Australian property “in deep trouble”

SQM Research managing director, Louis Christopher, has given another bearish assessment of the Australian property market in an interview with Ross Greenwood (below):

“It’s already playing out. We are already recording property price falls… The epicentre of this downturn appears to be Sydney and Melbourne… Melbourne’s recording the largest falls…

“So far the downturn has been orderly. There hasn’t been a lot of forced activity. We believe that the moratorium provided by the banking sector on borrowers that cannot meet their monthly mortgage repayments has contributed to minimal forced sales activity.

“The question is, of course, going forward will it continue?…

“They [the banks] will have to write-off a lot of loans. They will also have to start calling in some loans where they are fully aware there’s no chance of seeing the borrower repay that mortgage…

“I think what is going on right now is the banks are restricting new lending in some ways. They’ve probably lowered the LVR for new borrowers… We know there’s been a big fall in housing finance approvals… So, sooner or later, the ledger has to be squared off for the banking sector and there are negative ramifications for the housing market when it does…

“It’s very likely that we are going to see many SMEs around Victoria not make it through… they may well respond by selling their home… I am anticipating that we are going to see further increases in listings…

This follows Louis Christopher’s recent prediction that Sydney and Melbourne property could fall 30% in value as government stimulus measures and bank mortgage repayment holidays end.

NAB chief economist, Alan Oster, was also interviewed by Greenwood. Oster believes the Australian property market is in “deep trouble” and predicts 10% to 15% falls for residential property on the back of the sharpest recession in living memory:

“When you look at house prices, our expectation is 10% to 15% down. And the main reason is the two big drivers. Number one population. I don’t think that you are basically going to open up international migration for at least the next 12 months, so that means population [growth] halves… And the second thing is unemployment. Normally when unemployment goes above 8%, you are in deep trouble.

“And all those things are going to pull the housing market down… [But] the one area I am particularly worried about is commercial property. For me, I think Zoom is permanent in terms of people working from home… The vacancies in some of the [CBD] areas, I think there is already massive oversupply.

“I think there are some asset prices out there that are going to have serious adjustment downwards”.

MB is obviously bearish on Australian property, especially around Melbourne and Sydney, due to:

  • High unemployment and falling incomes once government welfare support is wound back from October and ended altogether in the new year;
  • Collapsing immigration;
  • Rising housing supply due to new construction continuing to flood the market and the dumping of short-term rentals (e.g. Airbnbs) onto the long-term market;
  • Collapsing rents, especially in Sydney and Melbourne, due to falling demand (immigration) and rising supply;
  • The end of mortgage repayment holidays and rising forced sales; and
  • Banks restricting lending due to concerns around unemployment and borrowers’ ability to repay their mortgages.

Falling property prices look certain given the circumstances. The only question is by how much?

Leith van Onselen
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Comments

  1. I hope the next time I don’t want to pay my bills the government will step in and force the banks to wait while giving me free money.

  2. PalimpsestMEMBER

    There are a number of businesses I see around that appear to have closed down permanently. Pre COVID there were increasing vacancies, and slow take up of both commercial office space and retail leases. A retail model with primary web site and some local bricks and mortar has been reasonably successful, but property owners seem to have the ‘old days’ mentality locked in, and expect rising rents, not falling. Physical retail is still viable, but only at much lower rentals as a proportion of turnover. Retailers cannot compete with online sales if they spend 2/3 of the day covering fixed overheads.It’s not Amazon, so much as Amazon, Shopify, etc provide a retail platform with seriously reduced fixed charges.

    • “Physical retail is still viable, but only at much lower rentals as a proportion of turnover.”

      The landlords can’t be given a free pass if there is going to be rejuvenation. All levels of government have been given the chance to reform our destructive and over subsidized property obsession and blame the pain on something else. Reform has been spoken about for years with the excuse always being that it’s an election loser. Now it could be an election winner because it can lead to the much discussed and rarely spotted jobs ‘n’ growth.

    • I’ll tell you his view — he’s getting his clients into some great deals (despite the burgeoning carnage). You just need to be savvy, that’s all.

      • SoCalSurfCreeperMEMBER

        Quick. If you were really savvy you would “snap up” a place now. Never been a better time to buy. Or sell.

    • It’s definitely not universal — but it’s early days. Once the carnage begins no one will touch anything with a barge pole.

    • SnappedUpSavvyMEMBER

      1.4 is pretty good for a melbourne suburb isnt it? in shytney it is, gotta remember money is only 2 something % these days

    • Did it change hands in March to allow a comparison? Otherwise all we can learn from this single data point is there are still RE agents who under quote.

    • I don’t think there has been much impact on family homes yet. With mortgage deferrals, people will be holding onto their homes. Problems will begin in the apartment market with rising vacancies, falling rents and lack of buyers.

      • I’m seeing likewise. I also think there is some delusion amongst many that everything will go back to normal once lockdown is over. So why not snap up a bargain now?

    • ErmingtonPlumbingMEMBER

      People are slow to learn and the forced sales by the Banks haven’t really started yet.
      Wait until March 2021

        • They will try it, but will they be successful then? There comes a punt when you can’t extend and pretend. Don’t forget we’ve finally got our external shock. There’s no external actor to save our sorry butt this time. China had obviously decided we’re their most reliable mid sized western supplier so they’ll kick us when they need a propaganda boost at home knowing we’ll still sell to them no matter what. Everyone is in trouble. Opening the gates will not help us kick the can as it had before, it’ll be immediately and more importantly, obviously detrimental to the economy. Money printing may save us for a while but that kills the currency. Ah the conundrums Scummo and Joshie boy have to face!
          We’re going to need to rediscover kindness as there will be so much pain in our society

          • Display NameMEMBER

            I am being a tad facetious BUT the LNP will only have an eye on the election later in the year. When there are no easy solutions, can kicking looks good. Whether the banks will buy it, maybe not. And you are right more migrants into an economy of 20+% slack will be political suicide.

  3. Deep trouble for debt laden markets is exactly what I would expect in a DEPRESSION.
    Which was pretty well locked in from early this year when a pandemic was obvious and wretched idealogue governments chose to try and save failing business models first up.
    Just as people who flew out of Australia in February and March were reckless , so was anyone who has taken on mega debt in housing since then.
    Reminds me of people rushing to give cash to a conman at the airport as fled Launceston – https://www.afr.com/companies/the-thief-who-came-to-dinner-19930326-kaqqo

    • How were they reckless? It was their last chance for months and they took it. I’ve had patients stuck in various places – one in NZ needing surgery. Do you wait there for NZ public care or wait until you can get back where the problem has got worse and more difficult to fix.

      • I’m guessing Brad meant reckless in the sense that border lockdowns were predictable and with Covid out there travel insurance was a non starter. Hence, travelling post Covid was reckless.

        • Correct. I have ridden motorcycles for over 4 decades. Assessing risks properly allows for fun and fast times. I could do 140 plus almost everywhere but it wouldn’t be for long. That would be reckless. Travelling in a pandemic is reckless as is allowing borders to be open in a pandemic.

    • Yeah but by March my feeling is that’ll only help around the edges. Martin North’s mortgage stress data is key I think. Jk is supposed to be about $500a week by then on current tapering. How many of the young affluents, exclusive professionals who as a demographic are inn big horrible can make their repayments and live a [frugal haha] lifestyles on that? The bridge doesn’t get to the other side, and the other side is decidedly [email protected]

  4. The Sydney Corelogic index peaked most recently on 14-May at 174.13. Today it’s 170.01. Even the tiniest puff of negative sideways movement this week (perhaps today) will push that into the 160s.

      • Sorry BD…I can give you chapter and verse on rifles and handguns, but I’ve never been a shotgunner. Contemplating buying one myself next year….one of the Adler lever actions.

        • The adlers look fun but won’t you need to get a class C license. I got a over under so covered by my current class A. Will report back.

          • I was looking at the Berika Black Ops tactical straight pull, or a Dickinson

            Brother got a very nice U/O 12G for his 40th. Likes.

            Adlers have a long long wait in any of the 12G, 410 etc

          • If you’re thinking clay’s you’ll need an O/U to be able to get the second shot off fast enough – Plenty of choices there depending on $$ – 30″ & multiple chokes is a bit of a theme. Clay’s are more a hand/eye/reflex game where the secret to success is to get it to Really fit like it’s a part of you. Adler – IIRC under 5 shots & it’s a class A(?). I played with the pistol gripped straight pull recently & if felt good for me, easy to point, & exactly what I’d be getting if I were doing scrub work…. although if I were being chased by a pig I’d check out cycle time of the LA……it might(?) have a small edge…… FWIW.

  5. CanuckDownUnder

    The moron force is still strong out there. Just received a message from some friends of ours, they have just put in an offer and they are asking all their friends to pray (literally happy clappy style) that the sellers accept their offer!

    • Ha! That is why I keep encouraging you guys to make a generous offer to secure your dream home. It doesn’t matter what you pay today – it won’t make a difference in a decade or two.

  6. I’m waiting for an MB story on the risks to the Big4 banks if property falls 30%. Would that make some of them insolvent, and how do they recapitalise if the banks, are in trouble.