Login to access MacroBusiness Members special reports. If you are not a member, sign up here.
or
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.
Latest posts by Leith van Onselen (see all)
- What happened to following the COVID-19 science? - October 23, 2020
- CoreLogic weekly house price update: Big rise! - October 23, 2020
- Links 23 October 2020 - October 23, 2020
YOU MAY ALSO BE INTERESTED IN
CoreLogic weekly house price update: Big rise!
In the week ended 22 October 2020, the CoreLogic
Sydney's auction market continues to strengthen
CoreLogic has released its final auction
AUSTRAC demands property money laundering laws
The CEO of AUSTRAC - the Australian Government
Why Australia needs more housing stimulus
A group of university academics have called on
Wow. That’s starting to look ugly for Melbs.
Can you update your Aus vs Ireland vs US price decline graph with alligned zero period?
This would be awesome!
steve keens blogs would be best for this type of graph
Maybe we need Melbourne vs Dublin, because it looks like Melbourne is in a class of its own.
Melbourne decline from peak would be an interesting number.
+1
add about 2% to 8.45% 12 month movement.
Refer oobles comment below. Could be higher from peak.
2010 – 1%
2011 – 5%
2012YTD – 5%
Total = 11% so far.
On track for 18% by the end of the year but could be 20% if momentum picks up, as per US experience.
I’ve been keeping some of the historical data from the new RP Melbourne index. Today it the index just hit a 10% loss from 20th April last year (636.1) to today (571.93). It’s probably a bigger fall from peak, but I don’t have any data past 25th March 2011.
considering the peak was like mid 2010 theres probably a bit more than that to add
I’ve kept 2 spreadsheets on their Melbourne too. 1 beginning 20/03/12 and one going back since 10/04/11.
Property is also compared to a bank account to see what the opportunity cost is.
http://www.bubblepedia.net.au/forums/viewtopic.php?f=15&t=13
I’ll update both tonight
Updated as of 31/05/12
http://bubblepedia.net.au/forums/viewtopic.php?f=15&t=13&p=2856#p2856
Intersting.
When does rural Victoria get their NBN rollout?
Homesteading on 2 acres with a creek and wireless broadband for the cost of $2,000 does make a career change worthwhile.
If you’re happy with a 4 bedder on the outskirts of Melbourne for ~$390k, the rollout has started in South Morang.
(Rollout map: http://www.nbnco.com.au/rollout/rollout-map.html)
I dont know what to say about that. How depressing.
Tasmania has NBN in remote towns with one dog and maybe a memorial to some forgotten whaler.
Meanwhile, Victoria which is collapsing on its knees has nothing planned for the next THREE YEARS MINIMUM on both coasts – nothing.
From Torquay to Adelaide – nothing.
The entire length of the South Gippsland Highway – nothing, zero – ZIP.
You must be kidding me…..is that a sick joke ?
Meanwhile the entire coast from south of Sydney in Kiama – through to Cairns is being done.
If you look at the map – its as if someone said Ok,Victoria, lets do Melbourne, Geelong, Ballarat – and thats it.
Ok QLD, NSW – lets do everywhere….
The only problem being that if you can work remotely on the job then it can be easily outsourced to India or the Phillipines or even NZ in the case of Fairfax.
That’s not a problem, its competition.
yes you are right. companies have no obligations to anyone here in australia.
they can move where-ever is best for them, community and country be damned….
/rolls eyes
Why not? All of the folks here are saying not to buy a property as its not good economic sense. Therefore, why can’t an Australian company outsource to another country if it makes good economic sense?
Erhh that’s not what I am inferring.
I am inferring that if I do a job online, can I compete with vendors from 3rd world countries like India, the Philippines or NZ?
Maybe not on price, but I do have other competitive advantages.
“3rd world countries like … NZ?”
eh bro! Thits not right.
bv2726,
Not buying overpriced homes is not the same as outsourcing.
I don’t understand why you guys are so scared of global competition but enjoy buying cheap goods on the Internet! The transition period might be harsh but after it there only be the advantages.
For those who can, as highly-paid workers should adjust quality and pick the right (I mean high-end) employer.
For those who can not, there still are options. They can move elsewhere where the living is cheaper and/or get the rest from Centrelink. BTW using Centrelink allowance for rent/food and proceeds from online work for goods (so the money never cross Australian border) looks attractive :)~
Design engineering roles up for bidding in reverse auction fashion on the WWW.
Google:
freelancer.com.au/jobs/Industrial-Design/
Seems to be an Aussie site, so at least someone gets to go to DJ’s and spend even if you chose to match the guy from Ausbeckistan on 50$/day.
It’s places like this that have stopped me sharing tips or posting work arounds, macros and tools like I used to do.
Not necessarily true. The older I get, the more important I understand how important cultural fit is to productivity.
“The older I get, the more important I understand how important cultural fit is to productivity.”
The older I get, the more precarious my skill set is as we transcend into a “design here, manufacture in China” routine.
Best example I have is sheetmetal design. 4 years ago it was routine to supply a flat form in dxf format in addition to a drawing. It was a pedantic, technical process to match bend stretch to the material and production equipment used. But doing this well made me an “expert” who designed manufacturable parts. Now I have found out that some companies use an alternative electonic format (step) of the formed part. It is actualy easier to supply this compared to a dxf and it reduced the previous customising step to a triviality.
So my productivity in this case has gone from expert to novice just because economics has dictated that we do manufacturing at arms length. I have asked on many occaisions “am I giving you exactly what you need?” and have always got a “yes”. The product still works and was well recieved, the part still arrives, we still make profit, but for how much longer will this game plan last?
This could be a good time to mention that I’m a crash-hot dotnet/VBA/SQL dev with a great lifestyle property north of Auckland and more than happy to work from home…
hint hint
(not that I don’t love it here in Seeedney)
-8.45% looks like a huge 12 month loss for Melbourne, but I think we still have to ‘repay’ the insanity of the ~30% increase between March 2009 to December 2010 period. Looks like its picking up some steam though with -2.66% in one month.
Melbourne must be at 11% from peak by now. If house prices were at 460k in March 2009, and rose 30%, they’d be 600k. But if we take into account 11% falls on 600k we’re back to 534k. Half way back down.
Add in inflation and we’re probably getting a lot closer again. We may be back to 2009 prices in real terms early next year. However I’ve yet to really see it around Brunswick/Northcote etc.
Same around Glen Waverley. People are still paying $700-800k+ for a crap shack. It’s almost entirely explained by the Glen shopping centre and rich Chinese immigration though, not sure about other areas.
Adjacent suburbs like Mount Waverley, Burwood Clayton, Mulgrave etc are feeling the pinch though.
I’d say a fair bit of the heat has come out of Glen Waverley, no so much in GWSC zone, but say Brentwood and Highvale zones I reckon it has
Yep, school zone is a huge factor (former GWSC/MHS family here)
By my reckoning the falls so far are:
2010 – 1%
2011 – 5%
2012YTD – 5%
Total = 11%
It will be interesting to see if the drop picks up momentum in the 2nd half. Given the huge construction activity we have seen in recent years there’s potential for a savage feedback loop to develop as reduced construction leads to few jobs, less spending, further reductions in hours, reduced borrowing cappacity and increased caution.
I sometimes think Melbourne was a bit like Vegas in our dependancy on building new houses on the fringe. Once that stops, why won’t unemployment go up to the levels seen in the recession of the 90’s?
We have such a long way to go in Melbourne that its not funny. Property is still damn expensive, 4% yields is ridiculous. Right now, its as if the ASX went from 6700 to 6000 in the melb property market….and then there is the large supply side…so many apartments coming onto the market in the coming few years.
4% gross yield that is, subtract another 1% or so for expenses.
+1
-2
patcox, that is the exact oposite of what you were told to do.
fixed now
A 2008 report by Morgan Stanley found that over the long term gross yields vastly overstate the net yield by some 2.3% in Australia.
Key quote:
“Third, there is a big flaw in the typical treatment of housing yields, indeed a big flaw in the assumed returns on property investment. The flaw is simple: gross yields grossly (sorry) over-state returns on property investment.
Although the property boosters don’t mention it, a rental property involves more than just collecting rent and watching capital values rise. There is a range of direct costs and depreciation. The Australian Bureau of Statistics estimates gross and net rent across the entire property stock. (These aggregates reflect the rent paid by owner-occupiers to themselves: so-called imputed rent. But the data reflects market rents, and so do the costs of property maintenance and depreciation). Exhibit 4 shows the gross and net rental returns based on that ABS data. On average, the costs of supporting a property have been about 2.3% of the capital value.”
http://www.bubblepedia.net.au/tiki-index.php?page=GerardMinackArticle
So the actual net yield is around 2.5%.
Meaning that if prices fall 75% the net yield will be 10% (gross 16%).
If the momentum develops I can see a fall of that magnitude before we hit bottom – 10 times median income down to 2.5 median income.
We’ve seen falls like that in Florida and Vegas. And Dublin is 60% down and still dropping.
It won’t happen in Australia as a whole, but areas that adopted the Build and They will come approach, like Vegas, could fall like Vegas. I’m looking at you, Gold Coast, and you, Melbourne.
C’mon Melbourne! Keep it up and we can drag the rest of the country’s prices down too!
This is just a warm-up too. Europe hasn’t imploded yet. Pretty scary if you think about it.
This chart is scary when you look at how fast Melbourne is now falling:
http://www.rpdata.com/research/back_series.html
That does look like its starting to fall off a cliff.
It really should hurry up. I much prefer a quick sharp and painful collapse to the Greek solution of suffering on the edge for 5-10 years before a worse sharp and painful collapse…
How about the Japanese solution of a fall followed by 20 years of negligible growth?
I like it 🙂
But seriously, not likely here as we don’t have a shrinking demographic and such a undesirable old/young ratio.
Karan, I’d be happy with that – not buy and let a property investor subsidize my living costs (while they wait anxiously for appreciation that never materializes).
The Melbourne (and the wider Australian) property market is little different to Facebook, really. Lots of people want to see it fall; only because they really want to buy! Until no one wants to touch Melbourne property , even with someone else’s barge-pole, then there will be buyers all the way down, to stop what should be a fuller correction ( NB: I observe from the distance of NZ and have no interest in the place, other than an academic one)
I have my doubts about this. Once the “house prices only go up” mantra is smashed, I think it will take a long time to piece it back together. I think price falls may accelerate before they slow down.
Not like facebook at all really. Ask anyone south of forty and they will tell you facebook may have coverage, but has lost its cache…what are you really buying?
Housing, on the other hand, is a necessity, and yes people are waiting for falls to buy, but I agree with SoulNigga Chips below- now the mantra of “always goes up” has been questioned, its anything can happen day.
Frankly, taking the panic button out of the equation, FHB may be prepared to wait it out indefinitely.
Really? FHBers have existing owners ( their parents, mainly ) ‘at them’ relentlessly ” Son, your Mum and I bought our first house in Frankston in ’73 for $35k and today it’s worth $750k. Get in now, like I did” etc. FHBers are the bunnies of the pack ( what were you like with your first purchase? I know, looking back, I was a tad brainwashed!). The “always goes up, mantra” is alive and well. Even those here on this site, today, who want to see a fall, believe it at heart ; that’s why they want to see a fall, because property always……otherwise, why buy it? Just rent it, otherwise. No one buys something if they really expect the price to fall; no one.
Conversely there are folks like me.
Back in the day, got first abode for 1 yrs gross income . got me 2nd for 1.5 yrs income.
How much you paying now??
What are you? stupid or sumthin?
Summed up nicely!
And there are also FHBers who grow a set and tell their parents to stick it in an over-priced market. The entire Gen X and Y generation can’t be that in awe of their parents surely?
The problem is, they do.
People buy cars, electronics, jewellery, actually all the goods we buy go down in value.
I wish my parents had called me Janet.
Sta.net just doesn’t quite have the same ring to it.
Of course the fact that they named me ‘David’ doesn’t help either…
“Not like facebook at all really. Ask anyone south of forty and they will tell you facebook may have coverage, but has lost its cache…what are you really buying?”
Don’t you mean lost it’s cachet?
I’m pretty sure they are well cached up after that IPO…
Shortage meme being thrown around alot today:
http://www.bloomberg.com/news/2012-05-30/australia-housing-escapes-peril-on-undersupply-mortgages.html
Shortage?
http://sqmresearch.com.au/graph_stock_on_market.php?national=1&t=1
Yeah, only a 60-70% increase in stock since late 2009. About 80-100% for Melbourne. There really needs to be a crackdown on this sort of lying in the news.
How can there be a shortage of 6000,000 dwellings in the future. Using that methodology, as the crisis picks up and people lose their jobs, and end up couch-surfing or on the street, the shortage will skyrocket!
Yeah I know.
In Melb:
“Residex estimates there is an oversupply of 14,000 homes and expect prices to fall a further five to ten percent over the next year.
Residex CEO John Edwards said “There is far too much stock coming onto the market right now and far too much stock to be delivered into that market given the housing supply situation exists”
That stock growth is quite similar to what immediately preceded the Irish property crash. Mexican standoff followed by vendors fleeing in a rout.
McPaddy,
It’s called capitulation.
Slow melt, my @r$e !
Yeah heh heh, fixed me up.
“Kaboom” as one idea gets blown to bits.
It is a ‘slow-melt’ in average-joe’s terms. Average Joe (who is specfestor) does not understand “annualised” things..Trend-lines always point upwards for him and anything otherwise is just short-term noise! He only runs to exit when there are big-falls.. othewise they think.. “we are well-off to handle 1% drop!”
or even worse he completely ignores the effects of inflation and lost opportunity
Inflation and Lost-Opportunity cost do not appear in their dictionary… unless ofcourse it is related to trendlines trending-upwards.. otherwise they are terminologies introduced by the CIA in order to dumb us down!
I’d say Melbourne is now out of slow melt territory for sure. 2.5% this month! I look forward to seeing the MSM put a positive spin on that figure!
So far the tactic has been to largely ignore it (as well as Tasmania). Sydney is a pretty big smokescreen and hasn’t fallen enough to trigger MSM alarm bells yet.
Wake up to yourself. Geez, can’t you see that stories about Matthew Newton and face-eating cannibals are far more important than the country’s finances?
Good name for a band that. ‘Matthew And The Face-eaters’.
And just to underline my point, how can the price of a house in Balmain compare to this?
http://www.dailytelegraph.com.au/entertainment/batgirl-to-sydney/story-e6frewyr-1226376762957
Jesus wept.
Anyone who didn’t see this coming is a Blind Freddie. Exactly as predicted:
http://www.prosper.org.au/2012/02/23/prosper-sees-property-price-falling-15-perhaps-20-in-2012/
Don’t Buy Now!
Hi DC,
I’d agree with that if we see another 2-3 mths of 2+% falls, otherwise a continuation of the present. HOWEVER, as anyone who has been to the Himalayas will know, snowmelt becomes a torrent as spring turns to summer!
Fantastic news. Looks like housing might become affordable in the future if you still have a job or have saved loads of money.
Anyone who has 50% Equity 50% Debt has lost almost 17% of their Equity in their Melbourne house. Those geared at 80% have lost nearly 50% of their equity. Never forget gearing magnifies losses as well as gains.
the standard line ‘8% drop? the stock market can do that in a week’
yep, and the traders stupid enough to leverage up 20 times with a 95% margin loan on their entire life savings would all be wiped out too.
I expect the first home buyers in Vic rushing to beat the grant cut off will wish they read your post Mitch
+1
When geared up in property the volatility is higher than the nominal changes in stock market indexes.
don’t forget 90% LVR (1 third of Gen Y FHBs took this option and negative gearing it up, whilst living @ the BB nest/renting).
This is a -55% ROE over the the last 73 days (GFC sharemarket outcome).
http://bubblepedia.net.au/forums/viewtopic.php?f=15&t=13&p=2856#p2856
I doubt these figures will sway everyone. You can check out what Uber-Spruiker Michael Yardney was saying just a week ago on this link.
http://propertyupdate.com.au/how-many-properties-do-you-need-to-retire/
The man sagely advises that a $5M property portfolio may go up on average by $400k a year or by $150k or $200k in a bad year. He reminds that by borrowing against this portfolio: “You truly have a cash machine, and then you can do this over and over again.”
“no one can help you quite like the independent property investment strategists at Metropole.”
I bet.
I truly wonder how far does Melbourne have to drop before the MSM jump on the story like a ton of bricks?
Another month/couple of months like this and they will have to cover the story eventually.
Shhh…they’re waiting for the Carbon Tax to kick off.
That’ll be a great excuse for it.
dude…you just blew my mind. I bet you they do and use it as an excuse to get labour out! They’ll be surprised that removing the tax doesn’t make houses go up but they can’t ahve nkown taht before ahnd
Good theory, I will definetly remember that one for future reference. Wouldnt suprise me at all if your right.
I can see it now, Abbott’s speech live on TV as the Coalition takes government “My fellow Australians we can see what Miss Gillard’s GREAT BIG NEW TAX (you know he loves his !!! marks when he speaks) has done to the bottom line of hard working Australian families as they have lost their jobs and their homes because of Miss Gillard’s inability to stand up to the Greens and Independents.”
Labor will play the Abbott card for the destruction to house prices.
It’s sad that this has been ignored by the msm, truly sad.
Instead, we get this rubbish that just came through …
http://www.theage.com.au/business/how-red-tape-is-holding-up-housing-market-20120531-1zkec.html
Yeah, I saw that. WTF?
(Also, I bet Adelaide is only up on the sale of a few high-end houses that skew the median. Very small sample size)
an attempt to calm the horses, need to reassure them that there will not be a REAL fall in RE prices!
ahahaha…
“If your current house is worth more than when you bought it, before becoming delinquent or going into default, you’ll probably be able to sell your property and get a gain,” Zanesi, associate director for structured finance at Fitch in Sydney, said in an interview.
Rofl…. What? Is this a lesson in basic arithmetic, or is he suggesting BAIL OUT NOW WHILE YOUVE STILL GOT YOUR SHIRT!
Junkyard,
I nearly gagged when I read that particular part of the article in question.
The running commentary on the property market is becoming more inane by the day.
I suppose that coming from people who gave AAA ratings to property-based derivatives in the US, we shouldn’t be all that surprised.
this is great news!! missed out on a house at Surrey Hills, melbourne 6 weeks ago (the house had been discounted from 1.2m to 930k over an 18 month period). Thought it was a good opportunity, but I am guessing they will just get better and better. Over the last 2 years I estimate I woudl have saved 15% on the average price of a 1.2 mill house, and another 75k per year in cheaper rent v buy costs. So about 300k all up. What clearly is happening is a realisation that a home buyer NEEDS strong growth to break even given low yields – now everyone knows that wont happen, no one is paying dumb prices. I think the latest RP Data figures show we are witnessing the end of the slow melt stand off, steeper falls have begun. No more stimulus to kick the can down the road,and frankly I dont think they would work anyway. Great news!!!
Squirell,
In that area, couples going into retirement have combined median super balances of only $400k-$500k. Singles have less than half that.
The lifestyle income for 50 year olds in that area is around $60,000-$80,000pa in take home pay.
Where do you get your information from? … If I may?
I work in a financial planning firm situated in the leafy inner suburbs of Melbourne. I can tell you by working here, clients get to show you their cards and reveal their “poker face”.
I’ve also checked my observations with some ABS 09/10 data a while back and $500,000 in net financial assets was like 75th percentile stuff for a retiree couple.
Of course its not all that bad. I worked on a retirement plan on a retiree who had worked as a bus driver his whole life but saved 10% of his income every year to get the following outcome:
Home $750,000, Super: $850,000
Super duper religious too!
Him and his wife only need $30k/yr to live.
Squirell,
In that area, couples going into retirement have combined median super balances of only $400k-$500k. Singles have less than half that.
The lifestyle income for 50 year olds in that area is around $60,000-$80,000pa in take home pay.
Thomickers
There are a combination of factors running within the leafy family suburbs and yes you do have boomers who will need to cash out to supplement inadequate superannuation balances.
You also have the mid 30’s early 40’s aspirational families who have tailored their life expectations around the middle/upper class model of private education for their kids, expensive holidays, new cars, new kitchens and bathrooms, etc.
Equity extraction from existing mortgages was recently quoted at $300b over the past decade in other words the house has been an ATM for many within this demographic.
They seem unable to address the rot and selling their ATM is the last option they will consider.
It’s all very much like the Boiling Frog syndrome.
Correct!
Its also common to see $800k – $1.2million mortgages on $150k take home pay.
Oh dear
Super balance $500K, lifestyle $70K p.a.
And I thought I was failed!
These people are f*+ked
We’ve lived in Japan for quite a few years. One of the things I quickly noticed is what DOESNT comprise a part of casual dinner conversation here – real estate. Nobody is interested in talking about it. It’s a non-starter conversationally.
In Australia on the other hand, property investment discourse is obligatory. Still, from what i hear.
When we reach the stage when Aussies stop discussing negative gearing around the barbeque – thats when i will consider buying.