Weekly RP Data house price analysis

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Unconventional Economist
Latest posts by Unconventional Economist (see all)

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    • I am wondering, why can’t people who struggle to pay a mortgage setup a house bus or something for single or couples who need a cheap place to rent. It may not be perfect but it would help those that struggle with a mortgage, help those who pay excessive rent and most importantly pull renters from investment homes to have speed up the crash.

      • Have you seen how punitive and bureaucratic zoning and planning guidelines are?

        My dad in invalided, my mother recently hurt her back to the point she can no longer work F/T.

        I thought it would be perfect that they move in with my nuclear family.

        They are empty nesters, I’d put them in a granny flat with 45sqm of floor space. Mom has stuff all cleaning to do and I have a young child with at least one more planned. They will then have an adult presence at all times in the home.

        Under ‘Auxially dwelling regulations’, I’m confronted with;

        * No temporary structures
        * A limit of 50% of my land content allowable for enclosed space. (Pretty hard when I’ve got to dedicate 100 sqm for the front yard that is redundant)
        * The roof of the granny flat must have a pitch, colour and material consistent with the main dwelling.
        * Cladding that is architectually and aesthetically consistent with the main dwelling
        * Architectually design conforming to the appeal of the local area (arbitrary ruling from planners, basically means small, simple windows from a weatehrboard cladding won’t do, things like bay windows and patios comply with this)

        Basically I’ve been told a bureaucrat with non performance accountability measures knows what I best need for my family than I do.

        But please examine your premise of ‘why can’t people live in mobile homes in peoples drive ways to help them pay the mortgage?’

        Undeerstand how much our quality of life has diminished when we resort to;

        (a)needing other family units on our strata to contibute to servicing the cost, and
        (b)a family unit that is not the poorest 1% considering living in a bus.

        • Do what I did. I built just a square “room” (a rather large one). No toilet. It was called just a storage room. Got approval.

          Then, once finished, you apply to put in a toilet. Easy. No problem, as its ok to put in a toilet later. Internal walls are easy, and you do not need a permit for that.

          • I know there are design loop holes to get around it.

            I’d just rather be able to come to the conclusion “It’d be good to have my parents live in 45 sqm in the back of my house”, then work on providing that solution.

            The amount of interference on my decision making by government is oppressive.

    • Agreed, what does $50 a month matter when it costs you thousands more to buy than rent?

    • tsport100MEMBER

      Forget interest rates, why would ANYONE buy property in a falling market? The slide can only accelerate as ‘interest only’ investors wake up and head for the exists en masse.

      • Ah interest only loans, apparantly, according to my ex-real estate agent senior colleague, these are the greatest things ever invented and anyone who uses them will be multi-millionairres in just a few years. πŸ˜€

        • colleague at work melted down at me the other day as pointed out house prices falls in last 18 months. has an interest only loan, and a megamortgage. earns about 80k/annum and has about a million in debt. i wonder how widespread this is? responsible lending in this country is a myth.

          • It is common and I have seen similar cases e.g. people with average salaries but ambitious investment portfolio with 3-4 properties and $1 mil mortgage with Big4 bank. That’s why I said that sub-prime mortgage in Australia is much higher than what revealed in the news.

          • “responsible lending in this country is a myth”

            One thing that certainly has not been satisfactorily explained is how our total mortgage debt reached such astronomical highs with this so-called ‘responsible lending’.

            Total mortgage debt reached around 90% of GDP, well in excess of the US for example. The usual reason given to support the huge amount of debt is that it is in the hands of the people who can afford it. But they can probably only afford it as long as residential asset prices rise, which isn’t really evidence of responsible lending practice.

      • If this mentality sets in, it is known as “Deflationary Mindset” – why buy today when it will be cheaper tomorrow?

        …turns slow-melts into crashes…

  1. I donlt know if it’s right to say the recent interest rate cuts haven’t had an impact – just that they haven’t yet caused property prices to rise on this evidence. My guess that effects of the recent rate cut on the property market would be initially to raise vendors sale price expectations greater that those of potential buyers, at leats initially. i.e. sales volumes dip while those vendors willing/forced to meet the market sell.

    The dominant short term market factor is subdued buyer sentiment (followed by the hangover from the pull forward in FHBs in NSW). While prices are falling there’s just no reason for sentiment to reach the previous “by now!!!” levels, or anything close to it.

    • Sentiment, and 40 years worth of education may be different things! “Property always goes up” It always has and it always will….That’s what ‘we’ have all been schooled with; even those of us who think( hope?) property prices will ‘normalise’. Lower interest rates may dampen the immediate market, but sure as eggs is eggs……It’s going to take an experience a la USA or Ireland to even dent that belief. Even those who see property falling, are just buyers in waiting, because they see that ( repeat after me” Property….)!

    • The RBA interest rate is a symptom of the health of the economy, nothing more, nothing less.

      The current rate cuts are a symptom of serious economic weakness, people are fearing for their jobs, so why would they borrow bubblicious amounts of money to buy a house?

      Without new government stimulus, or a sudden pick-up in economic activity, the housing market is a shot duck, I think.

      • I agree with you wholeheartedly ( hence my comment ‘lower interest rate may dampen demand’ – not stimulate it; ‘it’s the economy, stupid!’). But it’s only a matter of ‘pick your entry point’. Do we really see a Nipponese experience visited upon Australia – 20 years of property price easing? You may; I may, but M&D don’t. And they are the ones that ultimately will fuel the market

        • But I was just sitting next to 3 20 something girls quoting
          “rent money is dead money”

          • Why not? they can stay with family and pay nothing!

            rent money and mortgage repayments are both dead money.

          • But I was just sitting next to 3 20 something retirement funding sources quoting
            β€œrent money is dead money”

            Fixed

          • This gives me the sh!ts. Will someone tell these people that mortgage interest is also dead money, that the overwhelming portion of mortgage payments in the early years is interest, and that at current prices the amount of dead money you’ll spend on rent is much less than the amount of dead money you’ll spend on interest repayments! Oh, and house prices don’t always double every seven years.

        • Did the Japanese see it coming either ?

          Nope.

          In the 1980s, everyone saw Japan becoming the new powerhouse, the #1 economy in the world.

  2. Aren’t most interest rate cuts not effective until later this month anyway? That’ll make for a minor shift in sentiment when it finally starts flowing through.

  3. Oh! A 0.34% decline in a week……annual compounding rate is about 19%….

    The weakness across the country suggests an economy-wide shift is occurring. While 5 or 6 weeks do not make a trend, if this continues we will be able to see that something really did start to go seriously wrong in April.

    • Certainly the initial data we are seeing makes it seem like the economy hit a wall in April.

      Will be interesting to see if the poor data continues, and if so what the RBA’s reaction is.

  4. My mischievous calculator finger annualized the nation’s -0.34% weekly change.

    Australian real estate prices are currently falling at 17.68% pa.

    A year at this rate will knock $100,000 off the price of houses.

    I see no government interest in arresting this change.

    Don’t Buy Now!

    • Oh, @Briefly, I didn’t compound it. I am therefore MISLEADING THE AUSTRALIAN PEOPLE WITH MY NEGATIVE AND INCORRECT COMMENTS.
      πŸ™‚

      • boyracerMEMBER

        Actually David & Briefly are both incorrect assuming a flat .34% decrease per week although David was closer.

        The annual compounded drop is 16.2305%. Briefly was compounding a positive number to get to 19.3035% where as the “principal” amount is decreasing each week the rate of decrease from the original amount is getting smaller.

        Pedantic I know!!

    • >My mischievous calculator finger

      Lol,I tried hard to hold back my giggle.. but couldnt!

      I guess you-and-30-somethings-hanging-out-together is itched permanently in my memory.

    • russellsmith55

      As a fun guessing game (and obviously not as financial advice), when do you think we ‘should’ buy now? πŸ™‚

      In my mind, >40% down from peak and/or when buying becomes equal to or cheaper than renting could be a good general rule. It may never reach either, but there’s definitely no reason to make a move yet.

      • Sounds about right, 40-50% from peak in REAL terms.

        You can’t predict the speed or duration of the bust. But the magnitude is fairly predictable based on our crazy price/income ratios.

        So a 20% nominal drop over 15 years is pretty much the same as a 45% drop over 3 years.

        Mind you, another thing that is completely predictable is the recovery phase is very anemic and slow.

        Property markets don’t hit a bottom and bounce back within months or even 2 years.

        They go sideways for a decade or two.

        Fools rush in.

        • + 1 There will be ample time to let the dust settle and assess the damage. All that stuff about “buy your house now or you’ll miss out” is just utter garbage from realtors playing on emotions and fears.

          • What? If I don’t buy now, I’ll miss out on the fabulous “negative equity” bragging rights!

            ;Β¬)

      • My thought on that is to work out when the rent is balanced by the interest repayments AND all ancillary costs and gains/loses. So rent per week verses interest per week plus strata/land rates/water rates etc that are incurred when buying rather than renting per week. Plus the amount of savings interest lost per week due to the stamp duty (or to be really nasty assume you borrow it as well, and add that to the effective property cost). Plus the loss (minus the gain) per week due to deflation of the property value.

        From my calculations for rent of $300 per week, ancillary costs of $3000 per year, you get a max buy price of about $100,000 if you assume property is dropping at 5% a year, or $500,000 if you assume it is going up by 3% a year. Basically picking your gains rate allows any price you want.

        Incidentally if you pick 7% growth (ie doubles every ten years) then it is irrelevant what the price is, since the growth in value is higher than the interest repayments, and the maths above gives you a broken equation (price goes past infinity at the point where the growth matches the mortgage rate).

  5. reusachtigeMEMBER

    Why did several comments from people celebrating these falls get deleted? Is this offensive to you?

    • DrBob127MEMBER

      When it becomes widely accepted that house prices are falling significantly, people may focus on MB and comments that celebrate house price falls may be cause for scapegoating MB.

      Only my theory

      • russellsmith55

        I do see the old ‘correlation is causation’ meme coming back and being used to blame sites like this for the new trend.

        Even if it was responsible (it isn’t) then it would be good thing, as it saved many from my generation and generations to come from pointless debt slavery.

        Haters gonna hate πŸ™‚

        • There are an awful lot of people that seem to blame those “talking down’ the economy, rather than reflecting on the actual issues and causation.

          It wouldnt surprise me if there was a backlash against sites like MB.

          • Pfft, any publicity is good publicity.

            How is the ‘MB caused housing to crash’ going to stick?

          • I dont see it as being “MB caused the crash”, but i expect that MB will be grouped in with the likes of Abbott and Keen as doomers who contributed.

            Certain trolls are already targeting MB in other ways

      • @DrBob: too right. The ‘Gearers have self-selected for government assistance in wealth creation and are obvious losers in the deflate. They can be expected to exhibit bizarre behavior when their guaranteed rentier status proves a mirage.

        Expect messenger shooting, strident pleas for government assistance and hair-pulling.

        The politico-housing complex will bear no responsibility, of course.

        • I expect the vested interests to do their best and in doing so make Australian economy messed-up even more. There is no easy solution on our problem, hence the sudden impulse to save more is prudent IMO.

      • Oh, is that why Andrew Wilson, Joye, and MSM do not celebrate falling house prices because they are afraid of becoming ‘scapegoats’?

        • That is a good theory Virus, chances are that is why they have been very quiet lately on the property front.

          Caution the following is saracsm.
          They dont want to be lumped in with the rest of us who caused this property crash merely through our own ignorance and lack of confidence in our infallible real estate market.

        • The spruikers should perhaps invest in armoured cars and think about leaving the country for a while.

          There are going to be some very upset folk looking for somewne to blame.

    • It’s interesting, I am so mixed on this. Personally I know that housing prices are way too high. I have explained the issue to so many people and had them turn around and call me a variety of names (boo boo me lol), so seeing prices fall would have quite a lot of satisfaction.

      On the other hand, I like the economy to at least crawl along. Falling over isn’t good for anyone.

      • Really good point – I am making an assumption here, but I would guess that a high % of those renting our of the Gen Y/X and are in the flecible/contracted workforce. So while lowing house prices will be good for them, they likely have a higher chance of being under or unemployed.

        • Guaranteed udermench status within the community or a chance at owning a house?
          Hard choice, at least we have a chance in the event of a crash, i’ll take my chances at unemployment if it means I don’t have to pay (economic) rents to the over 50s and no-longer working full time for the privilege of living in the country I was born into.

      • Charles Ponzi

        Falling over will at least make Australians more pleasant as neighbours. I’m sick of living among materialistic and smug Australians who don’t give a shit about anyone else.

      • At least P Cayenne one the road will be driven by deserving ones (me πŸ˜‰ ) not by BB fleecing the next generations.

      • I wouldn’t say that’s a long sighted statement.

        Sure 2012-14 may be worse, but Australia, say 2016 onwards will be much better placed if we have a boomer destroying crash occur in the next 12 months.

  6. ceteris paribus

    One positive thing that you can say about the property market is that it gives you plenty of notice, in relation to the comparative stickiness of asset prices. Unlike the sharemarket which is a casino with its extreme volatility.

    Anyone paying attention has been fully informed (by MB at least) of the distinctive eighteen month trend, in say Melbourne, of price falls equivalent to 0.5% per month. While the tail risk of a tipping point, with accompanying rapid depreciation, still exists, people have had adequate time to consider their options, unlike the situation with equities.

    I suppose the reasons for the slower and signalled change in RE prices are pretty obvious: prohibitive transaction costs, delayed transaction times, the house serving a real-life function rather than just being another investment chip etc.

    But the comparative slow-motion of RE price change, despite the huge dollar value involved, is to be welcomed from the point of view of stability for the consumer.

  7. Real interesting – I follow the “Property Observer” on Twitter and they linked to an Article with the Caption that says “Australian Housing Market Crash Unlikely: Credit Suisse”. Phew I thought, homebuyers can breathe a sigh of relief and everyone can get back into the market. However when I read the article it just says the CS doesn’t think it will be a sharp/quick correction but rather a long drawn out one! Either the a) Property Observer did not read the article b) They did not understand the article, or c) they think the common property investor is not smart enough to comprehend the article. Not sure which is worse!

    • If we modify c) only slightly, we get “they think the common property investor is resilient enough not to read the article”. Because if you’re only watching the headlines, you’ll be safe as houses!

    • Option C is definetly worse, it means that instead of a drawn out deflating market we will likely end up with investors rushing for the door once the media can cook up a reason for our property market falling apart that doesnt blame the politico-housing complex like a Greek exit of the EU for example.

      If that does happen then we will likely not only see prices crash to the long term mean but likely below it in a sequence of panic selling.

    • dumb_non_economist

      Or answer d.) They expect people to only read the headline, not the article.

  8. I seem to remember a chart that illustrated the point that it took about 60 years for melbourne property prices (inflation adjusted) to recover back to the peak price achieved prior to the 1890’s depression.

  9. thomickersMEMBER

    The typical melbourne home has lost $200/day everyday over the last 12months.

    • russellsmith55

      I wonder how many NGs made $200/day of income that is entirely taken as tax to offset this loss…

  10. I wonder if 60,000 additional NEW ‘investors’ will create $20 billion of additional NEW credit over the next 12 months now that prices are falling 5 – 10% p.a.