Morgan Stanley: Property crash spreading to consumer

Via The Australian:

Australia’s housing downturn could spill into the broader economy and spark a negative wealth effect as the price weakness spreads to cheaper properties, Morgan Stanley analysts warned.

Dwelling prices have now been falling for a year, but the declines are getting broader which has negative implications for the length and economic impact of the downturn, strategists at the investment bank said.

But the investment bank noted that price falls have been concentrated in the most expensive quartile of homes until recently, when the weakness started to spread to cheaper and mid-value homes.

Solid reasoning, and true. Remember that there is still an FHB grant in the market yet here are the latest segment splits for Sydney and Melbourne:

With consumption always following, via Credit Suisse:

The consumer is going to buckle. A dour Xmas looms.

Comments

  1. Mr RobertsMEMBER

    I’m interested in the horror stories of negative equity, unfortunately no one really wants to talk about that kind of stuff online, as they feel foolish, ie 20 20 hindsight. After watching my folks get burned to a crisp in the 1980’s I could see the cycle of credit expansion, but felt like a mug for so long, not getting into the game. My brother was hating it when he listened to my advice and sold his Sydney crapshack in 2012, only to see the value double after that.

    • Yes, Mr Roberts. Ausralians have no clue about the agony on negative equity. Those in this trap can’t move, can’t refinance, can’t scratch themselves.
      12 years after the US price correction, one in ten households with a mortgage are still underwater with a mortgage 25% larger than the property is worth.: https://www.reuters.com/article/us-usa-housing-underwater-insight/millions-of-americans-still-trapped-in-debt-logged-homes-ten-years-after-crisis-idUSKCN1LU0EP

      Sober analysts know how short most individuals’ peak earning years are. Imagine devoting the good times to beastly mortgage repayments with no prospect of success and no end in sight.

      Don’t Buy Now!

      • When you consider that negative equity will combine with interest only reset that many can not afford then bankruptcy rates will be up there.

    • Yep there was a time in the not to distant past when NG had a universally positive meaning to property investors. Today it’s the other NG (negative growth) that has Interest Only speculators shaking in their boots, of course the new NG puts us on a course that leads straight to the dreaded NE.
      I was at an RSL a few weeks back listening to a bunch of boomer property speculators talking about their mounting paper losses on their recent RE purchases. What truly amazed me about the conversation was the realization that in a falling market it’s the purchaser of the property not the lender that takes all the losses..
      In typical pub logic they all agreed that the banks and the Government had done well from the upside and therefore needed to share some most of the downside.
      I was like Huh! what are you talking about, on the upside YOU made a profit, on the downside YOU make a loss. nah Nah NAH was the chorus, Banks need to take at least 50% of the downside, Government maybe 25% and I’ll take my “fair share”. I was absolutely dumbfounded, what can you say, all seems to fall under the same broad business plan Privatize the profits, Socialize the losses. only new thing is that this outcome is now considered “Fair”…go figure.

      • All too true I guess.

        Only thing to do is to drop in at the end “oh well… whoever gets out first will keep the biggest slice”.

        Watch them all say ah nah nah but their eyes will start wondering… and next morning they will all call their agents…

      • I can believe it, Fisho. Talking to my parents and their friends is largely choruses of “But I’ve paid tax all my life so why shouldn’t I get these benefits now” and “Yeah but the GFC will never happen here because property in Australia is different.”

        Given these people have lived through some pretty significant stock market corrections, recession and remember their parents talking about the great depression, I find it really hard to get my head around (and find myself wondering if I’ll become like that in my later years? What a horrible thought!)

        They personally know people who lost everything in 80s to property investment schemes and the market crash. How do you discount info like that in the fact of our current economic situation?

        What is worse, they face the worst outcome of anyone!

        They’re past working age.
        Their assets are largely property and super funds tied to the ASX (one has [had?] $800k in WBC alone!).
        They’re reliant on cars, medical services and social security benefits.
        They’re accustomed to a rather affluent lifestyle and expect it to be so into the future.

        When the shirt hits the fan, everything they’re betting on for retirement gets smashed, yet they are not willing to accept that the decisions of their generation are royally rogering the economy now? Does my head in.

        I’d rather be wiped out when I have the time to recover than when it’s all or nothing.

      • Jumping jack flash

        +1 Geordie

        Their sense of entitlement is staggering. It doesn’t work like that in the real world. But what is real? They seem to be able to change things to suit themselves whenever there’s a sniff of bad news.

        “I made a bad decision, help me, government!”
        Where’s the accountability?

      • Yeah Geordie, For me it was unbelievable that they could logically compartmentalize all their unearned RE gains (over decades) as rightfully theirs, yet let the system fail them, or even just hick-up and by all that’s “fair” they need to be made whole again. It’s this staggering sense of Entitlement that just blows my mind.
        I don’t think they can ever even try to see the other side of this equation (kids / recent arrivals priced out of ever providing stable shelter for their families), it’s just not possible for them, it’s like they’ve all undergone some sort of group lobotomy, maybe that’s what really happens at RSL’s at the Member only functions .
        I sometimes wonder how Aged care workers that are priced out of Housing and force fed RE porn by their patients will react. If it were me I’d be substituting rough sandpaper for wet wipes, there’d no warm water baths, and the secret ingredient in their coffee would be my spittle.
        As I said just plain mind blowing how easily they justify the outcomes that benefit their class without a moments reflection on the broader implications of these outcomes.

      • “Fair” defines the world we live in today: fairness, equality, diversity etc — touchy, feely, ‘progressive’ buzzwords. It’s no wonder these boomer sorts were spouting this nonsense. They have been conditioned by the current zeitgeist. In addition, the populace has become used to the idea of Govt and central banks bailing everyone (and everything) out. In this environment you’d be forgiven for thinking there was fundamentally no risk in doing anything.

      • Nice conflation there, Dominic. ““Fair” defines the world we live in today: fairness, equality, diversity etc — touchy, feely, ‘progressive’ buzzwords. It’s no wonder these boomer sorts were spouting this nonsense. They have been conditioned by the current zeitgeist. “

    • My 2 brothers in the UK have only just emerged from 10 years of Negative Equity.
      One was stuck in a 2 bedroom house with 4 kids, finally they got to the point where they could move into something appropriate.

    • Mr Roberts, no amount of negative equity stories will undo what you have done to your brother. He has missed out on a once in a lifetime opportunity because you could not see that you do not know everything. Stop giving out unsolicited advice on important matters for which you are not qualified.

  2. TheRedEconomistMEMBER

    I went very close around GFC time.

    Pressure from family and friends pushed me to buy. I bought at peak in 2004 in Sydney’s outer west.

    Howard’s tax cuts led to Inflation which forced the RBA to hike. Prices dropped 10-15 and i decided to sell in 2008and try and get a place where I could not afford in 2004 as I had a better job and could get the finance.

    Sold for $40k loss but then the wife fell pregnant. Rented in a nicer area and saved like buggery.

    In 2013 managed to pulled the trigger and found my forever house but had to borrow every cent the bank woild lend me.

    Yes .. value has gone up… but I have no intention of seliing and avoid conversations of how much houses are worth as it is meaningless. I just know it is a struggle to service the mortgage.

    • Wow. Enjoyed the odd hot chocolate there in the past. Pricey, calorific but good. Noticed the one at Marina Mirage closed about 6 months ago and thought something might be fishy.

      • Fishy at the marina mirage??
        there is 1 opposite the cooly surf club, always mt
        have been wondering what i could do wiht it, then I thought nah
        wait till the club itself collapses.

    • It’s that pesky keto diet getting too popular, I tells ya, nothing to do with a troubled economy.

      Shut it down. Carbs are good for you man. Chocolate has anteye-oxidants!

      – The Grain, Sugar & Pharmaceutical Lobby.

  3. Pressure is growing and it might not be a slow melt from what I’ve seen which I admit is a small sample, but many passed in auctions I’ve seen sell weeks later and it looks like 2012 to me. I’ve meet two people going to auction over the next few weeks and they are super nervous. The RE’s are telling them if there is no interest in the open for inspection it’s unlikely to sell, but they may get a sale after. They don’t need a RE to tell them that.

  4. proofreadersMEMBER

    “The consumer is going to buckle. A dour Xmas looms.”

    Nah – Straya’s incredibly responsible lending banks will come to the party with gift-wrapped credit cards/increased credit limits?

    • Jumping jack flash

      Its always a dour Christmas leading up to Christmas, and then it turns out to be awesome.

      • In the old days the Christmas Clearance Sales started in the New Year … then they started on Boxing Day … then they started in early December … then migrated to November … and October. These days there are Sales pretty much permanently — even in those ritzy Westfield shopping malls.

        What’s that ticking noise?

      • Call me old-fashioned, but the best Christmases I remember are the ones where we didn’t buy shi*t, and instead just had a great time. Ye olde presence not presents.

      • I agree although Christmas 93 was the best for me. That year I got a Super Nintendo, and it remains my favorite Christmas as a result. 🙂

        Second favorite was Christmas in Dublin with Snow and a mould wine with the missus. ;).

        But if I think back the best thing about Christmas was spending time with family.

  5. Jumping jack flash

    Stagnant wages
    Constant immigration
    Tight credit
    Stagnant house prices
    Stagnant interest rates
    Gouged cost of living
    Subdued consumer

    For 30 years until the enormous debt is repaid.
    Hold onto your hats. Can you ride it out?
    The secret is to be debt free and agile and ready to take income cuts if necessary.

    Looks like old Max might have bitten off a bit too much in this sort of environment.

    Who knew it was coming though? Debt was cheap and flowing freely. People were receiving houseloads of debt straight into their bank accounts that others were responsible for paying back, and then spending it on chocolate and other luxuries.

    There was no need to actually make anything and sell it because the money was just there, as much as you wanted, whenever it was needed, the banks were more than happy to dole it out.

    Everything was great until it suddenly, and without warning, wasn’t.