Insiders turn bearish on housing

You know the housing market has taken a turn for the worse when industry groups renowned for ‘taking-up’ the housing market change track and start conditioning sellers to lower their price expectations in order to promote sales.

A reader, last week sent me the below email report from Ray White, which I think you will agree sets a new standard for bearishness amongst real estate agents:

25-Aug-2011

Dear xxxx,

Macro conditions have significant influence over buyer sentiment and should be considered in conjunction with local market conditions. Talk of a global recession continued to dominate the media last week, with losses on overseas share markets continuing. The Australian Stock Exchange (ASX) fell 3% within minutes of opening on Friday morning, wiping $40 billion in value.

Reuters reported Morgan Stanley has said the United States and Eurozone are dangerously close to recession. In an AAP article, ANZ chief executive Mike Smith said the world economy is now on the edge of another economic crisis.

Domestically, a News article said wage growth has slowed, easing inflationary pressures and increasing the likelihood of interest rate cuts. Financial markets remain confident the Reserve Bank will cut rates over the next few months as the global economic outlook deteriorates.

Conversely, a Herald Sun article reported ANZ chief executive Philip Chronican has said high inflation is likely to keep Australian rates stable in the short term. The comments came after leading US economist Harry Dent said Australia’s real estate market is the most overvalued in the Western world. He believes Australia could follow a similar path to Japan in the late 1990’s, where property prices crashed by 60%.

An article in the Australian said the high Australian dollar and a slowdown in the non-mining sectors of the patch-work economy have claimed their first casualties, with Qantas announcing 100 jobs will be cut. OneSteel has followed suit with 400 jobs to be lost and Westpac has also flagged cut-backs.

Meanwhile, a new “green-scheme” threatens to wipe tens of thousands of dollars off the market price of non-energy efficient homes as early as next year, according to the Herald Sun. The Federal Government plans to introduce a mandatory energy ratings scheme for homes being sold or rented out.

According to RP Data, the latest finalised auction results showed slight drops in the clearance rates for Sydney and Adelaide, with 51% and 22% respectively. Melbourne remained steady at 52% and Brisbane’s clearance rate rose to 27%. Volumes in other capital cities were too low to yield meaningful results.

In light of the current uncertainty and in the absence of any indications of short term improvement, we urge you to carefully review all buyer activity around your property this week.

Talk about Bizarro World. I never thought I’d see a real estate agent quoting a prediction that Australian homes could fall in value by 60%. But there’s more. The reader later sent me a backlog of this agent’s recent emails, which continue the bearish theme. Here are some key extracts:

18-Aug-2011

…An AAP article said the latest ABS data shows total housing finance fell by 1.4% in June. ANZ economist David Cannington said the owner occupied sector was holding up well but that a 4.4% drop in investor finance was worrying. Royal Bank of Scotland senior economist Felicity Emmet said the housing market had previously looked as if it was going to recover but the June figures show that is not the case.

Retailing giant Gerry Harvey told the Herald Sun that the closure of Clive Peeters stores is just the beginning of Australia’s retail problems.  He believes 10% of all shops must close to save the retail sector. An AAP article said the Federal Government is not yet considering a new stimulus package despite conceding some sectors are doing it tough in a patchy economy…

Unpredictable conditions appear unlikely to improve in the short term and are already showing signs of worsening in some areas. We urge you to carefully review all activity around your property this week.

04-Aug-2011

The importance of macro conditions cannot be overstated, according to their influence over buyer sentiment independent of the local market environment. The media continues to create an uncertain tone for the future which is translating to a tangible level of skittishness amongst buyers…

The job cuts from big corporate entities continued with Optus announcing it would shed 250 roles. An article in the Australian said the move comes on the back of Telstra’s outsourcing of 300 jobs to India. The Australian Financial Review reported Australia’s largest department store, Myer, is cutting more middle management jobs and has withdrawn a significant number of job vacancies that had not yet been filled.

An AAP article said house prices have posted their sixth consecutive decline. RP Data research director Tim Lawless said market conditions are being dampened by soft consumer confidence fuelled by interest rate speculation and global economic jitters.

The Herald Sun has reported a surge in the number of home repossessions, the highest for two years. AMP Capital chief economist Shane Oliver said the figures are a sign of the times, with financial pressures on households growing…

21-Jul-2011

…Speculation continues over the future direction of house prices. A Herald Sun article reported the supposed shortage in housing supply that is continually cited as a barrier to price declines is a myth. Dr Ed Shann, director of Asset Prime Management, said there is no more a housing shortage at current prices than there is a shortage of Ferraris. In his opinion, there is simply a lack of affordably priced housing, meaning prices need to fall or incomes need to rise.

The latest National Australia Bank Residential Property Index revealed Australian house prices are being tipped to fall over the next 12 months by the majority of industry experts. A Herald Sun article said Melbourne house prices are set for a full decade of pain after a median price growth of 133% since 2000.

Economists revealed Melbourne now has some of the world’s least affordable real estate, outstripping New York and London. According to the latest HIA-RP Data Residential Land Report, land in Adelaide is now the second most expensive per square metre in Australia, topping Sydney for the first time. Darwin continues to be the country’s most expensive capital city…

Meanwhile, a separate News article said Australian consumer confidence has taken another hit, according to the latest MasterCard index. According to manager Andrew Cartwright, concerns about interest rates, job security and utility price hikes are keeping a lid on spending as Australians adopt a wait-and-see approach.

We encourage you to consider all activity around your property this week in light of the overall conditions. The outlook appears unlikely to improve in the short to medium term and is already deteriorating in some areas…

23-Jun-2011

Talk of rising mortgage stress persisted in the media, with a Herald article detailing a report on delinquent home loans by Fitch Ratings. The data shows two groups of affected borrowers; those on lower incomes and those with holiday or investment properties. According to the article, the current rate of arrears is not a disastrous situation but this could change if conditions deteriorate further.

Retail continued to suffer with announcements during the week of massive store closures by retail giants Colorado Group and Angus and Robertson. Meanwhile, Reserve Bank governor Glenn Stevens issued a stark warning that interest rates will rise, despite signs that many Australian households are struggling to make ends meet…

With concern mounting around the stability of the Australian economy, we urge you to carefully consider the current buyer feedback on your property.

I am interested to know whether this kind of reporting from real estate agents is now widespread. Have readers been receiving similar messages from the real estate fraternity? Or are you still receiving positive reports from agents keen to talk-up the market?

[email protected]

www.twitter.com/Leithvo

Leith van Onselen

Comments

  1. Advertising has dropped and agents are leaving the industry in large numbers. Says it all.

    The true test though is to check the rubber on the RE agents’ tyres. I am predicting “threadbare” over the coming months.

  2. Have to agree with Jake here, there’s no problem in predicting the end of the world for real estate agents so long as you list your house with them they don’t care. Panic selling could (initially) be good for lots of agents.

    • How many panic sellers will pay agents though? I reckon a lot will try private sale or at least negotiate a more realistic agent fee (say 0.5%!)

      • That comes later in the piece Stavros. When you have tried 1 or 2 agents and not sold. And the market looks like it will never pick up. You go it alone.

  3. Went to an inspection at the weekend (blame the missus!) and during some small talk the agent made the comment “If I’d paid attention in Maths class I wouldn’t be stuck here doing this”.

    That was in Sydney’s Eastern Suburbs, which has been largely immune from decreases so far (apart from the multi-million properties perhaps).

  4. I am a renter and the agent responsible is a Ray White franchise. Baiscally the blurb is as above and every week I get new listings and price adjustments.

  5. Sandgroper Sceptic

    Yes. Actually I have noticed two things recently from Perth’s outstanding real estate agents.

    (1) Overall less property junk mail but more targeted material.
    (2) The targeted material is bearish and includes some of the same sort of context as your article is highlighting. The last two pieces were geared towards getting the reader to sell their investment properties earlier rather than later. Another agency was touting their property management services, perhaps things are so bad that this might be their survival line.

    • “The last two pieces were geared towards getting the reader to sell their investment properties earlier rather than later”

      Agents trying to set themselves up with some golden parachutes?

  6. Leith, I have seen a major shift in attitude of my local agents.

    Only a month ago, they were sending out what I thought were desperate spruik flyers listing 10 reasons why RE was still a good buy.

    My wife and I attended a bonanza of open houses on the weekend (a new unit complex has just opened down the road) and the attitudes of the agents were quite negative from what I could pick up. Most seemed embarrassed when discussing price and were quick to throw in the “negotiable” disclaimer.

    This is in an area that was boiling along recently on the back of foreign investment, but it looks to me like we have hit a top and everyone is starting to realise that. The new building is quite poorly finished, and it appears that the aim was to cram as many pokey units as possible into the land available. Considering they were selling off the plan for $560k (2br, 1 car), the rental proces are $540 a week (neg.) so considering a $1500/quarter strata, thats not a great return at all.

    Sentiment seems to have shifted where people are finally clicking that these prices for such poor quality dwellings represent appalling value. Not sure if there will be large falls just yet, but I see no upside to prices at the moment

    • You mean you didn’t see any cashed up foreign investors lining up outside?
      .
      But only last week, the good Dr Andrew Wilson was giving out “The barbarians are at the gates” warning to prospective FHBs!!

      • No, they were knocking the doors down a few years back when these things sold off the plan. Last weekend was for the rubber neckers like us. I didn’t see anyone who looked genuinely interested. Mostly just local residents of nearby buildings getting in for a sticky beak

    • $540 per week for a 2-bed, 1-car unit is a hell of a lot of money. How many pensioners would need to pool their resources to rent such a unit and still be able to eat?

      • I’m afraid that it isn’t for anywhere within 20km of the Sydney CBD. Remember, Price and Value are’t the same thing. In a rational world, you would be stupid to pay $540, but the need to locate within bearable commuting distance means that is what you must pay. I see this falling soon mind you, as supply is climbing greatly. The demand is dropping somewhat as the queues for rentals are nowhere like they were a year ago, hence the “negotiable” disclaimer. A heap of these places were bought off plan by investors, so there will be a push to get them tenanted and turning over some cash.

        • I’m paying $500 a week rent for a 4 bed room HOUSE with off street parking less than 10 kms from Sydney Central… good luck with those units!

          • Wow, thanks for that……let me be the first to congratulate you.

            Sure, there are bargains everywhere, but my argument is that $540 a week in a new building, 12km from the CBD with ferry & bus services, close to the M4 etc. is not out of the ordinary. I didn’t realise this was a who pays less rent competition?

          • Sorry Delraiser, didn’t mean to sound like a rent competition. I really meant to support your arguement that: “The demand is dropping somewhat as the queues for rentals are nowhere like they were a year ago..”. That there now seems to be alot of houses out there for the same price might be a factor.. albeit old and run down I agree… but the options appear to have increased favourably if you’re a renter.

          • Too true. I don’t think we are quite there yet, but I reckon by Christmas the worm will have turned and the “rental shortage” will be shown up for the lie that it is

          • Delraiser – I pay $220 per week for a 2 bed unit 6km from the CBD*

            I do hope I’m winning so far 😛

            *Brisneyland

      • My rent on a 2 brm aprartment in the Sutherland Shire Shire up by ~10% last year ($380 to $420). I have just been asked to sign up for another 12 months with no increase in rent. Looking forward to a similar offer next year assuming that they haven’t been forced to sell!

        All whilst banking the difference from paying a stupid mortgage…

  7. “….with Qantas announcing 100 jobs will be cut.”

    I thought Qantas announced that 1000 (not 100) jobs would be lost.

    Currently taking a vague interest in RE (PPOR) in the SEQ region at the moment.

    Sent wife into agents offices to pick up brochures – send her in because she’s nice enough to relate to them like human beings.

    First agent told her: “It is no longer a buyers market – it is a make-an-offer market” verbatim.

    Next stop, when wife expressed mild interest in one property, agent immediately blurted out: “Owners have bought elsewhere, only hanging on to this property with bridging finance!”

    My, how the times they are a-changing.

    Patience, my friends, patience…..and keep your powder dry.

  8. I work in one of “those” eastern suburbs real estate agencies in Sydney. I work part time in the property management side while I study.

    Here’s my experience:

    -Older Investors we manage properties for have to be convinced by my boss that they are not going to get the rent they want and increasing rents this year like last year isn’t going to happen.

    -Properties will sit vacant for a couple of weeks not being leased until the owner accepts defeats and drops the rent. (3 weeks lost rent)

    -The Sales guys are finding it hard to get listings. Roughly 80% of their listings come from the property management side as investors want to sell up.

    -The drama between agencies and the constant fighting is enough to create their own realty tv show.

    -A couple of agencies especially in the Randwick, Maroubra, Bondi areas will be closing pretty soon.

    • I walked past Ray White in North Bondi on a Monday morning a few weeks ago. They were obviously having a very grim staff meeting in their fishbowl boardroom. I bet they wish they had invested in some blinds.

        • +100 for the Kuulturrre! Housing Troll.

          “Leads… you got any leads?”

          David Mamet is a true artistic genius. 🙂

          “The film depicts two days in the lives of four real estate salesmen and how they become desperate when the corporate office sends a representative to “motivate” them by announcing that, in one week, all except the top two salesmen will be fired.”

          http://en.wikipedia.org/wiki/Glengarry_Glen_Ross_%28film%29

  9. I’m living in a small coastal town in southern NSW which has a ‘false floor’ under it (compared to local wages), due to the constant influx of cashed up refugee retirees mainly from Melbourne. Building appears to have slowed – a couple of overpriced building mobs have left the area, Prices have dropped (not enough for local wages yet), plenty of ‘for sale’ signs up but things don’t appear to be moving that well. Rentals have dropped as well. A couple of agents are moonlighting as dish pigs to get themselves through. & housing is spoken about in hushed tones – as if no one else knows there is an issue…. “Don’t mention the War”.

      • It’s a nice place for a slower pace. Sometimes feels a bit isolated though (distance). & jobs / wages are quite an issue! Household economics here are a bit topsy turvy compared to what I was used to in Sydney. By what I can gather anecdotally most sea change zones up & down the coast have a similar story – I don’t really know how these area’s will play out? So long as retirees can sell up & buy in these areas & still have cash left over it’s seems like it’s a go? Time will tell if they can keep selling the dream.

        • I am familiar with the south coast, good ole rental assistance keeps a floor on prices, the locals who cant buy always need to rent something. Pambula seems to be where most of the locals actually live.There is always a large number of properites for sale, as the holiday home becomes a money hole. Good ole John Howard for relaxing the assets test in 2004 did these areas a favour.

          • You’re right Jack about where most of the locals live (can afford). I can’t say about the rental assistance floor, though – if I were buying for yield I’d be comparing closely elsewhere. Quite a few holiday houses are used for a few years as weekenders till they retire, not rented out. That could pressure some. & a lot of older retirees go ‘back home’ to their families when it’s time for the nursing home. So there is always an underlying turnover.

            Prices however, were awry well before Johnny waving his wand in ’04. It would have been hard to detect any further acceleration at that time due to the bedazzling smiles of the giddy agents who were already well fat on commissions by then.

            Now the area has a growing identity crisis as it Was / is a holiday hub, now becoming a retirement town & there seems to be some friction twixt the two ‘industries’. Overall this decade it is Retirees who were pushing up prices here supported by the ‘wealth effect’ & selling up in their own cities. The population is growing – so is the age demographic. 37 Yrs nationally, 57 Yrs here.

        • Nudge,

          Lived in Merimbula during the period when Kennett came to power. Ten minutes after he introduced the Razor Gang, Merimbula RE went down the toilet. Every second house in the town was owned by a Melbournite.

          Don’t know if the same level of absentee ownership still applies, but if it does, and things go pear-shape in Melbourne, hang on for the ride.

  10. Interesting anecdotes. I had been wondering why I was being inundated with marketing guff from the sales people seemingly desperate for vendors (in Sydney’s inner west). Georgie’s comments above go some way toward explaining it — it sounds like the sales people need to generate their own leads for a better commission, as opposed to a vendor coming from the management side.

    • Leads… did you mention you have leads… are they warm?

      😉

      Sorry I am on the David Mamet Meme now!

      🙂

  11. Vendors would do better selling their own houses. NSW RE agents don’t or won’t do much to earn their commissions – never follow up, just push the offer up, overquote to get listings etc.

    • Victorian agents are just as bad. They are mainly spivs and louts dressed in suits with no idea how to sell.

      • Well when property was doubling every 7 years it sold itself – safe as houses mate! Equity ate!

        Negative Equity oops I mean Negative Gearing mate!

        TM.

  12. The agency I rent through sends me an email spiel every week or so..

    No change from them, this week’s headlines include:

    – Big gains from small renovations
    – Little cost, big yield
    – Investment earns $45,000 bonus
    – State of the market (rents jump in vic, ‘investors heaven’ in Sydney)

    Drinking the kool-aid.

  13. To add a bit of pain for REA, there are more a more online discount realestate agencies (I am currently setting up one with my unused license, we are offering low or no commission (0.8%) ).The old Realestate guys with their area spending big of sellers money to propup themselves is a thing of the past.

  14. Where I am at the moment, anecdotally things are looking pretty grim. One house in need of renovation has dropped the asking price from $1.1 million to $700,000 and one large vacant block has dropped from $1.4 million to $750,000. All of the locals were laughing at the initial price for the vacant block, but even they are surprised by the size of the fall. I’m not giving the postcode or suburb, for privacy reasons, but it is the north coast of NSW.

    • Privacy reasons? There are websites that record these drops…its publicly available information.

      (Except in Victoria where a real estate family is running the state so no official sales data is available)

  15. I received the following email from my local RE agent last week. You can make your own conclusions….

    “Hi,

    June quarter statistics released by the Real Estate Institute of Victoria show that Melbourne’s median house price has rebounded after losing ground during the first quarter of 2011. The median price rose from $560,000 to $590,000, an increase of $30,000 or 5.4 per cent.

    Although the recent growth in prices certainly does not mirror the boom conditions experienced in 2009-10, when house values jumped by more than 25 per cent, the latest data provides further evidence of the underlying strength of Melbourne’s property market.

    For the longer-term health of the market, moderate upward movement in house prices is arguably preferable to excessive swings in values. History has shown that increases of the magnitude seen two years ago simply cannot be sustained for any length of time.

    Also, rapidly escalating house prices – while no doubt very appealing to homeowners and vendors – have the potential to cause uncertainty in the marketplace, especially at entry level because it’s invariably first home buyers who feel the pinch first.

    Fewer buyers entering the market for the first time reduces demand for homes and generally leads to a progressive reduction in overall sales activity. When this happens there is frequently a flow-on effect with prices dropping across the board.

    Although the latest median price figures are solid rather than spectacular they paint an encouraging picture for the remainder of 2011.

    If you’d like to know how your suburb fared during the June quarter or how the market has shaped up since then, I’d be delighted to help so please don’t hesitate to call me on 04?? ??? ???.

    Kind Regards,”

  16. Who are these investors buying rental properties with yields of 2-3% nett and negative capital growth when the money market returns 6%+ risk free, surely this is the fast way to the poor house?

  17. Hi I am from Ireland , we just went through a bubble , very scary how similar to austrailia it sounds ,high rents cheap credit and buildings about to catch up or overtake demand , get out now if you can

    • Peter, where abouts in Ireland?

      Love Ireland and the river Liffey and St James Gate… ahh I was a sad tourist but the Guinness is definitely better in Dublin!

      🙂

  18. Was up the Sunnycoast last week. RE prices in some areas (Noosa esp.) we have been monitoring (shop window sticker prices) have gone back up.

    Trap door spiders for the unwary. The bottom is in, manipulation mentality by playing with sticker prices and pandering to f-wit delusional sellers.

    The old bounce them between fear and greed to generate sales.

  19. In the current environment of uncertainty, macro conditions may overshadow local market conditions and the two must be considered in conjunction for their impact on buyer sentiment. The Reserve Bank’s (RBA) decision last week to leave the official cash rate on hold at 4.75% came as little surprise, the tenth consecutive month rates have remained stable.

    While the RBA is adopting a wait-and-see approach, Governor Glenn Stevens has cautioned that there is no way of knowing what will happen in financial markets over the coming months. Stevens said any number of hurdles in Europe or the United States could serve as a catalyst for increased anxiety, a situation that could persist for the foreseeable future. An article in the Sydney Morning Herald reported financial markets are now pricing in 1.35% of rate cuts over the next twelve months. Westpac chief currency strategist Robert Rennie said he senses an increasing sense of deterioration in the global economy.

    The Herald Sun reported almost 10,000 jobs have been stripped from the workforce, with the jobless rate rising to 5.3%, the highest level in ten months. Official employment figures show the ailing retail and manufacturing sectors are shedding jobs in a contraction which was largely unexpected by economists.

    The Sydney Morning Herald reported on new data released by researcher SQM Research which predicts house prices will continue to decline in 2012. The report said while an economic catastrophe in China or a second global financial crisis could result in a major price crash, it’s more likely prices will continue declining as buyers avoid a falling market. Director Louis Christopher said he believes Melbourne, Brisbane and Perth prices will be as much as 15% below their 2010 peaks by June next year, assuming rates remain on hold.

    The latest finalised auction data from researcher RP Data shows the Sydney clearance rate has dropped below 50%for the first time since June. Melbourne and Adelaide’s clearance remained level at 51% and 38% respectively, while Brisbane’s clearance was slightly higher at 28%. Volumes in other capital cities were too low to yield meaningful averages.

    In light of the current climate and with an overwhelming uncertainty hanging over the future direction of the market, we encourage you to carefully consider any activity around your property this week.

    RAY WHITE 120911