The ABC’s Michael Janda has done a nice job summarising the prefect storm that has hit Australia’s property market from the COVID-19 shutdown:
The coronavirus and associated business shutdowns have delivered a dramatic shock to the property market.
Almost all the major drivers of property price increases have fallen in unison.
There has already been a steep rise in unemployment and fall in wages with the jobs market expected to continue to deteriorate.
Less money in people’s pockets means they have less money to bid up property prices and less money to bid up rents.
The short-term rental accommodation market (think websites like AirBnB) has all but disappeared overnight due to restrictions on both international and national travel.
Many owners of those properties are now attempting to find longer-term tenants, but the increased supply will lead to lower rents.
Australia’s high population growth is set to come to a screeching halt. Many temporary visa holders have gone back home after losing their jobs and there is expected to be a dramatic fall in migration over the next few years, with the Government projecting an 85 per cent fall in 2020-21.
Exclusive data from Domain.com.au shows the proportion of discounted property listings in Sydney and Melbourne has increased significantly in the past six months.
On top of these factors, lenders are tightening credit.
That’s right, Australian mortgage lenders are reportedly undertaking stricter employment checks of pre-approved loans:
Homeloanexperts.com.au managing director Otto Dargan said… “A mortgage approval is no longer as certain as it was before the pandemic. Borrowers shouldn’t assume that the lender will honour their pre-approval when they find a property”…
“We’ve been warning customers not to buy a home if their income is unstable so we haven’t had any customers left high and dry. From what we can see it appears that lenders are doing this check for all loans.”
Mr Dargan said most lenders have started doing employment checks as late as a day or two prior to the loan being released…
“The problem is that if you have committed to buy a property and then you fail the employment check, then you may lose your deposit and be unable to complete the purchase. Even if your loan is approved, the approval may be withdrawn.
So, with unemployment across Australia surging (see next chart), and the Grattan Institute forecasting that up to 3.4 million Australians could lose their jobs, banks are likely to tighten mortgage credit even further.
Easy credit was a key pillar of Australia’s property bubble. Thus, credit tightening would necessarily send the property market into a tailspin.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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Only a fortnight ago, the futures market was
about to hit the market as a buyer (albeit with some handy proprietary data/research that agents have access to but not the General Public) so will report back on agent response to these points when we put offers in….
what sort of data ??
Just PriceFinder data
considered this data? https://sqmresearch.com.au/distressedpropertiesreport.php
So $39.95 per month for a bundled keyword search, no doubt then stored in an xls with column ‘sort’ed, attached to some generic looking property stats package.
Looks like they are targeting our property obsessed BB landlord overlords who don’t know, and have never felt the market pressure to learn, what a keyword search is despite having some significant chunk of their free lunch savings invested in some Google dominated ETF.
Umm… the ‘Testimonial’ also seems to be done by one of the creators of the product. Yes, good job Louis.
Respect. Wish I’d thought of that. If they double their price they will likely double their customer base too.
Hurry up already
Patience. It’ll take at least 18 months to work through the system.
Anecdata: A new one from today- corporate tenants (A big accommodation group in this case via a leasing agent) telling private individual investment unit owners in a complex they lease multiple units in they want rent reduced from current $400/wk ongoing to fixed at new price of approx $80wk for 2 yrs. There’s minimal equity in this unit (maybe none now) and a mortgage is just shy of half a mil- if the big corp stops leasing there might not be anyone else to rent it out- owner freaking. The corporation and their rep cited the example in appendix of the National Cabinet Code and they applied the exact same formula to arrive at above new rent amount – pretty hardball: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf …wonder how many investment units across the country are let in this manner?
Does that mean the big corp wants to pay the individual owners $80pw BUT then it gets to charge whatever rents they can gouge tenants for, say $300pw, on the units?
that’s how I read it.
@Arrow2 yep best I can understand it the rent from corp to unit owner is ‘flat’ all year and then the corp does what it wants with it- likely boost in peak to maximise returns and then discount winter or whatever- this investment unit has the pong of a ‘guaranteed’ real estate wealth seminar coming off it…
“…’guaranteed’ real estate wealth seminar” – yep, that is exactly what I was thinking too….
That is quite a reduction.
Wow!
What is the scenario the landlord refuses to reduce the rent to the desired rate ?
is this a Quest type arrangement?
@BTB- good question, apparently the complex has a lot of these units all with same corporation- suppose if enough other unit holders cave and take the money over the box these guys can get starved out with no income? Or they all firesale dump their units on the market and watch the valuations fall? @swampy not Quest, although I recall seeing something along the same lines concerning them. Reckon Gold Coast, Docklands, Pyrmont etc would be full of this stuff.
What’s the chorus again?
Something like ‘Let it burn!’
Awesome thanks for the tip.
and CoreLOLogic daily indices say Syd and Mel on track to show weekly price growth. Data must be lagging and we are only reading July 2016 settlements.
https://www.corelogic.com.au/research/daily-indices
“Easy credit was a key pillar of Australia’s property bubble. Thus, credit tightening would necessarily send the property market into a tailspin.”
If banks tighten too much they risk cutting off their nose to spite their face. A self-imposed credit crunch? I highly doubt it.
They better know what they’re doing.
Their system depends on cheaper credit and looser debt eligibility forever to ensure infinite debt growth!
Perhaps they have forgotten?
There is a ton of risk that was conveniently hidden due to the fact that more debt was piled on to bury the risk under the capital gains the debt created. Our fantastic property valuation system did the rest. It was a remarkable symbiosis between debt and property prices, but if the debt isn’t growing, neither will the capital gains. There is no money tree, just debt. There is also no magic, just debt. Property prices do not just magically rise, they need debt to grow.
[This is beside the point that debt has to be repaid in full plus the interest on top, and the only way to create the interest is by creating more debt. Nobody has any money to pay the interest with these days, so they must use debt money, and debt money is not free.]
If the capital gains aren’t being created by the debt, some of the more recent, more risky debt will poke through the thin layer of capital gains and be exposed. The virus event would not be helping this at all.
Banks should be loosening eligibility criteria and lowering the cost of debt, only then will the extra debt fill in all the cracks of the existing debt.
There’s the rub and why it’s a tail spin.
They need more loans to grow/profit, however they are being very conservative in their amounts they are providing for bad loans (see this weeks ANZ, Wespac results report). Therefore they either need to report higher provisions and/OR take on much less risky loans.
Understand their precarious position? Dividends are already gone and it looks like they are lying about how low their bad loans are going to be given cut price rents and unemployment. That is why lending is tightening.
There is only so much of the future that can be loaned into the present! There is no escape, they are cornered…
“And in an unamusing Groundhogs Day dynamic, we are to believe that the current crisis will be resolved by only more egregious volumes of Fed liquidity and “loose money”. As master of the obvious, I will state categorically: “It’s not going to work.” ”
Doug Noland
http://creditbubblebulletin.blogspot.com/2020/05/weekly-commentary-going-nuclear.html
Later it is…. oh no the future is now!