House prices “falling by over $1k a week” in Sydney and Melbourne

By Leith van Onselen

Sydney and Melbourne house prices are “falling by over $1,000 a week” and there’s worse to come, according to Deloitte’s latest business outlook. From The ABC:

“Our house prices here in Australia had streaked past anything sensible by way of valuation,” said Deloitte partner Chris Richardson.

“Now, finally gravity has caught up with that stupidity and prices are falling.

“In Sydney and Melbourne, housing prices are falling by over $1,000 a week”…

“Yes, they’re falling but they’re not falling at a dangerous rate and it’s making them, shifting them, to safer territory,” he said.

“There are more falls to come, particularly in Sydney and Melbourne, because the prices there got silliest and you’re seeing a range of pressures on it.”

Mr Richardson names three particular factors putting downward pressure on prices.

Banks are raising interest rates: “Even though the Reserve Bank has done nothing.”

Banks have become cautious: “You’ve seen the banks being more careful with the loans they’re giving. Those loans are slower and smaller than they used to be.”

Less money from overseas: “Foreign buyers are a bit more cautious.”

So far the broader economy is coping well with the house price falls. However, it’s only a matter of time before the negative wealth effect drags down consumption spending and dwelling construction, in turn dragging down ‘jobs and growth’. State budgets will also come under pressure via falling stamp duty receipts, which could feed into lower infrastructure investment.

[email protected]

Comments

  1. “Safer territory”? Less equity equals less credit equals less safe. Plus the massive amount of settlements coming over the next 12 months below purchase price is less safe when they can’t get finance.

    • This
      The important dynamic here is that the stock of underlying collateral is deflating. As collateral declines in value so the amount of credit that can be supported declines as well. Rates are already as close to their lows as they can really go so what else can prop things up? Apart from the RBA buying mortgages. There is a serious danger of a doom-loop here … and unemployment / defaults etc haven’t even started to tick up materially yet.

      • Ah this is nothing but a blip. A mere speed bump.
        HP says house prices should be in the order of 3 to 5 of the long run average wage
        Say the LR avg wage is 80k.
        Say house prices are currently SYD 13 x MLB 10 the avg wage
        So to suit the mean Sydney has to come down by 9x and MLB by 6 x
        Ie SYD by 720K and MLB by 480K
        So at 1k per week, MLB is back on course in a year and a half
        and Sydney in about a year, Sydney wins??
        Too easy. Maybe faster if the rate of fall increases say over Xmas.

    • Our Property Council PM should send every property investor a packet of Imodium because they are all about to shit their pants.

    • Which suburbs are the prices droppping in? Not the inner west Sydney where I have been observing for the last 6 months. & not dropping for appartments. Epping & Carlingford area appartments also havent dropped. Auctions & outright sales for appartments in these areas still fetch ~700k but take 3-4 times longer to sell than 1 yr ago.

      Vendors are not dropping prices, they are holding.

      • I live in the inner west so i dont know what you are observing. Average house price falls here have been in the vicinity of $200k since peak. Lots unsold and many sold prices withheld.

      • Gustav,
        Epping is dropping. About 15% a few months back based on my mate’s observations.
        He had an apartment there so recently cashed out.

  2. reusachtigeMEMBER

    Yeah there’s some real bargains at the moment that are a few thousand off their peak.

  3. Wage growth is making “glacial gains” since bottoming out in 2016

    No mention of why this should improve, or of immigration keeping wages down.

  4. I’m trying desperately to get the folks to move from their currently valued $1.25m house in the north-east of Melbourne. Dad has retired and mum has one year left. Their argument is that any price falls will translate into a lower new house to buy. I’m trying to make the argument that you sell now, pocket the money and rent for a few years, then buy in 5 years once prices have bottomed out. They don’t get it…

    • High risk proposition. If you are wrong, you will forever be a reminder of how they failed as parents to teach their child simple wealth tips (buy property and hodl).

      If you a right, you will get nothing more than a pat on the back.

      The trade off isn’t worth it even if you are correct.

      • Great point. And if the father is a prick (Errol Musk, Joseph Walter Jackson, Damir Dokić, Kevin Carey), there will never be a pat on the back – no matter how correct the son is.

      • darklydrawlMEMBER

        Whilst I agree with your logic, I am going to support Lab on the emotional risk here. As s/he said. “Not worth it”. I would just keep quiet about the whole thing.

    • Amazing stuff!

      I know a couple that refuses to sell an investment property. They expect it to be worth more in 2028 than it is now.

      • “They expect it to be worth more in 2028 than it is now.”

        If its in SydMelb that is probably a sure thing

      • Given it’s looking increasingly likely that this crash/ correction/ whatever will be at least as serious as 1989, worth remembering that on that occasion it took Sydney 5 years to recover and Melbourne 7.5 years. Still a good chance it will be worth more in 2028, but definitely iffy that it’ll be worth more in, say, 2024.

      • boomengineeringMEMBER

        Robert the 89 crash didn’t have 28 years of build up so this one will take longer to recover. Also will it be worth more in real terms or non adjusted for inflation etc.

      • @boom – describing probable best case based on falls that have occurred so far. Of course things could be much worse, though I don’t have a probability for it.

      • drsmithy,

        At the risk of inviting the banking troll farm to swoop, there are massive differences between the banking system in 1890 and now.

        If the value of the AUD is put on the line – and it floats so in theory it could be allowed to fall – about anything is possible.

    • SupernovaMEMBER

      Declining interest rates to historic lows with a bottomless pit of credit has pushed Auz property to artificial ridiculous highs. The current situation will not accommodate lower interest rates and the banks cheap credits tap has been turned to nearly OFF to de-risk our major banks and the Government who has stupidly guaranteed them. Global CB liquidity is turning negative from year end for the first time since the GFC pushing global rates higher. Now given this scenario why would Auz property not correct to its long-term default value? Sell and rent or DBN.

      • $1m shares, $1m in super, plus the house. No pension unless they offloaded assets, but the gifting rules seem to preclude that.

    • Jonno,
      Am in a similar situation to you.
      They view their house as a place to live and enjoy in their twilight years – they don’t follow the market or fuss over how much their place is worth.
      So I decided to drop the matter as they’re old enough as it is and have enough to retire on.

    • It is startling they don’t get it intellectually given the huge falls in Melbourne in the early 90s and falls at the gfc. Emotionally tho, it makes sense to stay where they are.

  5. Wino ShinyfaceMEMBER

    so now its safe for Chris Richardson to say it, he brings out all teh language: past anything sensible, that stupidity, got silliest, …..phfffff whatever mate

    • adelaide_economist

      Yeah, it’s interesting that he failed to use anything like those words previously. Unfortunately for all the people who bought on a 30 year mortgage they aren’t so free to change their tune and pretend they didn’t buy that over-priced fibro shack that’s going to take a lifetime to pay off because the Chris Richardson’s of this world refused to state the truth… until now of course.

      • mild colonialMEMBER

        Well Steve Keen did; and every Australian kid got a free education including reading and arithmetic. However no one much could have guessed the immigration our govts have allowed and no one could have guessed the free flow, then blocking, of capital flow out of China. Or that Australia would ever turn a blind eye to money laundering. Or that Australia would kill all its other industries to protect FIRE. Ok hard to blame the punters.

  6. Remember this: Australia’s upside down version of the sub-prime crisis:
    In Australia, its the lenders, more than the borrowers who are lying on “liar loans”.
    The lenders and their mortgage brokers fudge the figures, such as income, to get a loan past lending standards. One broker in a media expose claimed a banker called him up and asked why he hadn’t fudged the figures sufficiently for a loan to pass.???
    Major financial service providers have stolen about a billion from customers through “fee for no service”of all manner of description
    In what could be the biggest class action in history, five million Australians are lining up to sue their pension funds, which are often owned by the banks.
    All this should amount to some impressive fines and lawsuits in coming years.

    • Let’s hope so — I don’t own a single bank in my Super. Those people hanging in there for the dividend are playing with fire.

      Falling house prices and huge class action suits. This doesn’t end well.

    • Couple things in there Wolfee that need to be sussed out: If there is fraud found in those loans (there is, its just hard to track down the original docs, etc.) and those loans are either sitting on the banks books (they are) or packaged as MBS (they were), then the holders of the MBS’ can force the issuing bank to buy back the now known fraudulent loan for full face value or force them into a “default like” situation that will trigger the multiples of the MBS’ face amount CDS’. The CDS writers (some of the banks themselves) will then have to cough up the dough….that they don’t have. Meanwhile, all the now know fraudulent loans on their own books have to be written down, some to $ZERO, credit ratings downgrades, etc. Oh, and its only going to take one smart attorney to rent a billboard(s) to announce: “Get your house FREE!!” if you suspect there was fraud in your mortgage application, you can get your house for free!! call me at 1300 BLOW UP DA BANKS. (and yes, if the banks and/or brokers were the ones that “fudged” the numbers, post signing of application, hand over the keys please)

      BOOM goes the dynamite!!

      • So they say, apparently there is a valid precedent to that effect.
        that GC broker who got jail for deception and deceit, also adds to the case.
        this FIRE mob are in for a tough Xmas – Easter
        Being nailed up, would probably describe their anxiety

      • BoomToBustMEMBER

        I doubt banks will simply give them the property, cancelling the debt and taking the property is much more likely scenario.

      • My notes show: “if you can prove your mortgage broker or banker manipulated your loan application, you can keep your home and cancel your mortgage”
        that outcome is fully to the benefit of a squeaky clean borrower.
        A realistic outcome to allow for shady borrower and shady lender, would be to allow the borrower to keep the home and pay a median level of interest.
        That is legally fair, but fully exposes the borrower to the vagaries of the market.
        the lender takes the risk of a borrower default, and the resale of the property in a falling market.
        If word of the magnitude of this gets out and the offshore lenders want their money back,
        (cos of deceit on behalf of the bank)
        things could happen fast

      • BoomToBust,
        If they cancel the debt, they blow up their balance sheet, and/or trigger default clauses on the CDS’ against those loans: remember one person’s debt is another person’s (bank) asset. They write off the debt, they wipe out their asset and trigger an insurance payment to the holders of the debt and wipe out their balance sheet. Given how much they are leveraged they’re already insolvent, just a matter of time…

      • Wolfee,
        That’s an almost dooms day scenario. If the foreign lenders find out that it was systemic: both the lenders were fudging (they were) and the borrowers were also fudging (they were), and it turns out the regulators weren’t regulating (they weren’t) and the politicians were in on it. Foreign lenders (flow) will stop, and foreign buyers will stop (stock) and start lawsuits. Credit will freeze. Loans don’t become bad when they were/are fraudulent from the beginning, they were bad from origination.

      • Wow hang on. Not that I think people should lose their houses if banks have been fraudulent.. but I get how they might have been forgiven the loan amount. What would make the banks then not keep the collateral (the actual house) to recoup as much of the lost value back?

      • Divya,
        To break it down to its most basic fact(s): They (the banks/brokers/FIRE) have been running a gigantic counterfeiting cartel, whereby they were taking knowingly fraudulent (counterfeited) mortgages, and turning them into “real” money. So yes, if a person can find that their mortgage application was tampered or changed, the way the law reads is that the lender then has no right to said property because any lien against it is based on a fraudulent (counterfeit) document. I’ll keep the keys, thank you.

        BOOM goes the dynamite!!

    • $315k in 2014 and just sold for $370k. You get to live in it and then sell for a substantial profit.
      Ideally the prices of used houses would fall slightly each year.

      • 55k over 4 years less 10k stamp duty, less agents fees etc. so would be lucky to have gained 30k in 4 years (10%), especially when those 4 years were meant to be the best growth we have seen in a decade !

    • truthisfashionable

      Nice example. Purchased for $315k add $10k in stamp duty, assuming they had a 20% deposit and averaged 4.5% interest rate for the time period is $45k interest (49months)…
      315k + 10k + 44k = $369k

      Edit: plus of course agents fees and any moving fees, should I have included rates? The council up there charge a fortune in rates..

    • Not surprisingly I couldn’t find any reference to those listing price “revisions” on that site. Admittedly I didn’t search other sites but even still I’d have thought this information should be readily available to any prospective buyer. My mate in Melbourne reckons that this place around the corner from him sold at levels not seen since around 2014 – conservatively, he reckons places like this in that area would have fetched upwards of $900k only a year or so ago (largely because of their development potential):
      https://www.woodards.com.au/property/10-harrow-street-blackburn-south-3130-704865

  7. … To rate as ‘affordable’ housing should not exceed 3.0 times gross annual household income ( median multiple ). Calculate the adjustments going forward for specific Australian metros (noting the adjustments Ireland experienced following the 2007 event ) …

    Demographia International Housing Affordability Survey: All Editions

    http://www.demographia.com/db-dhi-index.htm

  8. ErmingtonPlumbingMEMBER

    Geez!,….if im losing that much per week then I had better up my plumbing rates to make up the difference!

  9. Wasn’t Richardson the dude that Stomper cornered on that ABC program?

    Anyway I think Richardson has the list pretty right so far:

    Banks are raising interest rates
    Banks have become cautious
    Less money from overseas
    (I hope so, but there is still far too much money from overseas)

    Once word gets out that prices are falling $1000 per week, and this is accepted by buyers, then this new factor will come into play. Why not wait a bit? We’ve just saved $6000 by not buying in the last six weeks, it doesn’t matter if we take another six weeks to decide whether to offer on this property. Daddy offered us $200,000 to help with our deposit, wouldn’t it be nice to tell him we only need $194,000?

    • Already happening. Quite a few younger people l know( saving money) who are sitting back and watching failed auctions,falling prices in their suburbs. They are happy to wait.


    • Daddy offered us $200,000 to help with our deposit, wouldn’t it be nice to tell him we only need $194,000?

      Surely the Australian way to do it is to borrow less and get exactly the same amount of money from daddy? Not going to become a wealthy Aussie property owner by accepting less than the maximum amount of free money.

  10. I just put in an offer today for a Mud Brick home at $967k, it sounds like agent will likely encourage vendor to go to auction given interest so far in property. It was listed for $900-$990k.

    I think they will still go to auction, which I’m ok with. As much as I love it, the market is heading in the right direction.

    • reusachtigeMEMBER

      Yeah, with the market heating up soon due to the new boom you had better get in now before you miss out!

      • Yeah I know… but it’s really well built and a great spot. Cost to build today would be high. Probably not far off $1M if the land was bought for $300k in my humble opinion. But I don’t think vendor will accept the offer. I think someone may go over $1M for it.

      • Lot of them condos they’ve knocked up from asshole to breakfast will not be worth a brass razoo once most idiots realise you can’t get finance or tenants for them as well as the el-cheapo building qualities.

    • Seriously why r u doing that? Wait until you get two weekends in a row of 60% clearance which signals prices stable.

      • When it comes to a unique property, sometimes you just buy when you can afford it, not when market conditions are perfect. Looks like it won’t matter either way. I think they will still go to auction.

  11. I remember when house prices were going up faster per week than what the average person was earning. The correction was inevitable. Plenty more downside yet before any sanity prevails back in the housing market in my humble opinion.

    • Yeah Russ and all them financial “geniuses” forever proclaiming that the ultimate path to eternal wealth was throwing debt at resi real estate and never ever anything was gonna go wrong because, despite what happened overseas and other parts of our country this time it was “different”. That sort of buffhead attitude deserves a long stint in a bankruptcy court.

  12. Yep, anyone that tells you that this isn’t getting real serious just doesn’t have their finger on the pulse of your average Tradie.
    It’s real in Sydney and it’s really starting to unwind.
    Boomers are holding back their properties because they deserve at least what their friends got last year,
    Recent home buyers that have entered troubled waters are learning the meaning of the phrase “Negative Equity” and the consequences if they receive less than they paid for their the banks house.
    Greater fools are in short supply at the auctions, most are sitting on the side lines with jerry cans full to brim with petrol (even at $2.L) just begging for the chance to throw some petrol the fire should it look like it’s going out.
    pass the popcorn

  13. We can not allow this to continue. It is so unAustralian.

    ScoMo will introduce a special House Price Maintenance Scheme to save the nation from losing its Credit Suisse top wealth ranking, and maintain consumption levels funded by accessing housing equity. Our whole way of life depends upon the success of this Plan, as does any remote chance for the Libs winning the next election or the Libs receiving donations/bribes from local businesses (they will still attract them from Chinese/US groups).

  14. The interesting part of this article is something I’ve always felt Governments based their spending on: “State budgets will also come under pressure via falling stamp duty receipts, which could feed into lower infrastructure investment”. It’s the unwinding negative feedback loop of what is the usually positive feedback loop I’ve heard that governments rely on. That being the housing shortage acting as a cushion for the economy in the same way as having room to lower interest rates does.

    You stimulate housing prices, get more stamp duty, build infrastructure/houses, keep people employed, economy does well causing a positive feedback loop. The problem is this cycle only works when their is a shortage of property and there’s no money to be lost in developing/building property otherwise the transmission mechanism breaks and it is cycle that causes evermore debt to work. It’s kinda how like interest rates work when you run out ammunition there.

    Problem is with the amount of cranes in Sydney and Melbourne I think this policy lever is losing its effectiveness or rather is cranked to the max already. We’re also running into oversupply. It’s like we’re Ireland; if I were the banks I would be pulling the plug on any lending to developments that do this least it compromise the other assets on my balance sheet.

    • God forbid we should ever seek to build an economy by fostering productive and value-adding local industries providing products and services that the world wants to buy…

      • The truth is very few Western economies can actually compete on those terms. While it sounds idealistic I would say 80% of workers in this country rely on the current ponzi system of debt (directly or indirectly) as the last buffer against globalisation; actually competing to world standard means third world wages and a third world lifestyle for most people (lowest common denominator). If you want the “good life” to continue in Australia you need to find another way. Perpetual debt at a low growth combined with some gradual money printing will do it (the current western formula; credit growth and low to mid inflation); especially if everyone else is doing it so relative exchange rates don’t change.

      • ErmingtonPlumbingMEMBER

        “the last buffer against globalisation”

        But but but,…we lifted 600 million Chinese pesants out of poverty by opening up our markets.
        Dont we deserve to be rewarded?

  15. First the real estate drops, then the jobs, then governments of all stripes start devising schemes to keep air in them real estate balloons. Let’s see what they have in store this time

    • Hard to believe that if they had a way (that hasn’t already been exhausted cf. interest rate cuts) of keeping prices up they’d have let prices in Syd/Melb fall as much as they have so far.

  16. House prices only go down.

    Rent money is alive money.

    If you don’t buy now you can more easily later.