S&P rings the bell: Aussie property to bust

Global ratings agency, S&P, is the latest to jump on the Aussie housing bust bandwagon, predicting a peak-to-trough decline of 10% nationally with Sydney and Melbourne to experience heavier falls:

“We think Sydney and Melbourne are two markets that are likely to drop by more than 10 per cent, but Melbourne is weaker as population growth tumbles,” Anthony Walker, director, Sovereign Ratings, said.

“Victoria’s population has been growing by around 1.6 per cent annually over the last 15 years. However, it’s forecast to rise by just 0.6 per cent next year, that’s 1 per cent lower than it has been for the last 100 years.

“It’s the lowest population growth since 1917, so the housing demand from migrants is going to collapse, as well as the demand from everyone who’s in the country already because of the job situation”…

“We expect that many borrowers will remain distressed when the forbearance and government support end,” Erin Kitson, S&P director of structured finance ratings, said.

We obviously agree with this assessment. The headwinds facing the Australian housing market are immense and include:

  • Stubbornly high unemployment and falling household incomes once emergency income support is cut in October.
  • Collapsing immigration, rising housing supply and falling rents, especially across Melbourne and Sydney.
  • Mortgage repayment holidays ending.
    • According to APRA there are nearly 500,000 borrowers that have deferred $192 billion worth of mortgages comprising 11% of total housing loans.
  • Tightening credit availability (despite falling mortgage rates) as lenders become increasingly concerned about job and income security.

The big risk is that Australia’s army of negatively geared investors, facing both falling prices and rents, will cut their losses and sell. This could lead to a ‘rush for the exits’, causing a feedback loop that drives prices down further.

Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments

    • GS
      If you look at Martin N analysts
      He said 16% unemployment is up to 80% falls in price
      If anyone thinks unemployment is going to be below 16% in 12 months has their eyes closed
      I’d say his 16% extreme case is the base case
      So is 16% unemployment mean 59 to 80% falls, I’m not sure
      But very very sadly unemployment will be above 20%

      Really as a country our greed has put us in this position
      It was always coming
      The Q was when ……

      • Negative Hedge

        Realistically speaking – there is not a freestanding 3-bedroom house within a 30 minute drive of Melbournes CBD that is much less than a million dollars after stamp, lawyers, and everything else. It would have to be verging on unlivable, crumbling total demolition.

        How anyone can afford that is completely beyond crazy. There is a realistic 20% unemployment – and we just went stage 4.

        Stick a fork in it – massive price crash coming.

        • I don’t disagree with your reasoning but to be honest we didn’t just accidentally fall into this rabbit hole. We worked hard to force our way into this alternate reality. Small step by small step we reinforced the passage ways so that others could follow along. It is without doubt a bizarre alternate reality but there is one thing which is indisputable namely that this is the current operation point for the economic and social system we call Australia.
          Your position ignores the absolute necessity for financial assets to be supported by real assets (of indisputable quality). With this in mind, In the absence of real asset creation the price of all existing assets must inflate.
          You don’t need to know anything else to understand why house prices are nailed to the ceiling and furthermore asset prices can’t possibly decouple without substantial new asset creation.
          If you want lower house prices pray for a vibrant economy which creates other classes of assets worthy of fictionalization.

      • One factor I am interested in seeing play out in the fiscal drop off is the I/O borrowers of 2017-18.
        What proportion must be unviable what will banks do.
        M North says 12% of investor might sell. That’s 300k+ . That looks more 80% to me

        • Tony
          Forget the statistics
          But I know a few facts
          Most tenants are paying less than full rent half rent and many just not paying rent and there is nothing you can do as an owner
          The investor market is much worse than being reported both in resi and commercial
          No rent coming in, but outgoings interest repayment, body Corp rates land tax SMSF acc fees, etc, you can’t not repay that, the liability just builds up banks body Corp council want their Money bad luck
          You won’t find a buyer
          I don’t care what statistic they talk about
          Even if you are getting rent now, it’ll be half in 6 months or nil and you will be stuck
          These properties are an absolute complete liability
          It’s a very dire situation and owner really has no power at all
          You can’t take deferred rent from the bond
          I’d say easily 80% want to selll, many won’t be able to and will be forced to halve or more the rent to keep tenant
          Many commercial owners will never get rent again and there will be no buyer ever

          • Property as an investment is finished, actually finished AT PRE COVID PRICES
            It may in some cases become a possibility at a new price point
            It’s a big risk , but you might find it may work for the best homes at least 50% lower from pre Covid prices for some properties
            There will be too many properties that hit the market for FHB to soak up
            I’d say many you’ll be able to buy 80% cheaper still a risk of no tenant
            Maybe those really good large 1960s 1930s Tudor units in small block with very low body Corp but still very risky
            Really just own gold or silver or good equities and rent for next 3 or 5 years
            In the most part I wouldn’t go near any property at min before 2023 then reassess
            I’d wait on gold silver & equities too, you’ll pick that up much cheaper too
            Everything is going on discount
            I think HARRY DENT was always correct just wrong on timing
            I have never bought his books but i am going to buy his book

            “SALE OF A LIFE TIME “ H DENT

            I’m getting the shopping list prepared for the biggest Boxing Day sale in 100 years

            The issue is many many things for sale on HUGE DISCOUNTS but will still be not worth buying at any price

          • bcn, we agree on a lot of things but the path of the prices of gold and silver is probably not one.

            H Dent has banged on about deflation for a long time — and he’s right about credit busts being deflationary events, except central banks understand this dynamic very well and have been front-running the busts with money printing, Govts with fiscal injections. In order for deflation to come about CBs would have to take their eye off the ball and allow credit growth to go properly negative for a good while. I just don’t see this happening – they are all over it.

            Will we see corrections in gold and silver periodically? Sure. More than 10% at a time? probably not. Is a 10% correction tradeable? Sort of – if you can catch the top and bottom. I’m heavily invested but I don’t want to sell and have the price run away from me. I’d love to think there would be some hefty corrections on the way up but I’m not so sure – not until we see major central banks pull back from the brink and become hawkish for a while.

          • Sunlord BCNMEMBER

            @Dom
            There is only 1 thing we disagree on

            You believe central banks and governments can save us
            I don’t

            If we agreed on that, our views would be simply

        • Re banks
          I’ve always said to myself I it’s the banks that’ll be stuck holding these properties with no buyers no tenants
          I just can’t see how The Australian banks won’t collapse merger bail in out what ever fancy scheme they come up with
          In the end all roads point to the banks stuck with this problem

          • boomengineeringMEMBER

            Read all of H Dents books except his last one and advise you to, even if just to get another perceptive. Atm whats ringing in my ears is his statement that people will leave cities and head for regional . His example was young people would leave places like California and go to the cheaper less populated states

          • Boom
            Absolutely that has been set in motion now for the long term
            Robert Schiller talks about it
            But honestly boom you don’t need to be any Einstein to see that
            That’s underway already and won’t reverse
            The big cities in the world NY LONDON HK AUCKLAND SYD MEL VANCOUVER the Anglo major urban centres that bubbled up from Chinese money parking (Laundering) are now in reverse, population will start falling and money flowing in from China is virtually finished these cities will decline in price first and hardest and like LES said regional etc will be seeing growth now but it’s a ripple effect, as prices fall in the central large urban cities it eventually hits the regional and smaller cities etc next.
            No one can escape it’s just the degree to which certain areas outside the cities fall…. time frame I’m not sure how long it takes to ripple out depends on many factors

      • Interesting to see more predictions of inflation coming in 2021 now Congress have control of money printing. Interest rate rises are exactly what’s needed

    • Not saying he’s wrong, but he predicted the same during the last round of tightening under the Royal Commission and was wrong when it rebounded due to the powers that be unwinding any RC recommendations. If a vaccine comes through in the not too distant future, it could turn things around. Especially if OPEN TEH GATES! happens again.

      I like Martin and find myself agreeing with him, but I can’t help but think the powers that be will do anything to avoid his scenarios playing out. The country will go broke. (Detroit style). Which I concede could happen, but I certainly hope it doesn’t get “that bad”.

      • Display NameMEMBER

        There are fewer and fewer get out of jail cards left for the ponziteers. interests rates cannot really go any lower without killing the banks and we have ceased to have any macro prudential supervision, so what are the options? Mortgages to 60-70+ year terms?, tax deductible on all mortgage payments? We are really getting into BS territory. Not to say nothing can be done, but it will be clear to *everyone* that the emperor has no clothes.

      • Gavin, this is the pragmatic view, and I’ve recently resigned to it. Kitchen sink and all to keep the party going. I’ll only believe a crash after the fact.

      • So more irresponsible lending into a debt-saturated market without mass immigration led by a government ideologically obsessed with austerity and widespread poverty as the best path to more wealth for the wealthy. Oh and no more interest rate cuts in the bag.

        Scomo is trapped. What are the choices? he destroys super for a short-term sugar hit housing rescue? He prints and crashes the dollar bringing inflation and interest rate rises that only make things worse? He “invests” hugely in nation-building transformative policy (the Libs wouldn’t have a clue what that was or how to do it effectively – would most likely if not certainly only end up with more money in Lib donor pockets with sweet FA to show for it)?

        There is no plan, only ideology and spin

  1. ErmingtonPlumbingMEMBER

    Saw a property listed in the window of the local Ermo real estate this morning with a range between 890 and 950k.
    Sign says its in Rydalmere but I know the property from the photos (ive done work there) its on Victoria rd with rear lane access in Ermington.
    I haven’t seen a free standing house in that real estate window with a stated price under a million for over 5 years!
    Its time to panic!
    This crash is on!

  2. The population increase of 0.6% next year will not be adults, but the statistical “third child” being born to existing immigrants. They will not need a home of their own until they reach 20 years of age, in 2041.

        • I have not seen the “1.3 million empty properties stat”.
          Presumably Martin North believes there are 1.3 million empty properties in Australia.

          Firstly, in life Tonydd, there are many empty, unused and “underutilised” things.

          Most cars have seating for 4-5 people, but would be lucky to average 1.5 people occupancy. That is 3 empty seats per car.
          Even crowded railway carriages have many empty seats ON AVERAGE – because the train starts-off empty on the way to the city in the morning, and then is mostly empty on the way out of the city in the morning.

          Even in nature, there are many underutilised objects. Each human has two eyes, two ears while averaging only one tit and one testicle each. To say nothing about all the used sperm floating around.

          In housing it is normal for their to be many empty houses at any one time. When a house is bought, it is often vacated before the new owner takes control. And then the new owner often renovates something before moving in.
          Rental properties average quite a few weeks empty each year. When a tenant moves out, there might be one week of repairs, followed by 3 weeks of looking for a new tenant.
          Some rich people own two or three houses and only occupy one at any one time.

          In today’s bubble environment the main price components of a property are the land and the “value” of its zoning. Under this horrendous situation you find that many rundown properties sit vacant while the owner tries to get a windfall from govt in the form of zoning permission.

          The reasons above explain why perhaps 6% – 8% of total housing stock would be empty at any one time.

          In Australia at the moment there are other factors causing greater emptiness:

          * Rich Chinese have been buying dwellings and keeping them empty. These empty houses do not house any Australians. This scandalous Chinese behaviour has made the housing shortage (for poor Aussies) even worse than it otherwise would be.
          * After an epic multi-decade housing boom founded on shortage, greedy developers and politicians have only just recently allowed an enormous number of disgusting “dogbox” units to be built. I expect that there would be quite of few of these empty at the moment.
          Going on the recent past, it would be expected that 400,000 new imported people would soon fill these. However with the virus scenario it appears not quite so many people are arriving as before.

          I hope this explains empty housing.

          On thing to remember about empty bedrooms or empty houses or empty apartments. They do constitute POTENTIAL supply of housing for aussies (perhaps not decent housing, but something nonetheless). However the potential supply only becomes actual supply if there are powerful laws or changes that FORCE that empty housing onto the market to become REAL housing for Aussies.
          Do you know of any such powerful forces? or is it just wishful thinking?

          • My wishful thinking begins and ends with wanting no homelessness no shelter insecurity and a price that allows tradable industry to be competitive. That some of those houses will be ‘available’ in the coming months is almost certain.

  3. Melb pop growth was also juiced by interstate migration but Victoria economy is all but certain to lag rest of country for five plus years now and the net gain will become a net loss.I’d imagine Vic pop growth will be below long term average for at least that long from here. Don’t expect asset appreciation on any property in Vic for that time frame.

        • Yes I think that is what will happen. By the end of this year I get the feeling that things will have sped up significantly (I’m thinking of Kate and Leo on the Titanic). Just listened to the bearish MB podcast and to be honest I can’t see any counter arguments to their prognosis. We are finally going to crash and burn, and it will be wowie. I’m now thinking it will be a miracle if I am back at work before Xmas given the Vic situation. I consider myself intellectually flexible, able to consider not the norm outcomes (China exp v useful for this) and quite well read, but even I am having difficulty really accepting the most likely outcomes (and I know the Fed gov will stuff up all their policies and implementation making everything worse) so how can the average Aussie who listens to the MSM understand what is about to happen?

          • I had coffee with some mates this morning and they were like: everyone is living their lives as if there were nothing wrong in the world – like they were oblivious to what’s really coming down the pike.

            And it’s interesting, because survival isn’t about the financial side of things — it’s about being mentally prepared as well.

      • Yes! Every week the new real estate listings come out and I am simultaneously deeply frustrated that the right house isn’t there, and sort of glad that there is another week in which an asteroid strike might prevent me from buying at the absolute top of the (Canberra) market.

        • TBH I think you are lucky so far. I just listened to the MB bearish podcast and it was good to hear them talk uncensored so to speak (I think the weekly Nucleus Wealth podcasts involve a little self-censorship due to having guests, I’m much more sensitive to self-censorship after my time in China), so I would say if you can afford to hold your horses for 6 months, you really won’t lose by renting atm. But good luck either way, not an easy situation to be in.

        • I know that feeling well, I actually cracked the sads with the missus when I found my house because I knew I was gonna buy at the peak and there was nothing I could do about it. I knew I liked the house also, but with prices starting to tick up I was just a doomsayer at that point and “wrong”. But I figured I wasn’t gonna move for a long time and if I do move I’ll be buying and selling in the same market so what difference does it make?

          Plus I wasn’t going to have to sell any of my toys, which I was happy about. And oddly enough, so far they have continued to go up in value – despite Covid-19!

          Just buy with the lowest amount of debt you can is my advice!

          • Thanks Gav, yep that’s the one – I’m always grateful for your thoughts as I follow this very similar path!

        • Ditto

          We were meant to see a place today but the tenants whose lease ends end of sept are being difficult .

          I am ok with all that as this delay just exposes more issues

          Plus earning interest on our savings

          We also have an off market offer on something and we’re a little bit apart on price but I’m holding firm at where we are – all this bad news helps adjust expectations

          Good luck! Keep us informed

          • OMG! The agent just told us their property management arm didn’t send the letter to the tenants 2 WEEKS AGO advising of the impending sale and cessation of lease at the end of its term.

            And evidently no one thought to check the tenant got the letter.

            So another week delay.

            If I was the vendor I’d be spewing (though we did approach them through the agent 3 months ago) – worsening news, more delays, heightened cautiousness from buyers?

    • is it came any faster it would run us over.
      I don’t live in Mel for 6-7 years now and previously cancelled subscriptions from RE agents are spiking in mailing again. It is a sign of utter desperation.

      I have already begun throwing less than lowball offers via email for homes in QLD and the agents respond trying to sway me to come up with an offer closer to a “market price”. This would yield exactly zero response in the recent past and beyond.

        • I once tried to talk explain my cat Tesla’s induction laws and i had a much better success than talking to any RE agent what “lower than asking price” meant. They simply don’t have “minus” button on their calculator, it is replaced by “negative gear” button.

          • Hilarious ! Every single agent I’ve met bar my dec. grandfather is unable to speak of lower prices

            Actually I am going to email the principal of McGrath Ballina Byron today for some insights

        • This is some conspiracy theory flat-earth-square-moon now you talk, there’s no proof that RE prices ever go lower than asking price and thenceforth market price is set.

      • Direct feedback from an agent (who sold our place) is many vendors have a view of what a house “owes” them and it’s hard to move some people from that.

        We sold our place in May a little less than what we wanted/had offered pre Covid, and the house owed us a bit more, but we saw what was coming.

        Some people just won’t shift and will wait for the market to throw up the right buyer, or delist…

  4. TailorTrashMEMBER

    The lads at MB said it would take an external shock to undo the wonderful Ponzi Strayan miracle economy ….well external shock it is
    …. China giveth and China taketh away …..

  5. Tiliqua scincoidesMEMBER

    Anecdotally, I’m hearing property is still flying off the shelf in parts of Sydney. My parent’s home was just rezoned which might have something to do with sales in that area. Will be interesting to see how things develop later this year.

  6. Went for a walk today (because i can, because you know, no lock down).
    So 3 mini units in process of being built on a 1 house block of land. Still in construction stage. Roof just put on each unit, no ceiling. Went inside the construction site for a look see.
    Now im not a builder but i was so shocked by what i saw i took a bunch of photos.
    Walls were not matching heights. wood beams and joists supported by wood cut off to try and be level.
    Vertical and angled wood struts to support roof weight sat on wood cut offs nailed into the side of horizontal ceiling beams, with just two nails. Cables strung across the ceiling beams instead of being secured under and along ceiling beams from point to point.

    Just looked dodgy as all hell to me.
    Anyone inspecting those units once the ceiling is in would not have a clue.

  7. haroldusMEMBER

    As the renovators continued their relentless saw saw hammer hammer for another 15 hours this weekend, after going all week etc etc, the only only way I could stay sane was to cranky Northy and Edwin for a few hours and then teh MB three podcasts.

    I had Northy on bluetooth speaker while rewiring guitars.

    I know the reno cnvts won’t be listening as they are too busy yelling and hammering, but it gave me some small comfort.

    I told the missus the first thing I would do if I ever bought the place, would be to buy the noisiest power tools I could find, and settle in for a good couple of years self-renovating.

    • Display NameMEMBER

      Six or so years ago when the kids still lived at home, the oldest lad, who was out working after Uni at that stage, used to play online soccer in his room. He would be playing with his mates, but swearing his head off. His mother complained some to no effect, so during one particularly blue episode I recorded 5-10 minutes of the one sided swearing match and then played it back later in the day at full blast through the audio engine speakers I used to keep on my desk. He got the point. He did have another bout a week later when I was home, but as soon as I dialed up the recording, he got the message.

      • I wish my parents had done that when I played Snake Rattle n Roll and Street Fighter 2 on SNES. I was shocking.

        Same on the golf course. I’ll never live down having to go back to the 8th hole at Gisborne with wetsuit to retrieve a wedge from a dam. My brothers won’t ever let me forget. Shocking temper.

  8. Volumes are very low but this part of sydney is still holding strong on prices. No reason for it to but just saying, prices have not come off at all. This thing can still defy gravity!

    • reusachtigeMEMBER

      Yep. As always, desirable locations are in boom times! But these freaks just concentrate on the rare and unique problems like Melbourne and Sydney.

    • Les
      I find that hard to believe 60% up
      And I’m sure prices in some areas are higher
      Prices fall from centre to periphery both up and down
      The big falls will be felt in the regions into next year
      It’s.a bit like dropping a stone in the centre of a pond
      The “ripple” affect
      As prices rise in major cities, those high price drag peripheral areas up from centre outwards
      As prices fall in major cities, those price falls spread outwards in a ripple effect
      Sorry mate, no one is going to escape what’s coming
      This time it’s not a little ripple in a pond, it’s a tidal wave
      Get prepared

    • If you’re going to throw out a statement like that you need to back it up with data.

      I have no doubt some regionals are doing we’ll with people fleeing the city due to COVID and being able to work from home,

  9. adelaide_economistMEMBER

    “so the housing demand from migrants is going to collapse, as well as the demand from everyone who’s in the country already because of the job situation”

    I think once upon a time “everyone who’s in the country already” were known as citizens. A quaint notion in today’s world I know.

    • For undesirable areas that might just be true. A previously 1M property which a bank will pay you 100K to take off their books only to raise the offer to 200K when you refuse. Especially if it is a high rise under imminent threat of collapse for which you as an owner would be partially liable.

  10. NEW ZEALAND …

    New residential property listings in Auckland were up 39.7% in July compared to July last year … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/106335/new-residential-property-listings-auckland-were-397-july-compared-july-last-year

    There was a flood of new residential property onto the market in July, particularly in Auckland.

    Leading property website Realestate.co.nz received 8808 new national residential listings in July, which was up 20.7% on July last year, and was the highest number of new listings for the month of July since the tail end of the last property boom in 2016.

    The rush of properties onto the market was particularly strong in Auckland where 3425 properties were newly listed for sale on the website in July, up 39.7% on July last year, and the highest number for the month of July since 2015. … read more via hyperlink above…

    … as increasingly affordable new supply ramps up … an MB post this morning …

    https://www.macrobusiness.com.au/2020/08/links-3-august-2020/#comment-3951385

    NEW ZEALAND … BREAKTHROUGH … PROPERLY DEBT FINANCING INFRASTRUCTURE …

    Let’s hope Australian residential subdivision developers are participating too.

  11. I got a bit of coin saved up in the bank, plus I am debt free, I wonder if the Bank will call me up to see If I am interested in buying an IP. I would guess they are not allowed to spruick property, but they might be desperate to offload some repossessed properties to some of their customers, it’s that or they bail-in your money.

Leave a reply

You must be logged in to post a comment. Log in now