“Crunch time” for Aussie property

After last week flagging that Sydney and Melbourne property are facing potential 30% price falls, SQM Research managing director, Louis Christopher, has warned that “crunch time” is approaching for the property market as government stimulus measures and bank mortgage holidays end:

SQM Research managing director Louis Christopher said the housing market was “falling as we speak”…

“You will see increasingly over the next three months, that people will need to sell either because they have been prompted by their bank or they have lost their job and don’t want to be prompted”…

Mr Christopher expected prices to continue to fall over the coming months and said October would be the “crunch time”…

AMP chief economist, Shane Oliver, agrees:

“We are still in the twilight zone with government support and bank payment holidays protecting the market”…

“I expect ongoing weakness and falling prices as higher unemployment, lower rent and immigration impact [on the market].”

It is easy to be bearish in the current environment. One only needs to look at the perfect storm facing Australia’s property market, including:

  • High unemployment and falling household disposable incomes as government welfare support is unwound from October and cancelled altogether in the new year;
  • Collapsing immigration as Australia’s international border remains closed;
  • Rising housing supply as the huge pipeline of apartments under construction flood the market, alongside the dumping of short-term Airbnbs onto the long-term rental market;
  • Collapsing rents, especially in Sydney and Melbourne, due to falling demand (immigration) and rising supply;
  • The end of mortgage repayment holidays; and
  • Tightening credit availability (despite falling mortgage rates) as lenders become increasingly skittish about borrowers’ ability to repay.

Price falls look certain in such an environment. The only question is by how much?

The big risk remains that Australia’s army of negatively geared investors – sandwiched between falling income (rents) and equity (property prices) – sell en masse, creating a feedback loop of falling prices.

If such a scenario eventuates, then Australia faces its biggest property price correction in living memory.

Leith van Onselen
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Comments

  1. The rental market in Melbourne is in stasis at the moment. I’d hate to be a landlord with a vacant property because properties are just sitting on the market. Almost nobody is moving into new rentals so these LLs are all just slowly dropping their asking rents hoping for somebody to come along. But with no immigration from OS or interstate it isn’t happening. The inner city LLs are obviously copping it worst and I don’t see how these owners can endure ongoing losses unless they have a mortgage holiday.
    Perth endured very high vacancy rates post mining boom, leading to falling rents and then falling prices. The combination of falling rents and prices is a disaster for property investors and something most would never have encountered.

    • Know IdeaMEMBER

      Because of the dynamic you describe, I strongly suspect the Feds will have as many foreigners here as soon as possible. That will amount to the least worst choice from their perspective.

      • There will not be a vaccine by may. Sorry there simply will not be one.

        Even if there were – how are you going to flood a country full of unemployed people with cheap foreign labor ? Not going to happen.

        And where is that cheap foreign labor coming from ? Is there somewhere that has gone economically unscathed apart from China ?

        There most likely wont even be planes flying at that stage.

        • Yep. That’s right. And even if there were, there’d be no way to quarantine people in the numbers required. And no way to afford it either. And we’ve just seen the popular response to opening borders to places with the virus in WA.

        • yes i agree. i doubt a vaccine is coming at all. the world is going to look very different in 18mths. bring it!

      • What work will they do in Victoria? Will the tuition be online?
        No that wont work this time.

  2. I bet Scummo regrets playing the Super early-access card for pandemic support.

    Unfortunately won’t fly a second time.

    • Hmmmm… I’m a lot more cynical than you. Why won’t it fly as many times as they want? I didn’t see too many eligible people complaining as they took out their cash.

        • Why ? What would you do with it.
          If you are not eligible now one assumes you are still employed or such.
          Are you not better off leaving it in the super ?

          • I’m with haroldus (that’s what she said)

            I’d have parked mine in an offset to offset interest.

          • In these times, better in my hands (if I could get it), than a bunch of Royal Commission deemed shysters. To paraphrase them (shysters), “if you pull out $20K today, you’ll miss out on $80K when you retire”. Yeah bull!

          • Arthur Schopenhauer

            During the GFC many Americans close to retirement lost their entire pension fund. I met a couple of Academics who had been quite wealthy and lost the lot, in what they thought were conservative investments.

            If it follows the US course, there will be a number of Super funds not looking so flash by the end of it.

            How many office blocks are funded by Super? Hint: Just about all those not funded by OS money.

          • Bitter Looser Renter

            @Arthur: +1000
            If I had a touch more I would move to SMSF, just to have control. Not at all confident it will be there for me to draw on when I reach retirement age.

          • Jumping jack flash

            “if you pull out $20K today, you’ll miss out on $80K when you retire”

            greatest lie.

      • I can’t see them handling the pressure from the ALP and the unions. Not to mention the banks and a whole lot of industries that rely on that capital.

        The money in Super is supporting countless jobs. It isn’t in some sort of stasis. Unemployment will explode.

        Throwing out the baby with the bathwater.

          • Tourism, cleaning Airbnb’s, commercial building cleaning, petrol stations mechanics (nobody’s travelling) taxis ubers cafes etc etc

            So many jobs, not just construction

        • How, the majority is in shares, if its in shares its not working capital its just share price. When you buy a share your money doesn’t go to the company, it goes to the previous owner, all the Super does in this case is support share prices, not wages or investment..

          The only time it would help like that is if its capital injected into the business, like a Super owned investment corporation, and the majority of those invest in existing assets like shopping centres and large office blocks…

      • If half is used to pay down debt it essentially is liquidity disappearing. Then Scumo will have to print more to make up for the new hole.

        • Jumping jack flash

          this is how it seems to be working for now, but I don’t think they’re printing enough fast enough.

    • ashentegraMEMBER

      You speak too soon, Ortega. Scummo will allow further unlimited releases from super to ‘save the family home’. Voters will lap it up, then lose their houses anyway. The banks will be delighted as every dollar paid off the giant mortgages out there is a dollar less loan provision.

      The conservatives are determined to destroy union-operated superannuation. They will pull this lever again.

      • Yup they will. And when thid happens the superannuation ponzi will also wobble. The sharemarket will go with them.

        • Maybe. Or maybe the RBA will also start buying distressed commercial real estate debt. Thus providing super funds ample liquidity AND bailing out banks.

          Yes I am cynical this morning. 😁

          • Yes there are options. But the point is, that option you mention will cost more than letting commercial RE fail and saving banks only after.

      • Exactly. Dunno if it will be another 10k next financial year, it may be everything. They’re desperate to wreck the whole thing because of the unions.

      • Jumping jack flash

        nothing like stoking the debt deflation, but who cares, it was savings and everyone knows that savings is dead money.

        Scummo should focus less on trying to use the people’s money to bail out the banks and more on getting the banks to lend, or borrowing money himself and handing it out if nobody is eligible for debt anymore.

        The problem is the banks aren’t lending enough and the economy is shrinking.

  3. The only question is by how much?
    By how much is merely an interesting question. The more important question is how position yourself to maximise your benefits from the bust.
    So, if I were you, I wouldn’t wait to see by how much. Borrow as much as you can and make a generous offer today, whatever your budget may allow, to secure your dream home. Today’s price won’t make a difference in a decade or two.

    • lol

      They’ll need to add another chapter to the bible to warn future generations when this specufestor cesspool property market goes full China-syndrome.

      It will be beautiful to watch.

      Anyone buying now, well, just pure hilarity.

    • I put a bigger probability on currency becoming worthless over property having 0 value. So you may be right in a perverted sort of way.

    • reusachtigeMEMBER

      This is good advice, especially on making generous offers. That is how you secure your dream home. Never lowball. That is not nice.

  4. I really do not understand these forecasts. Not having a go – but there is so much nonchalance.

    House prices in Melbourne for example can not be bought for under a Million. Any coastal “sea change” nothing under a million Victoria. You would be hard pressed to find a ten acre “tree change” near a town for under a million.

    We will now have 20% unemployment. And 60% of mortgage payers have reduced incomes and are under severe stress.

    We have lost ALL foreign buyers. We have lost ALL foreign renters and AirBnB.

    Without the pandemic prices would have to fall 60% to meet long term averages, and to meet the average prices for comparable countries / economies around the world. All of them. We are not comparable to Hong Kong.

    House prices could fall 80% .

    A cheap cookie cutter 3 bedroom on 350m2 in Tarneit is asking $500k – these should be around $120-$180k probably even less with no immigration and a depression economy.

    • Sunlord BCNMEMBER

      They will be, you’ll see 80% down in time .and that’s being generous
      What price is something valued it with NO buyer ever $0

    • Arthur Schopenhauer

      With open borders we are closer to HK than anyone is comfortable imagining.
      Without, not so much.

    • How much does it cost to build one of those cookie cutter 3-bedroom places? If you got the land for free, could you build for $120k?

      • Not at todays construction prices, but if the sh*t hits the fan in a big way, maybe the construction costs will come down as well?

        • Construction costs have barely risen over time, real costs may even have fallen. But 120k might be pushing it too far, 150 should do it. All the inflation is in the land price.

          • Not my lived experience. Built a project home (but noice), for $100k in 1996, 26 sq, 4 bed 3 living 3 bath 2 garage.
            That house now to build more than $300k once you get all the extras factored in, very few will give a turn key quote including site costs etc.
            Admittedly this was prior to gst and basix, but my income has not tripled in that time! So I see construction costs as being quite inflated, and somewhere today was mentioned that alot of developers have 50%+ profit margins, just saying…

    • Jumping jack flash

      This.

      Imagine what house prices would be if you didn’t/couldn’t use debt to buy one and only relied on a modest amount of savings, say 20% at most, out of a median income, over a sensible period of, say, 5 years, to buy one outright.

      That’s your median price, without the requirement for debt.

  5. APRA have given the banks it’s blessing to extend the repayment deferrals until May 21. By then there’ll be a vaccine and the borders opened.

    • and you think everything will miraculously just start from where it stopped over a year before?
      it takes years to rebuild what gets destroyed in no time. Did you ever started a business? ask someone who did?

      • The governments number one policy objective is rising house prices, ahead of the health of citizens, ahead of national security. There will be more jobkeeper, seeker, rentassister, budget repairer, Bail-iner you name it.

        • Lets just forget about the idea of MMT for a moment, lets remain in the global financial system we are in – reality.

          The governments debt position combined with the banks makes any significant bailout or financial support of housing absolutely zero. Can’t happen. To imagine they can implement some sort of bailout that is large enough to overcome what has occurred is simply beyond ludicrous.

          Now what do you think a Scomo government is going to do. Implement broad far reaching social welfare to secure the economy and start the regrowth. Or – implement trickle down economics, tax cuts and austerity for the destitute.

          There is your answer.

          Not only is it fiscally impossible – it is ideologically impossible for this government – they would need to make the Nordic and Scandi countries look positively fascist to maintain house prices.

          • This + 1000
            It is ideologically impossible for this govt. They might dip their toes in it like they did with job keeper and increased seeker but their ideologies will be constantly pulling them back to austerity. MMT is so far out it is laughable for this govt.

            Plus it is unecessary. Scomo doesnt care for house prices.. he cares for the businesses behind house prices, developers and banks. Far austere ways to save developers and banks than supporting house prices.

            Why individual landlords think they will be saved when they havent in any other bubble pop in history and he hasnt done much to save them this time around is beyond me. In fact landlords actually have been positively shafted… pretty sure he specifically got on a podium earlier this year and said landlords have to take some pain in rent reduction whilst also raking up interest on mortgage holidays.
            And homebuilder wasnt exactly aimed at landlords either, only developers. They actually didnt get much other than a holiday to repay more money later. Lol.

          • banks are already bailed out
            RBA buying banks junk mortgages is better than any bailout. RBA gets all the risk for 0.25% while banks get all the 3#-0.25% profit until they default
            and at the end when prices fall 50% of whatever, banks get clean system in which they can start new cycle of property debt bonanza

          • Mick, I would agree if we were the only country doing this but everyone is MMT’ing together- no ones going to notice an odd trillion or two on the RBA balance sheet. We are all Argentina now.

          • Arthur Schopenhauer

            They all have large IP portfolios. Self interest might just trump ideology. (Aside a small clique, self interest appears to be the primary motivator.)

        • that’s just a fairy tale
          Government has no interest in house prices per se, they are just sometimes a proxy for a real goal – finance sector profit

          and if collapsing houses prices can somehow deliver higher profits for the banks, government will support price collapse

          As I said few times already, at this stage with banks safe via RBA bailouts and with covid19 providing a perfect scapegoat, our government has no interest in saving house prices. And as we can see already, they did nothing to even try to save house prices. The only things they did is trying to save construction mates by adding policies that re going to hurt house prices by shifting already limited demand onto new builds leaving existing housing (one that matters when it comes to price) in even worse position.
          Big builders in Australia are so profitable (profit margins of 50% even 80%) that it only matters for them to sell and even if price is 50% down, many of them will still survive and make profit

        • Goldstandard1MEMBER

          Anyone (like you) who says this, LITERALLY cannot grasp how large of a problem this health and economic crisis is. You think govs would avoid depressions if they could? Their eyes aren’t even on housing at the moment. There are too many problems and too much debt to inflate the housing market anymore. This is their perfect excuse to let it burn (not their fault).

  6. he doesn’t get it
    flood of forced sales is the result of crash not the cause of a crash

    absence of buyers is what crashes the market and pops bubbles

    • And there’s no absence of buyers, no absence of cash, no absence of borrowing power and cheap / free money. 👻

      • cheap free money is available to the wealthy not to the ordinary people, and it looks like the wealthy are happy to wait and buy at 50% discount

  7. So many feedback loops to come into play.
    Small business loans secured against homes
    Dual citizen jingle mail from negative equity
    Collapsing uni jobs from china withdrawal
    State government Austerity from falling stamp duties
    And last but not least the collapse of the building industry that makes up most of the productive and high paid jobs that can actually afford even basic homes outside of corporates.

    • Reus's largeMEMBER

      Look out for when the Dodge RAM’s, F250’s etc. start hitting the market, then you know that construction is in real trouble.

        • Every time – the big toys go first, then the second car, then the. IP, then the private holiday home

          Finally the family home.

          • Still waiting for carbon weapons to be firesaled so I can pick up a new ride.
            Cervelo R5 or SL6 Sworks Tarmac
            Quickly followed by a Yeti Pivot or Epic.

          • Thats a sexy bit of kit.

            I love my bikes too but at that price range, I’d be waiting for a fire sale too.

          • 2nd hand Bubbley on BikeMarket on Facie. R5s way too pricey still, same for SL6 Tarmacs.
            It appears most of those there aren’t under pressure.
            Lots of SS Evos, CAAD12s going cheap. Same for Giants.
            My mate is in the industry and sussing out a full Di2 Canyon for me for 1500, factory desperate to clear.

  8. Arthur Schopenhauer

    Was anybody here in Spain during the GFC? How long did it take for the Apartment blocks to empty of workers and stand half finished? How long did it take for projects to restart?

    • Reus's largeMEMBER

      Anecdote from my colleague when I worked in the UK around that time, he bought a duplex in Spain around 2000 for about 25k Euro, went up in price to 295k Euro then the GFC hit, dropped back to 25k Euro and now worth 30K Euro, at the time he did not care as it was a holiday home and he had paid it off already. But that does show how much a bubble can burst.

  9. Mike Herman TroutMEMBER

    So what is the impact on bank shares in all of this? I’ve always wondered about their apparent cooperation and good will through this. Maybe a deal has been done? Banks saved. Houses crashed. Can that work?

    • Yes and it has. Sure 10 years later you get a Trump because people get sick of the rich always getting bailed out and everyday man getting kicked out of his home.. but that is the standard RE bubble burst playbook.

    • Retiring boomers?

      Still $1 million, for the middle of nowhere in less than 6 days is crazy

      Aussie’s don’t understand that property can go down

      • All sorts of money up here. The road is a goat track of potholed bitumen – but it’s in a good spot otherwise. Some people value the space, water security and room to grow food, I suppose.

        • The prepper/homesteading movement is really gaining momentum.

          I guess that’s not surprising when facing an economic apocalypse. Being able to feed yourself is advantageous

          • I’m not even sure it’s that. Just older, wealthier people. And younger, wealthier (at least on the surface). Lots of X5s, weaponised Audis, Mercs etc about around Bangalow, Eltham etc.

            We just sold about 30mins south of here, much less desirable location-wise, but better set up. 10 ac, pecans, avos, mangos, mulberries, date palms, bananas, citrus, macas, chook sheds, loads of shedding, loads of water storage and roof cover to catch, fairly private (nearest neighbour 400m away), pasture for cows/goats/sheep…740k. Moonrises over hills, 4k from ocean, so ocean breeze in summer.

            That set up where we are would fetch 1M easy, maybe even more.

          • Yeah, Clunes and surrounds seems like a hot pocket for real estate. Does someone famous live here?
            Hemsworths in Byron, Russell Crowe in Nana Glen. Who’s in Clunes?

            And your old place sounds like $1.5 mill in Clunes

          • Apart from me, no one of note (hilarious emoji)

            Tex Perkins Federal
            Some bloke from Wolfmother, up the hills too
            Also Powderfinger
            Pete Murray?
            I think Ben Harper has a joint around
            Bumped into Jeff Martin at BNK (and made sure I said I was a massive fan #solame) has something around here too. (Come on! Jeff Martin!)
            Bieber just bought near Hemsworth apparently. I think it could be this place : https://www.realestate.com.au/sold/property-house-nsw-newrybar-133520434. The original owner wanted ours but couldn’t transact in time to beat another buyer. (She had more money but we wanted out as we saw what was coming and wanted to derisk)
            Zampa the cricketer just paid 2.5M for a place in Bangalow

            Who is buying because celebrity though? Definitely not for the smooth, Beach Rd-like pave and 80mm carbon hoops. #goattracks

            I honestly can’t reconcile the prices. Like someone here said, there must be gold in the hills. There’s definitely local opals, rubies and diamonds though

          • Sold my 2004 GU Nissan Patrol 4.2TDI to a bloke in Clunes back in 2018 for a few grand more than I bought it in 2016 up in Central Queensland. He used ‘equity mate’ to finance the purchase. He’d still be above water… for now.

          • Swampy… I think Bieber would be more of a “surfing, I think I’m awesome dude” sort of guy.

            And someone got badly stung by that one, $2 million for a Bunnings reno with only two and a half acres. Lol

            but what do I know, I’ve been wrong for ten years.

          • Jumping jack flash

            “Who’s in Clunes”

            Crocodile Dundee

            I grew up around this area. My mother is from around Nimbin – dairy farming back in the day. Its a nice place sure, but absolutely nothing going on industry-wise now unless you like growing macadamias. There is a pig processing plant at Booyong which I used to do some work for before I moved up to Brisbane.

            The whole place is built on fake debt money, belonging either to the people who live there, or more likely belonging to people who don’t live there but who took on a debt pile and handed it all over to someone who lives there now.

          • JJF yes to all that!
            Dairying, beef, macas…further south, avos, cane, more beef. Blueberries. There are other jobs. But yes.

            And Bubbley, I agree wholeheartedly.

          • Clunes and the Byron Bay hinterland reminds me of the Sunshine coast hinterland.

            Farming and not much else. The sunny coast has the advantage of only being 100km from a big city.

    • Mike Herman TroutMEMBER

      That sounds like an amazing set up Swampy. Why did you sell? My eye is on Northern rivers too but it looks like I’m just one of many. Time will tell I suppose…

      • https://www.realestate.com.au/sold/property-acreage semi-rural-nsw-meerschaum vale-133247946

        Mike, was all fine without kids when we moved here from Melbourne in 2011. But got to the point that every second fence post needed replacing, new paddocks needed. Got sick of the mowing (even with a 54″ go-fast zero turn). Cows became a pain – needed to start running hot wires everywhere on boundaries. Wife socially isolated – she can now walk the boys to pre-school, school, cafe. Closer to Byron golf club. Closer to work for me. Closer to nightcap ranges/vborder ranges for bushwalks etc.

        House needed a new kitchen – AsbestosCement (AC) in the kitchen so was going to get exy. Only had 1 bathroom, $$$ to reconfig house (AC in laundry and WC, we’d already renno’d the bathroom and removed AC). FC with asbestos in cladding, so changing/expanding $$$. Sub floor (tongue and groove) starting to get a bit soft.

        Lot of brown snakes around.

        Wanted more time with boys and wifey. Everytime on mower the 2yo would be on the deck hanging on the balustrading watching. Tugged at heartstrings – just burning time and money on mowing alone enough to tip me over the edge. $200/m on fuel.

        Would have needed a tractor as well, there’s 40-50k.

        If you have any q’s about particular areas, let me know. There is still reasonably priced land around, but need to choose wisely. Can share my email if you like.

        I do miss walking the paddocks early on sunny mornings, and watching the family of wedge tailed eagles we had getting about, but, tradeoffs with everything. I DON’T MISSING DIGGING FENCE POSTS.

        • Display NameMEMBER

          I finished school in Grafton up in that general area. There is not much work up there unless you are a tradie. Have you moved off acreage to one of the local towns now? It is a sensational part of the world up there. Most of my work (IT) only exists in major cities. Brisbane probably would not cut it either.

          • I’m in IT/informatics (telco/sys engineering background ex Melb) – integration, data and analytics, strategy, policy, legislation, etc.

            There’s a role right now in Digital Health at a PHN – 155k+ super if anyone interested…

            We’re in a small town. Renting. Waiting for right thing to pop up…at the right price of course 😉

        • Mike Herman TroutMEMBER

          Hey swampy, thanks for the detailed response. I really appreciate it. My partner and I really love the area and holiday up there when we can. Have ideas of a rural property so its good to hear the other side of the coin. I’ve done some reading about the effort required to maintain but its good to get a first hand account. Reckon its more of a 5 year plan at this stage but I always keep an eye out and who knows, depending on what happens could be quicker than that. I would love some advice on specific areas and what to look for and avoid when the time comes…I’ll leave the part about brown snakes out…partner hates them…haha

      • Divya,
        My cousin brought a property on the same street in 2011 for $1.1M. When I checked in 2019, properties on that street were going for $2M min. $1.6M is a drop but as you say it was underquoted at $1.3M.
        Underquoting is a dangerous game during ‘downtrends’. Coz if it doesn’t get sold then suddenly you yourself would have devalued the property!
        Case in point, this family (https://www.realestate.com.au/news/demand-for-property-doubles-due-to-surge-in-upsizer-activity/). I know what their reserve was and their aim was to achieve their buy price! Agent auction guide was 15% below reserve, crickets on auction day. Now, they are all tensed up. Will report back after saturday night dinner 🙂

    • bolstroodMEMBER

      @Swampy
      Sold well above $1.03 mil.
      4 bidders
      Successful bidder bought for daughter.
      Don’t know about self sufficiency, no town water, limited tanks.