Housing’s steady melt continues

The monthly RPData stats are out today and the slow melt continues.

The value of homes overall fell 0.4 per cent during August. Perth down 2 per cent, Canberra down 1.8 per cent, Adelaide down 0.6, Melbourne and Brisbane down 0.2 per cent, Sydney flat, Darwin up 0.2.

Charts below.

From Bloomberg

Australian home values fell 3.2 percent in the year to August, with the top end of the market seeing steep declines, according to the RP Data-Rismark Home Hedonic Index.

Prices across Australia’s eight capital cities fell a seasonally adjusted 1.4 percent in the three months to Aug. 30 and 0.4 percent during the month, RP Data and Rismark International, which compile the index, said in an e-mailed report. Values in the most expensive 20 percent of suburbs slid 5.5 percent over the year, compared with a 2.9 percent decline in the lowest 20 percent and 3.1 percent in the middle 60 percent, it showed.

Full media release available below

RPData Sept

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Comments

  1. It continues but the slow pace is worrying. It feels like a cut in interest rates is all it will take for people to rush back in.

    Perhaps China needs to to slow by a meaningful amount for prices to slide properly.

    The consolation is that in the US, prices fell at such marginal rates for over a year before they commenced their plunge.

    I just hope that cuts in the interest rate and a possible FHBG don’t arrest the drop.

    • Hello Tomek,

      price will not simply go up or down at a stright line. it runs as waves no matter in bull or bear market.

      slowly and long-term decline is more frigthening/painful to the house holder, and the price will eventually slide further than steep/quick correction.

    • We will see. A smidgen of unemployment giving rise to distressed sellers?
      Educated buyers not gunna play the game?
      Bank wholesale funding costs rising taking rates with them?
      Many years will pass before this is resolved

    • I hope so too. But we’ve seen politicians press the FHBG too many times in the past to be confident it won’t happen again this time.

      Although they never say so publicly, the senior pollies are well aware of the politico-housing complex and I reckon they’re ready to press the stimulus button once price falls exceed a certain amount(perhaps 10%).

      • Tomek, I don’t think you need to worry too much about the government inducing FHBs into the market and kicking things off again.

        Firstly, I do believe that first home buyers are crutial to the market and that any change in the market direction will occur if/when they reenter the market. I have found that FHBs are a lead indicator for prices by about 6 months and they have a reasonable impact on the market.

        However, there is a common misconception that there are hords of FHBs that have been holding out after they missed out on the rudd-stimulus. If you look at first home buyer numbers for the last 10 years it has been, on average, slowly increasing at about the rate of population growth as the proportion of people who are home owners has remained stable (even rudd couldn’t change that). While you can see the numbers in the first home buyer data, it’s a pretty simple calculation, there are about 22mil people, you’re only a first home buyer once (in approx 80 years of life), we have around a 70% home ownership rate (but over the whole population around 80% of people will own at sometime) and and most people buy as a part of a couple (say average of 1.7 people per first property). My numbers are rough, but you get pretty darn close to the current 4 year average of around 129,000 FHB per year. However if you look at the last 10 years, we’re currently sitting ahead of where we should be which is due to the induced FHBs in 2008/2009 where it was pushed up to 190,000 in 2009. This lull at the moment is the vacuum of FHB activity because it was brought forward and NOT because people waiting to getting in.

        There are some waiting like yourself, me and Stavros, but across the country, people who could buy generally have.

        To get the FHB numbers back to where they were we either have to wait about 12 months until the numbers naturally build up again or bank standards will have to be lowered even further than before and the stimulus even bigger.

        While it never ceases to amaze me how people will do anything to get into property and the government to encourage it, the numbers don’t lie, there is no waiting mass of FHBs to reflate the market.

        Trust me, it’s in the data 😉

        • Great analysis.

          But even though there’s no glut of FHBers on the sidelines, the government could bring-forward more FHBers. You’ve made the case that there will be a vacuum for the next 12 months, which implies that the last FHB bubble took in buyers from a couple of years in the future – say 2010-2012. So something similar could happen again, although maybe not quite as large as last time, at least not within the next 12 months. Of course that would just kick the can until the next bust. Personally, I don’t think they’ll bite this time (and by “they”, I mean either Government or FHBers).

          • Thanks, what can I say, the data speaks to me.

            The best they could do at the moment is get numbers back up to normal with a big wad of cash, which at best would get us back to modest growth until it collapses again.

            Otherwise they wait until 2013, which if 2012 plays out like the US in 2008 (as per data swords analyis) it would all be too late…

          • Yep, just noticed that myself – small, almost indistinguishable uptick in the Case-Shiller stats from about 6 months into their downturn. Then 6 months later, almost straight down… Ouch!

  2. The US housing crash was also during a time of relative fianancial certainty to what lies ahead.

    Why anyone is still committing to 500K debt for average house is beyond me.

    The falls will accelerate from here on. Some of the drops are already pretty rapid (Perth -2% and Canberra -1.8% in a month!)

    • As I wrote on another comment, the boom has changed people. They truly believe that any drop is just an anomaly on the way to a median price of 1 million.

      Many people will have been saving unable to get in and will be scared to miss out on buying at the bottom.

      Of course, the turmoil overseas should make most people wary of buying at any price considering that their job may not be so safe if/when things blow up. And the longer our dollar holds above 90 cents, the deeper our non-mining economy will fall.

      You are right though, 2% in a month is huge. Perth has been felling like this for a while now so an annualized drop of 20% is not unreasonable. There must come a time where cheap houses in other states simply must pull house prices down in Sydney and Melbourne. We do need a big drop though. Even a 20% fall from 500k is still 400k which is insane.

      • It’s the saddest system where the people who are saving the longest become the last fools in the bubble and capitulate just before the bubble bursts – very few hold on to the end I believe. In other words get into debt and get into it early because most people (and that may include myself) don’t have the mental patience to save forever and hold on for so many years. Knowing this better not to be the last fool.

        Even savers only have so much patience (i.e pent up demand). I do believe that everyone I’ve met really does want a patch of land under their feet they can call their own. Young people have it difficult just starting out of course.

        Of course after the last GFC a lot of people I know think that the government will bail them out anyway. No risk to them if they buy.

  3. I would be interested to know what is the peak to trough decline. This whole year to August decline is only part of the truth.

  4. If investors are not going to buy in, the price will continue to drop anyway. If interest rate is going down, the price could be stablized but may stay in flat for many years.

  5. Delusional Economics- I remember on your old excellent blog you used to keep historical RPData month-by-month numbers like this:

    http://delusionaleconomics.blogspot.com/2011/01/yet-another-day-of-confused-housing.html

    So according to those numbers, in November 2010 Sydney was up 6.7% year on year with a median price of $525,000. Today Sydney is up 0.3% with a median price of $500,000.

    So, if November 2010 was Sydney’s peak (I like to think that the infamous Melbourne cup of 2010 was the turning point in Australian real estate) then Sydney must be down 4.76% from the peak.

    Does that sound correct? Do you have the historical data for November 2010 to now?

  6. It would be good to add a statistic I read from MSM that from the peak until now, a median property would have been losing $800 per week. That is in addition to the un-mentioned $500 or so in interest payments. It looks like its continuing.

    Even small percentage drops and high numbers don’t mix very well!

    • Or to make it look even worse calculate the loss of equity.

      A 5% drop in property prices on a 95% LVR house is a 100% loss of equity.

      • Welcome Cy, I like the cut of your jib 😉

        Folks that can cut through the swill to show an outcome through empirical facts earn a schooner on me.

        Whats sad, Cy, that data you plainly describe is year 9 maths and it flys over head of most of society.

        Heed the call of the Wildebeeste! 🙂

    • How about 3 x $500K investment properties with a deposit on all using your $500K place of residence ‘positive’ equity.

      At -10% one has wiped out $200K. $4k a week in smoke? Ouch.

      Cue: Evil laugh.

  7. We seem to be continuing at a pace that would see a 40% real drop after 10 years, i.e. housing is Keening it.

  8. I’m still holding to my belief that Oz’s Minsky year, if it happens, will be next year. Since late last year, my prediciton has been slow, steady decline which will pick up some momentum through this year, but will accelerate going into mid-late 2012 which will make the year for us what ’08 was to the US.

    Disclaimer – predictions are attributed to a non-govt meddling scenario. If the govt steps in (a highly likely event), then all bets are off…

    • Well truth be told, even if the govt re-stimulates, I’m doubtful the same results as the ’08/’09 splurge will be achieved. Unleass the govt REALLY, and I mean REALLY unleashes a motherload on housing will we get another “boom”, in which case then, you can kiss goodbye the 2013 surplus and falling IRs.

    • There’s no reason why it couldn’t reignite the boom again, the only problem is we are heading – measured in many years, not months – a possible ZIRP environment. If we get there, stimulus wont work.

      • Which is why I’m starting to think that houses are like bonds – they rise when interest rates fall with a lag of course. Would be interested with a comparison of other economies that have control of their interest rates and currency if this is the case.

        Really approximately 0% interest rate is the lower bound interest rates therefore the highest level of debt people can reach if they borrow to maximum capacity (and as the recent report showed particularly in the poorer areas most do borrow the majority of the cost).

    • I’m still betting on a very sharp decline in 2013 though 2012 is seeming more likely every day – that is if we can see out 2011 first!

      I figured that 2012 is the year that both the US and China’s leaders change. Neither will do anything for a year because they’re new. Their relationship will simmer. Finally sometime after the Chinese new year in 2013 (13 + year of the rat? It’s too perfect.)
      China will pull the plug. Treasuries will bomb, the RMB will float, there’ll be a massive, truly global seizure, a flood of US dollars returning to the USA as holders see its value declining (path of least resistance). This will boost the US economy before insanely high inflation finishes off anyone who’s survived the last 6 years.

      I hope the RBA does their RMB currency swaps soon.

  9. A slow decline in real housing prices until they match real incomes seems the optimal outcome to me. Ideally housing prices will fall back to the old post-war formula of repayment being no more than 30% of disposable income.

    There’s no point in wishing ill on the poor sods who bought overpriced housing because it was that or spend the rest of their lives being moved on from one private rental to the next every time the landlord wanted to sell. (I’ve been there and done that and it gets very frustrating, very fast)

    • Yes, amidst all my hopes for a painful crash, I do know that for the most part these people were being human. Either foolishly in desperation gearing up near the top, or wisely buying on the way up to make easy riches. The MSM was allowed to sell paid-for- hype and lies. Even the greedy banks are simply working within the rules, or lack thereof.

      The true culprit is the Government who have done their very best to crush people with debt, and the eventual property crash. History is a good teacher and there is no excuse for the lack of oversight. It is their policies that setup this situation. However, there will be no consequence to them. They are not even likely to be blamed in the history books. They are the true corrupt criminals that drive economies off cliffs and laugh all the way to a comfortable pension.

      • I’m in complete agreement with you Tomek. The only way to make politicians learn a valuable lesson is for us voters to always turn out the sitting member, regardless of party.

  10. When I turn my iPhone upside down the first chart gives a reasonable approximation of what the next 10 years might look like..

  11. Robust rental growth keeps total returns positive in August
    .
    These guys should become wellness gurus like Deepak Chopra ..They are always putting out positive vibes 🙂

    • By the way – what does “rental growth” mean?

      Does it mean that absolute rent prices are increasing or just that rental yields are increasing?

      Because if house prices are falling and rent prices are flat then technically rental yields are increasing.

  12. IIRC, US housing was softening for a period before the crash hit. How long was it? 9 months or so?

    I remember seeing economist presentations in 2007 to the effect of ‘US housing is not a problem from the broader economy’…famous last words…

  13. Also, am I correct in thinking Perth median house price was down -7.2% YoY to July? Plus -2% for August, we’re nearly at double digits.

    Is it just me, or is this not very obvious from the official releases? I feel like, the way this data is presented and rolled out in the MSM, we’re going to see declines from peak of 20% before double digit declines are reported!

  14. I have just compared RPDatas report from sept 2009 to the sept 2011 report and found that the median dwelling price in Sydney has fallen from $546,867 to $500,000 (8.5% decline over 2yrs). I don’t recall seeing a report of Sydneys house prices falling, have i missed something?

    • The Sgt Shultz pill.

      When you take it, “You have seen nothing, you know nothing”.

      You then go out and borrow $600K on $80K family income with a pregnant wife for a dog box on a postage stamp near a knife fighting academy…feel good about it and go have a latte 4 blocks away (where its safe) with stupid smile on your face.

      In three years time you don’t notice the negative equity because Captain Herald and Major Herald has you in fear of some unauthorised Howler Monkeys rowing to Darwin from Madagascar.

  15. Sub-Prime. Any mortgagee paying more than 30% of their income to the bank is sub-prime. We may not have NINJAS, but post 2007 FHB’s are tipping into SP.

    All the Stale Stock on the market means new construction has virtually ceased. This is a big employing sector and is now on its knees next to tourism, Asian education, retail and finance industries.

    The LVRG forecast of 50% falls in real land prices over ~6 years is coming true.

    And where have all the spruikers and trolls gone??? Their sterling contribution is missed from this comments page.

  16. @ David

    “And where have all the spruikers and trolls gone??? Their sterling contribution is missed from this comments page”

    I have to agree.

    The spiv I dubbed “The Captain” (The Captain goes down with his ship), seems to be ‘missing from the bridge’.

    Maybe he went ashore without a leave pass! That’s our modern leadership.

    • I’ve always thought that BB was Bullion Baron, but that is wholly unsubstantiated guess work … just my netuition

      • He was at APF sometime ago, now with a MMT slant , but he is a smart guy with some original ideas.

        His argument was that house prices are high because input constructions costs are high.

        But it still doesnt answer, if House prices are high due to costs,, then eventually these costs should return as wages to buyers, this shouldnt be skewing the affordability ratio towards unaffordability.

  17. It is fascinating that the editors of this site prevent people posting information that opposes their bearish view, and provide information as to why houses are still in a bull trend and will make new highs. In fact that sort of action virtually gaurantees it will happen, for the very reason that they are so insecure about their own bearish outlook. Rather amusing really. Keee up the good work.

    • The owners of this site appear to like empirical data and analysis.

      Further, none of them are bears per se since most appear to favour a slow melt. A best case scenario. In that vein they are bulls. A view I oppose.

      An actual bull scenario is just absurd since the punters are already maxed out with credit committments and boomers are starting to panicking.

      I’m sure if anyone posts good empirical data it will be posted.

      Good data IS NOT a growing populace (our rate of growth is very low compared to say to the late 60s); The China link is nebulous flotsam; as is dwelling shortage, land shortage yada yada.

    • Velociraptor posted above “The China link is nebulous flotsam; as is dwelling shortage, land shortage yada yada.”
      Regardless of prices and credit, the shortage is very real to the people who are currently missing-out on decent housing.

      • Sure there are shortages.

        There is a shortage of 4 bedroom houses in Vaucluse priced under $2M.

        There is a shortage of 400Oz Gold Bars in my safe.

        There is a shortage of reality in many people’s expectations.

        • Of course there are many shortages. Admitting this is just the first step in overcoming your denial. Shortage of housing is not one single thing that either exists or does not.
          Your stated shortages don’t bother me. What bothers me is the structural shortage of decent housing near jobs that government policies have created in Australian capital cities.
          What also bothers me is when shortage-deniers claim that shortage is not a problem and only prices are too high. They also often make ridiculous comparisons to other countries such as Ireland. When questioned further it is revealed they no nothing about these countries other than that prices once rose and prices once fell.