both. I am also thrilled that you find my analysis useful.