ABC 7.30 Report last night ran a segment on Australia’s auctions crash, which is mirroring the Global Financial Crisis. Below are some key extracts from the transcript:
GEOFF THOMPSON: Last weekend the euphoria evaporated with the worst auction clearance rates in more than ten years.
SHANE OLIVER, AMP CHIEF ECONOMIST: The auction clearance rates in Sydney was around 44.5 per cent.
Now, of course, you have got to bear in mind that is a preliminary number. Once they get all the results in, my estimate will be that that will be around 39 per cent and that’s the weakest result in more than ten years, below the weak patches we saw through the GFC and, of course, around 2012.
Similar for Melbourne, but just not quite as bad as Sydney.
GEOFF THOMPSON: What happens in Sydney and Melbourne means a lot for Australia’s housing price health because about 90 per cent of sales are in those two cities…
GEOFF THOMPSON: Clearance rates have dipped dramatically before, but this is the lowest they’ve been in Australia since the global financial crisis in 2008.
Is this a crash?SHANE OLIVER: I don’t think this is a crash but I have to admit that sometimes they start like this, with prices coming down and then, of course, it feeds on itself.
But I reckon to get a crash you need either much higher interest rates or much higher unemployment. So that people are really defaulting on their loans, being foreclosed, that creates a cycle of more houses hitting the market, causing prices to come down rapidly like we saw in the US at the time of the GFC, where prices came off something like 30 per cent…
GEOFF THOMPSON: Real estate agents are saying auction clearance rates for owner-occupied family homes are holding up much better than investment properties.
DEBBIE DONNELLEY: We were running in the 90s all year, last year. Concerns are, I suppose, in terms of properties, more the two-bedroom apartments, the investment properties. They’re the ones that are really suffering, I think, as investors flee the market…
GEOFF THOMPSON: AMP’s Shane Oliver thinks prices have a lot further to fall.
SHANE OLIVER: At the moment it’s quite controlled, quite gradual. It looks quite healthy but by the same token, we’ve got a lot further to go yet in Sydney and Melbourne.
My estimate is that they are going to come off 20 per cent from their high point last year to their low point sometime around 2020.
GEOFF THOMPSON: Is there a potential for this to spark a recession more broadly?
SHANE OLIVER: There certainly is a risk here, if this gets out of hand.
There is a prospect of a change of government, investors worry about that because of the impact on negative gearing and the capital gains tax discount and then you are seeing this other phenomenon, where FOMO – fear of missing out – that is giving way potentially to FONGO – fear of not getting out.
So all of these things are feeding on themselves and that is what is driving prices down.
Here are the key auction clearance rate charts, via CoreLogic:
That’s some nasty figures right there.
Note also that Shane Oliver’s forecast of a 20% peak-to-trough decline in Sydney and Melbourne would also represent by far the biggest downturn in records dating back 40-plus years:
Even so, I believe dwelling values might fall even further if Labor’s negative gearing and capital gains tax reforms go ahead.
Pass the popcorn.
