REIV capitulates

By Leith van Onselen

The release of the 2012 REIV State of the Victorian Property Market report (below) provides a sobering assessment.

According to the REIV, transaction levels – both private sales and auctions – are well down on the five-year average (see below table).

Which, given that transaction volumes typically drives prices, suggests that Victorian home prices will remain under pressure (see below chart).

In fact, the REIV sees no capital growth in the short-term and only moderate growth, at best, in the medium-term (see below slide).

REIV also sees ongoing weakness in the rental market, owing to Victoria’s pending housing oversupply and relatively high rental vacancy rate (see below slide).

It looks like the REIV has joined the ranks of BIS Shrapnel, which forecasts real price falls of -6% in Melbourne over the next three years.

[email protected]

www.twitter.com/Leithvo

REIV State of Victorian Property Market (June 2012)

Unconventional Economist

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

Comments

  1. “Challenges – 1. Ensuring the state does not have an oversupply of homes”

    Ignoring my sheer disbelief that the REIV would actually admit such a thing, I’m looking forward to the future battle between the real estate agents’ union (REIV) and the home builders’ union (HIA).

    • At some stage the REIV needs turnover to pay its members.Implying lower prices might poke the log-jam of pent up sellers into action…

      • correct. as liong as the REIV keeps saying the market is “flat” and the fundamentals are strong vendors will continue to hold out for higher prices that they are never going to get wich means no commisions for agents. it is in the best interests of the REIV and its RE agent members to start talking down the market in order to drive activity so thats what they will do. to all those buyers who bought on REIV advice of a housing shortage and prices only ever go up……bad luck

        • I think you are both spot on. This change of tact by the REIV smacks of self preservation. It will be if vendors follow with realistic price expectations.

          • Agreed.

            The problem for the REIV is that they need to convince sellers that prices are/have dropped at the same time as they convince buyers that prices have stopped dropping.

            A difficult task indeed and language like “oversupply of homes” isn’t going to help.

          • “A difficult task indeed ”

            yep – they might do well to consult an astrophysicist for a nice little slogan where ‘everyone’s a winnaaaah!’

    • http://smh.domain.com.au/real-estate-news/housing-gap-eases-20120622-20rk4.html

      Check out that “article” Enzo wrote a couple days ago. Choice quote from the start:

      “””
      A government report finds the threat of a critical undersupply of homes is easing.
      “””

      Enzo goes on to pretty much admit there is no undersupply in Victoria. Wonder if that hurt?

      And the point? Well, Vic government lobbying by the REIV has clearly begun. From the last paragraph:

      “””
      The latest projections from the council need to be considered by the state government as it plans land releases and the city’s growth in the next decade.
      “””

  2. By the time most vendors capitulate it will be too late. Soon nobody will be able or willing to buy their property even at drastically reduced prices.

      • I want my kids to be able to buy a house, so damn right I’m hoping for this outcome!

        Capitalism is deflationary by its very nature (improved process, competition, performance), and yet deflation is a bad thing? It is for the debtors, and for the creditors… but you know what’s worse? Keeping the bubble going.

        So I say let’s lance this boil and move on.

  3. Last year I was thinking about leaving my field (crappy paid casual welfare) for something more exciting and better paid in building and construction. The problem was that multiple people I spoke to said that construction was on the nose and that there was a growing pile of chippies and brickies on the Centrelink queue (in addition to labourers and managers). I thought about doing a backhoe or HR licence but was advised against that too. Nearly everyone I spoke to said that building was in reverse and they expected the pain to get worse – I was told that I should stick to working with crims and druggies because that’s a growth field !

    Interesting too (as others have already mentioned) that the REIV admits there could actually be oversupply – just as Ted has announced the construction of six new suburbs in far flung locales.

      • Yup! Can we please get a MB on BIS Shrapnel’s new forecasts, along with a review of their “forecasts” from 2011 and 2010? I believe we had a MB article on BIS Shrapnel’s “forecasts” from 6 months ago…

    • Journalists deserve to be flogged in public for spruiking real estate. I hope they all lose their jobs and are forced to sell their homes in a falling market.

    • excuse me but I have to change my pants..

      Perth and Brisbane were forecast to record the highest growth in median house prices over the next three years at 22 per cent and 20 per cent respectively, with Sydney just behind at 17 per cent and Darwin at 15 per cent.

      This compared with a forecast nine per cent increase for Adelaide, five per cent for Hobart, three per cent for Melbourne, and just one per cent for Canberra.

    • JunkyardMEMBER

      What a fantastic bit of spruik.

      When you read the story (and adjust for inflation), what it actually says is the property market is in the crapper, and all the capitall cities except those in mining states, will drop in value or go nowhere.

      Nice one Herald Scum.

  4. “It looks like the REIV has joined the ranks of BIS Shrapnel, which forecasts real price falls of -6% in Melbourne over the next three years.”

    Considering the current direction of the market even with the short term support of interest rate cuts I think a 6% of fall in real terms would be practically a miracle at this point. I cant see any capital growth on the horizon even in the next 3 years for Melbourne and at this rate (year to date figures) they may have their 6% real falls from current prices by the end of the year, perhaps earlier.

    As others have said how long can the NG investors continue to sit back and loose money as even the most vocal spruikers continue to change their tune. Even the eternal property spruikers, my father and sister have even changed their tune and are now waiting for the market to hit rock bottom.

    I would be interested to hear some other theories on the subject.

    • Current direction of the market in VIC is actually up slightly (albeit, after significant falls since mid-April 2012) but it won’t last beyond mid-July.

      Most of the recent price declines are currently being seen in outer suburbs and the inner west / north (due to fewer first home buyers and higher unemployment in these areas).

      Contagion has not yet spread to the inner-eastern and bayside suburbs (due to the higher quality of infrastructure and lower unemployment in these areas).

      Price declines in VIC will only accelerate if unemployment increases in the inner-eastern and bayside suburbs (which is not very likely in the short-term). As such, REIV’s forecast is about right.

      • An interesting assertion regarding unemployment ‘inner-eastern and bayside suburbs’… Maybe I was imagining the recently announced 4000 Victorian government job cuts, 2000 – 3000 print media job cuts, 1000’s of retail job cut, 1000’s manufacturing job cuts, 1000’s of building industry job cuts, 1000’s of real estate agency job cuts, 1000,s financial sector job cuts. Therefore there is no possibility of any flow on second order economic effects is there!

        • Also an interesting assertion that the bayside and inner-city prices have been affected less than the cheaper suburbs.

          Everything I read indicates the opposite – it’s the $1m+ properties that have been hit the hardest.

    • I sit next to a couple of property believers. They are all “waiting” until it goes back up before they sell. I personally think that they will wait and wait and wait, as generally speaking, margin calls don’t happen on property so its easier to just do nothing.

      Sure, they are blokes in their 50s and i do not know how long they can just wait and wait…but their current mentality is just sit it out. And they don’t think that they are losing money either…

      • Yes, exactly my point above. Most property owners / investors refuse to realise a loss unless they’re forced to sell due to unemployment, divorce, illness or death.

        Hence the typical “slow melt” price behaviour of property versus the big pop of equities (where most investors sell at the hint of an upcoming period of prolonged price / earnings declines).

        If they bought in the last three years, your colleagues most likely won’t ever sell (at least not in the next 5 years) because they don’t want to have to admit they were wrong about investing in property.

        5 years is a long time to lose money on an investment – it can ruin you financially for the rest of your life.

          • BakuninMEMBER

            That description could apply to most Western economies..you obviously haven’t been to Greece or other parts of Europe to witness the suffering of the average citizen and I’m not talking about the bankers, the crony bureaucrats or other elites.

        • Interesting assertion regarding divorce illness death.

          1/3 marriages end in divorce

          Annual mortality is 0.66% of the population

          I’m sure that a multiple of the annual mortality rate are permanently incapacitated (I don’t have the figures)

          Unfortunately prices are set at the margin by forced sales.

      • I think the high stamp duty plays a very significant role in the built up of this mindset. Most of them would think: If I sell now, I may be avoiding 5~6%, but I will have to pay the stamp duty again after the storm.

        At the end of the day, there is too much work for the 1~2% real savings. In addition, they may not able to buy again as they get close to the retirement age and the bank may not be offering them the same laon that they have now.

        • Why would they want to buy again, closer to retirement age? Most people I know ( 50+) are looking at liquidating their holdings to enjoy their retirement with, not looking to buy either again, or more. Even those with just ‘the home’ want a smaller home, and not the empty nest they currently have….

          • the official retirement age is 67…. unless there is no more NG. they would want to avoid every last bit that goes to the TAX collector…..

            + they think this is only a bump in the long rise in house price….

          • So they want to keep making a loss on their ‘investment’? By definition, NG only works by off-setting property losses against other income. (NB: retirement age is still 65, until 2017, when it starts going up. It won’t be 67 until 2023)

    • I take any ‘official figures’ with a grain of salt. Where I live, I am told that Power has ‘only increased about 5% for the year (before the carbon tax) but, I and others I know are paying in the region of 25% to 20% more! The Governments of both State & Federal do the same thing, slight rises they say – 3% CPI increase and then I look at rates, power, food prices e.t.c up much more than the official figures. So to answer your question – instead of a gain of 3% in 5 years in Melbourne, try at least a 10 to 15% fall in that time period – the slow melt scenario. And Jud, that is an amazing link, I would have sworn black & blue that Greece s property prices would have dived up to 70%, so again it looks like slow melt!

      • Do you know large commercial users are paying less than 7c/kWh for electricity? that’s why the overall increase is ONLY 5%.

        • I had no idea of that jojohotty – that explains things, thanks. User pays/PAYE will always bear the brunt of the heavy lifting!

  5. “Volume drives prices… excepting 2010”

    Sorry REIV, this is not true…

    Net (New) credit divided by sales volume = price

    Not sure that building at 1:1 rstio of recent population growth is such a good idea for prices either.

    • Not sure that building at 1:1 rstio of recent population growth is such a good idea for prices either.

      Beware that statistical voodoo from the shortage-deniers.

      The fault there is that extra building is done for both the new population and the existing population.

      Imagine that Bill Boomer builds himself a holiday home and Betty Boomer also builds herself a holiday home. Meanwhile one immigrants comes from Outer Mongolia.

      We have built 2 extra dwellings per Outer Mongolian!

      • @ The Claw

        “Beware that statistical voodoo from the shortage-deniers”

        1. What’s the immigration rate from outer Mongolia?

        2. What’s the ratio of construction commenced / Mongolian immigration?

        2. What’s the vacant holiday home construction rate as a percentage of new construction commenced?

        Since you assert this rubbish… give us the facts!

        You remind me of “The Captain”, you know, “The Captain that went down with his ship!”

        • Read my post above please. I use the word “imagine”. In order to follow my instruction you will need to “imagine” the situation I described.
          Once you have imagined it, your questions will be answered.
          Then perhaps you will also understand the point I was making.
          The two holiday homes cannot be attributed to the immigrant. The ratio of houses built to immigrants is a nonsensical ratio – it means nothing.

  6. I love how one of the “challenges” is “Ensuring the state does not have an oversupply of homes”. Because an undersupply is such a healthy state of affairs. maybe a related challenge is to ensure the ABS continues to provide inaccurate data re number of households. What a joke – so nice to see the ponzi scheme unravelling.

  7. 3 down – RBA’s Stevens, WBC’s Gail Kelly, REIV’s Enzo.

    2 more to go – Dr Andrew Wilson, Peter Fraser

    • Clearly you don’t actually read what I write Mav, you read what you think I write.

        • DrBob127 I have been expecting price falls in Victoria for a long time, and I have said so on many occasions.

          That’s not a crash, but a correction nevertheless.

          On this site anyone who doesn’t subscribe to the armegeddon theory is a bull.