Don’t buy Aussie property now!

Unless you want to lose money.

For investors, there is simply no reason to buy and plenty of reasons to sell. Even for first home buyers, there’s no reason to buy and plenty of reasons to rent.

First, there is huge unemployment that is going to be very sticky with unprecedented wage pressures, via Credit Suisse:

Second, there is no immigration and tumbling international students which will prove very difficult to reverse. For instance, the Victorian virus outbreak today is directly the result of quarantine failures around a few hundred people. Imagine what it will be like if we try to bring in hundreds of thousands of migrants from virus-saturated migration growth areas like India, Nepal and LATAM:

Third, this is leading to huge oversupply of residential property:

Fourth, tourism is also dead for years, meaning thousands of short terms rentals are now long term, adding to the rental stock and tumbling prices. Rents were already getting blasted for years before COVID-19 and now they are collapsing:

Fifth, Chinese buyers and renters have fled and will not return to anything like previous numbers, if at all, if the CCP has its way. Via Credit Suisse:

Sixth, banks are tightening lending standards and will also soon be forcing stock back onto the market. This was already underway pre-COVID and is worsening now, from the AFR today:

Instances of buyers being asked to justify their recent annual leave and provide pay slips on settlement day to prove they are still employed have been reported in the face of rising unemployment and job uncertainty.

“The income testing is getting harder,” said Sydney buyer’s agent John Carew. “The banks are doing more of a forensic review of pay slips”…

“Pre-COVID, if you were working at an ASX-listed company, that was enough. But now even that is under security,” he said.

The forbearance issue is huge and there are growing reports of multiple property owners being tapped on the shoulder to sell:

Seventh, policy is exhausted. The RBA is out of rate cuts and moving incredibly slowing to unconventional measures. Banks have reduced mortgage rates after the last cuts, certainly, but nothing like enough to offset the above headwinds. A few basis points versus 4.5% during the GFC. Australians now know that the RBA put is dead for housing.

There’s fiscal policy, of course, but it’s already in the market in a big way without doing much. And even an FHB grant on existing property today would do little beyond promoting a little short term activity.

These seven headwinds all hit debt-glutted Australian households that will be forced to deleverage and will want to lift savings structurally higher amid an ongoing COVID-19 shock, intensifying as fiscal supports are removed, at whatever pace.

The jig is up for the Great Australian Property Bubble.

Get out of its way.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. On another thread I was about to remind of a bloke here who used to post Don’t Buy Now thoughout the period Sydney and Melbourne property prices doubled – those who listened lost loads or missed the property boat entirely.

    Perhaps indeed this time will be different?

      • Watched this from May 2019 again last night:
        Down Under Pressure – https://ttmygh.com/videos/

        A good summary of many MB common talking points on Aussie porperty in a slick presentation. It is good to refresh on where we were pre-Covid and how bad the Aussie economy can get in recession for those that haven’t been here before.

        Combined with a recsssion, this time may be different but this applies to both the downside (Covid) and stimulous side (no holds barred panic). Don’t hold now!

        • BubbleyMEMBER

          For those who wondered if Toby’s link is worth watching – it 100% is.

          This is absolutely the easiest, most intellectually digestible summation of the hot mess Australia’s economy is in and how we got here.
          https://ttmygh.com/videos/

          If you do nothing else today, watch this. Its well worth it.

          I’ve book marked it so I can send it to people who are surprised the “lucky country” ended up so badly managed and want to understand how we got here.

    • BrentonMEMBER

      He said it during the 2017-2019 crash. He was right.

      Been a long time since the specufestors were right about anything.

      • The Don’t Buy Now bloke was saying it for years, say from 2010/11 onwards. Timing is everything.

        • BrentonMEMBER

          It’s not a good defense of the bubble imo.

          That 2012-2017 doubling saw mass euphoria in the media. Look at the difference in coverage between the 2 periods? Back then it was out of control, hold onto your pants type mania, now it is all nervous commentary about what stimulus should be rolled out next to save housing and landlords.

          • david collyerMEMBER

            The Don’t Buy Now! bloke was right. He was always right.

            Sure, some have made gains through the ‘permanent high plateau’. These are being erased by the comprehensively alignment of stars DLS provides data on above.

            Punters are receiving a practical lesson in the costs of gearing in a falling market. All that equity patiently amassed through sacrifice and time in the market is impaired.

            You had plenty of time to rearrange your affairs. Reusa did. Contrary to his public face he dumped his weakest assets at near-peak prices. His rent roll is smaller, stronger and debt free. He will ride out this storm, poised to buy at the bottom with ready money.

            Remember the oracle:

            Don’t Buy Now!

          • There you go, straight from the horse’s mouth.

            Also, I went off on a bit of a tangent with that media call. Not sure how that rebutted his comment lol.

          • That Don’t Buy Now freak is also a cheapskate who isn’t even a paying member, a rent Dodger according to his own confession here on MB, 2016 elections big time loser… “Don’t pay now!”

          • david collyerMEMBER

            Ha Ha Ha! Mr Tessa.

            At the top of this page is an MB search engine box. Stick my name in there, click enter and examine my ovure. I have contributed much more to Australia’s economic debate than your acid tongue ever has.

            I am currently not an MB subscriber as every dollar I can scrape together is in the sharemarket, geared up to the wazoo. Banks, REITs, retail, airlines, tourism are all ruined, but select sectors have genuine pricing power: I like Cu, Ni, agriculture and insurances.

            The time to purchase land will come. I will be standing on two feet (or dead) offering cash to desperate vendors at a deep discount. Will you be so placed?

            Don’t Buy Now!

          • Ah, yes, now that he’s bringing in his long history of MB contributions and talking his financial plan, let’s remind the readers… So prior to the GFC he sold off his property and started renting in one of the sMelbourne “leafy suburbs” (a big deal, apparently, in the Vic crapitol) for $600/week, aiming to BTFD. Well, the dip came in 2011/12, but being the cheapskate he is, he doubled down on his “Don’t buy now!” here on MB, hoping that pulling more suckers away from the property would trigger bigger price drops. Anyways, the ability & determination of the politico-housing complex easily prevailed and the rest is history… He, along with many then young, now not so young suckers remained without a shelter. Well played, sir 🙂

          • david collyerMEMBER

            Oh, Mr Tessa!

            I have never been without shelter; never been trumped by a grasping landholder who thought they held the winning hand.

            Looking back, as the family has grown up, I have been able to match accommodation with needs at minimal cost. In an era where gross rents are 2-3% of market prices, renting has been cheap. Blown hot water services, roof repairs, rates and worn carpets have all fallen on another.

            I have sequentially owned three properties, in South Yarra, St Kilda and Brighton. I made excellent money on each (shame about the divorce, let me recommend against that).

            And at the BBQs, while my innumerate mates were bragging about their arterial bleed to the bank, a single mention of my share portfolio silenced their Domain-speak: the sharemarket was too risky and too complex to consider. Now they are trapped with lumpy, unsaleable, underoccupied, geared and worn houses just as supply towers over demand.

            Who was the economic looser?

            Don’t Buy Now!

          • call me ArtieMEMBER

            david collyer. You seem to have quite intimate knowledge of member Reusa’s investment portfolio. That whiring sound is cogs in my head. I haven’t been here long enough to know whether DC or Reusa appeared here first. I like the uncanny way you appear to be exact opposites

          • I like your spirit, David Colyer. I even put you at the spot No. 1 on my Senat ballot paper in 2016! The fact is your 3 word slogan has been the most disastrous financial advice (unsolicited, too) for anyone who took it. I hope they don’t come after you. I am only exposing you as the caricature so that no one else falls for that.

          • david collyerMEMBER

            Mr Tessa, I am no caricature. Nor am I an anonymous avatar. I am flesh and blood you once voted for.

            If those excluded from home ownership get up a hangin’ posse, it won’t be me they come after.

            @ Artie: Reusa is an eminence who shine out like gold when all around is black. I am merely a dull plodder.

    • I will back Mr Collyer’s insights on the fundamentals of our tax system and land price economics before I take Xo’s word on whether or not the sky is blue.

    • You say it like the options are “stay in cash of buy property”. There are other asset classes, and things should be viewed as opportunity cost, not just cash vs property.

    • Jim's Central Banking

      Fair point.

      I tend to agree with the article when it comes to investing in housing, but if someone is looking for a family home it’s hard to say “don’t buy now”. It’s a decision that could break up a marriage or change whether you have kids, or at least how many you have.

      Still, this situation shows how negative high property prices are to society. Families in trouble, small business barely able to cover rent. We’re going to have to clean up this mess at some point.

      • True on the family home.

        Also “ . Australians now know that the RBA put is dead for housing“ … well maybe. But faith in the Commonwealth Government put is still high. Dip into super. Endless loan holidays. MOAR stimulus. It could go on for ages.

        • The risk is Asymmetric that is all anyone is saying all anyone has warned about. Is true always was with such debt leveraged.

  2. BrentonMEMBER

    Rents peaked in 2017, as did prices.
    No more rate relief. No more easy credit.

    The mania is dead. Only a matter of time before the specufestors capitulate and flood the market.

  3. kannigetMEMBER

    Ignoring the Covid-19 factor but could this be all part of the Chinese long game.

    1) Give Citizens $200K to use as deposit, send them to Australia.
    2) Tell them to buy property using credit from Aus banks, pay as much as possible.
    3) Offer the banks money to fund the Interbank transfers.
    4) Wait for prices to peak and then call citizens back, pushing defaults through the roof, crashing property.
    5) Hold banks liable for the interbank transfer money
    6) Buy large stake in banks that cant pay up.

    Covid just tipped this over before they could use concocted trade tensions as the reason for withdrawal.

    • BrentonMEMBER

      They’re painted as 5D chess players, but it’s just simple greed on the part of individual chinese. Chinese credit overflowed into all the ‘hot’ markets around the globe.

    • Shades of MessinaMEMBER

      Why would the CCP give a rat’s tossbag about Aussie banks ?.

      Makes much more sense and easier to focus on iron ore, lithium, wool, beef etc

      • kannigetMEMBER

        because the banks hold the citizens by the short and curlies, giving them leverage to all the other assets….

        Its just a thought, seen far more ludicrous conspiracy theories going around

        • BubbleyMEMBER

          You’re making more sense than flat earthers, but in this case the Oz government would just print money and nationalise the banks

    • Nah. I think you give the CCP far more credit (pun intended) than deserved. Their deployment of wolf warriors and dealings with the trade war definitely shows they’re a lot more brash than the subtle sneakiness this strategy requires. Yes, they may stumble on the same set of events, but stumbling on someone else’s stup1dity isn’t the same as a crafted strategy to manipulate outcomes.
      Plus, if this was their end game (to buy up aussie banks on the cheap), they would have kept their wolf warriors at bay, reminding them of the end game and for the need for China to be a silent tiger for a bit longer to be allowed to buy up banks en masse. That ain’t going to happen with the heightened anti-China stance the world is taking and frankly, the CCP isn’t doing anything to indicate they have the patience and diplomacy required to pull it off.

      • Reus's largeMEMBER

        Agree, the CCP is the equivalent of a spoilt brat in kindy that is not getting their way !

    • call me ArtieMEMBER

      The leaders of the CCP have an achilles heel which surfaces again and again. They need to maintain “face”
      They need to do it for their own position in the Party, and they need to do it publicly for their position in the country
      It affects their decision making. When wisdom would accept a slight and stay silent, “face” cannot and must respond assertively

    • At least you and your wife are getting a good place in an area you like and it will improve your family situation materially based on what you’ve told us. That is worth a lot. Hopefully your regional area wasn’t too over valued. BTW thanks for the compassion expressed last night! I hope your wife never relapses

  4. The best time to buy property is when no one else is buying. Like right now!
    The trick is to not wait for property to fall, but to buy now and negotiate you discount now. So for example, watch the auctions and then make low bids on any property that fails at auctions.
    When people realise they can borrow at 2%, house prices will double.
    It is cheaper to buy than rent, as rental yields are above 2%.

    • BrentonMEMBER

      Now is the worst time to buy, as the property cycle is only just rolling over again, perhaps for the final time.

      Prices will not double. Prices are collapsing. DSR is tapped out, with no rate cuts and recession/low growth conditions. There are no more greater fools to provide capital gains relief. Reality is setting in.

      Rents are only going to get cheaper as supply floods the market and desperado investors, starved of capital gains for years, undercut one another to retain some income and repair their balance sheet.

    • Goldstandard1MEMBER

      HAHA spoken by an agent….. The best time is to buy when nobody else is…..but it’s also a great time to buy when others are because prices will be higher in the future….

      Spare me the dribble. It’s just dumb to buy now.

      Great place in Glen Iris passed in on Saturday.
      Range was advertised starting at $1.7m
      Passed in @ 1.62m approx
      Now private sale @ $1.75m

      This scenario is happening everywhere and they should have taken the $1.62. because as shown above, everything is pointing down and there is about to be PLENTY OF STOCK. Get out.

    • The FNG.MEMBER

      Sometimes I wonder if rates are as big an issue as the size of the principal itself. Rates could go to zero and we’ll still have a lifetime of debt servitude and an affordability problem given that you need to pay the thing off before you retire. Especially if you think that a lot of govt retirement largesse wont be there in 30 years. What we need is a new wave of household conservatism not higher prices, the young are screwed in so many ways.

  5. well, about 2 weeks ago Domain told us to buy now in those affordable areas because in 6 months, prices will go up again. I’ll wait to see where prices are going around Dec.

  6. I tend to agree, but some contrarian counterpoints:
    Interest rates are almost non-existant

    Supply surge from 2013 onwards was mostly apartments. Detached housing construction has been ~flat for the last two decades despite increased pop growth. If one of the vacinnes in development hits, pop ponzi could be back sooner than expected, then the scamble for land is back on

    More kitchen sinks could be thrown at the market

    Plenty of people are still seeing wage growth despite aggregate growth being poor (bifurcation of labour market due to imports)

    Perth looks ok value given the massive stimulus over there and <3% mortgage rates TBH

    • Goldstandard1MEMBER

      I think kitchen sinks are done now seeing as MMT is starting to do the rounds….
      Bathroom vanities shall now be thrown however.

    • Jumping jack flash

      I agree, we don’t even have NIRP yet. Far too early to call.

      Westpac Bill knows. Ask him.
      The RBA loves listening to him as well.

      NIRP before Christmas and QE extended to however long is required for paying for wage subsidies to support the debt creation.

      Over the next 10 years to 2030, public debt to triple to 1.5 trillion, and private debt to [at the very least] double to 5 trillion as a result.

      2006 here we come! Let the good times roll (again).

  7. You know property in Sydney will still be expensive even if it loses 50% of its value. A sh*box house in Concord is still worth $1.6-$1.8 even though it needs a bulldozer.

    Even at $800-$900, I consider that still expensive for a knock down!!!!

    • mikef179MEMBER

      I think that’s why we will probably have a sharp fall, but then it will slowly fall for years. Who knows where or when the bottom will be. I think investors who try to “buy the bottom” will just end up dying by a thousand cuts.

    • Yep. Have been saying the same thing for ages. Some of these places should really be about $50k. In fact I don’t think I’d take one if they paid me. Who needs that stress? You think you own the house…it ends up opening you.
      Personally, it’s not worth the loss of my freedom.

  8. No one seems to discuss ROI, rental yield etc. Regardless of other factors, the fact total yield is circa 0.5 – 2% in Melb & Syd, after outgoings, it is sheer insanity to investment huge sums betting on capital gains. Most ‘savvy good looking investor types’ don’t know how to use a calculator, read murdoch press and are utterly brainwashed by Lib/Lab/BankingWanka propaganda.

  9. Jumping jack flash

    Now to convince my wife…

    I’m hoping we get knocked back next year for the mountain of debt we must take on to purchase what we need. It truly is an enormous mountain.

    • FUDINTHENUDMEMBER

      Life hack.. If you get yourself sacked, the banks won’t approve the loan! Self sabotage, works every time 😀

  10. Good analysis, the only thing I disagree with is that policy options are exhausted. I posted this list a few weeks ago…

    The RBA/ govt have plenty to throw at it before it’s done, bankrupting the country in the process. Off the top of my head:
    – Full super balance to pay mortgages/ house deposit
    – Further vendor stimulus eg. FHOG grants, homebuilder upped to $100k
    – Negative gearing for OOs
    – IO 10-20yr terms for all, deferred mortgages, 50yr intergenerational loans
    – Negative IRs
    – Pumping immigration and money laundering purchases to the moon
    – RBA buying all junk/ subprime loans (maybe already occurring)
    – Finally, direct govt/ RBA buying of property or mortgagee sales from banks

    (from a capitulated bear)