Residex sees no housing recovery in 2013

 

By Leith van Onselen

Residex CEO, John Edwards, on Monday gave an interesting video interview on Switzer where he discussed the outlook for the Australian housing market in 2013.

In a nutshell, Edwards does not believe that the overall housing market will rebound next year (rather it will mirror 2012’s performance) because housing affordability remains stretched and consumer confidence is low, despite the ongoing incremental reductions in official interest rates by the RBA, which Edwards believes will bottom-out at 2%.

Rather than lowering rates incrementally by 0.25% at a time, Edwards instead calls on the RBA to make one or two large cuts, which he believes will be more successful in restoring consumer confidence. He also believes the government should abandon its pledge to return the budget to surplus.

Despite his pessimistic view on housing overall, Edwards is currently looking to purchase an investment property and believes that good returns can be made provided one buys ‘astutely’ (Edwards provides a plug for Residex’s investor services at this point).

Interestingly, Edwards also notes that the last 15 year’s returns were an anomaly and that the long-term return for housing in Australia is around 1-1.5% above inflation.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

 

Comments

  1. Edwards does not believe that the overall housing market will rebound next year

    Calling Dr Wilson! Calling Dr Wilson! Counter-propaganda needed, stat!

      • When Credit Suisse say:

        “We are particularly concerned about payment shocks on interest-only loans (which make up roughly a third of the mortgage book)…”

        then I’m thinking Wily E Coyote rapidly tread milling in thin air.

        But then I of course could be suffering confirmation bias and denying the reality that home ownership (and negative gearing) is the new heroin. Or maybe given the scale of addiction, more likely Crystal Meth. But then we know where those addictions end…

      • “We are particularly concerned about payment shocks on interest-only loans (which make up roughly a third of the mortgage book)…”

        This is a huge number (by far bigger than peak in USA, Ireland or Spain). Almost all of these mortgages are money losing speculative “investments” betting everything on “price doubling every 7 years”.

        With inflation falling, income going down and economy on the brink of recession these people will be forced to sell to stop loses.
        That will push prices and trigger more people to sell to stop loses. Strong feedback that will push prices to the ground will be established.

      • the “only” problem is that this RE collapse will bring down our economy. Employment and income will fall, credit will freeze so nobody will be able to buy those cheap properties.

      • Well, those effects may or may not happen, plus, it needs to be acknowledged that the current situation is rotten, unsustainable and has zero potential for affordability. Significant change is needed. Being employed and well paid is of debatable benefit when house prices remain obscene.

      • I agree that current state is really bad, but unfortunately we missed opportunity in 2008 to fix this problem less painfully. Instead our government inflated prices, increased the debt and make situation significantly worse.

      • Yeah you’re right – Australia blew an amazing opportunity in 2008 to do the necessary and come away from it politically clean by blaming the GFC & international conditions. *sigh*

      • In certain circumstances, could a significant chunk of the one-third of interest only loans have some $$$ in the respective offset account to allow for flexibility?

        I guess either way you’re still locked in to paying down massive debt.

    • FYI – i emailed the full CS report to Leith yesterday so i’m hoping we should see a full critique on this site at some point 😉 (no pressure here Leith)

    • I saw that story last night – and yes, you are right, the whole thing looked shonky but there was an element of desparation with those people that was fully understandable. Nobody wants to be a loser and rent for their whole lives… Those scheme promoters knew their targets really well and exploited their fear.

      The fact that ASIC investigated and decided not to press charges against the perpetrators of that scam goes to show just how weak the whole system is.

    • Credit Suisse haven’t so much hit the nail on the head, but smacked a nail right through the skull.

      1/3rd of mortgages are interest only. Wow…and most are >90% LVR.

      Tell me this will end well.

  2. If house prices do not begin showing strong growth by late 2013, I can see inceasing numbers of investors becoming increasingly nervous.

    That’s not to say that there will be a sudden, Keen-sian magnitude crash but if solid capital growth does not resume again, it will be interesting to watch the effect on investor behaviour over time.

    • Well I would agree but with all the smoke and mirrors & conflicting data, I do not think most investors know whether they have lost money in the aggregate.

      • During 2013, many micro rentiers will have an epiphany while jamming a plunger into the toilet of their investment property. They will realize heavy gearing doesn’t work without rising house prices, that they overpaid for the land and haven’t a snowflake’s chance of making a profit that reflects the risk and effort in residential rentals.

        They will resolve to sell while prices are still close to the peak.

        Buyers are scarce and ruthless. They smell blood. Few are anchored to the old prices; all want a further discount. Any agent with a solvent buyer is on her side, because that is the only way to close the sale – any sale! – and feed the family.

        I think the Residex forecast wildly optimistic. The Guv is nearly out of interest rate ammunition. Firing it off faster just brings us to the zero bound more quickly. Then what?

        Don’t Buy Now!

      • “The Guv is nearly out of interest rate ammunition. Firing it off faster just brings us to the zero bound more quickly. Then what?”

        An ‘Oostraylian’ version of ‘QE4EVA’?

        As much as senor chrome dome was tut-tutting the the US Fed and other central bank institutions for ‘unorthodox’ measures which are effectively monetizing debt and a central bank Ctrl-P version of funding for huge government deficits (e.g. the the VAST majority of treasuries are now bought up by the US Fed), what is the likelihood that the RBA will engage in some form of QE when central bank rates are near zero in say 2 years time and the public is screaming for action?

        Further, given MB itself has argued that we are not at ’emergency’ interest rate lows given net interest margins of the banks i.e. they have not passed on the same level of discounting to the punters as in the GFC period, this means the RBA can do LESS than before with subsequent reductions.

        It is amusing that the usual chumps arguing for rapid interest rate reductions, e.g. Business Council of Australia, never stop to ask themselves what they will do when the central rate sits at say 0.25%. Will they then be screaming for unorthodox ‘liquidity’ measures and have the RBA engage in widespread activities resembling fraud like the other central banks have?

        Hmm… anyone want to take a bet that this is ‘impossible’ in Australia? I wouldn’t discount any possible panic-stricken act in a major downturn.

        Don’t be surprised if the RBA is proposing ‘radical’ measures in a few years time and purchasing shite loads of financial assets from commercial entities and banks and so forth. If this happens, just like in the US we could expect excess bank reserves and a rise in the price of financial assets etc all in the aim of lowering long term borrowing costs. Eventually, just like everywhere else, this activity will FAIL in its intent because money velocity will not occur unless there is LENDING, and this will not occur because people can’t or won’t borrow.

        Let’s mark Glenno’s words from this recent speech and see whether they come to haunt him in the coming years:

        “For the major countries a further dimension to what is happening is the blurring of the distinction between monetary and fiscal policy. Granted, central banks are not directly purchasing government debt at issue. But the size of secondary market purchases, and the share of the debt stock held by some central banks, are sufficiently large that it can only be concluded that central bank purchases are materially alleviating the market constraint on government borrowing. At the very least this is lowering debt service costs, and it may also condition how quickly fiscal deficits need to be reduced.

        There is nothing necessarily wrong with that in circumstances of deficient private demand with low inflation or the threat of deflation. In fact it could be argued that fiscal and monetary policies might actually be jointly more effective in raising both short and long-term growth in those countries if central bank funding could be made to lead directly to actual public final spending – say directed towards infrastructure with a positive and long-lasting social return – as opposed to relying on indirect effects on private spending.”

        http://www.rba.gov.au/speeches/2012/sp-gov-121212.html

      • I have to say the commentary about “how” the RBA cuts (ie a few lots of 0.25, or two lots of 0.5, etc), is hilarious. They actually think the style of cut will impact the psyche of Mr and Mrs Joe Aussie. No chance at all of this happening, Joe Aussie can see the story unfolding for themselves, and will not be hoodwinked by the ‘nature’ of the cut.

      • It is a fact that 95% of people do not understand where money comes from (www.youtube.com/watch?v=HfpO-WBz_mw
        ), therefore 95% of investors and people who talk about money are fools. Have a look, Australia is actually a part of the global economy after all, and is cutting interest rates but can only go to 0%, after that they have to start printing money. So, you should value property/assets in gold (because gold is one of the few commodities that maintains its purchasing power). You will find that property, like all other assets are really in a long term term downward trend. Most investments will remain looking good on paper as long as central banks keep up the easy monetary policy – but it cannot go on forever. The private banking system concentrates money into the hands of a few and puts many into debt slavery (mortgages/loans) and poverty. MONEY SHOULD NOT BE ISSUED AS DEBT. All though history, when countries are not on a debt based monetary system the people thrive and real wealth is created. Remember Proverbs 22:7 “The rich rule over the poor, and the borrower is servant to the lender” and ask yourself who are the real rich today and who are the real poor today.

  3. “Interestingly, Edwards also notes that the last 15 year’s returns were an anomaly and that the long-term return for housing in Australia is around 1-1.5% above inflation.”

    So, roughly in line with income growth.

    • bang on – and does this mean the anomoly needs to sort itself out before the subdued long term growth can occur again? Yes I know we now have 2 incomes, low interest rates etc but so do lots of other countries with housing crashes. I think any investor who is going to get a 3% gross yield (2% net) will run away at the prospect of gains in the low single digits. So many better options out there.

  4. I suspect that he won’t be far from the mark in 2013, although investors may see some opportunity when they compare rental returns against Term Deposits after the expected rate cuts.

    Home owners with mortgages will be happy as their cost of housing will fall considerably.

    It will be a good year if you are in the right segment.

    • PF you are so full of the proverbial its astounding!!!

      Now I know your our resident spruiker who for reasons known only to them, the mods have let you back on here. Maybe its due to you different tact to the usual spruiker, with the odd bipartisan comment to try and give the impression your not an out and out spruiker tool (which lets face it, you are).

      Now why in gods name would you say its a good idea to jump into housing to chase a few extra % when the downside risk is that much greater than term deposits….

      It wouldnt have anything to do with the fact that your livelihood depends on it.

      • TheRedEconomistMEMBER

        PF,

        5% p.a on you terms deposit is better than Capital loses if you are a property investor.

      • Red Economist – we are talking about further rate cuts. A return on a TD of 5% will not be possible. But a return of 5% on an IP will be possible.

      • reusachtigeMEMBER

        PF, who is a spruiker and we all know it and accept it and quite enjoy his entertaining posts, honestly believes there is no serious downside risks, just the usual market ebbs and flows. He is one of them after all and many actually believe their own spruik, they have to.

      • Christiaan – read what I said, I didn’t advise anyone to buy. My point was that borrowers are being handed a discount on their loans which they will enjoy, and investers might like the returns on IP’s more than TD’s which will be well below 5% in 2013.

      • What I don’t understand is this:

        +Home owners with mortgages will be happy as their cost of housing will fall considerably.+

        Why is that a good thing? If you over-paid on purchase, aren’t you supposed to be screwed even if the interest rates go down?

        You also keep mum on the ever increasing council-rates. Those things are barely now starting to catch up with the so called “value” of the property, and some are eye-poppingly, a**-sorely high!

        Oh, and *it seems to me* that you also make the assumption that all the interest rates cuts are passed to the suckers at the end of the chain. We know that isn’t so.

      • PF believes that most of us here at MB are nothing more than a bunch of financial illiterates……………

        PS: Chances are he also downs shot glasses full of perfume.

      • I do not exagerate Peter…

        “but you would be well advised to pay for professional advice rather than use your own hunch – most here don’t seem to have solid financial literacy……”

        Your own words for all to see.

        You have a very short memory PF.

      • PF, a small indulgence – I have enjoyed your contributions and learnt much about an area I am largely ignorant of. Thanks. (to Leith as well) Plus you’ve hung in here and I reckon are integral to the debate.

        Jolly Xmas and Cheers.

      • Thanks 3d1k,I’m flattered. I read as many posts of yours as possible. You’re one of the best that I have seen on any forum.

        Have a wonderful Xmas and a prosperous New Year.

      • Well found,in an exaggerated illiteracy to disappointing joy,n this indulgence paired above is one of the best sweat-ups..I’ve seen to tonight..your all kisses,n now’s when I say ‘Cheese..n click another Merry Xmas..Cheers JR

    • Peter, that’s a considered response and I you will be right about some investors and term deposits, the issue is how many are in “the right segment”?

      If Credit Suisse are correct and 1/3rd of mortgages are interest only then that has ugly written all over it if values don’t rise, even if the RBA cuts rates some. I was gobsmacked to read 1/3rd, truly gobsmacked, especially given the scale of mortgage debt to GDP, regardless of low interest rates that can’t stay low forever,

      Question still is employment – will it hold on, I suspect not – and the lemming-like rush to surplus on both sides of politics in the face of crashing revenues. Sooner or later we’ll have to face up to the fact we can’t afford swathes of middle class welfare unless we pay more tax to balance the budget and that, along with a rise in super to 12% will make the economy do more than wobble as the rest of the world finds growth impossible to achieve under their respective mountains of debt.

      • And I’d also say that chasing yield in the face of declining asset values is a knife catching exercise. Why else have Credit Suisse said what they have about the banks?

      • Hi Mikeyc – If I read you correctly your two points are that assets values will fall and interest only loans are poisonous.

        Firstly investors look for better value than other buyers, and they look in areas where they expect gains. I expect that a few areas may fall a little and other areas gain, so on balance I doubt that they will have a major problem with falling asset values.

        Terms like “catch a falling knife” sound cool, but in fact mean absolutely nothing. It’s a verbal party trick at best.

        Interest only – It’s investors who make use of interest only loans. FTB’s may take them for the first year or two, but they pay extra so that they are in advance. I expect that you know that.

        Investors set their loans up differently to maximise their taxation advantages, and using I/O loans is one method, which they usually combine with an offset account. The extra money that they might earn accumulates in their Offset account or is used to clear other non tax deductible debt faster.

        It seem perfectly logical and reasonable to me. Talk of them being a problem are laughable.

        I know that you amongst many here are expecting a big house price crash, but what evidence is there? There is evidence in areas where no-one wants to live where the accomodation available is not ideal for families, but in working class suburbs where there are 3 and 4 bed family homes – nothing but a modest correction in Melbourne after a huge jump in prices, and a similar correction in Brisbane also after large increases and partly as a result of very substantial floods.

        If the average FTB debt is $283,000 then if rates fall to 5% the interest cost will be just $1180 per month. How stressed do you think a young couple with two incomes will be on that committment? That’s $272 per week.

      • Oh come on Peter! “Firstly investors look for better value than other buyers, and they look in areas where they expect gains” what a load of bollocks!
        .
        “If the average FTB debt is $283,000” not in Sydney. .
        .
        “Interest only – It’s investors who make use of interest only loans”.
        That is more BS and you know it. Stats from the RBA have shown both Owner Occupiers and Investors have a very high level of interest only loans. It was in the package of information release as part of the Freedom of Information request and was covered on this site…

        Stop making it up as you go!

      • dumb_non_economist

        Peter, it’s what you say that staggers me! You give a level of knowledge to the average RE investor that just isn’t there. Consider that 60% (RBA) of RE investors are on 80K and therefore only subsidised 32.5% by the tax payer and would invest in RE in a no real growth environment compared to a no risk TD.

      • DNE – I see peoples real incomes. What you mean is that after hours of hard work and a large fee the accountant managed to get their income down to $80K pa by claiming all the running costs of the IP’s as well as depreciation, extra super contributions through the business, the cost of the BMW, the holiday to check out the Gold Coast IP, and a host of other legally claimable deductions. On top of that can be a lot of income that never is stated in returns.

        Regardless of the moral issues that raises, the scenarios exist and we should accept that.

        In addition, the highest earner in the family might net $80K after all deductions, but the second income earner in the family brings in another $45K but isn’t an owner of the IP because it doesn’t maximise the tax benefits.

        You seem to forget that I see this everyday.

      • dumb_non_economist

        Peter,

        I’m not to sure that the quoted figures from the RBA (via the ATO) would be after IP tax deductions, it would be a bit pointless for the RBA to quote that, wouldn’t it? As to deducting holidays for checking your IP, pretty sure you’ll not get away with too much there, the ATO isn’t stupid, plus great, hope they love having the holidays at the same place. It still needs decent CG to make it work and ignores the present risk.

      • DNE the ato quote net taxable income, not gross income. That’s income after deduction of all legally allowable dedcutions.

        I have a little chuckle whenever I see people quote that income figure. I also know how IP loans are structured.

      • Peter, not like you to stoop to veiled ad hominen vis a vis knife catching as a neat verbal party trick. It’s a reasonable observation to make that collecting pennies in front of steamrollers isn’t recommended by anyone as a wealth maximisation strategy. The only question now is whether the roller (or the knife) is in motion towards us or not.

        We are all entitled to our opinions and need not agree all the time, how dull. And how dull the ad hominem attacks on you, or anyone else on this site. That’s why I read Zero Hedge and studiously ignore the comments nowadays, its turned into trash talk, but here I find much to savour in the commentary. May that long continue…

        Part of your response makes good sense to me, investors are looking to maximise taxation advantages. Question is, what percentage are sticking the money in a offset account? No doubt the smart ones are and are well covered, I’m more concerned about the late arriving amateurs in this game and there are a hell of a lot more of them about it seems.

        Of course some areas will fall more than others and smart investors will have done their sums and will be afforded a greater level of comfort. But with 1.1m investment properties out there, of which around 80% are negatively geared and 80% of those owned by people earning under $80k, you’re certain the downside is a fertile plain already under our feet, redolent with green shoots, not an abyss of unknown depth? I guess we’ll find out whether the concept of house prices tumbling and the destruction of apparent (debt backed) wealth are laughable concepts in good time.

        As for modest corrections after huge jumps, well volatility sure makes for a wild ride. Long term players have less to worry about, though in real terms their nest egg may not turn out to be quite as valuable as they thought, in spite of the low interest payments at this point in time. It’s the short-termers and late to the party FHBs who will cause the grief to come to the market, plus all the baby boomers downsizing to extract equity for retirement. Prices can’t keep going up 7-10% a year, not without corresponding wage growth and/or inflation. Debt loads are ridiculously high and precariously balanced on employment. If the Kouk’s dreams of green shoots turn to dust as Japan crumbles under it’s debt tsunami, Italy does a Spain does a Greece and the Chinese don’t stimulate their way to infrastructure heaven while the Euro banks and the Eurozone at large goes pear-shaped, then the high AUS$ and falling government receipts can’t support a run up in house prices as austerity bites harder. Who knows, it may all come out smelling of pixie dust and house prices will climb up Jack’s beanstalk to the sky…or it could turn Japanese and deflate for 25 years. Or somewhere in between.

        You pays your moneys and you takes your chances…

      • mikeyc – Let me apologise, the remark was not meant as an ad hominem. I thought that I gave you a respectful reply, I’m just a bit tired of some worn out phrases, especially when the phrase assumes a fall in house prices that is far from being certain.

        Yes a lot of things can happen – that is always the case. Things can also get better.

      • No prob Peter, appreciate your grace under fire.

        Point taken. Though assuming house prices are sure to rise when they’re way out of line with historical norms is far from certain either.

      • Lies, damned lies & Peter Fraser mortgage broker statistics…

        ABS

        http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0

        Median mortgage per month: $1800
        Median rent per week: $285

        Renters are already far ahead, and that’s not including the estimated 2 – 3% of holding costs, including but not limited to:

        – Buying costs such as stamp duty, titles registration fees and even mortgage registration fees
        – Building, architect and pest inspections, as well as valuation fees
        – Setting up your pre-purchase finances, too, can add to the bills, such as account and mortgage establishment fees
        – Building insurance, which most solicitors recommend you take out as soon as you sign a purchase contract, public liability insurance, contents insurance for furnished or semi-furnished properties and, these days, there is also the option of landlord insurance
        – Strata and owner’s corporation fees
        – Property management fees
        – Ongoing costs of negative gearer’s generous subsidizing of renter’s accommodation arrangements
        – Repairs and damage
        – Ongoing maintenance, lawn mowing, gardening etc
        – Empty properties at times for investors
        – Land tax, rates etc
        – Other miscellaneous costs I have obviously overlooked

        Further, given the ongoing market deflation, you can throwing in potentially 10,000s in lost value in your money pit per annum in addition to being tired to this economy as it undergoes its overdue death throes.

        Renters are so far ahead right now it is absolutely delusional to buy into this market. Wake me up with mortgage costs approach the cost of renting and we’ll know we’re getting close to true value.

      • Bobby the Census data that you quote is over 12 months old and rates have toppled since.

        You know it’s wrong, why quote it?

      • So Mr Fraser (Peter, if I may), you’re saying that 12 months ago the figures show that renters were so much further ahead, but the interest rate changes in the last year (a fall in the ocr of 1.5%, not all of which has been passed on by the banks) has made all the difference since then?

        I don’t think that’s a strong or convincing argument.

      • DrBob – What I am saying is that Bobby’s figures for loan repayments are no longer correct because rates have changed, and a loan repayment includes the amortised repayment of debt, which is a form of asset accumulation.

        I don’t read Bobby posts in full so I wasn’t commenting on the rest of his post, whatever it was. However if you did your maths on someone who bought a house at 25 years of age and who paid it off over 25 years and lived in that house until death at 85 years of age, the home buyer would be ahead in the normal course.

    • but then how many people actually are looking to buying a house with cash? Since this is almost never the case how can you compare rental yields to term deposits since it will still be impossible to be cash flow positive with a 90% LVR (which most newly originated loans are). so the comparison with a term deposit is moot even before you account for the tremendous downside risk with every other housing bubble popping around the world

    • You may or may not recall PF, but on GHPC in early 2009 I was pointing out there were opportunities to buy in some Adelaide suburbs the same or even less than cost to rent when rates bottomed. We could see the same this time around and if buyers can lock in a 5-10 year rate at 4-5% fixed and purchase “astutely” then next year might not be such a bad time to buy in some areas (for PPOR buyers who don’t mind riding out some further price drops).

      • BB, I like to think I’m one of those ‘astute buyers’. I mentioned in a recent MB thread my recent PPOR purchase that has resulted in monthly repayments that are well below my present rent, and, I can weather another 20% fall in price over my expected 10 year holding period & still match equivalent rental repayments over the same period. The house price was roughly 30% below its predicted peak 2010 value when I purchased it.

        So, while I am a property bear, and while PF does carry the flag for real estate, I’m inclined to agree with him that there are homes to be bought at good prices if one cares to look in places they’re not used to looking in.

        Disclaimer: My bias is obvious. Is it even worth mentioning? 🙂

      • And Godot bless you, and those like you.

        We need people buying the bargains – with timely reporting of the results – to correctly move the average prices down. Otherwise, all the common man will see is too many of the vendors still advertising at their unrealistic prices.

        There are far too many forces out there trying to mask the reality and keep prices artificially high.

      • F7, I could pay cash now and live in a macmansion in the burbs for less than what I pay in rent to live in Brighton close to everything. That I don’t have an albatross tied to my neck reflects three simple facts. I don’t want to live in the boonies, I believe those shonkily built shacks are overpriced and expensive to live in and that they’ll go down in value.

        So yes, you can pay less (or the same) in repayments than renting, but in most cases, why would you under the circumstances? My landlord has just sent round a plumber and a handyman today to fix up all the issues on the condition report. Didn’t cost me a penny and his yield is 3.4% gross. Any wonder I’m renting?

      • Some fairly emotive language in there mikeyc, but when I strip that away I can say I agree with your sentiment completely. My own observations still stand – well priced, well-built homes are to be found out there. But not in Brighton 🙂

      • Suburb postcode? Are you factoring in all the holding costs I have outlined in another post above? Are you honestly trying to tell us that your purchase has total costs at less than the 2011 census stats median rental per week of $285? I smell BS.

      • BF, I factored in every single damned cost you can think of. I looked at at upside down, inside out, backwards & forwards (I’m an engineer :)).

        My circumstances bear absolutely no relation to the median statistics you reference, as is the case for everyone else. So, no way are my repayments $285, but they’re a damned sight less than what my rent is/was.

        Yes, these statistics convey the broad-brush message that housing is generally unaffordable. That’s all they do.

      • Bullion Baron – I never posted on GHPC – it looked to caustic for me. However I don’t doubt that you said that, it was good advice at the time.

        Our 10 year rates are not very good, but some 5 year rates are not too bad. I guess the story is that if you buy well and lock in a low rate for some time then you won’t go far wrong, especially if you use the low rates as an opportunity to knock off the debt as fast as possible. Paying extra on your loan is the secret – an extra $100 monthly makes a huge difference. That’s two bottles of vino every week – that’s all you have to give up.

        But if you read what I said I wasn’t advising PPOR people to buy, I was commenting on those who already own, and they will certainly be saving a lot on their loan repayments.

        Adelaide looks well priced to me, and it’s a lovely city. I don’t know much about the employment prospects in the area though. That will probably hold the key to value trends.

        Cheers.

      • A Fair point, but I’m mostly left alone there. I make a point of not getting into abusive exchanges and try to give people some respect. You get what you give.

      • Peter, you are more alone there than you imagine 😯

        Most of the posters there are socks; it’s an echo chamber

  5. Love these comments about “So many better options out there.” and “a good year if you are in the right segment.”

    Not much actionable in that, and no chance of anyone proving your forecast was inaccurate either.

    • Explorer – it wasn’t a forecast – it’s a fact. The indebted are being given a bonus at the expense of savers. You know it and I know it.

      • Peter, I’m a saver, and it signals to me (in todays unprecedented economic climate) to keep my money in the bank.

        They are dropping rates, yet house prices aren’t rising.

        The savers aren’t biting.

        The indebted know what’s coming (or not).

        Its coming either way.

      • If the GFC hadn’t happened and interest rates were this low, it would be a different story.

        But the GFC did happen, and continues to be ‘happening’. It shook the ground beneath everybody’s feet. It was a once-in-a-life-time realisation for many, that everything they thought was solid, as a basis from which to decide to invest, really wasn’t.

        We’re now living in a world awash with more fictitious capital than the one prior to 2008.

        I don’t know how things will pan out exactly. But I’m 100% convinced they wont pan out well.

        Not at all.

      • Ortega – I have never seen this much opportunity before, and I’m not talking only about property. Just work out how you can make it work for you and you will do very well indeed.

        Cheers.

      • R2M – I don’t think that I’m the best person to talk to on gold. My personal opinion is that it will fade, but maybe the falling $AUD (if it falls) will still make gold worthwhile. I’m not an investment adviser though so please disregard what I say on PM’s.

        I was really talking about distressed assets, which can be almost anything. They are around at the moment, it’s a bit like a candy store.

      • Exactly. After so much previous talk about containing inflation, the RBA wouldn’t dare lower interest rates so far – and signal lowering them even further – unless the natural growth prospects of the economy were definitively dead.

        Unintentionally, they’re telling us ‘Things look like they’ll get really bad. We have no growth drivers left. So we’re going to try resuscitating the dead housing industry. We’ll encourage the cautious potential buyers to jump in and receive no growth / capital losses to soften the fall for the currently over-indebted. Better that they sacrifice themselves to prevent the crash the latter are responsible for’.

        And to that, we say ‘nuts’!

      • Yes – the decisions of the RBA board are immoral.

        They are using ultra low rates to induce people to take on significant debt to maintain current property values and reverse recent declines.

        Fortunately, people appear to have developed some healthy scepticism.

        Having said that, no one should assume that price declines are a given or try to pick the timing of a fall.

        As was demonstrated in 2008 and since the RBA and Swan ( as would have Abbott) will stop at nothing to prevent significant price declines.

        * pump up the household debt bubble
        * pump up migration
        * home owner grants
        * restrict supply.

        Adjustment will only occur when the RBA and the govt are completely out of bullets. The risk of long term damage to our economy will not deter them.

        With 5% unemployment, low federal govt debt, foreigners crazy for govt securities and a lot of cashed up people keen to move to Oz they have more than a few bullets left to fire.

      • Agree totally. I wouldn’t ‘risk the house’ so to speak on an amateur (my skill level) attempt to time the market. For me its about the much more easily calculated and stable benefits of renting over owning.

        I know they’re going to cause even more harm than they have already have to my savings account – i.e. lower my standard of living through denser population, tax me more and give hand it over to property speculators etc.

        If their intervention somehow manages to cause the bubble to start re-inflating, then I can just sit pat and be even better off as the renting / owning differential widens further (I’m in Melbourne :P). I’m happy to leave the speculative capital gains to those want to risk the game.

        And if they manage to start inflating rental prices to catch up with the massively overpriced mortgage repayments, I’ll just emigrate somewhere that isn’t so hell-bent on shafting the productive areas of their economy – I could receive more income and pay less rent in the US anyway.

      • Same here,

        I have no burning desire to or need to own the place where I live so whether prices go up or down doesn’t make a huge difference to me.

        Of course if my rent was to fall I would not complain but I am not losing sleep over what I pay at the moment.

        What gets my goat is the dysfunction, malinvestment, market inefficiency and the unnecessary hardship caused to many people in the community who can least afford it.

        Every dollar (and the time spent earning it) spent on residential housing that doesn’t need to be is a dollar that is not available for other purposes in the community.

        The remote technocratic indifference of the RBA Governor and the blithe clueless statements of Mr Swan are both sources of considerable irritation.

      • LOL – so there only option is to do nothing, because if they do something they have no options.

        Where do you get this stuff from?

      • PF,

        People ‘get this from’ thinking outside of the square and realizing that true social mobility is the key to a happy and non-stressed life (plus giving you many other investment opportunities). Not having truckloads of debt for a deflating asset tends to let you move around a bit more and tell the boss to jam it where required. In other words, you are not a prisoner of the workplace.

        The real question is why people don’t contemplate true freedom without debt serfdom – just like the minority of Oz punters who choose NOT to engage in and sustain this fraudulent property ponzi…

      • Pfh007,

        They have so many bullets left it isn’t funny and even in 2008 they fired a lot more than you listed. For one they let super money have leveraged property investments which normally compete with FHB. Now a FHB has to also compete with super accumulated savings. Fun hey.

        This country is not made for the young. The government have every interest in enriching the old – after all this will make it easier to manage them as they hit retirement. They need the “workers” to work harder and more efficiently to meet this group’s expectations of a great life in retirement. In other words the workers per unit will have to work harder and achieve more than they did – hardly fair.

        Other countries are in trouble because they failed to slave their young – I think if this country avoids that fate the young should run. Besides many educated careers (I am in one) earn much more overseas.

  6. Can’t stand Switzer so I’ll give the video a miss, but I assume he kept attempting to steer the discussion towards how awesome 2013 would be for housing?

  7. Just spent the last few days doing open homes in my area. Spoke to a few RE individuals and its grim up north ill tell you that for free.

    PF continues to talk smack imo.

    A couple bought for $345k last year, house now valued at sub $290k.

    Carnage!. Buyers in 2012-15 will be left holding the baby.

    • yeah, carnage, I have just settled on my third this morning, very nice&modern 3br2b, 11% above ULV, was going to be mortgagee, 2009 FHB (I hate Rudd for that situation), needed to settle fast fast fast , I think they even had to find some cash for their bank to accept the deal (+ divorce).

      love it, cannot wait for 2013

      in reality it s not the situation is not that bad but there are some great deals to get with cash offer.

  8. Peter, as a mortgage broker are you ever really trusted? I mean no disrespect but I am curious about what you actually tell your clients as opposed to what you say here.
    How many loans have you done where the people are now underwater? Do you even keep track of that or is it off you loandar?

    • brokers serve a purpose. In most cases the aggregation software provides the recommendations, but the broker still needs to do some heavy lifting with the paperwork….

      Whether or not brokers should be commenting on where prices are headed, or whether property X or Y is a good investment, is a different issue altogether. Unfortunately the only info or analysis that brokers get are from the likes of APM, RP Data, AREIV etc etc….and really anything else that suits the “buy/gear up” mantra.

      People’s ignorance and financial illiteracy steer them toward stupidity. Sometimes a broker steps up to clinch the deal.

  9. In a JP Morgan Report released back in October, it showed that 35 per cent of homebuyers who purchased their properties after 2008 are facing the prospect of being in negative equity.In the report it all mentions that a large number of aspiring buyers were being locked out of the market as banks lift their lending requirements post-GFC.

    Furthermore, the report mentions that nearly 70 per cent of home refinance loan applications are being declined on the basis of insufficient income or inadequate loan-to-value ratios, as regulators push for stricter standards from lenders.

    The alarm bells I think are now ringing very loudly !