Share on Facebook Share on Twitter Share on Reddit + - A bottom in QLD mortgage volumes By Unconventional Economist in Australian Propertyat 6:45 am on May 16, 2012 | 81 comments Login to access MacroBusiness Members special reports. If you are not a member, sign up here. Please fill in the following form to login Username: Password: or Please fill in the following form to subscribe * Username * Email * Password About Latest Posts Unconventional EconomistLeith 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. Latest posts by Unconventional Economist (see all) PPI inches out of deflation - October 30, 2020 Sydney auction clearances continue to strengthen - October 30, 2020 ATO takes aim at JobKeeper rorters - October 30, 2020 Share on Facebook Share on Twitter Share on Reddit + - YOU MAY ALSO BE INTERESTED INSydney auction clearances continue to strengthenCoreLogic has released its final auctionAustralian mortgage growth surgesThe RBA has released its private sector creditInvestor mortgages run for the hillsAPRA monthly investor mortgages are out forCoreLogic: Low inflation is bad for housing affordabilityEliza Owen, Head of Research Australia at Comments Brett Edgerton May 16, 2012 at 7:25 am Moreover the listings data shows that listings are on the decline, indicating that vendors are in no need to sell. I believe this has a lot to do with the timing of the “boost” (GFC stimulus). APRA modelling shows that mortgage delinquency rates increase sharply 3 years post origination and stay elevated for a further 3 years. The “boost” was implemented right on the 3 year mark after the second leg of the Brisbane bubble. So just as mortgage stress was hitting the most vulnerable (buyers at the bubble peak), the boost provided an out – buyers for those that wanted to sell, or at least asset price reflation allowed them more time to get themselves in better shape (also assisted by cash handouts). This supply of eager sellers is also the reason why the Brisbane market underperformed most other capital city markets through the boost. There was still some delinquency pressure remaining after the “boost”, but with it approaching 6 years after the second leg of the bubble that pressure will be easing. This will aid, and be aided by, the stabilisation in prices. Interest rate cuts and the clear value proposition relative to other capital cities are also likely to contribute to stabilisation of prices in Brissie. As such I believe Brisbane will likely outperform most other capitals going forward. But that may not mean nominal price increases, and unlikely real price increases, for some time to come. Janet May 16, 2012 at 7:37 am Probably right. But when I was in urban Qld a few month ago, the overriding question I kept asking myself was “What do people do here?”.Without an impetus in the new job market, it’s possible this ‘bottom’ is a rest before moving lower. Yorrick May 16, 2012 at 10:46 am It seems every lady and her poodle in Brisbane is a property developer/investor of some size or in a complimentary business. Aristophrenia May 16, 2012 at 9:24 am Bookmarked. Its a temporary uptick – more than likely from post flood purchases etc, and will resume its down trend, the analysis above should apply to everywhere – but it doesn’t. flawse May 16, 2012 at 7:44 am the overriding question I kept asking myself was “What do people do here?”. Janet it’s a good question and the basic answer is that we eat at each other’s restaurants and coffee shops, shop at each other’s retail outlets, and sit around in Govt positions working out how to stop any real production. In boom times we build lots of houses. There is some engineering for mining projects. You see we don’t have to produce anything! If we need anything we can import it and just sell off a mine or two, a tract of prime land, whatever, to pay off the borrowed money. Brissy for now May 16, 2012 at 7:56 am What I do is go on overseas holidays and refine my plans to move back to my farmlet in northern NSW in a year or two.I am away till July and can say that eating at restaurants has never been so much cheaper than it is in Spain and even in France where I am now. This is all because I got out of residential R/E a couple of years ago to realise the gains which had to end sometime.It is all about the timing of ones actions. Brisbane’s glory days are over IMHO. Brett Edgerton May 16, 2012 at 2:16 pm I, too, was named by Phil Soos in the publication David mentions as publicly identifying the bubble. I think that for Brisbane the boost was the game changer – it significantly increased the likelihood of a slow melt like the 1990s (i.e. initial nominal price falls followed by a prolonged period of flat prices which are likely to be more prolonged this time), for the reasons I stated at the start. I agree with H&H – the RBA does not support house price rises (because of the pincer which I, too, was discussing on Bubblepedia 18 months ago under the tag “homes4aussies”). But I do think the RBA now wants to see stability in pricing because of the impact the weak market is having on confidence. (Central banks types have long been investigating the effects of housing busts on demand and the wider economy, before the latest “case studies”). For FHBs with little savings and time on their side David’s advice is likely the best. But the more financially literate, and probably more mature, would-be homebuyers who are in a better financial position may find themselves down the track a bit wondering whether getting ahead by a few $K each year is worth the emotional sacrifice of not living (and raising one’s family) in their own home. How that is answered will depend on sentimentality and life stage, but I think the this is the tough choice that the RBA would not mind seeing us in… flawse May 16, 2012 at 7:51 am It seems to me to be clear that the lowering of interest rates will set off the whole housing investment mantra again. My observations on the Sunshine Coast have been that the lowering of interest rates caused an immediate increase in the ‘housing activity’ Man if it doesn’t go down this time we are really in trouble!!! It WILL never go down! It is also clear that the RBA, Treasury etc are in wholesale support of ‘the housing price MUST go up forever’ idea. So the country can be bankrupted while we keep building this housing ponzi. David Collier is starting to look incorrect in his advice of ‘Don’t buy now’ We’ll see I guess. I agree with Brett that in REAL terms house prices probably won’t appreciate but nominal terms may be another matter and we pay for the houses with ‘nominal’ money! Houses and HolesMEMBER May 16, 2012 at 8:05 am It isn’t so easy. The pincer remains in place with banks needing to expand their spread to the cash rate. The RBA does not support house price rises in my view, though it clearly softened its stance this week. The government on the other hand would like nothing better. In the end, however, any generalised appreciation is going to be short lived. Funding costs are going to rise and rise and rise. We might see regional appreciation on local fundamentals of course but that’s as it should be. flawse May 16, 2012 at 9:13 am ‘Funding costs are going to rise and rise and rise.’ Is it possible for the Banks to use more and more short term money, at very low interest rates, supplied by the RBA? I know nothing about the Banking rules in this regard. I also think that in REAL terms funding costs might fall and fall. It’s hard to see nominal rates being raised in the western world any time soon even given my theory on a pending inflation burst. (about which I know you disagree) Be interested in your thoughts on how all these opposing forces weigh in the final outcome some time HnH. I’m looking at a western world with no savings all driving interest rates down. Do rates rise or fall? Phil the engineer May 16, 2012 at 8:11 am To be fair to mr collier, if you hadn’t bought when he first told you not to, especially somewhere like the gold coast, you’d be a long way in front right now.. I wonder if some of the uptick in sales is due to vendor capitulation? There’s some big discounts in qld at the moment on the real estate websites. Peter Fraser May 16, 2012 at 8:18 am Phil – you are cherry picking – values on the Gold Coast have fallen for more reasons than the GFC. At almost every other centre in Australia David would be wrong – get your facts right. Unconventional EconomistMEMBER May 16, 2012 at 8:40 am Brisbane values are down around -12% since peak and are below pre-GFC levels. He was certainly correct in that market. Same could probably be said for Perth. Peter Fraser May 16, 2012 at 8:54 am It’s easy to cherry pick a start date to suit your view. If you go to Steve Keens site and check out the ABS 4616 graph for nominal prices Australia wide http://www.debtdeflation.com/blogs/ But you have seen that graph many times. So at times his call would in fact be correct, but at other times it would simply be quite wrong. I know that you don’t want to hear that, but it’s the reality and not the dream. Your expectations may come to fruition, or they may not, but as at here and now, in broad terms his call has been more wrong than right. I would have thought that on a site that prides itself on looking closely at the truth, that you would have little trouble scrutinising that fact, but instead you sidestep it because it’s not popular here. It’s fine if you feel that you are here to balance the obvious incorrect claims of the spruikers by providing an equal and opposite bias, but it doesn’t hit that sweet spot of honesty and idealism that I seek. Cheers… Unconventional EconomistMEMBER May 16, 2012 at 10:49 am Peter. You said: “At almost every other centre in Australia David would be wrong – get your facts right.” I was merely correcting your claim. Peter Fraser May 16, 2012 at 11:13 am Then I was entirely correct – “almost” means most but not all. Phil the engineer May 16, 2012 at 8:44 am I do have an interest in the gold coast, and would like to buy there, but DC’s campaign was launched in feb 2011 and rp data / abs show falls in pretty much the entire country since then? flawse May 16, 2012 at 8:56 am Just to be clear I wasn’t knocking David Collier. His mantra just stands out as a good summary of the other side of my argument. We’re looking at trying to buy on the Gold Coast shortly. Just trying to pick up the desired house at distressed prices. Peter Fraser May 16, 2012 at 8:56 am Sorry but david has been banging on with the same line for years. Don’t cherry pick. Phil the engineer May 16, 2012 at 9:13 am I see what you did there Peter 🙂 Aristophrenia May 16, 2012 at 9:29 am Telling other people they are cherry picking, coming from a fruit picking specialist like yourself is the height of hypocrisy, it defies belief that you still spruik wherever you can – The market is down, nationally – PERIOD, end of story, and it is continuing to decline, not a dream a stone cold FACT, and it continues to decline and accelerate. Deal with that. flawse May 16, 2012 at 10:24 am Aris…I do not see that in Peter’s contribution to forums. In my view he has always given concise and logical reasoning. I haven’t always agreed with him but I am not dismissive. Reasoned counter-argument is surely a good thing when we are looking at the views we hold. Re Steve Keen…we all know that without the massive Govt intervention and the massive injection of foreign funds through and post GFC th whole housing schmozzle would have collpased as per Steve’s analysis. Unfortunately the fact is we did accept the foreign funding, to our long term detriment, and we did get the massive Govt intervention. Again to our detriment. The current debate over interest rates tells us that the housing ponzi and Foreign borrowing and asset sales, while boosting house prices, is the preferred policy of Treasury, RBA, and Govt. (both sides)(Apologies to HnH re the RBA. I know what they SAY but what they do is entirely another matter) So the conclusion must be drawn that Govt will do anything to keep the housing ponzi going at least in nominal terms. Given the small falls, except for localised areas, we’ve so far experienced we’d have to conclude that they have been relatively successful. The question is can that success continue? I think these are Peter’s only points that I have seen. I haven’t seen him tell anyone to go out and start investing in houses. flawse May 16, 2012 at 10:26 am P.S. HnH As was reported here in MB I think there may be quite a schism between the RBA itself and the Board. I also understand there is a fracture in Treasury on a lot of this stuff. Bullion Baron May 16, 2012 at 9:36 am Peter, the “buyers strike” campaign was launched March 2011. http://www.prosper.org.au/2011/03/15/prosper-calls-for-buyers-strike/ Based on the Residex indices (easiest for me to source) Perth is the only city priced higher now than March 2011. Ironic that you call on others to ‘check their facts’. reusachtigeMEMBER May 16, 2012 at 9:55 am In that case, a BIG thank you to Prosper for warning us to not buy now. Very sound advice. The buyers strike is what stopped me from being interested in buying so I am very very thankful for David’s attempts to protect us from the debt peddlers, like you know who. Temple Drake May 16, 2012 at 10:12 am David Collyer’s Prosper have been preaching housing doom for many years. They wrote the following in March 2009. House prices are up in all capital cities since they wrote that. http://www.prosper.org.au/2009/03/18/perfect-storm-threatens-housing-speculators/ “We have to step up to save hundreds of young people from being sucker punched by entering the market just as it is about to fall.” The “market” did not “fall”. It boomed. Melbourne and Sydney FHBs who disregarded Prosper’s advice have prospered very well. Peter Fraser May 16, 2012 at 10:17 am Yes BB for that period I agree. Actually I wasn’t intending to have a shot as David, he is entitled to his views. It would appear that I’m slightly more bearish than flawse, but more bullish than the pack, if being sorta neutral is bullish. flawse May 16, 2012 at 10:31 am Nah! Peter I’m lost! So I’m exploring views. I do come back to a question I always raise “Right now what would anyone invest in in this country other than RE. Governments are busy taxing and legislating everything else to death…that is anything left once the A$ disaster has wreaked its havoc” Manufacturing? Govt legislation, WHS, Unions, A$ problems Farming? You have to be born to it and be sufficiently a fool Mining? The govt is trying to destroy that as far as possible. What’s left? Housing, Coffee shops and mobile dog washers! Bullion Baron May 16, 2012 at 10:34 am Temple Drake, the context of this sub-discussion was in response to the following: “To be fair to mr collier, if you hadn’t bought when he first told you not to” The article you linked doesn’t specifically state not to buy now. The article you linked wasn’t even attributed to David Collier. Peter Fraser May 16, 2012 at 10:45 am Flawse, there is gold which may be worth a look if it falls below $1500 and equities, but each carries some risk. Forex risks could steal or enhance any gains. In equities you can lose everything, but in gold and RE you still have the original asset that you bought regardless of whether the world crashes and burns. Only one will give you rent, or imputed rent, so it’s a matter of determining whether the cost is worth it to you – and that is your decision alone. Unconventional EconomistMEMBER May 16, 2012 at 10:47 am “House prices are up in all capital cities since they wrote that.” I’m not sure about that, Temple. I very much doubt that Brisbane’s home prices are higher now than then, at least according to RP Data, where Brissie home prices have fallen -12% since peak (and are lower than 2008). Temple Drake May 16, 2012 at 11:01 am UE – prices are up since March 2009 in Brisbane and every other capital according to the ABS – the only measure that counts according to Steve Keen. Peter Fraser May 16, 2012 at 11:25 am I haven’t looked at the latest ABS figures for Brisbane, but I suspect that it is either line ball or marginally up, however there is the added stimulus to take into account that is no longer available, so in all likelihood someone who took that advice is down several thousand dollars, maybe *$13,000 to $20,000 or so. If you also weight in the temporary drop in the median caused by the floods, then when that negative aspect fades it will improve further. *I’m sure that some keen blogger with a calculator will check my mental calcs. As I noted elsewhere, someone who bought in 2009 and fixed for 3 years will have had the benefit of great interest rates of maybe 5.5%, and that will have matured just in time to get much the same benefits again. The bald fact is that the sticker price is but one cost when you buy a house. If you get a great sticker price but get screwed in every other way, then I question the true value of the deal. Gavin R. Putland May 16, 2012 at 12:50 pm When real home prices bottomed in early 2009, they were still about 25% overvalued by comparison with per-capita GDP (see graph). Prices “bottomed”, not because they had returned to some resemblance of sustainability, but because the Federal Government had introduced the First Home Owners’ Boost, and vendors who had sold to subsidized FHBs were starting to lever up their gains. By Q1 of 2012, in proportion to per-capital GDP, prices had not yet fallen through the “support” level of 2008-9. But give them time… campbeln May 16, 2012 at 10:42 am In my view, when rent is less than an 80% mortgage on the property (a 20% deposit? how quaint) then a purchase is hard to justify when you include the closing costs and eventual sale costs (not to mention that repairs now come out of your hide and the loss of returns on that 20% downpayment) on a property you will be in for less than a decade or so. The first time I saw a Rent -vs- Buy Calculator I was gobsmacked at what it pushed out, then I looked into the math and it does make sense. Now, put that in an environment where the best case scenario is a levelling of prices (nominal or real, take your pick)… I don’t know about the rest of Australia, but Canberra’s prices are a hard nut to swallow for me Rent -vs- Buy wise if I assume that prices will level. Mix in the possibility of a decline… eep! So, cherries or no, if someone bought anywhere in Oz in the “Mr Collier” timeframe and had to sell now, what would their net position be at the end of the day? If the best case is break even, that’s a pretty weak case! Peter Fraser May 16, 2012 at 12:00 pm Campbein – actually for most people it’s time to buy when the interest cost on 100% of the house value (whether you borrowed 100% or not) plus a reasonable allowance for other costs such as rates and insurance roughly equal rental costs. That is the best start position, plus or minus personal wants and needs. campbeln May 16, 2012 at 12:09 pm Peter: I could maybe be convinced of this if mortgage terms in Oz were as they are in the US; 30-years fixed. But when you have people barely scraping into a loan with interest at generational lows, don’t you see that as a problem? Despite popular interpretation, one should buy when interest rates are a generational HIGHS! Then I would likely subscribe to your logic. As rates fall on your variable mortgage, then you are in an increasingly better position (besides the fact that you should have paid the lowest possible principle on the house at purchase). Buying at generational lows, especially if you are barely scraping to get in, is suicide. Your rates have nowhere to go but up, and your home value has nowhere to go but down! drsmithyMEMBER May 16, 2012 at 12:28 pm In my view, when rent is less than an 80% mortgage on the property (a 20% deposit? how quaint) then a purchase is hard to justify when you include the closing costs and eventual sale costs (not to mention that repairs now come out of your hide and the loss of returns on that 20% downpayment) on a property you will be in for less than a decade or so. Personally I think that buying and renting should cost basically the same, as both have advantages and disadvantages that cancel each other out overall (ie: averaged over a lifetime and the entire population). So when I look at the parts of Brisbane I’m interested in and see that it generally costs half as much to rent as it does to buy, it’s pretty obvious buying is a dumb idea. Peter Fraser May 16, 2012 at 8:16 am flawse I’m just not seeing the bump that I had expected with the latest interest rate reduction, maybe the market will take off a bit if we get one in June that is passed on in full – people have become very distrustful of banks. Banks on the other hand want to be able to offer high rates on deposits to retain them, and of course the spread helps their bottom line – it’s a cat chasing it’s tail at the moment. I don’t think that non queenslanders fully appreciate what a widespread flood does to real estate transactions. It affected Brisbane, Rockhampton, Roma, and a number of large regional centres, plus a category 5 cyclone affected every town north of Bowen almost at the same time. All in all it’s not unexpected that transactions would rise from what may be generational lows. Add to that the slower migration rate and it’s all quite understandable, although with the lower cost of housing interstate migration may pick up. I went for a drive yesterday into some local industrial areas expecting to see a wall of for sale and for lease signs – they just weren’t there – maybe they will come, and I know that the developers built way too many industrial sheds that lie unused in outlying areas, but in the traditional areas business seems to be holding up. I expect a pickup, but it’s only marginal at the moment. Maybe it’s too early. I think that any pickup will reach broad areas like the Sunshine Coast last, although a prime area like Buderim might see earlier demand. Jumping jack flash May 16, 2012 at 8:53 am “I went for a drive yesterday into some local industrial areas expecting to see a wall of for sale and for lease signs – they just weren’t there – maybe they will come, and I know that the developers built way too many industrial sheds that lie unused in outlying areas, but in the traditional areas business seems to be holding up.” You’re right, it isn’t happening in the major centres just yet, but drive into the hills for a couple of hours south of the city and you’ll see your wall of signs. With regards to retail, the only new shops in the small town where I have lived for 5 months now, are a gun store, a bottle shop, and a couple of (government funded) job placement agencies. A sign of times to come? Peter Fraser May 16, 2012 at 10:20 am JJF – two hours south of here puts me in another state. Serenco May 17, 2012 at 12:23 pm Last time I was in brisbane visiting the olds I drove past the industrial estate on the gateway-kinsford smith exit and that was the wall of forsale/lease signs that you’re looking for. flawse May 16, 2012 at 9:07 am Peter you may be right as you are in a better position than me to see such things. I’m just going by my ‘on the ground’ observations. I have just missed out on a property here. Certainly the lower interest rates environment is driving the alternate purchaser and he would not have got the loan without them…I.e. November to now. In this discussion I think we need to look at the cumulative effect of November and April. Peter Fraser May 16, 2012 at 10:29 am flawse – it may have brought out a few, but not very many as yet. Perhaps it will gather momentum, but the reduction in November had an immediate effect, but not so much this time. Keep looking for that great buy on the Gold Coast, it will turn up for you. campbeln May 16, 2012 at 11:29 am “Certainly the lower interest rates environment is driving the alternate purchaser and he would not have got the loan without them… I.e. November to now.” So… what happens when this marginal buyer needs to sell in an environment of flat housing prices (or worse)? Me think’s bringing cash to closing is a non-starter (to cover closing costs, Relitter, etc.). Add to this a minority (majority?) of the recent strata of new loans fall into this category, and how does that bode for housing prices in general? This all sounds like more wood on the fire to me, so our question becomes have we seen a spark yet? (I agree with your observation, BTW, just running it out a bit more) dumb_non_economist May 16, 2012 at 11:44 am Flawse, Have a look again at the SK chart that shows the falls from peak for here, Japan and the US. We are at early stages yet AND if your views of the economy are correct even if prices kick up there is nothing but thin air to hold them there. Be patient grasshopper! LBSMEMBER May 16, 2012 at 8:45 am “It seems to me to be clear that the lowering of interest rates will set off the whole housing investment mantra again” Flawse I agree but only if China stimulates again like they did in 2008. If not and they keep slowing or fall off a cliff then I dont think any drop in interest rates will make a difference this time. reusachtigeMEMBER May 16, 2012 at 8:44 am Deadcat bounce! technofreak May 16, 2012 at 11:09 am I concur… Greconomics May 16, 2012 at 1:18 pm Yup. Did everyone miss the important fact that QLD housing transfers and mortgage lodgements are still near historic lows??? Sure the trend is up (slightly). However, QLD is still a looooong way from the recent historic highs experienced in 2003-07. There’s an old greek saying that loosely translates “giving a meatball to a starving kid ain’t gonna make him fat, it’s only going to keep him alive until tomorrow”. QLD needs a lot more meatballs (i.e. FHBs)! Also, despite QLD housing transfers and mortgage lodgements trending up over the recent quarter, house prices in QLD DECLINED by about 1.5% (according to RP/Rismark) over the same period. Not a good start to the so called “recovery”. Unconventional EconomistMEMBER May 16, 2012 at 1:38 pm I thought my post was self explanatory, given that I continually noted how QLD volumes are well below average levels and concluded with this comment: “Clearly, Queensland transfers and mortgage lodgements have rebounded from their lows of 2011, but remain highly subdued relative to the past decade.” Peter Fraser May 16, 2012 at 1:39 pm Hi Greco – as usual you have added some logic to the discussion, and I agree that prices have fallen. Genuine case – I know a house that I regard as a $2M home that I can now buy for $1.2M so that’s an $800,000 discount. However the house was flooded (although only in the basement)and the affect of that flooding accounts for most of that discount. The house beside it was sold for $1.77M prior to the floods, and it’s a slightly lesser home. Although the houses were flooded well over 12 months ago, it has taken the insurance companies and the builders up to 12 months to renovate them, and now many of those renovated homes are on the market for sale, but at greatly reduced prices. Some homes are in working class areas, and some in prestigious positions. Naturally the median price will fall as the discounting of flooded homes takes its affect on the overall market. So if the falls in Qld have been heightened by the flood, then the falls would have been less had the flood not happened. Unless we see a shock from an external source, I believe that the falls already seen in Qld will probably be the worst in Australia. flawse May 16, 2012 at 8:53 am LBS On that score I am in a position in life where I see some of the Chinese money. Chinese are very anxious about their USD paper. They want resources. So I’m thinking there will be a continuing flow of Chinese money, in the form of USD, coming here over the next few years. Again I’m not as certain as everyone else that China is in for a disastrous landing. People are a bit quick to equate Chinese Banks with western banks, I think there are very fundamental differences in the economies and societies. I’m not married to my opinions here…just trying to assess the probabilities and appreciate everyone’s posts. LBSMEMBER May 16, 2012 at 11:57 am Flawse I understand what you are saying. My point is Australia is married to China growth and without it Australia is dead to the global economy. What is funny to me is how the RBA and Treasury are coming out now and saying they got it wrong. I stated on here several times that this would happen. I just read a article today that the Chinese are giving Australia a the US protects you or we do. The sad thing is Australia has become so dependant on China. A country that treats their people horrible etc. etc. etc. Then Australia brags about how wonderful Australia is to the world economy. I mean come on the Aussie govt was bragging about how great the AUD was being so high a great economy and Swan got awards for his work. It is Stupid. Australia is not a global player we dont have the dominance to be a global player. We ride on the tails of the countries that do. We are on the wrong tail with China. Thats my point. China will never be a US, Russia or UK. It is a disaster waiting to happen. That dumba$$ redhead in office doesnt see it coming. It pisses me off. flawse May 16, 2012 at 3:45 pm LBS do you go to China? (Just a question not an argument 🙂 ) It’s certainly a complex country. On of the great early lessons I had was from an anthropologist who explained to me the four very different racial types. On the whole I find them a happy people. I guess they feel they are getting ahead and that tends to make one reasonably content. As a people they are certainly happier than we are. However we are a western democracy and that’s a simple fact….well sort of a democracy. I have serious reservations about the way this democracy works but another time and place perhaps. Thank you for your input. I enjoy it. Aristophrenia May 16, 2012 at 9:32 am Which part of this thread deals with the response to the Queensland floods which this is CLEARLY a response to ? Seriously, you have some of the worst floods in floods in living memory, entire towns wiped out, more houses gone than you can imagine, with entire regions no longer safe to build in with new homes being built and purchased all over the place – and an uptick in the transfer and mortgage rate directly after these floods is a sign the market is back on track and nothing to do with said floods ??? Jesus, really. coolnik May 16, 2012 at 9:42 am +100 You know Aristo, data says what data always says. Floods are a quite an inconvenient fact that can explain the uptick, but why waste a good data that we can use to claim happy days are here again! We would rather just pick on doomsayers and accuse them of cherry-picking or whatever. You are a such a pessimis! Peter Fraser May 16, 2012 at 10:26 am aristo – that is why qld house prices plunged so far – we apparently agree on that. That then asks the question – where would they be without the flood and cat 5 cyclone, and the answer has to be north of where they are now. But buyers don’t forget overnight, and it will take some years for property values in Qld to get back to a normal setting. Even property that was well above flood level has been tainted in many suburbs. That’s just a fact of life, although it has nothing to do with the GFC. Janet May 16, 2012 at 10:41 am You’re not suggesting that had the flood and cyclone not happened that property prices would be higher are you, Peter? Surely not. Take stock out of any needy market and what happens? The price of the remaining stock should increase…not fall! People have to live somewhere. Look at Christchurch. An earthquake and those that remained had to find accommodation somewhere; and they did at higher prices. Those that left went to Auckland and pushed up those prices as well. The rest of NZ continued to fall. Queensland property should had risen with the natural disasters, not fallen. So underlying the property market in Queensland were some pretty awful fundamentals, which are probably still there today. I wouldn’t buy in Auckland or Christchurch today, as they have been artificially stimulated by unforeseen circumstances, and like the rest of the country will resume their fall when Christchurch has settled down. Likewise, I wouldn’t buy in Queensland today, because there has been not stimulation that there otherwise should have been. Peter Fraser May 16, 2012 at 11:11 am Janet – surely you jest. campbeln May 16, 2012 at 11:37 am So… the laws of supply and demand apply, unless they don’t? Housing loosing value in the flood zone (read: those that had damage)? Sure, that makes sense, but housing falling in QLD in general as a response? Not in the NZ experience, obviously… I’m certain prices didn’t fall after the Oakland CA fires in the Bay Area (or NorCal) as a response. Serenco May 17, 2012 at 12:29 pm This is a good call @capbeln, supporters of where house prices are like to say they are there because of supply and demand but are liable to discard those reasons if it suits them technofreak May 16, 2012 at 11:14 am PF by “Normal Setting” are you saying the normal value setting for property values is the previous speculative bubble prices that are supposed to double every 7-10 years? LOL! Peter Fraser May 16, 2012 at 11:36 am Lol – short answer – NO. Aristophrenia May 16, 2012 at 2:11 pm Brisbane house prices down almost 2% in 2012 already http://www.macrobusiness.com.au/2012/05/weekly-rp-data-house-price-analysis-4/screenhunter_03-may-16-11-17/ And down 6.5% in the past year despite the cyclones (destruction of property and uptick in demand is still crushing prices) http://www.macrobusiness.com.au/2012/05/weekly-rp-data-house-price-analysis-4/screenhunter_04-may-16-11-18/ I know some good prosthetic surgeons if you need a leg to stand on ?!!! lol. Aristophrenia May 16, 2012 at 2:03 pm No Peter, you clearly don’t understand – house prices were collapsing before the cyclone hit – the uptick in demand / transfers was a direct result of the cyclone as people needed to purchase new homes, or build directly after the disaster. As for your claims RE nothing to do with the GFC, I disagree. It is CLEAR as day that we are in full scale real estate retreat, housing is crashing. UE – I have edited your comment as it was abusive to Peter. Please refrain from personal attacks. Peter Fraser May 16, 2012 at 2:40 pm aristo – sorry mate but I didn’t say that all of the falls were due to the floods and cyclone, yes the falls were largely due to the GFC but a part of the total fall was due to the natural disasters. Post flood/cyclone there was a massive spike in RENTAL demand but demand to purchase fell off a cliff. People don’t have the money to race out and buy another house to live in while the other is being repaired, and the rest of the population was shellshocked – flood affected home owners rented and in many cases that rent was covered or subsidised by the insurance companies. aristo I lived through that flood, my house took water – I know absolutely what happened in Brisbane – please don’t try to lecture from afar, you didn’t see what was happening on the ground – I did and I’m still watching what is happening. Here is a flood affected property in Kenmore – http://www.realestate.com.au/property-house-qld-kenmore-109526561 Still not fixed up after all of this time – it would have been worth much more than this before the flood. This represents a ruined dream for some family – not GFC related, but certainly flood related. Mate I was there and I was involved your perceptions are not reality. The Patrician May 16, 2012 at 10:06 am I am reminded of the occupants of the primate enclosure at Alma Park Zoo. They are not picking cherries. david collyerMEMBER May 16, 2012 at 12:01 pm I am so dizzy with this attention and flattery that I will have to buy a new tie. Eighteen individuals/organisations called the bust acccording to researcher Philip Soos. Four of these were Prosper associates: Dr Gavin Putland and Bryan Kavanagh of the Land Values Research Group, Karl Fitzgerald of Earthsharing and myself. Temple Drake at 10.12 links to Karl Fitzgerald’s prescient warning. That was a clear caution of future difficulty, not a bubble call. Read his words. Bullion Baron at 9:36 correctly references Prosper’s call on 15 March 2011, 14 months ago. We can argue ourselves to a standstill about individual city markets, but the national trend is clear – house prices are falling and will continue to do so for years. The Boomers and ‘Gearers will try to exit, but sadly, the foreclosing banks will discount and sieze every cashed-up knife-catcher. My advice to locked out Homesteaders: save a giant deposit, show a pristine credit rating and look to buy when rents>repayments in about five years time. Anyone who took our 15 March advice and stood aside has already saved tens of thousands of dollars. Don’t Buy Now! campbeln May 16, 2012 at 12:27 pm I think it’s a bit of folly to assume that banks will quickly clear their foreclosed properties. That is certainly not the case in the US! Especially if the FedGov is as gung-ho to keep the housing bubble from bursting (which many on this thread believe). The smart/small banks may learn from the US experience; being “trapped” with rotting homes in a falling market, where the higher prices never rematerialized. But I have no such faith in the 4 Pillars taking this approach, they are Aussie TBTF, are they not (whether they are or not is immaterial, but rather if THEY believe they are)? What’s that saying… something like “A Banker’s goal is not to ‘not fail’, but to fail in a completely conventional way along with his peers, so that he can point to them to claim they too missed the error.” david collyerMEMBER May 16, 2012 at 12:46 pm Campbelin, check this. http://www.prosper.org.au/2011/06/28/lessons-from-manhattan/ Banks took almost every Manhattan buyer 1930-35, trapping private vendors in their homes as prices fell. campbeln May 16, 2012 at 1:13 pm From the linked page: “The Australian banks handled the 1989-91 property downturn differently. They added the bank-owned stock to the sales lists and gradually fed it through the market over about eighteen months. Prices remained subdued but the process was orderly and nearly invisible. The downturn we are entering will be steeper and sharper than 89-91. Relative to incomes, prices are higher and debt is heavier. Whether we see banks take all the buyers depends on how much property they hold. The large cohort of first home owners enticed to buy by the FHOG in 2009 and 1.25 million negative gearers are seriously at risk of default. Is enough go down, we will witness a direct repeat of the Manhattan experience: Private sellers will be unable to close – for YEARS!” ====== I agree with all of that, BUT the American experience this time ’round has been different; http://www.bankoftheinternet.com/will-america-ever-recover-from-the-housing-crisis The US banks were hoping for a replay of the Aussie experience from 1989-91, but didn’t get it. Problem is that in a lot of cases, they have waited so long now that the properties held have literately rotted away, leaving a total loss (save land value less demolition, if any). Else they are left with far larger losses than if they had liquidated in 2007-8-9, etc. They are now in a deeper Catch-22, as instead of liquidating more quickly and realising a big loss, they are now left with a total loss or near-total loss in many cases. So they wait for government largesse to bail their asses out instead. While the environment of government largesse is present, I do not think you can assume a 1920’s/30’s style liquidation, but rather a 1990’s/2010’s one. Of course, maybe the political environment isn’t as Bank-friendly down here as in the US… Anyway, love your work, and you deserve that new tie 😉 campbeln May 16, 2012 at 1:13 pm From the linked page: “The Australian banks handled the 1989-91 property downturn differently. They added the bank-owned stock to the sales lists and gradually fed it through the market over about eighteen months. Prices remained subdued but the process was orderly and nearly invisible. The downturn we are entering will be steeper and sharper than 89-91. Relative to incomes, prices are higher and debt is heavier. Whether we see banks take all the buyers depends on how much property they hold. The large cohort of first home owners enticed to buy by the FHOG in 2009 and 1.25 million negative gearers are seriously at risk of default. Is enough go down, we will witness a direct repeat of the Manhattan experience: Private sellers will be unable to close – for YEARS!” ====== I agree with all of that, BUT the American experience this time ’round has been different; see: http://www.bankoftheinternet.com/will-america-ever-recover-from-the-housing-crisis The US banks were hoping for a replay of the Aussie experience from 1989-91, but didn’t get it. Problem is that in a lot of cases, they have waited so long now that the properties held have literately rotted away, leaving a total loss (save land value less demolition, if any). Else they are left with far larger losses than if they had liquidated in 2007-8-9, etc. They are now in a deeper Catch-22, as instead of liquidating more quickly and realising a big loss, they are now left with a total loss or near-total loss in many cases. So they wait for government largesse to bail their asses out instead. While the environment of government largesse is present, I do not think you can assume a 1920’s/30’s style liquidation, but rather a 1990’s/2010’s one. Of course, maybe the political environment isn’t as Bank-friendly down here as in the US… Anyway, love your work, and you deserve that new tie 😉 david collyerMEMBER May 17, 2012 at 10:13 am Nice link, Campbeln. And thank you for your kind words. The exact behavior of the banks can only be guessed at. If they sit on their OREO it rots; if they sell their OREO it forces the supply/demand equation down. Either way, prices collapse. Don’t Buy Now! david collyerMEMBER May 16, 2012 at 12:39 pm And to the issue of this post – Leith, you can’t be serious calling a bottom on Qld mortgages. Qld jobs ex-mining are horrible. We have such solid evidence in the US and Japan busts of what happens to landowners and banks. Wringing all hope out of a frothy market takes time and great pressure. The great unwashed are finally learning land prices can fall. The last price downturn ’89-91 did not have the oversupply or price dislocation profoudly evident around us. This correction will be magnitudes bigger and harsher. Unconventional EconomistMEMBER May 16, 2012 at 12:43 pm I reckon they [mortgage and transaction volumes] bottomed after the floods but will remain at highly depressed levels into the foreseeable. Certainly no boom though. Do you think QLD mortgage volumes will fall below 2011 levels? david collyerMEMBER May 16, 2012 at 12:57 pm I see nothing to stop sales volumes falling further. Very low volumes for lengthy periods are common in deflate eras. This site, this audience, is economically literate. Not so the citizenry. When they work out what is going on I see another step down in volume. Aristophrenia May 16, 2012 at 2:07 pm http://www.macrobusiness.com.au/wp-content/uploads/2012/05/ScreenHunter_01-May.-16-11.10-300×233.gif Brisbane down .44% in one week – yes – things are continuing there downward trend. Unconventional EconomistMEMBER May 16, 2012 at 2:12 pm I was talking about mortgage/transaction volumes, not Brisbane’s prices, which will likely fall further (as noted in my post). Brett Edgerton May 16, 2012 at 2:20 pm Meant for this to follow on the thread, not be at the top… I, too, was named by Phil Soos in the publication David mentions as publicly identifying the bubble. I think that for Brisbane the boost was the game changer – it significantly increased the likelihood of a slow melt like the 1990s (i.e. initial nominal price falls followed by a prolonged period of flat prices which are likely to be more prolonged this time), for the reasons I stated at the start. I agree with H&H – the RBA does not support house price rises (because of the pincer which I, too, was discussing on Bubblepedia 18 months ago under the tag “homes4aussies”). But I do think the RBA now wants to see stability in pricing because of the impact the weak market is having on confidence. (Central banks types have long been investigating the effects of housing busts on demand and the wider economy, before the latest “case studies”). For FHBs with little savings and time on their side David’s advice is likely the best. But the more financially literate, and probably more mature, would-be homebuyers who are in a better financial position may find themselves down the track a bit wondering whether getting ahead by a few $K each year is worth the emotional sacrifice of not living (and raising one’s family) in their own home. How that is answered will depend on sentimentality and life stage, but I think the this is the tough choice that the RBA would not mind seeing us in… Smaug May 16, 2012 at 8:22 pm We’ve got a big purge going on in the QLD public service at the moment, and a large portion of the people leaving the public service will occur on June 30. We’re talking 10000 plus people. I expect that this will have a demonstrable effect on the economy of the Brisbane CBD, and will spill into consumer confidence and real estate figures.