North: Capital city forced property sales to boom

Vai Martin North:

Nine News asked me to run some analysis on potential forced property sales, which they ran in Perth, Melbourne and Sydney yesterday. Today I wanted to add some extra detail from our analysis and explain how we established the baseline and share some heat maps for some of the major urban centres.

This is not an exact science, but the input data is from our rolling 52,000 surveys. One element in the survey is intention to transact – either to buy or sell, and the reason to transact. We also of course have cash flow analysis which is used for our regular mortgage stress analysis. For the record stress has risen significantly, as another 200,000 households fell into stress since February (even allowing for the various Government support schemes).

Forced sales are often narrowly defined as those initiated by lenders for debt recovery. The good news is that so far only a small number of these are in train. But the forced sales landscape is wider and is centred on the “fear of not getting out”

Property investors have had issues for a long time with real rentals falling, greater rental supply, and the recent shutting of Airbnb type lets. So for many, they are facing at least significant falls in receipts, or worse vacant property. They are also still dealing with the change of finance arrangements (though these are undone to more lose assessments it seems) and the need to have a repayment plan for the loan. The saving grace was the more recent rises in values, in some areas with houses doing better than units. But the expectation now is for significant property value drops, raising the risk of negative equity, or worse. Our surveys also suggest that some investors are unable, at least so far, to get repayment holidays from lenders. Thus the imperative to sell, even into a falling market explains the reason why we estimate around 8% of property investors are seeking to exit and quickly before values fall further. And some of these do not have mortgages, but simply want to save appreciated paper capital values.

Owner occupied property owners can access the banks’ schemes for repayment deferral more easily, though this appears subject to specific terms and conditions and some need to provide evidence of the health crisis impacting their finances. Many are going to ride out the current property cycle fall, though those with higher mortgages (including the 95% first time buyer schemes) will face the real prospect of the negative equity trap. But only about 2% of households are looking to sell under the current duress.

We are already seeing a rise in property listings across the country.

We have completed the analysis for some of the major urban centres, and the results are revealing. The post code with the largest number of potential forced sales in 3977, Cranbourne in Victoria. Here around 3,000 households are caught, with around 1,750 being property investors and 1,258 owner occupiers. Those following our modelling will recognise this post code as one of our most stressed, driven by high levels of new developments and recent purchases, by households who had above average incomes. Many new migrants live in the areas too.

Another new development area on the outskirts of Perth is second post code, 6065, which includes Hocking and Tapping, are next, with 2,500 investment properties likely to be up for forced sale.

Third on the list is Brisbane postcode 4300, which includes Brookwater and Springfield, with 2,220 investors seeking to exit and 190 owner occupiers.

Next is 4350, around Toowoomba, another high stress district, 1,780 property investors now looking to get out.

Fifth is central Melbourne 3000, with 1,690 property investors, almost exclusively in the high-rise sector of the market.

Sixth is 6164, in Perth, covering the areas around Success and Hammond Park, with 1,360 property investors and 309 owner occupied; and seventh is Sydney post code 2145, which includes Westmead and Greystanes with 920 property investors and 640 owner occupiers.

We have mapped each of the main geographies, and listed the top post codes in each state.

We will run the analysis again next month and see what trends are emerging.

David Llewellyn-Smith

Comments

  1. As Reusa says ” LololoL it’s boom time ,Martin always wrong, lower teh rates!”

  2. will never happen. Scumo will find a way. Not that I don’t want to buy a house for $500k near the beach it’s just not going to happen.
    If we can buy decent house for $300k around Foster NSW that would be it.. we will be moving. So I am hoping but don’t expect it.

    • As long as there’s a last Aussie standing with a pulse, We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender to , and if, which I do not for a moment believe, this island or a large part of it were subjugated and starving RE industry, then our Empire beyond the seas, armed and guarded by the British Fleet, would carry on the struggle, until, in God’s good time RE prices recover again.

      So nope, it will not happen.
      Not unless AU$ goes to 0.1US$ and salaries increase 10% annually… Nominal prices must always go up.

      • “Upon it depends our own life, and the long continuity of our financial institutions and our Empire of debt. … Let us therefore brace ourselves to our duties, and so bear ourselves, that if the Ponzi and its Debt Slaves last for a thousand years, men will still say, ‘This was their finest hour.’

        Never in the field of human bondage was so much owed by so many to so few…..”

  3. TailorTrashMEMBER

    Mosman ?……..must be ……”the other side of military road ”……..surely?

    • Yeah I was surprised by that as well.
      Must be all those new apartments on the noisy part of Military Road.

  4. those fhb’s that scotty encouraged into the market post election won’t be too happy. Who could have thought that housing affordability could be improved by lower prices…

    • Small cohort. The “success” of the 5% down loans was being shouted from the roof tops in January/February as it was being spun as “oversubscribed”. Doesn’t necessarily mean the loan approvals translated into sales. There’s a 3 month window from approval to make a purchase. If you don’t buy you need to reapply. So it will be interesting to keep an eye on the numbers over the rest of the year.

  5. It’s worse than I thought, already. Typically, a property crash starts with vacant land prices falling. Vacant land falls because it has no income. Next comes holiday homes, then commercial property. My research today indicates that commercial values have already dropped substantially. Tenants are walking away from leases. Buyers are walking away from contracts. it’s bad.

    • As the current crisis is training people to shop online – commercial real estate is going to drop a hell of a lot more.

      It’s going to end up like abandoned malls of America.

      I say that as someone with a retail store.

  6. Will there be good Friday links ? (Never understood why call it good Friday if their Lord been killed on it ..should be bad, terrible Friday)

    • Possibly. And, there could be an ASX bloodbath squirting everywhere post-Easter Tuesday article also, with any luck.

    • The theory** would be that God gave his only son to die on the cross for our sins, so that we would not perish, but would have everlasting life. That would be the reasoning for it being ‘good’.

      ** Not asserting any beliefs here, just stating what is said by some.

    • annualize_this

      As per the other two comments, the Lord knew what was going to happen, as it was always the plan. Have a read of Luke 22 sometime over the weekend to get a bit of a feel for it. The garden of Gethsemane part where he agonizes over what is coming, and asks if there is some way for it not to happen, but then cedes to his fathers will, is particularly powerful. Its ‘Good Friday’ for what was achieved – opening up a way for reconciliation with God – but the manner in which it was achieved was particularly gruesome.
      Back then there were authorities and powers that thought they had everything under control, but they didn’t. Its topical because the world this Easter weekend looks as though those who thought they were in complete control are anything but.

        • If you mean ‘there’s going be be a great reckoning here on Earth for evildoers’ – we’re not told to expect that in the here and now. That’s not to say there isn’t some some of divine retribution in the here and now occasionally. I concur with some other posters here that the present order of things is more likely than not to continue after this present difficulty dissipates. I’m not holding my breath for a great righting of wrongs and a proper reset, but I think there’ll opportunities for the prepared – as there often are.

  7. reusachtigeMEMBER

    The only sick bear that has been more wrong than that has-been Steve Keen is this bloke!

    • The Traveling Wilbur

      This will be my last ever pun on MB. I’ll never be able to top this in the funny ’cause it’s true stakes…

      How do you cure a sick property bear?

      Take it to a neighbour’s den. One with a flatscreen TV, that’s fixed to the wall.

      • I’ve inspected a few houses lately where the screwed-on wall tv is included. In some of the houses this has meant the place was overcapitalised!

        • The Traveling Wilbur

          In some of those houses you could scrape the wallpaper and paint of the walls and extract enough active ingredient for a pretty decent meth hit. Now that’s overcapitalised.

  8. david collyerMEMBER

    “We will run this analysis again next month and see what rends are emerging.”

    There is no market price discovery possible in rents or sales, both twisted out of shape by the pandemic. Martin North’s Mortgage Stress Trends may well be the only metric available to watch the land market cataclysm unfold.

    Many thanks, Martin.

    DBN!

    • David, I would have thought that ‘transactions’ – twisted out of shape or not create a market, perhaps a new market. I don’t know if this market will sustain itself, but what i do know is, tenants are going broke and they are not paying their lease repayments. They are walking away. Holiday home for sale listings are significantly higher than usual. Finance is more difficult to obtain, and, the majority of buyers are waiting. Imo, the market has already legged down, and it will drop further.

  9. “We are already seeing a rise in property listings across the country.”

    I’d really like to see this data. Had a quick scan over Mr North’s website but couldn’t see it.

    Does anyone know of a website that presents number of for sale and/or rental listings? for example on a week to week basis?

    • Not that it is the extent of evidence, I’ve been following 4 suburbs, 2 in NSW and 2 in QLD for about last 3 years… numbers went to double in late in 2018 only to go down about a 1/4 down from peak now… or about 50% increase from lowest I can remember.
      I did not see evidence of the claim that listings numbers are on the way up… but there are few thousands more suburbs left to observe…

    • Absolute BeachMEMBER

      Have a look at at Palm Cove, Cairns. There were very few rentals until recently- maybe 5 or 10 (at most) over the last few years . Now there are many, many in higher end holiday apartments that may have been Airbnb or just regular holiday rentals. If you do some research the body corps plus rates are insane (lots of lifts, etc) so these owners MUST be keen for any cashflow. Some are nice places- wouldn’t buy there because they are all beachfront and the salt air eats rebar (concrete cancer) but stylish places to have a 6 months extended .gov sponsored holiday.

    • SQM research offers this.

      However I have lately been using domain.com.au/rent or /sales – this brings up the entire country with total available.

      It went from about 83,600 to 92,000 rentals in about a week with AirBnB.

      I like it because its pure raw data and hard to really manipulate without just putting in a straight number.

    • Areas I was shopping in North East Melbourne have limited stock. Not much on market and a lot of it crap I wouldn’t be buying. So will be interesting to see how prices in these areas go.

    • There is a website that is visible to the public when listings are falling but disappears when listings are rising. Can’t recall the URL.

    • I disagree with his underlying analysis. Anyone with more than their home loan, ie those with investment properties – who have have retained their jobs will be expected to pay.

      It will take a couple of months – but the levee will break.

      • kannigetMEMBER

        There is a sting in the tail of all this, those that have the most number of IP’s are also those most likely to be extremely over extended and I would think are the least likely to get a payment holiday. So when they do start selling them they expect to see a bunch come on all at once.

        My older sister was bragging about having 6 IP’s 2 years ago, 12 months ago was fighting the developer to honour the rental guarantee as only one was rented out. She wont talk about it at all now so no idea how she is doing now.

        • A-ha ‘rental guarantees’ — truly a carrot for the gullible. Phoenixing has been going on for time immemorial and yet, there’s another gullible f#ck born every minute.

          Sorry, but the pain among IP holders is going to be immense — and rightfully so. Greedy / stupid people need a farcking lesson in life and if they don’t, the world will not progress.

          Simple as that.

          • I did try and warn her, but she discounted what I said because her financial advisor showed her the maths….

          • It is just going to take one trigger…likely the end of the 6 month relief….or headlines about falling prices, and many who dominoed their IO IPs will be competing with the oldies wanting to sell off their too-big home/investment units to capture their on paper gains for their nest egg. One trigger…..and the whole thing is going to spiral. I don’t care what guarantees GVT make to try to appease fears, you can’t tell me greed and fear won’t take over…just like everyone pretends calm in musical chairs until the music stops. The number of potential buyers for property has dramatically changed because of co-vid, and I am not just talking about FHBs, I am talking of all buyers. Banks are not going to be handing out fistfuls of cash to people who have lost their jobs, or their usual income (bonuses etc), whose value of their PPOR has dropped, who lost a heap of equity in their shares, less foreign investment, more kids have moved back home…no rental income from IP to show they can service another mortgage….etc etc .etc…….noone can change the number of buyers and the capital available. If you have more for sale than buyers. You know what will happen.

  10. scottb1978MEMBER

    I wonder how many immigrants who find themselves instrife just head home first chance they get and leave the banks carrying the can.

    • The Traveling Wilbur

      M’Lord, I think I’ve got a cunning plan…

      Really Baldric?

      Yes, M’Lord.

      And how, my little oddly shaped turnip, will this be any different from the last time we tried what I’m certain is the very same identical plan that we failed so dismally with last time?

      No. M’Lord. It’s definitely different this time. I’d bet my last sovereign on it.

      That’s impossible Baldric. You haven’t got a last sovereign. I know, because I stole it from you last Wednesday while you were out having the po buckets pressure washed.

      Yes. M’Lord. But that’s not really fair…

      Fair? Fair! You want to know what isn’t fair Balrdic? Being saddled with a Prime Minister whose personal grooming makes him look like a recently escaped orangutan while being harassed daily by servants whose IQ makes the orangutan look like a Mensa candidate.
      Anyway, what’s your plan Baldders? If it’s any good I might give you your sovereign back… if Mrs Pickles looks away at the right moment and I can get it back again…
      Actually Balrdic, don’t worry about it. I think I’d rather stab myself with a rusty nail than have to go through this again.

      😉

  11. there are few kinds of ‘forced sales’: the hard one “mortgagee sales”, than medium kind – a sale during a mortgage default (usually negotiated with a bank) and final kind s a silent one when people sell because they know they will struggle with repayments in near future.
    when prices are rising there are no really ‘forced sales’ of first two kinds because everyone who cannot repay the loan can and is willing to sell for at least enough money to repay the loan to avoid defaults/bankruptcies/other legal issues. These sales are almost impossible to detect because of surface they look like normal sales.

    Forced sales of the first two kinds only rise after prices fall by 10% or more and when people get deeper into negative equity so third option is not viable.

    this is why foreclosures and under-preforming loans were at all time lows during boom times and first year of bust period in USA, Ireland, Spain, … and than after prices fell first 10% or so just skyrocketed

    because of this non-linearity these numbers are meaningless for prediction

    • Irrespective, one can reasonably deduce that the economy ticking over nicely goes hand in hand with a broadly rising property market and the number of people forced to sell is reasonably low. And vice versa.

      What interests me is the stance that the banks take wrt foreclosures. Early indications are that they will avoid at all costs – unless judged to be a lost cause – but will that change as the circumstances worsen and heaps of defaulters continue to live on in their properties without paying a cent …

      The banks pay a higher capital charge on defaulted properties making them expensive to carry and actually incentivizes them to get them off the books ASAP. Means foreclosing and selling.

      • The Traveling Wilbur

        Well, and I’m not being flippant, the banks’ behaviour is easy to predict. They’ll do exactly what the US banks did to distressed homeowners during the first few years of the GFC. It will be horrible.

        The only difference, the only difference, is that so much cash is being handed out by the Aus gov this time that’ll take a while to begin… But, once lockdown is over and the money from the handouts runs out… and we still have mass unemployment… bye-bye Oz RE.

        • Yep, it feels to me like the broadly held view among pollies, the media and other prognosticators is that in 6 months the night will give way to daylight and we’ll be back to the world of 2019 again — and no longer anymore need for handouts.

          What a shock awaits.

      • BoomToBustMEMBER

        I seem to remember reading somewhere that banks acting according to basil 3 capital rules are required to hold more cash as house prices decline, if this is correct will it force banks to increase interest rates at the worst time??

        • Err. Only if they mark to market.. on the way up yhey are quick to do so but not so much on the way down. See corelogic for example.. overnight scummo elected and was rise pn rise each wk. Then a global pandemic has people line up at centrelink “nothing to see here”.

  12. The Traveling Wilbur

    Am I missing something?

    You really wouldn’t be an income-protection insurer right now right? But that topic hasn’t been explored yet?

    • PlanetraderMEMBER

      Why? Most have waiting periods and you need to be off work through illness or injury. Just getting the virus won’t necessarily allow a claim. A lot of the default policies in peoples super funds have a 90-day waiting period so you need to be unable to work for at least that before getting paid. Redundancy and loss of jjob isn’t a claim unless due to illness or injury. The issue may be down the track with mental health claims – and the premiums on IP will jack up bigtime going forward.I read somewhere awhile ago insurers are already losing bigtime on IP claims.

  13. – I hope the crew here at MB doesn’t blame the reduced immigration for this increased supply of houses/property.