Aussie property faces 20% price falls

In the video above, Martin North from Digital Finance Analytics explores his home price projections using real examples from his Core Market Model.

Some key highlights include discussion about the banks’ $195 billion of mortgage repayment deferrals, which North says will drive “a flood of property coming onto the market between now and early January”:

North also discusses the pending ‘fiscal cliff’, which he describes as “quite troublesome” because “people have become quite used to government support, which is now going away”:

And he gives a quick summary of his latest mortgage stress data, whereby “we’ve got more than 1.5 million households in mortgage stress, rental stress is up, and property investor stress is up”:

Turning to North’s broad modelling:

North’s model forecast’s a peak-to-trough decline of 20.4% over three years for Australian property, with the possibility of 30%-plus declines in the worst case scenario and only a 5%-6% drop in the best case scenario:

Victorian property is most at risk, with a baseline forecast decline of 23.5% over three years:

NSW property is forecast to decline sharply, by 21.5% under North’s baseline forecast:

Interesting analysis that’s well worth watching.

Leith van Onselen
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Comments

  1. https://www.watoday.com.au/national/western-australia/skills-hungry-miners-predict-8000-more-workers-needed-in-wa-over-next-18-months-20200810-p55kay.html
    “Many of our members have also been recruiting for hundreds of skilled roles from within Western Australia over the past few months,” he said.
    “These roles are a mixture of regional and Perth-based, including both residential and fly-in, fly-out.”
    Premier Mark McGowan last month called on the resources sector to start hiring locally to avoid the risk of flying in workers from the east coast, where COVID-19 cases are still worryingly high.
    “It’s well overdue that those workforces living in Melbourne, Sydney or Brisbane understand they need to move to WA,” he said at the time.

    So another 8000 needed on top of the 5000 former fifo who have already relocated to WA in April. Only 2% of essential workers to be sourced outside of the state. So that means likely more fifo workers to move to WA for the resources sector. but there should be increased hire of WA locals in Perth and regional areas as well.
    So one might expect Perth property prices to do better than expected as long as the hard border stays up.
    But What i like is that now they are forced to hire inside WA, its an opportunity for people here to get training and experience in the resources sectors, because the companies have no choice except to provide it. Instead of just importing the cheapest slaves they can find from overseas and ignoring the local population. This is the way it should always have been. I hope the WA border stays closed a long time and i hope the international borders stay closed even longer.

    • adelaide_economistMEMBER

      Yep. What the ‘hire cheap foreigners at all costs’ don’t care about, and the people who support the idea of lazy locals which enable them to get away with it don’t realise, is that people need to get a job to realise the point of knuckling down, learning, and getting good at doing something. Somewhere along the line most of our employers forgot they were young once too and decided if someone wasn’t a slave from day one they weren’t worth hiring. For every ‘bad hire’, there’s probably two or three locals who just need a chance to show what they can do when they are given the opportunity. If covid19 leads to more of this, then it will be yet another silver lining to the virus cloud.

    • SoCalSurfCreeperMEMBER

      They should always hire local first, interstate second. Hiring from abroad should not be an option except for people of exceptional accomplishment or talent (PhDs, professors, recognized artists or entertainers etc.) and only when can’t be found locally. Especially true in deep recession.

      • While I completely agree with the idea of hiring locally, locals must be willing. I sometimes think this image of locals queuing up for all these jobs and being frozen out is not entirely accurate. Youngsters often want to be based in Perth (any urban setting) where they can go pubbing and clubbing with their mates rather than doing 10/14 day stints in a remote dustbowl.

        Also, jobs are not generic: if someone has done a marketing degree and they’re looking for a job in that field, it doesn’t matter how many laboring jobs there are out at the mines. Even as a stop-gap it’s not convenient. Ditto law degrees, IT etc. And I’m not suggesting these people will get a job in their chosen field but they’ll certainly ignore all other opportunities in the meanwhile, hoping to land the job of choice. Again, another negative consequence of driving so many people into tertiary education, many of them not suitable.

        • SoCalSurfCreeperMEMBER

          I did my time in those places as a young engineer. Kalgoorlie, Leonora, Leinster, Murchison, Port Hedland, Karratha. A week or two in a donga in some sh*tty camp had me questioning my life, and my mental health. I don’t regret any of it. It did motivate me to get on with something else. People need to get real and adapt to circumstances. If you did a degree in marketing and you can’t find a job in marketing find something else. If you really want it and you can’t find it in Australia go overseas. In boom times they might have the luxury of saying no to dust bowl jobs, but not right now. In a borderline depression like we have now they should have to barricade the doors to keep them out. I’ve had one extended period of unemployment in my life and it was absolutely brutal for my mental health. Much harder than mining camps. I feel deeply for anyone facing unemployment regardless of benefits. 95% of people would rather be employed than unemployed.

          • I don’t disagree with a word you’ve said – I would do anything rather than be unemployed but I just don’t think the younger generation is wired that way – some are, most aren’t.

            The lack of fruit pickers in Northern QLD when half the the youth up there are unemployed. Nuff said.

          • Yes. The youth of today are considered slovenly and soft by their elders.

            Just like they were when you were young, and every generation of youth before them.

            This trope is so old it’s got fossils inside it.

          • “The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers.”
            Socrates

        • The “ unwilling locals “ trope is based on zero fact. I worked in the Pilbara for a couple of decades and people were so desperate to get a start that I learnt to hide my occupation due to being constantly harassed for contacts and a start in the industry.

          Several thousand applications for each advertised position and many thousands of unsolicited applications was standard .

          • I don’t think its actually the mining industry thats difficult to find warm bodies,
            I’m guessing it more agriculture.
            Seasonal, and very insecure work, across a wide variety of locations. Hard work, relatively low pay (and below min wage) hard to find accommodation, lots of travel for short term. Almost makes some of it unviable for many. Suits backpackers cos they are moving around anyway.
            Dunno if theres enough work in many small towns to have a basic year round income for too many low skilled workers.
            It needs to be made more attractive, but i’m not sure how organized the ag industry is to do it for each other.

          • You make out like this situation is binary ie black or white, which is patent bull fcking sh*t. And you mistakenly believe that every individual has your values- also BS. There are certain jobs that many people won’t do.

          • Positions involving cleaning site toilets attracted thousands of applicants. If people are willing to clean up the practice known as “ nesting “ where several workmates take a dump in the same toilet without flushing , one after the other , each nugget separated by a lasagne-like layer of toilet paper , then you can assume they were willing to to anything.

          • Dominic, there are no jobs that people won’t do, there are just jobs that people won’t do for the pay and conditions offered. If the pay was increased and the conditions improved then people would take the jobs. The problem for agriculture is that many of the products they produce would not be able to be sold for more than the cost of production if they paid there workers well as the products have to compete with food grown in the third world where farm labourer pay is extraordinarily low. Australian farmers have got around this by having the government force backpackers into abusive and exploitive jobs so they can extend their visas and by bringing in migrants from the pacific and then essentially paying them slave wages.
            What Australia needs to do is realise that we can’t compete with the developing world in a lot of horticultural products that require a high labour input, just as we couldn’t with a lot of basic manufacturing. The choice for governments then is do you protect the industries with tariffs or do you let them die off. However, what the government did instead was to bring in pseudo-slaves from the third world to undercut all the local labour, however I don’t think it is an ethical or long term solution to the problem.

          • Jumping jack flash

            ” there are just jobs that people won’t do for the pay and conditions offered”

            correct.

            but I’ll also go so far as to say – there are just jobs that people can’t do for the pay and conditions offered

            The need for enormous quantities of debt makes some jobs impossible to take on. Maybe if you had 4 or 5 of them at once, but there’s the time factor. These are the jobs that are taken up by people with no [immediate] aspirations for enormous debt, ie, 3rd world slaves.

            If you had to service the best part of a million debt dollars, could you really take on a job offering $25/hour? Could you take one at $40/hour? There is no possible way. The “quest for debt” places a hard floor under what wages people can accept for their labour. One of the reasons why the oligopolistic costs of living rocket up, and generally why everything is so expensive here, including labour cost.

        • SoCalSurfCreeperMEMBER

          True. It doesn’t mean they are good. But they are by definition highly trained to the point that they have specialised in something unique. Different from someone who has taken a few English lessons and is only marginally qualified to deliver pizzas.

    • Yet people are still flying in from overseas but no one allowed in from NSW .
      Keep the borders closed for a long time ? Your joking right .

  2. reusachtigeMEMBER

    LOLOLOL this freak has been making his models falsely point to a housing crash for years and it aint never gonna happen. And 20% is just a bit of negative sideways movement to a year or two ago anyway.

  3. If they cant fill 8000 mining jobs with local Australian workers (good stable jobs I hope) in this environment, we deserve to be taken over and beaten into submission !
    In any mine there are a significant number of base jobs that anyone with half a brain can work into and upwards, as well as the professional roles . No barrier to women either if they are interested. The roster may not be perfect to start with, and you may need to live remote, but mining town facilities are usually pretty good, and you find people in these towns grow into them quite quickly. Cost of living has hopefully come down from the stupid levels during the expansion. From there its actually a very small niche industry, and the better roles will present with experience, along with a chance to establish a comfortable lifestyle. It can be hot and hard, and in winter freezing bloody cold, but you know you earnt it.

    • SoCalSurfCreeperMEMBER

      Carlos your reference to freezing brought back memories of bl00dy freezing days spent outside in cold, raining and windy Kalgoorlie with a laptop connected to a Programmable Logic Controller trying desperately to debug code I couldn’t understand to figure out why a machine won’t do what it’s supposed to. People know it gets hot there. They don’t know about the cold.

  4. North emphasizes his data and surveys (“data driven”) but it is his models which project the future.
    And you know how dodgy ANYONES models in the economic/social space can be. But there has always been big market for forecasters and fortune tellers and always will be. Beware of all models in this space.
    Models of physical systems are so much better and more reliable.

  5. people have become quite used to government support, which is now going away

    My gut feeling is that Morrison and gang will discover “how good is MMT?” and keep funding the housing market debt rather than actually allow the bloated debt situation to be marked to market.

    The Great Australian Dream must not be allowed to become the Great Australian Nightmare.

    • If not already, it soon will become apparent the populace, particularly property owners, think govts handing out money to stem any discomfort in a crisis is standard op procedure. Many under 40 do not know what a free market is. They haven’t seen it in operation. Under 20, no chance. They do live in a heavily socialist society, they just don’t know it. They haven’t been taught it. Wider financial / economic literacy is almost non existent. They know how to get food and buy stuff, build credit and pay some off.
      A govt that lets it correct will be abandoned. They have no choice.
      Likewise interest rates CANNOT move up now, or it will come crashing down. What would a 1% move up in IR do now ??? 1% FFS is nothing historically.
      This ‘situation’ will need to be dragged to its final conclusion kicking and screaming. It’ll be kicked, manipulated and fudged over 20 or 30 yrs I fear. The only solution is collapse, But theres more Acrow props under this than a Sydney high rise.

      • If not already, it soon will become apparent the populace, particularly property owners, think govts handing out money to stem any discomfort in a crisis is standard op procedure. Many under 40 do not know what a free market is. They haven’t seen it in operation. Under 20, no chance. They do live in a heavily socialist society, they just don’t know it.

        LOL.

        We’re the farthest we’ve been from “socialism” for 70 years.

        • GunnamattaMEMBER

          Its a ‘market’ facade on straight out cronyism and rentseeking. Thats what it is.

        • SoCalSurfCreeperMEMBER

          drsmithy i agree we are far from socialism in a conventional sense. Most asset markets are not free. They are purposely managed to protect asset owners, and it transfers wealth to them through tax incentives and other policies. So it’s socialism for asset owners, but it does SFA for people without assets. But they deserve it for not having a go and signing up for a million dollar mortgage. Warped.

        • Just looks like capitalism to me. Tending towards fascism or feudalism.

          But when most public assets have been sold off, public services are increasingly outsourced to private firms, new investment in public infrastructure almost inevitably involves PPPs, private industry nakedly buys influence, and workers rights and job security are crashing it sure as sh!t ain’t anything that can be described as “socialism”.

          Maybe you should just say “boogeyman”, like you mean, rather than use words you don’t understand cuz other people told you to.

      • GunnamattaMEMBER

        If not already, it soon will become apparent the populace, particularly property owners, think govts handing out money to stem any discomfort in a crisis is standard op procedure. Many under 40 do not know what a free market is. They haven’t seen it in operation. Under 20, no chance. They do live in a heavily socialist society, they just don’t know it. They haven’t been taught it. Wider financial / economic literacy is almost non existent. They know how to get food and buy stuff, build credit and pay some off.
        A govt that lets it correct will be abandoned. They have no choice.

        And that’s before we get to a generation of ‘genius’ ‘property investors’ who have lived high on the hog, thank you very much, off the back of a government mandated population Ponzi, a private debt binge backed by a government AAA backstopping the bank sector, government with their hands all over supply (zoning, infrastructure and up front costs), clipping the ticket of every transaction (and addicted to it), and demand (the population ponzi), as well as taxation concessions for speculation and capital gains offsets, trying to push the ‘wealth effect’ to juice GDP stats.

        As David noted in the last podcast – a ‘market’ would be nice

        • Sunlord BCNMEMBER

          Gunna
          I’ve heard from a very good source, very high up in banking
          It’s an absolute crisis inside
          They said this mortgage repayment holiday, has caused irreparable damage inside.
          There are MASS redundancies in banks coming
          Banks are going to have to increase revenue through out of cycle int rate increases and cut costs heavily to survive this debacle

          • GunnamattaMEMBER

            BCN, i have been of the long term view that Australia ends up with a ‘bad bank’ somewhere along the line. An institution into which a generations worth of housing speculation detritus is swept, decanted for a while, and then presumably buried or incinerated.

            Of the current big 4, CBA and WBC are overexposed to Sydney, NAB and ANZ to Melbourne. I tend to the view that CBA has better political contacts than the others, making them more expendable.

            My current take is that WBC ANZ and NAB are in the running to become that bad bank, with influential factors likely to be:-
            1. The level of exposure to the markets of greatest crash (Here is looking at Melbourne, but any Opal style construction fluffs may still swing the outcone for Sin City)
            2. How much economically meaningful corporate lending they do before the need for a ‘bad bank’ becomes apparent.
            3. How much sanitary napkin is applied to the sector by Government and RBA (reflecting how much the banks peeve the electorate between now and that moment)

          • Sunlord BCNMEMBER

            @Gunna

            You guys know I’ve been really bearish for last year of 2, well I actually think I’ve been realistic but I’ve never really known how this banking crisis will play out

            I think Gunna is correct,I think they’ll save CBA, and have a bad bank ANZ WBC ANZ sounds very plausible

            Sorry I misunderstood you on CBA, I think they may use them as private first …….

            They might even pull the crap out of the big regionals (2nd tier) and shove the regionals into CBA

            I think it’ll end up being 2 banks one Gov and one private.

            Do they start with 3 first then end up with 2.. but I think G is correct

            Either way there is massive consolation in the banking sector coming

          • @Gunna – this government didn’t have a Covid plan for aged care, so I doubt the prospect of designating a bad bank has crossed their mind and having one would confirm to the masses that they’ve been economically incompetent. Suspect they don’t have any plans other than restarting immigration and are still high on hopium that “she’ll be right.”

      • Sunlord BCNMEMBER

        “Interest rates cannot move up”

        They can and they will

        There is no such thing as nothing can happen

        The banks will start increasing rates out of cycle over the next 6 months, you wait ……

        Interest rates are going to rise

        • Jumping jack flash

          We can only hope.

          My view is they will start jacking up rates for new borrowers only. Interest rates are a risk premium, well, traditionally they were when banks took a broad spectrum of risk into consideration rather than only using LVR to determine the maximum loan size, and then using HEM to gauge eligibility for it.

        • hence why there’ll be a trial of destruction come with it.
          I might not get the subtleties of other stuff all that clearly, but I get that bit.

    • I reckon you’re right.

      That development is at least 90 squares under the roofline. Assume $30-40K per square. Just learned of a mate who developed similar on the beach in Melbourne and he was stung $40K/square and it’s not as wanky (left field) as this thing. Well over $3m in development costs, plus the $700K upfront when they bought, holding for 6 years. Not much made there. If they timed it right and got out earlier, they might have a bit more to show for the developmental pain and suffering.

      • Not to mention price guide was OVER $5m when it was first advertised. That might have been break even.

      • Sunlord BCNMEMBER

        Jimbo
        A mate of mine is a premium builder, close to that builds in the best streets in Brighton, that quality is often more than 40,000 square…. 60,000
        If you hired a straight builder architect It would be I’d say possibly higher. That is a fortress and you need a very high end builder normally Sydney, so I’d say you would pay a premium
        That’s a fire sale for its location
        Easily down 25%
        Great bargain… taking advantage of the 20% or so correction
        It’ll drop much further in price
        After Syd keeps crashing the amount of buyers at that price will fall
        Good example les to show us the market is now falling in regional coastal too

      • UpperWestsideMEMBER

        Getting any building done in Sydney is massively more expensive than the USA/Europe.
        Why is that.

    • I am sure there are good reasons for the DFA house price model to predict with great ‘caution’, however if the Hayne fiasco could create a price correction to the extent it did with no feed back loop to speak of then 20% by March 2021 is more likely if Capitals are weighted for size.

    • These places always look 2M better until my 5yo and 2yo get in there and strew Lego ™ about the place

      I love polished concrete but jeez, cold. It’s missing a few Siberian tiger furs and Elephant skins to bring some warmth

      • One of the photos has an air conditioning unit on the wall – for that money you at least want ducted air con (solar panels/battery if they are going for the environment angle).

    • The flat roof will be a hideous leaking maintenance disaster. Also it looks like a sterile shopping mall.

  6. it doesn’t matter what Martin North says, what does is bcnich opinion!
    (Wide experience in share market and real estate)
    Not just models

    • Gone Baby, the person formerly known as bcnich has now transcended mere mortality to become Sunlord BCN.

      Bask in his golden glow and enjoy his delicious $1 soup.

      • Sunlord BCNMEMBER

        Spunky
        My GF has banned me from the soup van, she said I’d crash that van (I’m not a good driver) and she said she will be making the soup while I supervise
        She told me go volunteer at someone else soup van
        I still haven’t given up
        Truly something I’ve always be concerned about
        If I serve soup to an exit Brighton lawyer and his family
        I reckon they’d try and sue you for food poisoning

    • Sunlord BCNMEMBER

      Ok what’s happening in the Dow J

      My guess it’s a gentle short squeeze

      Just taking the last shorts

      It’d be getting painful here at 28,000 around

      Think the last will be getting squeezed out

      Any NASDAQ shorts were taken out in the 10,000s

      S&P CFCT shorts taken out on the last run up a few weeks ago, if you look on CFTC there was a huge reduction in shorts 3 or 4 weeks ago

      Nasdaq no shorts left and running out of buyers

      I think we aren’t far away from equities turning lower …….. let’s see, it’s very very difficult

  7. roylefamilyMEMBER

    If property has become very expensive, then If property isn’t going up it’s going down. Why? because it’s not worth owning if it’s not going up. The speculative expectation has a powerful effect in addition to the other sensible factors, wage/price ratios etc. I would be interested to know if Martin’s models include this speculative expectation. If not then the forecast price swings could be much larger.

    • Yes – around 50% of the value of property by now is its value as an appreciating asset for investment purposes. Remove the expectation that owning property is a vehicle to build wealth, and Australian property, especially in East coast capitals would be worth considerably less.

    • SoCalSurfCreeperMEMBER

      Interesting perspective royale. Your assumption is that property investors are rational. There is a compendium of evidence to the contrary.

      • I don’t think it’s a question of being rational so much of when does someone get sick of watching the value of an asset they have to pay money to own (rates, mortgage, probably some maintenance) going down. Alternatively, at what point are people dissuaded from buying a new IP while watching their friends and acquaitances get nothing out of owning theirs. Not a factor in a correction that is over in under a year, but starts to be an issue if it becomes a mult-year event: if they can’t get prices headed north by September ’21 for that ‘Spring Auction Season’.

  8. Jim's Central Banking

    Even with a 20% fall Sydney would still be too expensive. And I doubt we’ll even get it.

    Moving is starting to look like the only option.

    • Sunlord BCNMEMBER

      Jim Syd and Melb are going to fall much much further min 50% more over longer term
      I’m not even going to run through the 500 reasons why
      We’ve done them to death

      On top there is a HUGE structural shift to move out of the 2 big cities, no employment virus worries etc etc negative feed back loops more many years

      Out of everything I’ve said on here this is what I’m most certain of

      The bubble is deflating and has a very long way to go

      20% is a correction before prices rise again

      This is not a correction, we are in a decade bear market

      • What do you think about the 18.6 year real esatate cycle theory, and that we are currently in a prolonged mid-cycle correction? With boom times to return in a couple of years and mega boom into 2026? Also what are your thoughts on HK mass buyers and more Asian buyers coming into the market?

        Just curious!

        • Sunlord BCNMEMBER

          Yes I believe in cycles and yes there will be rallies but bear rallies
          We won’t see 2017/19 highs again in the next decade
          There will be talk we are bouncing back in hope but it will be short lived
          Australian property is finished as an investment class overall but I’m sure pockets here and there will be good
          Don’t think anywhere in AUST will be higher than recent peak
          Think we will find a new lower range
          Property will be a utility
          The 1950 2020 cycle will be I guess 2020 2050 of nothing of any note where you can make money
          Gold
          Equities
          Silver
          Other commodities (soft)
          Grains Sugar etc
          Non discretionary investments
          maybe the rare little solid investment property in the best location, that will always find a tenant low body Corp in a little block near the coast … Burleigh Coolongatta, maybe Bondi, not sure Melb, maybe S Yarra little 60s or 30s

          Commercial property DELETE
          Resi property just to live in
          Stay liquid and give yourself the freedom to move, for me that’s renting long term

          Note gold silver equities won’t go one way, there be long periods of downturn in prices, no easy money

          Think Hk ASIA etc is a myth…

          HK property is going to crash and I believe the HKD will devalue
          Don’t think they will have the money everyone thinks

          • Thanks Sunlord! I think I agree with a lot of what you’re saying on a fundamental basis. I’m not sure if now is the big re-pricing or if there is one last can kick for a short period and then we get it. I also have my doubts about Chinese money, both mainland and HK, but if mainlanders are buying in HK that could give some lower middle class the cash to get here, but not the ability to buy something special. I don’t see how economic based migration can continue in these economic circumstances, but I can see the HK Aussies moving back and making do, basically being refugees. Anyway very interesting times and staying nimble and informed and clear on your goals is key!

      • BoomToBustMEMBER

        We are currently in Melbourne Eastern suburbs but with the crush load of people etc we are contemplating a move to Brisbane next year, what do you think house prices will do in QLD?

  9. 20%? He’s not putting his back into it. 30% at least to be slightly interesting, should be saying 40% or 50% to get some attention.

    • Sunlord BCNMEMBER

      Robert he knows he has to be very conservative for main stream

      It was like me saying for the last 2 years 2020 the next Great Depression would start.
      Even my family told me to take my pills….

      It’s funny the arguments are now how the depression will play out and how far property prices would fall

      There is $2 Trillion of mortgage debt plus interest to be repaid

      I’d be shocked if the banks were to be repaid half

      There isn’t enough money to repay this debt, and not enough money to bail them out.

      This is a decade long debacle is this works itself out

      I think Martin knows he just can’t say it

  10. He’s got much less bearish compared to his last analysis where he called a worst case of -50% with a sub 5% probability.

  11. I just went for a stroll around a few blocks of my eastern suburbs of Sydney neighbourhood and oh my the for sale signs have sprouted like mushrooms in the past couple of weeks. Mostly 2 bedroom apartments but a house and a three bedder too.
    One development had three for sale signs for on it that weren’t there last week. Now what would a savvy buyer do when confronted with three identical properties up for sale at the same time?