Australian household property sentiment is a bloodbath

Get a load of this data dump from Martin North on household attitudes to property:

We have released the latest edition of our household surveys, looking specifically their attitude to property transactions and expectations. And overall demand, and intention to transact have tanked. More evidence of a weaker market ahead.

Intention to transact continues to fall, as property investors continue to step away from the market. Down Traders and First Time Buyers remain active, as do those seeking to Refinance; but overall expect lower numbers of transactions ahead.

As a result, demand for credit is also likely to fall further, as investors walk. Up Traders and First Time Buyers are the main cohorts likely to want a loan, plus some refinancing.

Home price expectations are diving, across all segments, these are the lowest results I have ever seen in the data series. This is a significant shift compared with even 18 months ago. People think property is likely to fall further.

Looking at the barriers to transacting, there are some common themes emerging. Those wanting to buy are being constrained by the lack of available finance. Rising costs of living are also not helping.

First Time Buyers are also finding getting a loan tougher as underwriting standards have tightened. High prices as a barrier have slid a little.

Down Traders are seeking to release equity before prices slide further. This is a big cohort and they are becoming more desperate to sell.

Investors are less convinced by future capital appreciation. Its mainly now tax efficiency which they cling to. Some will be forced to sell, but many are sitting on the sidelines and waiting to see how this plays out.

And barriers now include concerns around regulatory changes and finance avaliability.

So in summary there is nothing here which suggests any type of recovery in home prices. The collapse in prices has already been sufficient to put many households off from future purchases, and those who need finance are finding it hard to get funds. More falls to come.

Nothing here changes our scenarios. More falls. Period.

Bloodbath.

Comments

  1. proofreadersMEMBER

    Martin North needs a reality check – can we line up reusa to tell him the facts of life?

  2. For too long Aussie property investors were like the O’Doyle family, shouting, property only goes up, property doubles every 7 years etc.. while they rubbed it in the faces of renters and said “Straya is different”… Now they are heading off the cliff in their old beater (the Australian economy) and chanting as they have their “oh shit” moment right before hitting the floor of the valley and exploding..

    https://www.youtube.com/watch?v=XVO3NJCPIoY

      • The right house with little to no debt, yes.. but thankfully the only place on the market that had any appeal to me is now sold. So I will continue to look for a nice Mudbrick home in the Eltham sort of area with space to build an epic man cave, but unless the right place comes along or a suitable Warehouse conversion type property, I’m not looking to buy.

        The only thing that makes me nervous is holding money with the Big 4 in a deposit account. I currently have $USD foreign currency account with Westpac… not sure how I feel about that over the next year. May need to move to $US treasury bonds.

      • macrofishMEMBER

        I moved my USD cash holdings to a international bank (HSBC) years ago as no point holding foreign cash in a aussie bank.

    • SoMPLSBoyMEMBER

      Lol Gavin!
      There was quite a bit of hang-time after the wagon went over the cliff before the impact sound FX; a suitable analogy to what is likely occurring in the charts above. For the occupants of the car, it will be messy–no getting around that.
      I’m more concerned about how big a job we’ll face after we cable that ‘wagon’ up from the valley floor and try and get it back on the road as we ‘need’ it pretty badly. If it’s a complete write-off, we’ll never be the same and a new doxology to replace the ‘proper-deities’ will be required. Come to think of it, that’s exactly what ‘we’ need- a fresh start with new ventures that do not allow the property-mania to recover from its lethal injuries.

  3. Dispite this, it seems that there is still no panic by sellers. Most sellers realise that prices have come down, however, they are not prepared to “meet the market”. When many of these property sellers look back they are going to wish they had paniced earlier.

      • would rent for around $450 – $480/ wk, so is actually worth about $600k
        note it last sold for $565 in 2014, rent for $390/wk in 2011

      • Bendy Wire – It’s 23km’s away 45mins drive in peak hour traffic maybe?

        Close to another property I was looking at in Yallambie and I did the drive 1 evening and it wasn’t too bad.

      • @Alestorm I think it’s true value is high 400’s, maybe low 500’s..at those rental rates. Question is, in an economic downturn what will the rents be then?

      • In peak closer to 1 hour than 45 mins. Google maps has 45 mins right now via the free-running Eastern fwy, which is at a standstill around the Hoddle st exit most mornings.

      • A true mortgage belt proposition… I would imagine when the downturn gathers real momentum that will struggle to get a bid above 500K

      • Yeah, but the owners know what it’s worth. The market’s just stupid, that’s all.

    • It’s not timing the market, it’s time in the market.
      Waiting an extra six months for the ‘right’ price when prices are falling 3-4% per quarter should give a whole new perspective to a lot of people.

      • Being the first out the door isn’t called panicking.*

        – Margin Call

        * or something like that.

    • innocent bystander

      just not panicking.
      here in Perth I have seen a few not go to market and go straight to rental. not sure where the owners go to live? maybe had to move because of work opportunities?
      I was told 4 months ago the owners of where I am renting would want me out at the end of the lease because they were going to sell. lease has now expired and now no talk of selling. now, if I can just get some maintenance done. They are happy with a periodic lease (green shoots any day now?) I am happy with periodic lease so I can see if there is something better (slim pickings in this area tho)

      • innocent bystander

        slim pickings for rentals where I am.
        bushfire zone. no one building due to BAL costs. established homes holding value relative to rest of Perth.
        I don’t know why but plenty of people looking at the rentals that are available – 25 groups thru one the other day, more than 12 or 15 groups common. Agents are pushing the rents up a little bit as a consequence. Not sure what is going on – maybe potential buyers have all turned rental? Area doesn’t have much rental stock which doesn’t help – and I want a shed for my toys which limits it even more.

    • When the market turns, the wisdom is, take the first loss as it will be the least loss.
      I am OK about watching people who don’t want to “give it away” learn this maxim.

      • Selling an asset at x that’s likely to be worth 0.85x in twelve months time doesn’t look like giving it away to me – it looks like making a killing. You’ve conned the buyer out of 0.15x.

      • @Robert. I think you may have misinterpreted my comment. No sympathy here for asset-owners trying to hold awaiting a rebound.

      • Not a comment on your comment, more a comment on a seller who believes the price they could have sold for at an arbitrary point in the past has any bearing on today. Can you imagine the kind of comments that same seller would have made about a buyer in 2017 waiting for 2016’s price because they didn’t want to give away their cash?

  4. My take away from Martins talk
    Buyer Sentiment = Credit Availability
    That’s both good news and bad news because points us to the obvious solution should things deteriorate further.
    It also kinda mirrors my own observations that everyone involved in the sector would be happy if things just returned to the doubling-every 7 years trend that they know and love.
    It is worth noting that this is not the thoughts of a Value Investor, concepts like House Affordability are not at the moment Value driven, they’re a function of Consumer Sentiment which is itself a function of Credit Availability.
    I suspect a lot of Aussies need to loose a lot of money before House ownership becomes a Value Investing segment.
    In the mean time lets pump up the credit and let the champagne corks fly

    • That was my take too. In 2017 and earlier everyone accepted prices were too high. Now they have restricted Credit, that is the issue. Dumb dumb

      • Lenny Hayes for PMMEMBER

        There is a bit of cognitive dissonance in Chart 4 that profiles Australia perfectly:

        – high house prices are not the issue, it’s just that banks won’t give me credit (to buy at those stupid prices)

      • Yep notice that Fear of getting Completely F’ed for Life by a stupid house purchase at insane prices is no where on the list
        Sanity will only return to the market when that statistic tops peoples list of reasons not to buy a house.
        Maybe we’ll get there on this round but I doubt it because of the dearth of alternate investments in the Australian sphere. Put simply the weight of money that has moved to the sidelines (even just deposit money) will/must eventually return to the RE market and will do so as soon as the boogeyman disappears,. Once that happens we’re back to the races with all the nervous nellies sitting on the sidelines once again looking like fools and thus the myth of Re wealth creation becomes cultural reality.

      • Yup. Greed still struggling to transition to fear. Once it does (assuming it does) it’ll be a case of Ho Lee Fvk. Watch out below!

    • bolstroodMEMBER

      Why has credit dried up ? Martin did not elaborate.
      There is a statement in this clip that gives a clue,
      https://www.youtube.com/watch?v=ASzDFhc9NAQ
      JP Morgan’s top RE reps around the world meeting in Melbourne last week said ;
      “GET OUT OF AUSTRALIAN REAL EASTATE”
      It apears the game is up, they, foreign investotors, have realised there is nothing holding our economy up except RE.

    • “It is worth noting that this is not the thoughts of a Value Investor”

      +1

      Take the above example of imputed rents of $450–480/week. $480/week equates to $24960/year. So….

      $600k corresponds to the P/E ratio of 24. Hardly cheap even for blue chips.
      $500k corresponds to the P/E ratio of 20. Still not cheap even for blue chips.
      $400k corresponds to the P/E ratio of 16. Ok, now approaching the fair territory for blue chips.
      $300k corresponds to the P/E ratio of 12. Approaching the value territory for blue chips but not for mediocre assets that have limited prospects of earning growth.
      $200k corresponds to the P/E ratio of 8. Ok, time to wake up. With some luck, I might find a bargain or two.
      $100k corresponds to the P/E ratio of 4. This is dirt cheap indeed. The trouble is, I would rather buy the bluest of the blue chips at the P/E of 8 than buying mediocre assets at the P/E of 4, so I would not have enough money left to buy mediocre assets. Too bad.

      • Yep trouble is that RE doubles every 7 years and every true Aussie knows this for a fact.
        Immigrants also don’t care because they arrived with nothing so they can leave the same way (by renting) or put their money on the RE Casino tables and see what happens (sort of a one way bet for them…heads I win Tails you lose)
        this is the reality of the Aussie residential property market. so P/E ratios are just meaningless noise because Houses = real wealth

      • What are actual current P/E available in the stock market though? Not whats fair, whats actual.

      • For example, British American Tobacco briefly traded below the P/E ratio of 9 just two month ago (and below the P/E ratio of 10 for an extended period before its recent recovery). Even now its P/E ratio is below 12.

      • Traditional rule of thumb was divide property value by 1000 and that how much rent for a week you should be charging. 5% p/a or 20:1 p to e.

      • ” British American Tobacco ” seems to scream “mediocre assets that have limited prospects of earning growth.” with a whole heap of potential downside.

      • A full-blown financial crisis would be required for a great business with strong earnings growth prospects to fetch a P/E ratio below 9. That doesn’t happen very often.

        Granted, British American Tobacco does not fit this description and that is why it could fetch P/E ratios below 9 as recently as February 2019. It is still better than the fair value and much closer to the value territory than a typical Strayan house.

  5. These charts are like death stares from the abyss. I particularly like how in the first three charts that the two investor categories turned or gained momentum from at least mid-2017 if not before, so it is clear, even to them, that the ALP NG and CGD announcements and the banking RC are not responsible.

  6. Hill Billy 55MEMBER

    Interesting that one of the Debt hubs of the Housing Bust, Toowoomba, I’m seeing house that were bought a couple of years ago now on the market at price plus costs, eg. bought at $570K in April 2015, now asking over $599K. Message hasn’t got to the hills yet!

    • Does $30k really cover four years of rates, mortgage, maintenance plus stamp duty, RE & conveyancing fees?

      • It covers saving face of not losing in nominal terms. Most punters think in nominal terms and ignore opportunity cost.

      • Give it about six months – then people will be boasting at barbecues about how they got out before their next door neighbour who held on and lost an extra 10%.

  7. Can someone tell Martin that 3d effects on charts look like trash. And the black background is pretty horrendous. Maybe too many series’ too.

    …otherwise, good stuff!