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Tax reform group Prosper Australia today called on first home buyers to delay buying real estate ahead of the flip into a falling market, which it described as ‘imminent’.
RP Data reports there are over 900 Melbourne auctions scheduled for the weekend and 2700 over the next three weeks. Prosper believes this enough to decisively tip the market into oversupply.
“When the Great Australian Land Bubble bursts – just as land bubbles all around the world have – the freshest buyers are totally exposed. They face financial ruin as house prices fall below their debt. The crippling mortgage repayments become pointless,” Prosper campaigner David Collyer said today.
“The bursting of the land bubble is signalled by simultaneous downturns in auction clearance rates, building approvals and housing finance. ABS data already shows the latter two elements in place (ABS 8731.0 Building Approvals; ABS 5609.0 Housing Finance).
“We cannot help those who have recently bought, but we can warn prospective buyers – particularly first-timers whose innocence and heavy borrowing leaves them uniquely exposed.
Australia’s housing market is widely regarded as being in a price bubble and ‘most severely unaffordable’. Warnings have been issued by a long list of agencies and experts, including the IMF, the OECD, The Economist newspaper, Jeremy Grantham and Steve Keen.
“Residential properties are trading at between six and nine times earnings – depending on assumptions. Historically, they have fluctuated between two and a half and three times earnings,” Collyer said.
The largest element buyers are paying for is the land, not the building.
“A buyers’ strike is the only rational response to current land prices. Frankly, prices are ridiculous. How anyone can pretend Australia has a land shortage beggars belief!
“Some argue prices have arrived at a new and permanently high plateau, but the historical record shows reversion to the long term average – in every case without exception.
The experience in the USA, Europe and the UK is for sudden, jagged falls in property prices. Sales volumes also shrink dramatically.
“I remind you there are 1.3 million Australians with negatively geared rental properties. They are diverting all rents and some personal income to meeting interest payment in the hope of capital gains. When only capital losses are expected, investors will flood the market and overwhelm demand. Buyers will step back, making it virtually impossible to sell at any price.
Do not underestimate the scale and significance of the transformation that is about to unfold. Price falls are imminent – protect yourself. Don’t Buy Now!” Collyer concluded.