Melbourne’s “enormous” property over supply

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. John Edwards’ pessimism about Melbourne is entirely justified. Mis-priced oversupply is obvious everywhere. His optimism about other cities is utterly misplaced.

    The shills are desperately trying to maintain ‘faith’ in a broken and doomed dream that poisons all who commit to the comfort and security of home ownership.

    The high principles of land boom-bust are outlined clearly by Robert Shiller at FT (free, registration required) overnight, and thank you MB for the link.

    http://www.ft.com/intl/cms/s/2/1cc90a5c-87a8-11e1-8a47-00144feab49a.html#axzz1snp2BVdY

    An entire generation of Australians (the heavily geared)are being bled and bled on the altar of a false god. The sooner we smash the lie that property prices can only rise, the sooner we can restore prosperity and freedom to our citizens.

    For over a year, I have been warning all young adults willing to listen to stay out of this market, save a giant deposit, and look for wealth opportunities elsewhere.

    The land and buildings we crave to have and to use are indifferent to their own selling price. They will still be there after we mortals regain our composure.

    Don’t Buy Now!

    • John Edwards is pretty close to the money David. You would be well advised to heed what he says and cease giving low quality unresearched financial advice.

      • David can be a touch dramatic sometimes Peter, but “Don’t Buy Now” has proven to be good advice so far. According to RP Data 5-cap city is still down 4.7% on this time last year. The “solid rebound” predicted at the end of 2011 by C Joye has not yet materialised.

        • Sherlock David has been handing out the same “white cane” advice for years, and for the most part he has been tragically in error.

          I am pleased to see that for one brief shining moment he was correct, although the market is lifting slightly as we speak.

          Did he tell you to buy at that bottom Sherlock?

          Actually I hope not because no one should give blanket “buy now” or “don’t buy now” advice across all markets and without taking the buyers circumstances and financial position into consideration, as well as the property being considered. They may be offered the buy of the century, we don’t know that rather important detail.

          Don’t take advice from white cane advisers.

          • You are a spruiker from you know which site – it amazes me you are even allowed on here.

            David is absolutely correct.

            The Victoria is absolutely stuffed – no one could deny that, not even a rabid spruiker like yourself who has almost no idea of the market outside mortgage refinancing and should remain eternally silent on all other matters.

            Outisde of Victoria all forward looking indicators are that these states are in for the worst possible of all scenarios – with converging negative congruence’s.

            The massive looming oversupply of ore and coal is going to decimate the price of Australian ore – nothing can be done to stop it – it is heading to the same place the Baltic is due to huge over supply from Africa as detailed by myself for almost two years, and now today here:

            http://www.macrobusiness.com.au/2012/04/an-african-iron-ore-deluge-by-david-llewellyn-smith-2/#comment-142908

            This is all coming on the tail of collapsing house prices as of last week in a majority of capital cities in China as their construction and infrastructure grinds to screeching halt.

            Spain, Portugal are all but gone as forecast by all and sundry over the past two years – nothing can be done to stop it and it looks like there will be pan European fall out – again, decimating China.

            China according to all stats is slowing down more than anticipated – and non official indicators are putting things as being far worse than admitted with inflation spiraling out of control – the most important index for the Chinese authorities out of anything – the same index which stops any new stimulus.

            So while you are sitting there sprouting your authority based on personal reference, and housing supply (in a country where single occupancy dwellings are now the majority, consider the indicators which really drive the economy and housing demand – the mining boom which is staring down the barrel of a gun (balance of trade has decided to dig its way to China Peter).

            So good luck Australia everything that was being predicted is coming to pass – everything. We are staring directly at a tsunami on the horizon hurtling straight at us – but you of course who is still fossicking on the beach for flotsam jetsam and will not look up and look to the wider picture and the inevitable future claim we are awash with opportunity.

            Australia not only put all of its eggs in one basket – we threw away any other baskets we had with us – why bother – we are on the beach collecting rocks – no need for a safety net, and that rushing gurgling sound is merely the sound of young investors running to the market for more of the most expensive realestate on earth in one of the least population dense countries on earth – no way could it be the same tidal wave which has swept across every other country on earth.

          • Yes Peter, we shouldn’t listen to David when he says “don’t buy now” instead we should take the advice of RE when they say “buy now is newer been a better time”!

          • Aristo, you mention putting all one’s eggs into the same basket. It reminds me of a famous property author (female), who used to trumpet the importance of putting all your eggs into the one basket AND WATCH THAT BASKET. Mass property investment is a little like masturbation. Too much and you’ll go blind.

          • Peter. I seem to recall you ‘advising‘ first home buyers to purchase back in early 2009:

            “BUY PROPERTY NOW – 12/01/2009 – If you are a first home buyer, you will not have a better opportunity than right now to get into your own place courtesy of the Federal Governments generous grant, and low interest rates, with the prospect of more rate cuts in February and March.”

            Most buyers from your home town – Brisbane – that headed your ‘advice’ would now be underwater, given that Brisbane home prices are down roughly -11% since peak according to RP Data and down by over -4% since the start of 2008!

            People in glass houses….

          • True enough Leith – I shouldn’t have given advice back then, and I haven’t been dolling out advice on a daily basis the way that David has.

            I don’t think that those who bought in Brisbane or elsewhere in 2009 have many complaints, and you will note that as conditions changed, so did my thoughts on the future of real estate as an investment.

          • “I don’t think that those who bought in Brisbane or elsewhere in 2009 have many complaints”.

            Brisbane home prices are down roughly -11% since peak and -4% since the start of 2008 according to RP Data. Buyers there probably would disagree with you.

          • great comment UE. everyone should read PFs “low quality unresearched financial advice” who then turns around and criticises DC while DC’s advice has been 100% right and PF has been 100% wrong. hopefully young australians reading PF’s advice from early 09 were able to see it for the spruik that is was.

            PF then goes on to admit he didnt see the top until after it passed yet beleives he has the prophetic ability to see a bottom?

            you should be ashamed of yourself PF.

          • Aristophrenia,

            I like having both DC and PFs comments here on MB, & hope they both stay.

            In 2008 when the financial system was blowing up (bearstearns, country wide, north rock, lehmans, etc) there was also a great list of economic negatives abound. History shows us that in regards to Oz housing over that period Chris Joye ended up being more correct than bearish forecasts. My point being that it does no one any favors to dismiss another’s viewpoint off the bat(bulls and bears alike).

            PS: I believe housing to be overvalued and was of the same opinion in 2008.

          • Peter, given that you run a mortgage refinancing company, which I would assume relies on high volume in the market, I would by far be inclined to trust David Colyer over yourself.

            You have an obvious vested interest in keeping this ridiculous game of musical chairs going, whilst he does not.

          • Aristophrenia,
            What a superb post (at 10:26), thank you for putting it so much better than I ever could.

          • Peter makes money from arranging mortgages, so of course he’s going to label Collyer a white-cane advisor. Pete’s a nice guy, but when you listen to his advice always remember the adage about not asking a barber if you need a haircut. (Love ya, Pete :¬)

          • I’d rather take his advice any day over yours PF.

            Spruik on mate but your optimistic views don’t really cut it here.

            Reality is that now is a very crap time to buy.

          • Hmmm those in QLD with negative equity from 2008 on are probably kicking thelselves for not following DC’s advice.

            Is he less qualified than a bank johnnie loan pedlar?

        • John Edwards is incorrect about investors in the Darwin market. They have moved back into the Darwin market with an intensity that has not been seen since pre GFC.

          Darwin restarted the day the Inpex project was announced in early January.
          (heads up from a local.)

      • Booboo Bingbang

        PF slow off the mark. DC beat you by 8 minutes with his low quality unresearched financial advice. Wow.

        • PF: which part do Australia’s housing market you like? The price to rent ratio? The price to earnings ratio? The finance to GDP ratio? All these indicators are flashing red, red warnings.

          To characterize the current circumstances as normal or robust or durable is to ignore history, economics and the seduction of greed.

          If I seem a touch theatrical, it is because I can see only pain for innocent first home buyers – urged by family, friends, media and the RE industry – to buy at prices that can only deliver bankruptcy or a lifetime of sacrifice and pain.

          Urging homebuyers to pause in the face of grave uncertainty and save a big deposit is financial advice of the highest standard. Too many have exchanged renting a house for renting money from a bank.

          A market is made of many views. I believe I will be prove correct.
          The next signpost is ABS house price date 1 May.

          Don’t Buy Now!

          • David I’m not a market analyst and I don’t encourage anyone to either buy or not buy, that is their choice alone.

            And I point out that you are not a market analyst and your view may be that others should not buy now, but you have zero research on individual cases, and you really have no right to give unsolicited and unqualified financial advice.

          • Irrespective of whether or not housing prices continue to fall or rise at a level below inflation it is likely a bad time for any first home buyer to get into the market.

            The ABS shows that the median gross household income is around $67k per year.

            Lets say a hypothetical couple earning a median gross wage buy a median level house for $440k shall we?

            This couple would get a 20 year mortgage for $400k after scrimping and saving a $40k deposit. The interest rate on said mortage is a good rate of 7.25%.

            The repayments would cost a total of $37,938 per year at even these historically low interest rates. So Mr and Mrs first home buyer would be spending more than 56.6% of their gross (not net) income just on paying their mortgage.

            Its a horrible time to buy and has been for some time. The little ups and downs of the market are irrelevant to first home buyers what matters is they cant afford to get into the market without drowning themselves in debt.

          • “David I’m not a market analyst and I don’t encourage anyone to either buy or not buy, that is their choice alone.”

            Peter. could you please confirm whether you wrote the following in 2009?

            “BUY PROPERTY NOW – 12/01/2009 – If you are a first home buyer, you will not have a better opportunity than right now to get into your own place courtesy of the Federal Governments generous grant, and low interest rates, with the prospect of more rate cuts in February and March.”

        • +1 – I agree – he did beat me by 8 minutes and it is unresearched and probably low quality advice.

        • FYI – comment sections on websites would generally be covered by asics reg’s and i can’t recall exactly which one but I recall reading one that said somments would not be deemed investment advice something like reg.196 ….

      • PF, Your comment is totally worthless as you have failed to give any evidence that the advice “dont buy now” is wrong. To the unsuspected, you make any advice cautioning on property sound like “low-quality”, or “unresearched.” You are, in fact, a paid troll.

        • Coolnick I think people should buy when they decide it suits their own interests.

          FWIW I have often said on this forum that I expect prices in Melbourne to fall, but Melbourne isn’t every market.

          I have a client buying a house for well below $40,000 right now and repayments are well lower than half the current rental cost being paid.

          What would you advice be in that circumstance?

          I think that wise buyers should avoid your impassioned but unreasoned approach and make their own decisions.

          • PF: “I have a client buying a house for well below $40,000 right now and repayments are well lower than half the current rental cost being paid.”

            Details please: postcode, type of the house, history, etc.

            And where is your high-quality research that advises this said person that the price will not fall further?

          • H&H – well you are talking about the risk for the banks, my view is that prices will fall but not more than about 10% so I think that the banks will wear that.

            I was mainly warning borrowers from a technical point of view – let me explain;

            At the moment valuers are very negative on areas around Melbourne, especially in the outer rings.

            What is happening is that people are buying land and house packages and arranging finance on high LVR’s but after the land purchase has settled the valuer is placing an “on completion” figure on the finished project belwo the total cost. It might only be a difference of $10,000 but if your a maxed out borrower at 95% with no other source of funds, you then can’t build your house.

            So you end up with a debt on land that must be met, and you are still paying rent.

            Add to that market vageries such as moving interest rates, changes in bank lending policy, the possibility of further falls in the land value, then you are at risk from a number of possible sources.

            Naturally a 60% LVR borrower has the option of proceeding if the choose to.

            If I was to give any advice at all – for the high LVR borrowers I suggest that they steer away from land and construction deals at the moment.

            That of course will have an impact on the outer region land subdivisions.

          • I think H&H is talking about the impact of Melb falling prices on bank asset valuation and bad debt provisions.

            More bad debt provisioning and higher LVR means banks will have to set aside more capital. So the impact is nationwide. But I don’t think this is a factor constraining loan issuance. People are now shying away from debt.

          • My advice Pete would be to come up with an example for people that live in the real world, not some piece of crap out back of Bourke.

            How does the argument stack up on the national ‘average’ house, which is about 12 times the value of the one you’ve referenced?

          • Peter,

            You have a client buying a HOUSE in Melb for well below $40,000.00?———–not possible, I don’t believe it.

            Well hang on—are they just buying the house— and not land with it—-a relocatable house?

          • Mav – Melbourne is a very large market, so yes I agree that a serious problem developing will cause problems for the banks.

            Falling incomes and unemployment are the dangers IMHO.

          • Well according to you – you should tell them not to buy

            Peter Fraser :
            “my view is that prices will fall but not more than about 10% so I think that the banks will wear that.”

            So on top of the already near 6% fall we are looking at another %10 fall – why are you not advising your clients of the impending 10% loss on their money ?

            You really need to open realise whats going on Peter Fraser. You have a job which relies entirely on selling people into a falling market – you are going to find every reason in the book to never admit that things are going south – your survival depends on you not admitting things are getting worse.

            But just to put some icing on the global crash cake – JP MORGAN famously pulled the pin on the US housing market 5 weeks prior to its crash has now done the same to the US Student loan market – which is a $1 trillion dollar market and is backed by Bank of Bernanke – AGAIN.

            So get set for another massive US credit crunch – coinciding with Portugal and Spain – oh this is just hilarious.

          • PF: “I have a client buying a house for well below $40,000 right now and repayments are well lower than half the current rental cost being paid.”

            Argue in a good faith Peter and answer the question: Where are the details of postcode, type of the house, history, etc? And where is your high-quality research that advises this said person that the price will not fall further?

            Or do you agree that you are just another property troll paid by the RE industry to obfuscate and completely deceive the unsuspecting masses and lure them and their children into a lifetime of debt just so that you types can ride your BMW?

          • Mav said

            People are now shying away from debt.

            Yes, all over the world that’s happening. And it’ll continue for a decade, by which time we’ll have (1) peak oil, which will be a wooden stake through the heart of the growth model (hear interview with Chris Nelder on this), and (2) a full realisation of what devastating consequences global warming will bring. Deniers will be howled down, and every government will be implementing measures designed to combat the threat. These measures will not promote economic growth, IMO.

            Am I a spoilsport? Sorry.

      • thomickersMEMBER

        Peter,

        David Collyer has not provided personal financial advice of any nature (ie product recommendation).

        His “don’t buy now!” catch phrase (political persuasion), at best, can only be seen as “general advice” and not personalised in any nature.

      • cease giving low quality unresearched financial advice.

        i only heard of DC about a year or so ago. since then his advice, dont buy now, has been spot on.

        • thomickersMEMBER

          he isn’t even providing financial advice. thus not in breach of the any part of the corporations act/ASIC regulatory guidelines.

          Merely stating his on opinion(free speech is healthy)

          • ‘Property’ is exempt from most regulations though innit? Including those of humanity.

            What’s the diff between:
            ‘A great time to buy’
            ‘Buy now or rent forever’
            ‘Property doubles every 7 years’

            and ‘Don’t buy know’?

        • It’s not just “don’t buy now” – anyone who bought some time after about 2002 could still end up underwater if they didn’t buy to sell out and have not done so.

          http://people.hbs.edu/tnicholas/Anna_tom.pdf

          “Real Estate Prices During the Roaring Twenties
          and the Great Depression”

          ABSTRACT
          “Using new data on market-based transactions we construct real estate price indexes for Manhattan
          between 1920 and 1939. During the 1920s prices reached their highest level in the
          third quarter of 1929 before falling by 67 percent at the end of 1932 and hovering around that
          value for most of the Great Depression. The value of high-end properties strongly co-moved
          with the stock market between 1929 and 1932. A typical property bought in 1920 would have
          retained only 56 percent of its initial value in nominal terms two decades later. An investment
          in the stock market index (including dividends) would have outperformed an investment in a
          typical property (including net rental income), by a factor of 5.2 over our time period.”

          But this time it’s different, of course.

          • Looking at today’s RP Data, prices are now roughly 0.5% lower than they were at the start of the year.

            I understand PF’s point about the market not being homogenous, and like all markets lacking in transparency, there will be some bargains out there which are the exception to the rule. In addition, there will be some areas where house prices have grown over the past 12 months and will continue to grow going forwards.

            However, when the aggregates countinue to point down, I struggle to understand how RE spruikers can continue to classify this as a bounce.

            To use a classic technical analysis technique, if the chart was inverted, would the same people try to tell me that prices were falling…

          • I understand PF’s point about the market not being homogenous

            The heterogeneity of Australian property is irrelevant.

            It has been propped up to exhorbitant levels by credit.

            The second biggest marekt in the country is about to pop in a big way.. BIG. The impact of this on credit is massive.

            Banks won’t be able to lend because they will have to increase levels of capital… BEST CASE scenario.

            Foreign debt will be more expensive, with these costs being passed onto consumers.

            Eexisting debt holders will most likely spend even higher proportions of income on their debt, taking it away from the rest of the economy.. i.e. jobs.

            Aspiring home owners will be severly limited in the price they can pay.

            You can’t enact a transation if you can’t pay the desired price.

            Again, the relevancy is debt, not heterogeneity of Australian property. It’s a red herring place by someone who has no understanding of what is going on.

          • Rusty – the hetrogenaity issue is relevant to the decision taken at an idividual level about buying vs not buying.

            When the ASX falls, you can still make money on shares (and not just by shorting), and the same is true of the price of an individual property.

            That said, it’s obviously a lot harder to make money long in a falling market, and a lot harder to pick a property that will appreciate in value in a falling market.

            A agree with the macro comments about the housing outlook being negative, and I’m not looking at buying given the current outlook, but that doens’t mean that it’s impossible for anyone to make any money in the current housing market.

            Of course, the hetrogenaity is that reason that this is the case, without it the above would not hold true.

          • Thanks PhilBest, always appreciate your comments. What a stoush! Surely nobody takes advice purely from one commenter on MB?
            Most people seem to have the intelligence required to synthesise several points of view … And then do their own thinking..

      • The Basics of Davids advice is spot on in any housing market, Dont buy now save a bigger deposit, Every dollar a young person saves before the purchase of a house will save them at least another dollar if not more over the term of a loan as well as reducing the weekly payment. Even though we ALL know buying a house now is not a good thing to do.

      • Hi Peter

        Unfortunately for you Steve Keen has a excellent macro/debt data up at http://www.debtdeflation.org that are clear indicators of a debt/housing bubble and Leith has built an epic amount of price trends in Australia as well as the US, Europe, Canada, New Zealand that do not bode well for Australian house prices.

        I have noticed that Leith has begun to temper his views on a housing crash as soon as more advertising showed up and he started reporting daily house price movements.

        The data never lies although I’m sure the current situation could be prolonged if another damaging First Home Vendors scheme was indtroduced.

        • Thanks Dave BD – you are right – data doesn’t lie.

          I’m looking at my graph for the LGA of Brisbane which tells me that the median price of a house in Brisbane rose from $480,000 in Q1 2009 to $583,750 at it’s peak in Q1 2010 and has since fallen to $560,000 in Q4 2011. It has flatlined since then.

          So I guess that those poor suckers who took my one piece of market advice back in Q1 2009 have received very generous grants that are no longer available, very generous stamp duty concessions that are no longer available, and the value of their median dwelling has risen by 16.6% despite floods that are still affecting values in Brisbane.

          • dumb_non_economist

            PF,
            I thought your comments to DC were somewhat harsh as the comments in reply to you were, but talk about cherry piking results to justify your buy call in Q1 2009. Can you advise when you STOPPED issuing buy advice for “poor suckers” in 09/10 as I gather they would be under water.

          • DNE – I don’t issue “buy advices” at all and I had forgotten that post that I made over 3 years ago – however if you actually read it – I don’t say run out and buy now at all – I mainly talked about the generosity of the extra $20,000 FHOG Boost and I said that I expected a mild increase of about $20,000 which as it turned out was a massive understatement.

            But why would those here concern themselves with facts when they can bend them to suit their agenda.

            Thanks for your enquiry.

          • “I had forgotten that post that I made over 3 years ago”

            how many other posts and conversations with borrowers has PF “forgot” over the past 3 years?……plenty would be my bet.

      • Forrest GumpMEMBER

        “Close to the Money”? Take that advise and you will be close to losing the money! Take for example the cheap throw away line…WA is going “Gangbusters”. The actual facts supplied by the government agencies (Land Data) tell a different story. Land Sales are at 10+ year lows. Its good to hear that this lack of sales is termed a “Gangbuster” of a year. He again makes throw away comments of which are unsubstantiated such as “Investors are returning to the market..” I hope thats true since it will provide a heap of more houses for rent to those that cannot afford to buy. But reality tells a different story. Investors(as opposed to speculators) are staying OUT of the market. E.g. SE QLD has 4 years supply of houses for sale! That equates to a 15+ year term of housing constipation where nothing moves and gets smelly and uncomfortable. Any investor (not speculator), doing the sums on investing at the peak of the bubble, with the risk of no capital gains just doesn’t add up.

      • Mav – I would advise people considering building in areas close to Melbourne that they approach with caution and don’t look at a high LVR because that brings all sorts of problems into play with valuations falling short of expectations.

          • Hi TM – no I was talking specifically about constructions. A building project has all sorts of extra costs and difficulties that are not forseen by FTB’s and they often experience problems.

            At the moment they have added problems due to valuation shortfalls.

            Someone buying an existing home can also have a problem with a valuation shortfall, but they can walk away and find another house – someone who owns land really cannot walk away or sell easily.

            There will be no “margin calls” on home loans in Australia for normal retail loans – banks are only interested in foreclosing on borrowers who don’t make payments.

            There will be “margin calls” on business people who have loans against their house as part of their overall security arrangements with lenders for commercial borrowings.

            In other words employees won’t be unfairly treated, but employers might be in some circumstances such as a breach of their loan covenants, but very few here will ever have to be concerned with that.

    • Don’t worry David, I’ve certainly been heeding your advice as a young potential first home buyer. And I’m super glad I have otherwise I think I would have been buying a house for the highest ever price which is likely to not be seen even in nominal terms for decades to come.

      Couple that with the enormous opportunity cost of buying a house over renting and I’m very happy.

      • Wise man.

        It can be hard, when everyone around you including family, and girlfriend’s family, are bombarding you with advice to the contrary.

      • Well said Serenco and other youngsters,

        I have been reading this thread and shaking my head at some of the comments from PF. David Collyer is dead right.

        This is merely anecdote but I have been encouraging three first time home buyers (close relatives) to hold back. Two of them are well cashed up and the third has an offer of a nice chunk of change on the table from this hairy galoot and his mother that will be theirs if they Don’t Buy Now!

        I’m telling them to expect to buy for 40 per cent below peak in nominal, real terms or some combination of the two that depends on how this particular RE downtrend plays out.

        PF isn’t doing any of these kids any favours by blowing sunshine up their derrieres. FWIW my “financial advice” is that as long as the numbers David is quoting tell you that prices are totally detached from reality then they are unsustainable and the market will correct.

        It is Not different this time.

        • Hagrid,

          Were prices not ‘detached from reality’ in 2008? What has happened since then? Hell I think Melbourne even did 20% odd in a year.
          While I think property is much overvalued I refrain from making statements so bold as given their extreme nature the odds are that they will be wrong. Granted there is a big difference between real & nominal in your post and no time frame is listed.

          • Yes – house prices in Melbourne rose 27% after I made my call.

            That’s partly why I am bearish on Melbourne now. Prices can’t change by that magnitude without a later repercussion.

          • dumb_non_economist

            I sort of side with Rich, I still see trouble for the downward side of prices due to the nature of RE in “our” collective minds. When the msm are still doing advertorials as in Saturdays “West” with “buyers” claiming they wanted to get in before prices rise again and in the SMH on-line with the NSW Gov looking at stopping stamp duty on new builds full stop the “show” could drag on for a long time. IMO until some bad news which will actually impact here things have a high chance of plodding along and going nowhere for a while yet.

        • My Brain Hurts

          Hi all,

          I too am a potential FHOB that is heeding DC’s advice. The other day at work, I was speaking with a colleague about how she and her husband were looking at buying their first house in Camberwell (Melbourne).

          I made a few bearish comments about high prices and falling values etc., and she disagreed with me, replying that her husband works in the housing finance area at NAB and that if there was the threat of a looming crash or significant falls in house prices in Melbourne, he would have heard about it.

          I hope (for her sake) that her husband knows what he’s on about.

      • Me too! I was all ready to buy this time last year when in a moment of weakness we fell for “now or never” spruiking. This spruiking is so powerful that now it has hideously integrated itself in our society and culture. Questions at parties, from relatives with “rentres = losers” mentality—all this conjures to work dark magic on your mind, so much so that, even highly educated, those who have the ability and means to think for themselves have been sucked in this craziness.

        Thank god for MB!

        And this is exactly the reason why for the whole society, a massive housing crash of lifetime would do good in a longer term. Slow melt, though more likely, will not alter behavioral patterns only to end up reigniting this crazy housing.

      • We seriously started looking at buying a Melbourne home around 18 months ago and were willing to spend up to $700,000. Prices were obviously a joke so we have held off.

        Since then the market has gone backwards around 7% ($49,000).

        As we are renting a nice place for just under $20,000 per year, we have also saved over $45,000 from funds that would have otherwise disappeared as interest payments (($700,000 x 7.5% p.a. x 18 months) – ($20,000 p.a. x 18 months)).

        We are therefore nearly $100,000 better off over this 18 month period in total, or around $140,000 before tax. That’s a full year’s worth of salary saved in 18 months. Not bad.

        All signs are pointing south for the next couple of years so definitely not rushing into anything.

        • russellsmith55

          Im renting for only $14k a year (small unit, family owned) and consider a house around $650k to be my target. So I have a success story like yours Bubbleboy 🙂 Thanks for making my savings so explicit!

    • As someone who was looking to enter the Canberra market last year, “Don’t buy now” has saved me $30,000 in interest plus $20,000 in asset price deflation for a grand total of $50,000. This compares to $20,000 in rent.

      Thanks for the free thirty grand David!

    • Is it better for young people to not only “dont buy now” but move out of Australia altogether? some of my friends (mid – late 20’s) work overseas…
      and frequently come back for family visits i’m not 100% sure but i think they end up saving more because everything is cheaper overseas(that’s if they have a reasonable job overseas)…

      • With the dollar so strong and international conditions so weak it’s hardly the best time to go expat.

        For example, if you live in London at the moment and save your pounds, you only get $1.50 for every pound when you come back, whereas a few years ago you got $2.50 for every pound.

        That’s a 40% fall in the value of UK savings. And with our dollar currently above parity with the US things aren’t any better there…

        • ok thanks.i know the aud does have an impact but wont it be the same thing because u save everywhere else? like food/rent/travel

          • The dollar’s strength won’t make things cheaper for you because your salary won’t be paid in dollars.

            As a hypothetical, let’s say you could work in Sydney for $100k or London for 50 thousand pounds. Under this scenario, London would have made sense in 2006 but doesn’t make much sense now.

          • @outsidetrader.
            what happens if when u convert everything to AUD, you end up making 100k but it costs you 800aud a month in living expense and very low income tax…(im not talking about London btw)

      • The best quote I’ve heard about Australia….

        “Lucky Country? Lucky if you can afford to live here!”

    • Maybe there should be a disclaimer under such recommendations. Because if the unweary takes such advice, and falls to the perils of the market, a law suit is well supported against the individual that makes such recommendations on an open basis. Keeping in mind, that a qualified investor is one that buys over 500k. Hm…may be litigating firms could score more business from this site!

    • Most housing stat’s do not include Darwin in the Northern Territory. The figures for Australia would be substantially different (higher) if this area was not ignored. A 3 bedroom hovel is a minimum of $520K, if you can find one.

      There is a massive shortage of property here due to mining and the Inpex boom. We are straining at the seems and it is almost impossible to get staff in retail etc due to outrageous cost of living.

      If you want a property story, try Darwin.

  2. EUROUP WILL TAKE CARE OF THE HIGH PRICES FOR HOMES IN AUSTRALIA AND DOWN THE TRACK SO WILL THE WORLD WAR.

  3. While Victoria is the headline case of property for sale oversupply because of the recent surge, stock is elevated in all states according to RP Data. Because for sale stock grew quickly in some states in 2010 the 1 year comparison in stock levels aren’t as extreme. FWIW here are the numbers I have (based on RP Data’s weekly Property Pulse newsletter)

    State 1yr% 2yr%*
    QLD 0% 20%
    NSW 6% 37%
    VIC 29% 72%
    WA -8% 23%
    SA 18% 58%
    NT -8% 46%
    ACT 22% 72%
    TAS 21% 55%
    AUS 9% 39%

    *2yr% comparison is to 23/5/10 which is the closest data date I have

  4. Look, if there’s a bottom in some markets, then there’s a bottom. So what, either way?

    It could be a bull trap, it could be the beginning of a new upswing.

    My guess is on the former, given a plethora of things, but if people want to keep buying properties, then all power to them – hopefully we can diversify away from Houses and Holes sometime soon? (though it doesn’t look good, and THAT in itself is not good, IMHO…)

    Stewart

  5. Adam Smith said in “The Wealth of Nations”, 1776, that “dwelling places” are merely a necessary expense like clothing – they just take longer to wear out than clothing.

    “……..The general stock of any country or society is the same with that of all its inhabitants or members, and therefore naturally divides itself into the same three portions, each of which has a distinct function or office.

    The first is that portion which is reserved for immediate consumption, and of which the characteristic is, that it affords no revenue or profit. It consists in the stock of food, clothes, household furniture, etc., which have been purchased by their proper consumers, but which are not yet entirely consumed. The whole stock of mere dwelling-houses too, subsisting at any one time in the country, make a part of this first portion. The stock that is laid out in a house, if it is to be the dwellinghouse of the proprietor, ceases from that moment to serve in the function of a capital, or to afford any revenue to its owner. A dwellinghouse, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, makes a part of his expense, and not of his revenue. If it is to be let to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue which he derives either from labour, or stock, or land. Though a house, therefore, may yield a revenue to its proprietor, and thereby serve in the function of a capital to him, it cannot yield any to the public, nor serve in the function of a capital to it, and the revenue of the whole body of the people can never be in the smallest degree increased by it. Clothes, and household furniture, in the same manner, sometimes yield a revenue, and thereby serve in the function of a capital to particular persons. In countries where masquerades are common, it is a trade to let out masquerade dresses for a night. Upholsterers frequently let furniture by the month or by the year. Undertakers let the furniture of funerals by the day and by the week. Many people let furnished houses, and get a rent, not only for the use of the house, but for that of the furniture. The revenue, however, which is derived from such things must always be ultimately drawn from some other source of revenue. Of all parts of the stock, either of an individual, or of a society, reserved for immediate consumption, what is laid out in houses is most slowly consumed. A stock of clothes may last several years: a stock of furniture half a century or a century: but a stock of houses, well built and properly taken care of, may last many centuries. Though the period of their total consumption, however, is more distant, they are still as really a stock reserved for immediate consumption as either clothes or household furniture.

    The second of the three portions into which the general stock of the society divides itself, is the fixed capital, of which the characteristic is, that it affords a revenue or profit without circulating or changing masters. It consists chiefly of the four following articles:

    First, of all useful machines and instruments of trade which facilitate and abridge labour:

    Secondly, of all those profitable buildings which are the means of procuring a revenue, not only to their proprietor who lets them for a rent, but to the person who possesses them and pays that rent for them; such as shops, warehouses, workhouses, farmhouses, with all their necessary buildings; stables, granaries, etc. These are very different from mere dwelling houses. They are a sort of instruments of trade, and may be considered in the same light:

    Thirdly, of the improvements of land, of what has been profitably laid out in clearing, draining, enclosing, manuring, and reducing it into the condition most proper for tillage and culture. An improved farm may very justly be regarded in the same light as those useful machines which facilitate and abridge labour, and by means of which an equal circulating capital can afford a much greater revenue to its employer. An improved farm is equally advantageous and more durable than any of those machines, frequently requiring no other repairs than the most profitable application of the farmer’s capital employed in cultivating it:

    Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.

    The third and last of the three portions into which the general stock of the society naturally divides itself, is the circulating capital; of which the characteristic is, that it affords a revenue only by circulating or changing masters. It is composed likewise of four parts:

    First, of the money by means of which all the other three are circulated and distributed to their proper consumers:

    Secondly, of the stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn-merchant, the brewer, etc., and from the sale of which they expect to derive a profit:

    Thirdly, of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture, and building, which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the mercers and drapers, the timber merchants, the carpenters and joiners, the brickmakers, etc.

    Fourthly, and lastly, of the work which is made up and completed, but which is still in the hands of the merchant or manufacturer, and not yet disposed of or distributed to the proper consumers; such as the finished work which we frequently find ready-made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china-merchant, etc. The circulating capital consists in this manner, of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them to those who are finally to use or to consume them.

    Of these four parts, three- provisions, materials, and finished work- are, either annually, or in a longer or shorter period, regularly withdrawn from it, and placed either in the fixed capital or in the stock reserved for immediate consumption.

    Every fixed capital is both originally derived from, and requires to be continually supported by a circulating capital. All useful machines and instruments of trade are originally derived from a circulating capital, which furnishes the materials of which they are made, and the maintenance of the workmen who make them. They require, too, a capital of the same kind to keep them in constant repair.

    No fixed capital can yield any revenue but by means of a circulating capital. The most useful machines and instruments of trade will produce nothing without the circulating capital which affords the materials they are employed upon, and the maintenance of the workmen who employ them. Land, however improved, will yield no revenue without a circulating capital, which maintains the labourers who cultivate and collect its produce.

    To maintain and augment the stock which may be reserved for immediate consumption is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depends upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption.

    So great a part of the circulating capital being continually withdrawn from it, in order to be placed in the other two branches of the general stock of the society; it must in its turn require continual supplies, without which it would soon cease to exist. These supplies are principally drawn from three sources, the produce of land, of mines, and of fisheries. These afford continual supplies of provisions and materials, of which part is afterwards wrought up into finished work, and by which are replaced the provisions, materials, and finished work continually withdrawn from the circulating capital. From mines, too, is drawn what is necessary for maintaining and augmenting that part of it which consists in money. For though, in the ordinary course of business, this part is not, like the other three, necessarily withdrawn from it, in order to be placed in the other two branches of the general stock of the society, it must, however, like all other things, be wasted and worn out at last, and sometimes, too, be either lost or sent abroad, and must, therefore, require continual, though, no doubt, much smaller supplies.

    Land, mines, and fisheries, require all both a fixed and a circulating capital to cultivate them; and their produce replaces with a profit, not only those capitals, but all the others in the society. Thus the farmer annually replaces to the manufacturer the provisions which he had consumed and the materials which be had wrought up the year before; and the manufacturer replaces to the farmer the finished work which he had wasted and worn out in the same time. This is the real exchange that is annually made between those two orders of people, though it seldom happens that the rude produce of the one and the manufactured produce of the other, are directly bartered for one another; because it seldom happens that the farmer sells his corn and his cattle, his flax and his wool, to the very same person of whom he chooses to purchase the clothes, furniture, and instruments of trade which he wants. He sells, therefore, his rude produce for money, with which he can purchase, wherever it is to be had, the manufactured produce he has occasion for. Land even replaces, in part at least, the capitals with which fisheries and mines are cultivated. It is the produce of land which draws the fish from the waters; and it is the produce of the surface of the earth which extracts the minerals from its bowels.

    The produce of land, mines, and fisheries, when their natural fertility is equal, is in proportion to the extent and proper application of the capitals employed about them. When the capitals are equal and equally well applied, it is in proportion to their natural fertility.

    In all countries where there is tolerable security, every man of common understanding will endeavour to employ whatever stock he can command in procuring either present enjoyment or future profit. If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption. If it is employed in procuring future profit, it must procure this profit either staying with him, or by going from him. In the one case it is fixed, in the other it is a circulating capital. A man must be perfectly crazy who, where there is tolerable security, does not employ all the stock which he commands, whether be his own or borrowed of other people, in some one or other of those three ways……”

    • So there we go. Adam Smith had it worked out in 1776. Houses are NOT “wealth”, PRODUCTIVE CAPITAL IS WEALTH.
      What the ……. have OUR so-called “experts” LEARNED in all those fandangled degree courses they’ve spent years in?

      • They have learned it is profitable to be a paid talking head in the service of rich vested interests.

      • Thanks PB – There was a similar conversation the other day regarding the difference between wealth and money. I appreciate everyone on here pointing out the difference.

        Having 400K of debt against your name is not wealth. Wife and I are late thirties, no real estate but have a workshop full of machines. Going to machine our way to wealth!

  6. Student Loan bubble collapsing in the US, backed by Bank of Bernanke – more credit issues coming…

    http://wallstcheatsheet.com/stocks/did-jpmorgan-pop-the-student-loan-bubble.html/

    Chinese developer bankruptcies accelerate as the crunch hits

    http://www.reuters.com/article/2012/04/20/china-developers-bankruptcy-idUSL3E8FK2CD20120420

    Combined with Iron ore dropping to a projected $80 a ton while RIGHT NOW prices are being propped up by severely curtailing supply / production.

    I think WA could be in for a little bit of a surprise by the end 2012 as reality sets in…….

    Already delayed development on their northern gas project.

  7. ceteris paribus

    All indicators suggest that Melbourne prices may have further to slide. But Melbourne’s perennial popularity in Asia, especially China and India, may limit the depth of this downside in inner and middle suburbs.

    • cet par, I think your view on Melbourne’s market is insightful and certainly has some truth to it

      • Except the only reason they were even able to purchase in Australia were loop holes in residency, studying, purchasing, visas – ALL of which have been closed.

        On top of this the ALLURE was ONLY due to the boom, we had good rises and good interest rates they parked their money here to avoid losses elsewhere – as Melbourne slides it will become the LAST place you want to put your money, much better to pull it out now that everywhere else has plateaued before Melbourne really crashes and reinvest at the bottom of some other market – yes ????

        So on the whole – you are talking wishful garbage.

        • ceteris paribus

          Not “wishing” anything, A. Nor am I making any value judgments at all.

          I am just pointing out a few simple facts:
          1) Wall of cash in Asia
          2) Burgeoning middle class
          3) Inner Melbourne and harbourside Sydney are constantly publicized as most liveable cities in the world.
          4) As for investment regulation, where there is onshore family, there is always a way.

          • “On top of this the ALLURE was ONLY due to the boom”

            Have to completely disagree here. Many Chinese investors are more than willing to take a bath on property investment here simply to get the money out of China.

            I’m sure y’all have caught the Bo Xilai coverage – it is such an instructive lesson in how China really works – no-one is safe if they fall out of favour. See also Matthew Ng – he didn’t want to sell his successful company – so now he’s doing just over 10 years, because that is way business is done over there.

            By contrast, taking even a 20%-30% hit on an asset here is completely acceptable as a risk mgmt strategy – bc once those assets are in Australia, there is no longer the chance that the government / a corrupt party official can get their hands on 100% of that asset.

            Also, as CP intimates, there is always going to be a way with family members or friends onshore to act as nominees.

  8. Why do you all so vehemently attack Peter and criticise him for conveying his view on the state of the Australian residential property market?

    Is it because he’s a mortgage broker? Peter’s role as a mortgage broker is to simply arrange finance for a transaction – he is not arranging the transaction.

    I don’t always agree with Peter’s perspectives, particularly with regard to the “expected receovery in Brisbane” BUT you should “play the ball, not the man”….. that goes for you too Peter.

      • -1.

        The reason Peter gets attacked because he presents himself as the ball.

        He continuously ignores the realities of how the market is behaving, and appeals to his own perceived authority. i.e. Ignore the data, listen to Peter.

        it makes it worse when he displays he has absolutely no understand of how markets work, and attributes the past behaviour of proeprty to spurious factors.

        Again, he makes himself the game.

        • +1 Greco – I agree entirely.

          I think you’re being a bit harsh Rusty – PF is simply presenting his views as he sees them. Many other bloggers make similarly unsubstantiated statements as property bears but no one seems to criticise their assertions.

          We’re all welcome to our own oppinions and we can all make up our own minds based on the information we’re presented.

          While I don’t often agree with PF – he often makes good points and provides a useful counterpoint to much of the broader commentary.

          • yeah – there’s always bubblepedia if you want everyone singing from the same hymn sheet.

    • Agreed. As a housing bear, I really welcome PF’s participation in MB. Groupthink is one of the most dangerous, and expensive, phenomena known to man.

        • Why – it’s abundantly clear that the majority of posters here only want constant affirmation of their hopes for house prices rather than actual information.

          Almost to a man they don’t believe your slow melt theory, they only believe in a market crash of huge proportions, because it’s what they want.

          That is what suits their purpose.

          They are a living testament to the behaviours outlined in “Popular delusions and the Madness of Crowds” a worthwhile read for the many that visit this forum.

          You only have to see the glee expressed within the comments in this thread, even though they know that I’m also rather bearish on Melbourne. If I was a rampant bull then I would be bullish on Melbourne and I would say so, but I’m not.

          There are a number of posters here who do like having their views challenged, and I salute those few, regardless of whether they agree with me or not. However they are the brave few, and not the rowdy crowd who cluelessly riot in the streets.

          • +1
            Although the housing market is fairly complex it only takes a person of my intellect perhaps a few days to garner a thorough understanding of it.
            Far more complex are the personalities of people who come to Internet forums to discuss housing!
            I find these bulls, bears, nutters and shortage-deniers to be more difficult to understand than the housing disaster itself.
            This is why I often spend more time discussing shortage-deniers than I spend discussing the simple truths they deny. Fascinating stuff.

          • PF,

            That book is a good read, however what is happening here in some cases is cognitive dissonance. The ‘madness of crowds’ is when the crowd actually influences/controls the market (say melbourne RE in 2009?).

            rich

        • Some poster here need to remember the big picture. It’s getting informarion from all areas, the good, the bad, and the Spruiking that allows us all to make better informed decisions. We all need to keep an open mind not a one eyed bias sledging mind.

    • arescarti42MEMBER

      Have to agree with this one. We need people like Peter on this site. At least he has declared his interests, can make reasoned and reasonable arguments, and seems to be able to admit when he is wrong. That’s a lot more than can be said of many of the commenters on this site, and it is just an insult to accuse him of being on the same level as the spruiker bulls.

      Without people like Peter this site would just be a cave of bears smelling their own farts and congratulating each other on how right they are.

  9. Interesting interview with John Edwards. He comes across as being intelligent. I have previously seen him vilified on Internet forums where he was described as a housing bull (whatever that is).
    Of course he never defines oversupply or shortage. So I will help out.
    If one’s preference is to see starter houses selling for 8x an ordinary wage then there is an oversupply.
    If one’s preference is to see starter houses selling for 4x an ordinary wage then there is a shortage.
    This comment is in general and applies well or poorly to various specific locations as the case may be.

    • “But of course life is like that, those who act quickly prosper, and those who dither will pay for their indecision. Others who don’t move at all will get left behind again.”

      is that PF or Michael yardney? or do all the spruikers just borrow each others lines? its pathetic.

  10. Comment about South Aust RE. Student units in city softening. Were $165k, hit $200k at peak, now many on market for months at $130k. Net yield still pathetic though. Outer suburbs dropping. Increased volume despite yields over 7%. Discounts increasing. Inner suburbs still holding up despite increased volume. Big discounts on quick sales. Some empty blocks on market 2+ years. Very large increase in volume of coastal properties for sale. Rural properties dropping.

    Ancedotal evidence. Mate put joke bid of $250k on $320k inner-city home. RE agent told elderly client to stop dreaming & accept $270k. Upset client eventually did so. Mate agreed. RE agent then announced seperate higher mystery bid of $271k. So mate dropped his bid to $268k. Higher bid evaporated. Settled with very upset client for $268k. Mate had $120k deposit (saved whilst renting). Repayments 20% cheaper than rent.

    Mining mate can’t move to QLD for better job. Claims he “can’t sell” his 2 rural town properties. Rent wouldn’t cover mortgages. Can’t sell for what he paid few years back.

    RE agent mate looking for mining job. RE not providing salary big enough for mortgage on divorced wife’s house.

    Another RE agent’s wife back to part-time work shortly after having another baby. Husband isn’t earning as much as used to. Big mortgage.

    In summary, seems capital gains on RE reversing in SA so smart investors pulling out first. Large increase in volume of student accomodation, inner city apartments, outer suburbs rentals and coastal holiday homes.

    With manufacturing in SA shrinking, and public service cutbacks, and private sector struggling (not to mention global problems like China & Europe), not sure why most people think it’s still a great time to buy? But they do. Personally, think the direction of RE in SA is very obvious. And it’s kind of nice when facts start to confirm my confirmation bias 🙂

    • Yep, SA is looking grim. My cheap outer suburb has seen a big correction recently. Of course, anyone who paid 2008/9 prices here was an idiot…

  11. Booboo Bingbang

    Have I missed something?

    How is it that MB readers are now the GROUP in GROUP THINK and PF, claw and offspring are somehow the outliers. What next – Michael of Sydney – give me a break.

    FFS – mainstream media supports the FIRE group think that there is no slow or fast sink in the property market – I have enjoyed being a reader of these articles but seriously if we have somehow turned full circle and become the mainstream then I did not get the memo!

    I need a drink – PF pour me a big one!

    • I suggest you go the the forum of whose name we do not speak.

      Strindberg and co already have 2 threads defending poor, downtrodden Mr Outlier himself and slurring LVO.

  12. Another barometer, more realistic than APM/Fairfax, are basic research yourself, two Melbourne inner west suburbs, 10 auctions listed on realestate.com.au Friday for weekend, results? Only 2 listed, one passed in one sold…..

    “APM’s attention to detail and willingness to push mathematical boundaries has given them the edge in Australian property estimation”.

    Me thinks says it all about health of the market and lack of transparency…….

  13. danielvsheehan

    I would have thought in 126 comments there would have been at least some worthy analysis of the factors influencing Melbourne property, but instead there is a rather hysterical debate about bulls and bears. I find the eagerness of some to seeo a property market collapse very odd. No good comes of it, not owning a property does not protect you from the economic ramifications of a wide spread collapse.

    • Aristophrenia at 10.26 am presents a passionate analysis of factors influencing the future of Melbourne and other housing markets and the Australian economy in general. It does not seem to be written with an eagerness to witness collapse -more like anxiety at the state of events!

      I understand if some of the younger people feel almost hysterical as they have been bombarded with non-analytical biased rubbish in the media for years and they are sick of it.

    • a rather hysterical debate about bulls and bears
      Yes. It resembles two packs of dogs in battle. No intelligent comment.
      Did anyone notice what John Edwards said about population increase, need to build, need for builders and then builders overshooting?
      Any Irish experts care to comment?

      • Are you referring to the record high immigration to Melbourne which peaked in 2008 and has been declining since and the building bonanza still occurring in Melbourne now, possibly overshooting as we speak?

  14. One of the questions for the property market moving forward is where the income growth is going to come from to support a greater appetite for credit? Outside the mining industry, which industry is going to support the type of credit growth needed to sustain our prices? Partner this with an emphasis of government on fiscal tightening, a penchant for companies to outsource jobs overseas, and private debt levels, I am of the personal opinion to be cautious.

    Further to this you still have US gov debt at astronomical levels. While I understand they are the reserve currency and are afforded certain liberties, I have my concerns around the amount

  15. Wow I need a lie down after reading all this!

    lucky i am in bed, good night Bulls~N~Bears and the inbetween Pears.

    keep the debate civil and respectful whicg on the I reckon this has generally been.

    Also just to be a hippy it takes all the colours of te rainbow to illuminate our world the absence of which is akin ignorance snd that sort of darkess does one any good. Let knowledge and evidence be the way foreard with more than one truth as there is no single truth when us Humans are in the mix.

    TM.