Weekly RP Data house price analysis

By Leith van Onselen

It’s been another poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.24% decline in national capital city home values in the week ending 29 May 2012.

Falls were experienced in Melbourne (-0.94%), Perth (-0.92%) and Adelaide (-0.28%), but Sydney (+0.41%) and Brisbane (+0.19%) bucked the trend:

Australian capital city home values are now down -1.41% so far in May, led by Melbourne (-2.47%) and Perth (-2.03%):

I’ll be back tomorrow with a more detailed post for covering the month-end results, but given the large falls experienced to date, it looks like May will go down as a poor month.

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Leith van Onselen

Comments

  1. It rather looks as if local issues and conditions are going to mean that different states will be moving at different speeds and in different directions.

      • BB – well tentatively I would. To sustain it we will probably need another rate reduction in June that is largely or all passed on.

        It’s beam balance stuff though, it could tip either way for Brisbane and Sydney, but I don’t see a turnaround in Melbourne in 2012.

        I saw your tweet today re US house prices – you do know that 12 of the 20 cities recorded gains?

        • So despite the fact that we’ve had rate cuts in November, December and now May with no noticeably positive effect on the property market you are resting hopes on a June cut? Like a broken record…

          • You would probably have better knowledge than me on that Peter… you tell me! But as I recall both November and December were passed on in full (at least by the majors) and average in May was probably still around .35 passed on (still more than a .25 cut).

            There just seems to be this never dying hope that the next rate cut will turn the property market around…

          • BB – the last rate cut was only 4 weeks ago. It doesn’t mean the median will fall the very next day, it takes some time. This is not the ASX where changes are immediate.

            Maybe we don’t need a cut to have an effect, but it appears that we will have one.

            It’s too early to say with any certainty either way.

          • I don’t agree with the alleged time-lag excuse, four weeks is enough time to see some change in the direction of property prices.

            I stand by my comment a couple of weeks ago, the property market is no longer responding to indirect credit stimulus. Direct stimulus such as the FHB grant is now the Government’s only option to revive the Great Australian Property Bubble. Until we see the Government handing out free money to to young (?dumb?) kids, there will be no sustained widespread recovery in property prices.

          • But greco, we have seen a change in direction in prices for some cities, I just think it’s too early to say for certain.

            Look at the graphs, if Brisbane and Sydney are down for this month but up for this week, that is a reversal. Lets see if it continues or again heads down.

          • outsidetrader

            That sounds a little “rose coloured glasses” to me PF. We all know that the RP data is volatile and I don’t think anyone gives significant weight to changes in readings over a few days.

            While Sydney has had a good week – it is still down 1.4% for the month.

            If you feel Sydney has turned, do you also feel Adelaide prices have also turned and are now falling, since prices there declined this week (despite being the best performing capital for the month to date)?

          • outsidetrader – yep I get your point – which is why I prefer the wait and see approach.

          • outsidetrader

            Fair enough PF – while I think the longer-term trend remains downward, I’m also in the “wait and see” camp, and certainly don’t claim to know what the next 12 months holds for house prices.

            As is always the case with these sort of things, only time will tell…

    • Pity that banking works as an aggregate, and isn’t seperated based on localities.

      • Agree.

        Paul Henderson (chief minister of NT)is bank bashing at the moment. He says there are thousands of apartments approved for development which are having difficulty getting finance, despite the housing market being extremely tight up here.

        Darwin is the new Pilbara of housing.

        The banks really are not very clever.

        • The Hastie collapse is of a magnitude that will have a ripple effect in the finance sector.

          Firstly that there will be more mortgage stress. and secondly borrowing will become more difficult to come by.

          Lenders will want to have a very close look at other liabilities the prospective borrower is exposed to.

          Now bankers who whis to keep their jobs will be prudent. A complete 180 degree turn around from the ‘bubble era’

        • Hoe Jockey and Aony Tbbott

          It’s a convenient excuse. If the NT Government had have kept up land releases and unit developments over the last 10 years there wouldn’t be an affordability crisis. Instead they sat on their hands and watched prices rise. At the last election, Hendo made no apologies about enriching owners at the expense of renters neglecting to think if future generations. Be careful what you wish for.

  2. “Retail sales unexpectedly fell in April for the first time in ten months, as consumers cut spending at department stores and on household goods, boosting the Reserve Bank of Australia’s scope to resume interest rate cuts.” All seems to fit with the future.

  3. We’ve seen this movie before with Godwanaland, and it ends badly 🙁
    (sorry, couldn’t resist!)

  4. Fascinated by the drop in Perth. Surely it should be going gangbusters right now, rather than seemingly following close on Melbourne’s heels?

    • Hoe Jockey and Aony Tbbott

      That’s one for the bulls; how do you have a booming, no exploding, economy yet have house prices decline? Supply ahead of demand?

      • From what I can gather here in Perth, they’re all tapped out debt wise.

        Very few are not drowning in debt.

        In terms of demand, I think there is sentiment, just not fiscal capacity.

    • Was in Perth last weekend. My sister said the market is dead and you won’t get what you would have sold for in the last few years now.

      Eeek.

      TM.

    • outsidetrader

      Only when the numbers are moving in the right direction. So no, not much at the moment.

  5. Hold on, Melbourne down 2.47% in ONE month?

    Are we in free-fall territory yet? That would be at least 25% over a year if that rate held.

    • Honestly, we should expect a bounce (or at least a flattening) for Melb in the next few months – yes, i mean that! There are still plenty out there who are going to be happy to buy at the lower prices they are seeing.

      I wouldn’t wager that Deflationary Mindset has taken hold just yet – seems to early to me.

      My 2c

      • Burb, I’m a bear and think we have an epic housing bubble, but I hope you’re right. For one thing, I’d like some job security.

        I was going to say that unemployment must still be below 6% in Victoria and we are trudging along, but Leith has made a very good case for showing that property bubbles bursting can LEAD unemployment.

        I doubt we’ll see a 20% drop or more over the year but remember that the same numbers always mean more coming down than going up. 10%+ would sting and seriously pull the Vic economy down (more).

      • We are still in the denial phase. Michael Yardney has an article up on Property Observer where he appears to exclude the possibility that property can fall in value:

        At the end of the year, you’ve “eaten up” your $100,000, but in a good year, your $5 million property portfolio would increase in value by, say, $500,000.

        In an average year it will have increased in value by $400,000 and in a bad year it may have only gone up by $150,000 or $200,000.

        In a bad year you will do a lot worse than that — you will in fact lose money. Yardney is selling a dangerous dream. The downtrend is established. Rate cuts are not working. But the bulls have not yet capitulated.

        • boyracerMEMBER

          Damn that Yardney article is so full of tripe it’s not funny.

          Suggesting a bad year is when property “only” increases by 3-4% is wilful ignorance of reality.

          I do wonder about the mental capacities of the people taking his so called advice.

      • I agree with Burb, the downtrend may ease in the coming months. More than an absence of a deflationary mindset, I think there’s still likely to be a “property always goes up” mindset.

        Plus there’s no doubt a lot of people (buyers and spruikers alike) who will point to the post GFC dip and revival and argue they need to buy now before prices go back to increasing.

        • dumb_non_economist

          This is the one reason why I believe Australia needs the bubble to burst and not slowly deflate as the point will not hit home otherwise. A stake needs to driven through this “vampire’s” heart, to kill it off once and for all!

          • Agree d_n_e

            The decline and its trajectory is related to a) who is selling and b) the leveraged exposure to possible further declines.

            ie is this a rush for the exits?

            Who knows?

    • McPaddyMEMBER

      Irish prices fell 15% in 2008, 18% in 2009, 15% in 2010 and 18% in 2011. So if you start to line up a few monthly >1% falls then you are nearing escape velocity in my view.

        • McPaddyMEMBER

          The % changes if you look over 4 years, as you are rebasing to calculate annual falls. For the entire period 2008-2011 the aggregate fall was around 50%. 2012 appears relatively stable so far. The market tracked more or less sideways for around 18 months before the crash got going. During that period, stock for sale more than doubled and it’s been pretty much flat (at those elevated levels) ever since (small inflows and outflows) though possibly starting to show a small decline.

        • McPaddyMEMBER

          Oh, and rents also slid by around 22% over the first 3 years of the crash but have been quite stable since early 2011. So best to take the “rents to the moon in the event of a price crash” predictions with a grain of salt…

      • thomickersMEMBER

        1890s housing bubble took 60 years to break even against government bonds.

  6. Interest rate cuts are trailing the falls. I see the RBA uninterested in arresting the trend.

    Yes, we are in free fall.

    Buyers ain’t buying and that is the only thing that could save the heavily mortgaged.

    How much longer will the ‘Gearers keep swallowing these accelerating losses?

    Shudder.

    Don’t Buy Now!

      • Yes, good point. Most people hold on to loss making investment properties unless they have to sell because of unemployment… OR retirement (negative gearing doesn’t work in retirement).

        In 2012, approximately 5,000 Australians will reach age 65 and retire each week (approx. 250k for the year).

        So, even if the unemployment rate remains constant, property market participation is now shrinking by 250k potential buyers per year. This reduces demand for both credit (i.e. mortgages) and property, putting downward pressure on property prices.

        I suspect that we are already seeing the impact of older Boomers exiting the credit (i.e. mortgage) and property market, particularly in Victoria which has an older demographic profile.

        • Yes, good point. Most people hold on to loss making investment properties unless they have to sell because of unemployment… OR retirement (negative gearing doesn’t work in retirement).

          Or, divorce…

          Or, they need to raise funds for treating newly diagnosed cancer….

          Or, they’ve died, and it needs to be split 4 ways amongst the children….

          Forced sales come in all manner of ways

          • darklydrawlMEMBER

            Divorce is a good point, especially given that financial pressures in a family unit often leads to breakup…

            Sad but true – I suspect there will be more of this sort of impact, certainly in Victoria at least.

            What is that saying “love often leaves the building not long after the money…”

            I don’t mean that we are all greedy [email protected] only sticking around for the loot. More the emotional pressure of financial hardship can often crack a relationship, especially if it is already on unstable ground…

          • Can work in both directions.

            My wife and I have had countless arguments over my refusal to buy at these prices, to the point divorce has been mentioned.

            I’ve made mention of the real suffering I have encountered to date, I wouldn’t like to add another one to this list.

          • RP – I certainly hope that a breakup doesn’t eventuate.

            A divorce though usually creates two households out of one, and puts more pressure on rental accomodation. The net effect might be that more dwellings are needed.

          • Not in our case. 😀

            I’d very much duobt I’d stay in Australia if that was the case.

            Housing demand would stay at one.

        • I agree with that Greco. I’m 56 and have rented since 2007. I dont know many in my age group who have done the same, but I know for sure plenty who are getting ready to offload properties now and over the coming years.

          The only growing significant demographic who are motivated to buy don’t have the money to get in and are scared of the debt (FHB’s and rightly so).

          To my way of thinking the general malaise that is so obvious in the economy (closed storefronts, job cuts daily, union strife, increasing taxes etc) is not being reflected in the UE figs. That is disconcerting to many, resulting in a complete freeze of major decisions while things become clearer. Suspicion and synicism of the UE figs abounds.

          The rate of house price declines appears to be accelerating for all the above stated reasons. This is to be expected to as alert vendors see the pool of For Sale properties rising and become even more keen to liquidate their equity.Once this story becomes nightly MSM news, the trend will self perpetuate sharply as buyers shut down awaiting ever lower prices. A new FHB handout wont save the property market then.

        • dumb_non_economist

          Don’t bet on every 65er bailing out into retirement for at least 2 reasons;
          1. not enough to fund the lifestyle they want.
          2. BOREDOM!!
          Also, remember that these are the same RE investors who accepted that RE always goes up in price, that isn’t going to change quickly. If it is a slow default that’ll “hide” to a degree their loses. Don’t laugh, most won’t see the light until it’s too late.

    • the annoying thing is: if the RBA knows that interest rate cuts ahve no effect on house prices why are they doing them? they know its not feeding into the wider economy so why not fatten savings accounts now before TSHTF?

      • Because they still believe in the myth of trickle. Business will borrow and employ more people.

        • Charles Ponzi

          As a saver there will be less trickle from me–I will have to save even harder.

      • Have you ever run out of petrol but kept pumping the accelerator praying for traction?

        That is what the RBA are doing.

        They should just take the Dangerous Liaisons approach.

        ‘it is beyond our control’

  7. It will be interesting to see if the major cuts to the Qld public service affect Brisbane prices.

    Up to 30k people on temporary contracts may lose their jobs from July 1 (which would add about 2% to state unemployment rate).

    • boyracerMEMBER

      JustinC – do yo have a link to that by any chance? That’s a pretty big hit to the UE rate.

    • Justin,

      Some time ago there was an article on Property Observer in which it was claimed that Qld Govt would be reinstating the 50% PPOR stamp duty discount come July 1 this year.

      I have periodically Googled seeking any further discussion or confirmation of this, have unearthed squat.

      Since you are obviously up in Gods country, have you heard anything about this in the local media?

      Oh, and good luck with contract renewal – if you can call having to do more with less good luck 🙂

  8. I saw something on a late news ad a couple of nights ago and I have been trying to find something on it but to no avail

  9. kieranmobrien

    As a FHB I’m really conflicted! I’m feeling the pressure of buying before the Victorian government removes the grant but at the same time I’m worried that I’m falling into their trap & in fact it would be better to wait a few months and property prices will fall to the level that will make that redundant? There’s so much commentary & opinion about this I’m left totally confused!

    • russellsmith55

      Obviously I shouldn’t give financial advice, but as another Victorian FHB I can tell you how I’m looking at the problem which might help you.

      Depending on which price tracking measurement you use, the Victorian market peaked around September/November 2010. There were some insane price increases in many suburbs in the run up to this. It has been trending almost consistently downwards since then however.

      We are a non-mining state that focuses heavily on manufacturing and residential house building. Both these things are suffering in the current economic climate and is unlikely to change any time soon. The state government is slashing public spending and we have many high profile ‘downsizings’ each week. Our consumer confidence is toast.

      Buyers are on strike, with very low auction turnover results and price discounting beginning. Residex estimates we have an oversupply of 13,000-14,000 homes with plenty more construction jobs in the pipeline yet to be finished. They also estimate a further 5-10% fall in prices over the next year.

      Of course this is in aggregate – each suburb varies. But I think the bonus will be insignificant compared to the losses still to come. $7-14k bonus looks sad compared to a $40-50k loss. I’m gonna pass and sit it out for another year at least. And remember the saying about ‘trying to catch a falling knife’ 🙂

  10. Property prices will decline by at least 50% over 2012-2014. The bubble has burst. Savings is the answer and they are at 20 year highs. Normal JOE gets it. There will be some respite along the way but BANKS are charging 6% 7% and 8% mortgage rates. In Europe and America mortgage rates are 2% and 3%. RBA will cut rates to 2% and banks will be forced to cut mortgage rates by half of current levels. It will be a game of chicken between mortgage market and banks. The main asset on banks books are mortgages. If they keep rates high then property market will crash more, and faster, and for longer. Mr. BANK (oh Mrs BANK), YOUR CALL. See you at the bottom !!!!!!!