MSM turns bearish on Melbourne housing

They are only a year late, but if we are to take the Herald Sun as a guide, the mainstream media (MSM) has turned bearish on Melbourne housing.

An article entitled Sad end to a ‘Super’ day as home sales plummet encapsulates the change in sentiment:

VICTORIA’S only Super Saturday of the year, with about 1000 properties put to auction, has failed to rally homebuyers as sales plummeted to the lowest clearance rate in eight years…

About 1000 properties were scheduled to go under the hammer, with the Real Estate Institute of Victoria reporting an initial clearance rate of 53 per cent from 885 auctions lodged with it by late yesterday afternoon.

The number is set to drop further during the week as the REIV chases down missing results.

The washout comes as new data shows the number of properties for sale in Melbourne has slumped to a 15-year low, according to figures from property research firm RP Data.

Some 72,666 property sales were recorded in Melbourne in the past financial year, 23.1 per cent fewer than the previous 12-month period and the lowest sales volume since 1995-1996.

Across the state, 98,888 sales were recorded in the 2010-2011 financial year, 21.2 per cent fewer than the previous year and the lowest since 1996-1997…

I am sure Melbourne’s real estate agents are getting very nervous. Given they rely on transaction volumes to make ends meet, the drop in sales is likely to hurt many:

Spare a thought too for the Victorian Government, which has wrongly budgeted for steadily increasing stamp duty receipts over the forward estimates. Expect big revenue downgrades in the lead-up to next year’s state budget.

The article also highlights the explosion of listings in Melbourne which, when combined with the current housing construction boom, is likely to weigh on prices for a long time:

The time it takes to wrap up a sale has also blown out, with houses averaging 52 days to sell compared with 38 days a year earlier.

Flats, on average, are taking 45 days to sell, up from 37 days a year earlier.

Stock levels in Melbourne remain at record highs, with 49,613 properties for sale at the end of last month, up by about 42 per cent on the same time last year, according to figures from property research firm SQM Research.

Listings have risen every month in Melbourne since April last year.

“The tide hasn’t turned,” SQM Research director Louis Christopher said. “The worst is still in front of us. There is a huge overhang of stock for the market to work through and it is going to get worse before it gets better.”

In case you haven’t seen it, below is the chart showing the explosion of listings:

Finally, the article shows how sentiment has changed amongst buyers. Gone are the days where investors and first time buyers would rush to enter the market to avoid ‘missing out’. Most buyers now expect Melbourne home prices to stagnate or fall, and are happy to take a ‘wait and see’ approach:

Footscray couple Andrew and Sherley Nash were typical of auction-goers – looking, but in no rush to raise their hand.

“We’re just going around and getting an idea of prices,” Mr Nash, 32, said.

“If the right thing comes along, we can jump on it, but we are in no rush. Prices are steady, so we have time.”

I am interested to hear from readers in the Melbourne area. In particular, have you noticed any discernible weakening in prices/activity over the past few months? While the aggregate data is useful, nothing beats eyes on the ground.

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Comments

  1. They have much to be bearish about for Melbourne. A few interest rate reductions might help reduce supply and maintain prices, but over the next few years gains will be scarce, if they exist at all.

    • If you have followed Dr Housing Bubble Blog in California, what you might expect is 2 years of increased RE listings, slow turnover, properties taken off the market, etc BEFORE PRICES REALLY start to come down.

      • darklydrawlMEMBER

        Yes, there seems to be a complete misunderstanding about the timeframes these things play out over and if prices didn’t drop 55% this month then all this bubble talk is just hocus pocus.

        Property I find moves at a more ‘glacial’ timescale than many folks seem to accept and I feel prices in Melbourne could easily keep falling for the next 5-6 years before even looking like bottoming out – easily longer would be my call.

        All I notice is they are still building everywhere I travel and look. There is a stack of homes yet to come onto the market.

        I also note there are plenty of “for lease” signs around and they don’t seem to be finding tenants in a hurry.

        Personally I have felt the writing has been on the wall for a couple of years for Melbourne. I am usually way too early on my share trades, I suspect I am early on property here too…

      • Double +1 PhilBest

        ps just in th eprocess of buying some US real-estate – my guy in the US is checking property right now. Its fish in a barrel.

    • Not to mention the fact that new stuff is going up all the time. Moments away from my house they are squeezing ten units onto a house site previously occupied by a lovely old Edwardian uncerimoniously knocked to the ground the other day. I’ve seen the renderings for the units and they look like shoeboxes. Progress? No, but at least those new residents won’t have to live on the outer outer fringes I guess.

  2. Three auctions in six months on my street in the wealthy inner-city suburb (and it’s a short street with only 25 houses). All three passed in on vendor’s bids with no genuine bidders. Two taken off the market and one has been available for rent for six weeks now with no takers.

    • One successful auction – a single unit in a crappy brown-brick apartment block. I missed the auction but I estimate it would have sold for around $4500-500,000 in a street where house prices start (would have started?) at about $2,000,000.

    • Sounds very similar to my inner-eastern suburb. I have recently attended two auctions on houses that were bought only 12-18 months ago. Both were passed in without a bid and are now for sale at prices well below what the owners paid.

      • just wondering why you guys don’t give an actual suburb? it’s not as if it’s forprivacy reasons… unless you own the whole suburb! 😉

      • darklydrawlMEMBER

        Ok… Suburbs where there is plenty of construction

        Anywhere along the Frankston Line – especially around Edithvale, Modri, Mentone and Cheltenham. Dandenong Line – esp around clayton, westall et al.,

        South Yarra – take your pick really,

        Keysbourgh they are building 100’s of brand new houses in paddocks where the market gardens used to be. They are working furiously and whipping them up pretty darn fast.

        And that is just a patch covering part of SE Melbourne.

  3. The property I’ve recently purchased has flied in the face of the usual “+” rules.

    Up until recently, the “+” figure used in the “buyers range” equates to 10% at least, with the reserve price often listed between 10-15% above the + price.

    The example will be:

    Property listed for 360,000+. The reserve price would be probably 400,000, with an expectation to sell in the low 400,000’s.

    The place I bought was picked up for 380,000, a good 20-30k discount over what it would have been 6 months ago.

    • Nice one Raglan and I hope your enjoying your new home.

      I hope to join you next year as a First Time buyer.

      And I am Gen X.

      Mind you my depoist will be significant so we can pay less than 35% of our income on the mortagage.

      🙂

      I am so risk averse it hurts. Meh buy when we areready that is really what is most important!

      TM.

      • “Mind you my depoist will be significant so we can pay less than 35% of our income on the mortagage.I am so risk averse it hurts.”

        According to the recent ABS report on housing costs, FHBs in 2009/10 on average spent only 24% of income on housing costs (table 12) and 61.2% of FHBs spent 30% of income or less on housing costs (table 13). So 35% would put you in the minority carrying a well above average burden for FHBs. That doesn’t sound “risk averse”.

      • The % of income is less relevant in some ways.

        If you are earning $3,000 a month clear, and your mortgage payment is $1,000 – then you only have $2,000 a month to cover other expenses.

        If you are earning $6,000 a month clear, and your mortgage payment is $2,000 a month, then you have $4,000 a month clear.

        Both ratios are 33.3%.

        $4,000 a month to cover other expenses is a comfortable existence.

        Having said that, there are not too many first home buyers that clear $6,000 a month, or only have a payment of $1,000. Most would be clearing $2,000 to $3,500 a month, with a payment between $1,700 to $2,000.

      • “I am so risk averse it hurts”

        think about how much you would be hurting if you were not risk averse (or oblivious to the risk as most people are)

      • “I am so risk averse it hurts.”

        You don’t sound very risk averse if you’re talking about getting a mortgage.

        Why not save up and pay 100% cash?

    • My mortgage payment is 36% of my take home income. My partners income is purely bonus money. We are doing it “just like the old days”.

      Affordable suburb, older house, nice area, 850m2 block – can’t go wrong really.

      It’s the people 6-8kms closer to the CBD that are trying to flog off there backyards for $200,000 which will be the ones taking the big haircut I think.

      • You make me proud.

        I have my grad parents ethic and take on money as well.

        Only buy what you can afford and if you really want something – save for it!

        😉

        Used to hate that as a kid but I appreciate it now!

        I agree with your 36% take as well!!

        +1

        TM

      • “Only buy what you can afford and if you really want something – save for it!”

        Then why get a mortgage at all?

      • It’s not that difficult to save to be honest, and it’s not like I’ve eaten baked beans either. I drive an 8 year old car that I paid for in cash, and I’ve been overseas for short cheap trips – but didn’t waste time having a gap year on a credit card (like a lot of people do these days). Apart from a credit card which I pay the balance off each month, I’ve never taken out a loan for anything.

        The place I’ve bought would be rented for $1,500 a month, and the mortgage payment is going to be less then $2,000 a month – not a great increase.

        I’m currently paying $1,300 a month in rent (and had been saving over $2,000 a month on top of that), so it should be comfortable. The fact that my HECS debt was cleared earlier this year makes it easier too.

        Rent + HECS Repayment = Mortgage Payment

        I expect based on my current earnings (and here’s hoping they increase further over the years, but I’m not counting on it) – that the mortgage should be paid off in 15-20 years. This will be using a single income.

        I didn’t want to use the second income at all, just in case I accidentally knock it up 🙂

      • Yes. You need to plan for the second income being knocked up at some stage (not that the second income is doing handstands at the moment…).

        The way I see it, my mortgage will be 30% or so of my single wage, so if the balloon ever breaks – we can afford to deal with the consequences.

        There are too many people living close to the bone. Where I work, a woman came back to the office 5 weeks after giving birth – citing a very large mortgage as her reason why.

        I don’t want to have to live that way.

      • The mother/child bond will be strong there. Nothing like getting someone else to bring up your child because you are in debt peonage. Cue surprise that he/she is dopey feral at age 15.

      • Ouch. If this was Melbourne, Florida, all the women in your office would be back 6 weeks after giving birth or handing in their resignation!

  4. Hugh PavletichMEMBER

    As Leith said…….the perspectives of those living in Melbourne, would be very much appreciated…….

    • Another anecdote – my parents have lived in Canterbury for 20 years and I’ve only ever seen two houses sold in their street over that time. There are three up for sale as of last week.

      • My elderly grandparents have noticed the same trend in Bulleen and Doncaster.

        A lot of ‘seniors’ with houses fully paid off are putting houses onto the market, but because they do not have mortgage pressure they can hold out for a price.

        The lady next door to my elderly grandparents has recently been moved into a nursing home. Her house was on the market, but did not get the interest required. They tried to rent it out for $700 per week, but didn’t find any takers. They are now leaving it vacant – hoping to sell it in Autumn next year. The expectation that a few interest rates might spice the market up again by next autumn is resulting in a lot of people taking there houses off the market now.

      • Wow, we pay around $700 per week for a five bedroom house on a large block in Malvern so I think they were being very optimistic with that rent!

      • They live in fairyland – the comment was (diplomatic or not). “They are happy to rent it out to Asians for top dollar short term until the market picks up”. Some people think that because a family home is close to private schools that instantly a Chinese family is going to come along and pay top dollar for rent.

        I think that boat sailed about 18 months ago.

      • hmm, what happens to a house when no-one is living there? they start to feel even less attractive.
        Even if the market goes up, there will need to be some significant work just to keep the house at the level they wanted before

      • The two sons (and one son-in-law) are spotted maintaining the garden on weekends and doing odd-jobs around the house.

        They were doing this already for there elderly mother. However instead of her living there, she is now in a home. To the children, nothing has changed except now mother is in a home.

        I would suggest there are children / paid maintenance maintaining empty homes all over Melbourne.

        Two houses I’m also aware of in Glen Waverley are examples of this.

    • OK OK, I watched in a street near me when a block of 8 flats was sold for a considerable sum of specualtive cash to a greater fool for circa 1.5M.

      But this took the cake:

      Ad suggests what it might look like if it was done up – nothing spent on it as yet it is all an artists impression:

      http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/VIC/Brunswick-West/?adid=2009003982

      The entire block is up for sale. = 8 at circa $390,000

      So by simple calculations that is: 8 x 390,000 = 3,120,000.

      Pretty hefty margin there Mr/Mrs/Ms Speculator.

      OK so how is it going now that you have had these on the market for a while?

      ____

      $390,000,000
      5/22 Whitby Street Brunswick West

      5/22 Whitby Street
      REDUCED by $25,007,700 (6.03%) on 30 Sep 2011
      LOCATION AND LIFESTYLE
      195) Days Advertised

      ___

      I would suggest that this is a specualtor fail!

      Also, what is worse is that they call it “Park West” which is in reference to the idea it is near Parkville only about 1.5km away … so name fail and fool bait fail it is a double dip into the fail can of worms.

      I have more examples – hey I like to watch the RE Market!!!

  5. One must consider the fundamentals of Melburne and Victoria. The contribution of mining to the economy is small and BHP is building a new tower in Perth and is reputed to be shifting. The Australian car manufacturing industry has collapsed in market share and the effect of the high interest rates and high dollar have still not fully played out. This is a crisis for Melbourne. The chemical industry which was mainly based in Melbourne has dissolved into chiefly an explosives industry with many solvents etc imported. You do not have to be Einstein to work out that Bracks and Brumby left Bailleu with a poisoned chalice=desal plant, pipeline, over-run on rail, Myki disaster,loss of competetive electricity from brown coal, no infrastructure spending to speak of during a river of stamp duty plenty, IT over-runs to now be followed by stamp duty slump as UC outlines. Look out below.

  6. Around the immediate area of my folks home in Glen Waverley they have had a neighbour forced to sell due to his furniture manufacturing business taking a massive hit. Also the house across the road has sold, rented out, listed and sold again, and then attempted to be sold once more with no luck and is currently for rent again…

    In short, I see alot of properties around my area (Mount Waverley) that go so long without being sold and are then ultimately listed for rent and/or both.

    • I should have elaborated on my folks neighbours a little more. It has taken him nearly 12 months and probably 3 different agencies until he sold just recently.

      All this in an area that is still expecting prices in the $700k to $1m+ range, RIDICULOUS!!!

    • I live in the Mt. Waverley area. Some twelve months ago the typical number of listed properties on realestate.com.au was about 150 now it is 200. According to Waverley Leader the median price drop between September last year and September this year was 13.8%. I get regular calls from RE agents and recently they even started sending emails and SMSs notifying about auctions and newly listed properties. When I speak to them they say that it’s a good time to buy and dropping interest rates will revive the market.

  7. Jimbo’s index of stock on the market is sitting at 680 or so, from a long term average of 550. Still climbing and some of the stock (Middle West) was initially listed at $700K, now $530K and still no sale.

    On the other hand there are the odd surprises with one recent new build sold at $1.19m in a pocket where the same land sells for $600K. I seriously questioned the level of over-capitalisation, but it went fast.

    My primary observation is finance seems to be a massive issue. I know two huge income, high equity, no debt households who have been knocked back recently. There’s also a number of ‘sold’ properties re-listed after finance ‘fell through’. Agents are confirming this.

    Mum and dad developers shouldn’t even bother trying to finance projects in this climate. Presale requirements are restrictive and it’s about time. There are far too many two story townhouses sitting vacant with huge price tags, awaiting foreign interest. I’m seeing more of a foreign exodus than anything else. How developers can hold onto these is mystifying.

    • Interesting your comment about finance. If and when lenders start tightening their lending criteria, that’s when we’ll really see things hit the fan.

      • I strongly suspect that they WON’T ever tighten their criteria. I strongly suspect the RBA is backing the banks on mortgage lending, with “whatever it takes”.

        I strongly suspect that certain nauseatingly optimistic Australian finance sector operators taking the “long” side of all the derivative action that is happening around Australian banking and mortgage finance, “KNOW SOMETHING” that the rest of the world does not. I strongly suspect that international hedge funds with their focus on short selling activities have met their nemesis in Australian underarm tactics.

      • Even if that is the case (and I strongly suspect that it’s not), then you still need the demand for credit.

        If no-one wants to borrow to invest in an asset losing value (as pretty much all housing markets are at the moment), then it doesn’t matter how much credit is available.

      • Philbest – lenders tightened well over 12 months or more ago. The new NCCP guidleines that took effect as of 01/01/2011 were really in the market place much earlier than that, some before July 2010.

        Yes high LVR loans are still available, but only for the most credit worthy, they are not as easy to access as they once were.

        Credit scoring by mortgage insurers has stopped many people buying homes on high LVR’s.

        Older workers can no longer take longer term loans unless they have exit strategies, savings and spending patterns are examined closely, as is the use of credit cards.

        Many areas of lending have tightened considerably.

    • There are quite a few blocks with plans and permits listed in my area not to mention finished projects that can’t sell.

      • I work for an Architecture firm, and this echoes what I am seeing with alot of our asian clients at the moment – selling up even vacant blocks (that have approved planning) as they not longer can see the profit margins they would have got 2-3 years ago for the developments.

      • An Asian developer sold a site for some twelve units a few months ago in my area. I don’t know who the buyer was but they are going ahead with it despite a glut of new units and townhouses in my area.

        Some two years ago I attended an auction of a corner block near the Syndal station. The bidding was very intense and it was bought by a Chinese family for over $900K. The block was listed a few months ago with plans and permits for three townhouses but so far there have been no takers.

      • dumb_non_economist

        JPK,

        You can see what the family now thinks of their investment, so good that they want to give someone else the “opportunity” to make money.

  8. Hugh PavletichMEMBER

    Jimbo – most helpful. Can you and others please provide detail on how Bank lending criteria has changed these past 12 months – both for existing housing and developments.

    I am particularly interested in learning of the changes (if any) to lending Multiples to annual household incomes and deposit requirmnts.

    Many thanks

    • Cheers Hugh. Without being a expert in the lending game (cue Peter F), banks are requiring 50-60% pre-sales on developments.

      This essentially means developers have to acquire the land, undertake all the planning, design and marketing to sell off the plan and have commitments for half the development before being able to secure funding for the build. The risks are now massive IMO and this restriction to the supply is having no upwards impact on prices.

      Consequently, I’m seeing development allotments that previously sold for $1200/sqm now going for as little as $800. I watched one sell at $740/sqm and felt the agent completely screwed the vendor. Nevertheless, the downwards pressure is a good thing for all of us long term.

      I do the odd pre purchase inspection and have over the last two months had four instances where properties have supposedly become under contract prior to an inspection. Within a week they come back to the market with agents citing failed finance approvals.

      • Hugh PavletichMEMBER

        Jimbo and Peter F – many thanks.

        Any thoughts on the changes with respect to Multiples to annual household lending changes?

      • Hugh, That won’t change. Lenders use household income, it just isn’t legal to not use a womans income in the calculation, we have equality laws that ensure that women are given equal treatment. Previously womens income would only be taken into the calculation in short term debts, and they had great difficulty getting home loans in their own right. For very strong political reasons we will never go back to those times.

        So it will always be based on two incomes if that is the household income, or just one if that is the household income.

        You and others here cling to a level of 30% which is a very rough rule of thumb. frankly that doesn’t work. It is way too high for low income workers, but high income earners can accept much higher levels of income committment thaa a multiple of 3.

        Try telling someone who nets $250,000 pa that they can’t live on a surplus of $166,000.

        The calculation is really based on allowing borrowers sufficient to meet all existing commitments such as personal loans, any child support etc, an allowance for living costs, the new loan repayments at 1.5% above the borrowing levels (that is the usual formulae but some allow a greater differential) and at the end of that calculation they expect the borrower to still have a buffer.

        It’s a bit difficult to list all of the variables, but it has nothing to do with income multiples, and capacity to borrow can vary significantly depending on the lender and the loan selected. For example fixed loans may use a lower interest rate differential than a variable rate on the expectation that at the end of the fixed interest rate term their income should have increased.

        Essentially when someone takes a home loan they should be very sure that they can meet the repayments comfortably on their income, and allow a buffer in their own calculations.

        Invariably though when a borrower gets into trouble some time after they take the loan, it is the credit card debt and other loans that do the damage.

        I’m not exaggerating, I see people juggling six credit cards and a personal loan on top of their home loan.

        If people cut up their credit cards instead of using them for purchases they don’t need, they would save themselves a lot of financial problems.

        If I had an area of great criticism for banks, it would be the relative ease of accessing rolling short term consumer credit at high interest rates.

        They are fine when used sensibly, but probably only about 20% of credit cards are used sensibly.

        As I see it, one point of difference between this recession and the ones in the eighties and the nineties is the very high level of short term debt per household. I think that you will find the same conditions existed in the USA pre GFC as well.

        I don’t know how far that type of debt has been reduced here or globally, but if we don’t educate people about the dangers of expensive short term credit, then this GFC will keep on repeating for exactly the same reasons.

      • jimbo – technically we are not in a recession, but parts of the economy are in a recession, and many “feel” that we are in a recessionary phase, so I think it is fair to compare the current period with previous periods of recession, even if technically that is incorrect.

        I don’t have any secret information if that was your question.

  9. John Dagge in the Hun points out there is 90,000 houses on the Melbourne market unsold 60 days + and also there were 98,000 houses sold in Victoria in all of last year.

    Put these two facts together: If no new sellers emerge and no houses are built it will take a year to clear the backlog.

    RIP Construction, which employs 8% of the workforce.

    Ask your tradie mates if they have work. Those I know are scratching to pay the lease on their twin cab vehicles and the missus is paying the mortgage.

    The ol’ supply and demand laws have spun into reverse. Expect jagging price falls.

    Don’t Buy Now!

    • Just got back from a weekend with a few mates. Three are tradies, one is an architect. They all agreed that this year has easily been the worst ever for them – far worse than even the GFC days. (They’ve been in business for an average of about 15 years.)

    • “….Expect jagging price falls…..”

      Going by Dr Housing Bubble Blog and their historical coverage of California, what you might expect is 2 years of increased RE listings, slow turnover, properties taken off the market, etc BEFORE PRICES REALLY start to come down.

      But then there is another difference between Australia and California: non-recourse mortgage laws (in California).

    • I am currently trying to buy a house having recently returned home from a couple of years in London. My experience is that vendors are not capitulating. In fact, I found a house that I really liked, it went to auction and passed in for 840 on a vendor bid. Next day it was up for private sale for 900. I made a formal offer of 830 which was laughed at. 2 weeks later, I was told the vendor would accept offers of 870-880. I offered 850 and said that was it. 2 weeks later I’m told they won’t go below 870. I find it strange that vendors aren’t capitulating. In the area that I am looking at, reserve prices are not anywhere near being met by the buyers!

      The agents are all trying to wind me up saying, “what’s another $20k” or my favourite line “nobody remembers what they paid for their house”…yeah, except the bank!

      When I tell them I think the market will go down another 10% next year they say it can’t because it is already down 10% this year…hmmm…

      There are now dozens of houses in the area I am looking that are sitting there for private sale with a price tag of 50-80k above what they were passed in at auction…and they are just sitting there. For how long I wonder.

      The other funny thing I that my friends/family can’t believe why I won’t take up the banks offer to borrow >$500k and just buy something more expensive! Why wouldn’t you take every cent the bank is willing to lend you?!?

      • Capitulation hasn’t yet set in. My bet is that we will see it over the next 6-12 months as people start to wake up to the fact that house prices aren’t going to rebound quickly. That’s when the real price falls will start.

      • I think we have different definitions (and yours is probably more correct).

        Mine is/was really when people start to believe that prices are going to keep going down over the medium-term and that temporarily holding off on a sale won’t help.

        Yours sounds more like when people never think real-estate is going to rise again (which is really the true definition).

      • This borrow as much as you can mindset is a strange and completely flawed one. I know a few who’ve done that and not surprisingly despite strong six figure incomes they’ve been forced into interest only payments on their PPR.

      • “When I tell them I think the market will go down another 10% next year they say it can’t because it is already down 10% this year”

        This from the same people who argued for years that the market would go up 10% next year because it did last year. The cognitive dissonance is incredible.

      • Wanna really be a popular guy – say that property will go down another 10% at your next Christmas party.
        That should have you sorted.
        🙂

    • I also know quite a few builders who have lost their jobs recently. Two of my cousins were told that there wasn’t the work to keep them employed. Both are now looking at how they can get over to the mines…

      • This will be another catalyst for price falls and the bust!

        Rising unemployment will force peoples hand rather than the current stubborness to sell for less that what they feel they deserve for their house / property.

        The carnage cannot be too far off, 6-12 months maybe a little longer.

  10. Two months ago I went to an auction for this place in Northcote

    http://www.refindhouseprices.com/viewad/8357073/30%20Claude%20Street

    Passed in on a vendor bid of $750k but no genuine bids. Two weeks ago it was up for auction again, this time a real bid of $600k and passed in with a vendor bid of $620k

    I also like this place – the note All Genuine Offers Considered is almost too desperate

    http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/VIC/Northcote/?adid=2008946428

    • I went to an auction north of Sydney on the weekend.
      The property listed as “mortgage holder excisising right to auction” the property got a “mystry starting bid of 390,000 followed by a floor bid of $400k and then a vendors of $490 passed in and the reserve was $560,000 (thats what the debt outstanding is) … so asked agent what will it go for? answer $560+, so I ask why did it only get a bid of $400 about 30% below your suggested value and if it was a good deal why didn’t someone in your agency buy it? I then got told i must be one of those sky is falling in people.

  11. hpreston79 You are right to baulk at borrowing more. When the dollar fell to 47 cents US then that was the time to load up on borrowed Australian dollars. The RBA was printing an average of 15% more each year in the early 2000’s and interest rates were low. Now the dollar is 30-40% overvalued and the RBA is not printing and interest rates are high. You have to pay back strong currency somewhat equivalent to Swiss Francs in a tough environment. The majority of punters still do not seem to understand this simple common sense. That is why the worst is yet to come.

  12. The property price falls that are coming are going to imprison many householders in their current location. They will be able to afford their current mortgage ( long as they remain employed and as interest rates fall) but won’t be able to sell for fear of losing their equity ( even if it’s gone on paper!). This is a re-run of the UK in the late ’80s/early ’90s when householders had to sit, for years, an wait-out the downturn. But back then, personal debt was so much lower and an up-swing was possible; and indeed it came. But with today’s debt levels, is an up-swing possible in anything but the very long term, if at all?

    • Where is the money / miracle going to come from to create this said miracle?

      With an increase in unemployment this bunker down mentality wont be an option for many, their hand will be forced.

    • in your example (UK, late 80 / early 90s), what were the prices of other essentials (energy, food, fuel) doing ? Stagnant, rising or falling?

      Its funny that with so many garbage tv (TT, ACA) specials in rising petrol/electricity/gas/water/council rates, that the property bulls don’t consider the impact of these when thinking about house prices/interest rates.

      Sydney is getting smashed by higher “other” costs of living which is only going to exasperate people’s situation.

  13. I was actively shopping around early last year, but have taken a breather for the past 12months and am very happy with what’s been going on in my area in that time. I live in the inner north. Am looking at buying in Brunswick.

    Clearance rates seem to have moderated there and a bunch of new apartment projects have completed that have increased supply. I’m now monitoring refind house prices and auction results and noticing a rapid reduction in price ranges. There has also been a lot more price discounting on properties left on market for some time.

    This house is an interesting case in point… http://www.refindhouseprices.com/viewad/8205792/38%20Westbourne%20Street.

    Was purchased in Feb 2010 for $560,000. Then renovated to be flipped.

    Put on market in Sep 2011 for $720k!

    Reduced in mid Sep 2011 to $698k.

    Reduced again in late Sep to a range of $609-659k

    Recently reduced again to $599k flat!!!

    Now listed for 81days. The vendor will be lucky to break even.

    • As much as I want a crash in property prices, I have friends who are in a possibly very similar scenario to what you highlight here.

      They paid too much for an old house to renovate, and when I asked if they had it inspected prior to bidding they said no…. needless to say the house needs a full re-stumping (extra cost that was unforseen) and they are only 30% into the renovations…..if that!

      So the earliest possibly resale date would not be before June, July next year…. and to top if off they have borrowed 100k+ from family to help with the reno’s.

      They are great people, so I feel gutted knowing what is most likely going to happen.

    • taking into account interest repayments, fees upon purchasing, other holding charges (land rates etc) and selling costs they probably have already lost money. Never mind the cost of their own time

  14. I can not remember the figure but the number of people that own their houses in Melbourne that bought their house for half the price of what it is now valued at is what could bring an increase in price drops, they have so much more room to move on their price when selling and still sell for a profit compared with some one who bought at the top of the market who is now in negative equity and trying to sell for as small as loss as possible. Its sad for the young families that got caught up in this.

    • Actually, houses bought about 20 years ago have gone up about 10 times, and houses bought before that have gone up much more again. They have made enormous gains and could easily afford to drop their prices more. What they don’t realise yet, is that they probably will have to drop their prices more if they hold out waiting.

  15. I went close to buying a place yesterday but held back and did the sums on stamp duty, repairs and essential improvements. I realised that if I went ahead I’d be spending way more than I could get back if I had to sell. therefore, sorry vendor and RE agent, but No Deal!
    Now I hear that Aussie banks are facing a lack of wholesale funding overseas and a credit squeeze is only a few weeks off.
    I see more property reducing in price now than in previous months so can only advise buyers to wait.
    Saw a place sell at auction on Saturday. That makes one out of four. Two bidders went up in $1k bids, both intent of depriving the other of a bargain.
    The market is turning now going by the fact that two agents have now done the right thing and returned my calls. First time in years.

    Sale, Vic.

  16. I’ve seen quite a few weak auctions, mainly in premium inner south eastern suburbs.

    About half don’t get any bid and are passed in on vendor bid.

    Most of them are over within 30 minutes. One auction I went to last weekend had the most pathetic crowd I’ve ever seen – less than 10 people and I saw about half of them had come from neighboring homes.

    I’m yet to see really drastic falls compared to early 2010.. maybe 5-10% tops, but with the number of properties on the market for long periods, I expect to see bigger drops next year.

  17. The BurbWatcherMEMBER

    “Most buyers now expect Melbourne home prices to stagnate or fall, and are happy to take a ‘wait and see’ approach…”

    That is the beginnings of what I like to call “Deflationary Mindset” – where people hold off buying because “prices will be cheaper tomorrow”.

    And it is a contagious, self-perpetuating, self-fulfilling mode of thinking…

    I believe this is a major part of what crashes bubbles.

    Regards,
    Stewart

  18. Over time all nation experience excessive debt, either sovereign, business or private. In Australia’s case it is mostly private and as the world economy slowly sinks due to excessive debt and the banks seek money to roll over their debt interest rates will climb for them and hence their customers.

    My First house cost me $16,000 interest rates moved up to 16% one income, two children, it was hard but survivable. What made it survivable was the banks insistence on seeing proof that I could service the debt. Like wanting to see my electricity bill, water etc after it was paid on an ongoing basis. So the banks ensured there was a buffer. Don’t see that these days.

    Last mortgage we took out was $280k paid it off in 7 years. Now we sit back and look around at all those people driving flash cars etc and smile in bemusement.

    What is coming is going to hurt and hurt deeply. If you have debt clear it ASAP. If you have investments under someone else’s control take a closer look at what is happening with them. Oh and keep some cash in the house so you can buy food.

  19. Next door to my folks out in Healesville a place that listed for 570K a few months ago is getting no bites in the 480K-500K range now. No big views or flash design. It’s just a 70s brick house amongst the trees that retirees would look at. Obviously they’re being just as cautious as the first home buyers…

    Also, and I apologise for repeating myself here, the word from the Victorian Government or DPCD to be more accurate is that there’s an ongoing shortage of affordable housing. That’s concern numero uno. Also Melbourne will be 6M people + in a few years time and more people equals more houses, which equals more jobs. It’s basically nominate your variable (the one that’s growing), extrapolate it, and deduce all the other to follow. Genius.

    Leith, any word from Treasury or the other Departments?

  20. Buyers Guide

    Sale price 10m + offer 38% off
    Sale price 5m + offer 30% off
    Sale price 3m + offer 25% off
    Sale price 2m + offer 20% off
    Sale price 1m + offer 15% off
    Under 1m+ offer 10 to 15% off

    If agent says they vendor will not accept, walk away, there will be more stressed property tomorrow.

  21. On the market hype and what is going on for folks on the ground. I attended a REI drinks night on Friday and being an avid reader of MB I was a little worried I would have one beer too many and let my bear out of the bag. But the second conversation of the night I got started in, with 7 local principals of RE companies started with: “I’ve never seen anything like this market in 20 years”.

    So the RE agents know it, they just have to tow the company line and paint the Rosie picture.

    • A falling market is not their enemy. Falling transactions on the other hand are. Painting a rosy picture is cutting their own throats. Suspicious clearance rates at 53% week in week out could be seriously torn apart by any half decent mathematician with a stats/probabilities flair. Think about it, in a random market with a multiplicity of variables, how is it possible that clearance rates could be stable? Ah real estate agents – if I were any dumber I’d have been one myself.

  22. Here in Point Cook 3030, there are so many house for sale and around 25% of that total are for lease as well, last year over 1600 houses were up for sale, less than half sold. There is a house around the corner from us and its been on the market for over 18 months and there is also a house for lease next door and thats been on the market for over 6 months.

  23. I recently did some research into prices in small, inner city Sydney suburb that I live in. It was not uncommon to see similar properties sold for $100-200k less than 12-18 months ago. I was stunned.
    A place I walk by has had it’s ‘offers over’ price drop by 10%. Mind you, it’s still insane pricing, but that’s a big drop and an unreported trend…

  24. Land Values are down 15-20% from the peak/peak. Could show examples across multiple suburbs.

    I knew this would be the case, through 2010, every house in Melbourne was selling like it was subdividable allotment development site… Not a chance those prices were sustainable.

  25. Hugh PavletichMEMBER

    The excellent comments on this thread are very much appreciated. Thank you.

    It would appear many are going to learn the hard way about the realities of real estate. 2012 is shaping up to be a very “educational” year indeed – not only in Melbourne, but throughout the rest of Australasia as well.

    Artificially inflated housing markets, as we have in this part of the world ( refer http://www.demographia.com ), are simply lethal.

    But illusory easy bubble money is just so addictive to the gullible.

    Hugh Pavletich
    Co author – Annual Demographia International Housing Affordability Survey
    http://www.PerformanceUrbanPlanning.org
    Christchurch
    New Zealand