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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.
Very good, but how can we get the word out there.
I have created a Get Up campaign to promote this idea and will be writing a blog on the suggestion very soon. Vote for the suggestion here:
http://suggest.getup.org.au/forums/60819-campaign-ideas/suggestions/1595687-first-home-buyers-property-buyers-strike
Fantastic idea BB, the power of the people is there. We know they want this. This buyer strike and getup poll is already gaining significant traction and can be seen on quite a few forums I frequent. Help spread the word guys.
hmm no mention of China? our economy and property has been doing so well because of the mining boom.
I dont think the property bubble will burst unless China crashes – and there is definitely a chance of that – China has been buying our materials to build buildings that no one wants to live in.
google/youtube Jim Chanos for some interesting insights – he predicted Enron and the GFC.
How can we get the word out there.. simple.
Use your networks. Social media. Post links to this
article this on facebook, linkedin, twitter etc..
Support the GetUp campaign:
http://suggest.getup.org.au/forums/60819-campaign-ideas/suggestions/1595687-first-home-buyers-property-buyers-strike
Tell everybody who will listen and even those that won’t (baby boomers!). Send sms, email and encourage people to pass on the message. We have strength in numbers.
Join our Dont Buy Now Facebook page and share!
The state of the housing market is very depressing. I feel anxious and overwhelmed every time I look at it and we have decided that until we can get some small value for our money we will not be buying a house.
We will continue to be disciplined by saving what a standard mortgage in our area would cost but as for now, due to my anxiety, my husband has ‘banned’ me from looking at houses! : )
On a side note – I am torn about this issue because I don’t want the people who have already bought a house to be in stress if the market does decline but I also want an opportunity to buy something myself so it is really hard. I am prepared to pay good money for a good house, I just cannot bear to pay $650k+ for a crappy 3-bedroom house that will need to be extensively renovated just to be livable. It’s very overwhelming!
You will get no housing crash until unemployment goes up – simple as that. If you want a taste of what that means – compare Cairns property prices to Townsville. Unemployment rate between the two is quite different and consequently the rent and house prices reflect that.
The sentiment in this article is all good, and there is no denying that housing in this country is expensive.
I do feel that approach pursued however is somewhat opportunistic and naive and the reasons in support are limited and do not reflect the diversity of the national market.
The article seems to ignore the economic notion of ‘want’. If you take the Sydney Market as an example, there is great choice in location, dwelling and the lifestyle options that drive house prices. Property around the inner city and in the East is expensive when compared to the size of land reflecting location and lifestyle. The prices relfect that people understand this and choose this. This factor is substantiated by the fact that if you travel 30 minutes West or South West from the city, housing prices for an equivalent dwelling will drop dramatically.
Australian does not have one property market. If people want to live in a certain location and to enjoy the lifestyle that an area affords them, or to have a type house that ‘artifically’ increases the value of the property well above the underlying land value, then they should be able to, and thus pay the premium.
If you examine the economics involved, encouraging the supposed housing bubble to burst does the economy and ultimately no one no favours. Given the state of the domestic economy is and therefore average wage earnings is intrinsically linked to the housing market, you are only risking a crash and a recovery that only further sharpens the blade that separates those that can afford property and those that cannot.
@matt – a crash is required so that australia can move past its obsession with non productive housing. The sooner this happens, the better positioned our economy will be to deal with external shocks.
@Matt, Australia does have ‘one’ property market commonality, ie it is expensive at any and every level, there is no ‘value’ for home buyers, there is certianly zero value for first time buyers and there is bugger all value for investors, which in fact for the last 8 or so years have been only speculators chasing government and bank sponsored price increases. A home buying strike for FHBers is a great move and thats comming from me, a so called baby boomer (who didnt have it on a plate by the way). There are far to many people who got in at good prices, ie pre the last decade and take great pleasure in pulling up the rope on account of an ‘Im alright Jack’ attitude.
In fact the whole system around housing, from the government, the bankers, the RE agent, the RBA, etc etc is just a massive con to keep a handfull of people in clover and many of the rest believing that they are richer than they were last week, all for free and thus spending more money on frivoulous things with this newely aquired wealth.. Another perk for VI businesses (or are they now starting to pay the price with low sales in retail?)
Prices will fall enourmously and anything to speed the process can only be good, for everyone, very much including present home owners who will be able to trade up for less money and ultimately see their kids aford somewhere to live. And lets face it , who should give a damn about the ‘investors’ if they were actually investing as opposed to speculating they would only be interested in the return on capital, not price rises.
Don: You have the cart before the horse. Usually the asset-price bubble bursts first, and the rise in unemployment follows; cf. http://groups.yahoo.com/group/ozgeo/message/213 and http://blog.lvrg.org.au/2010/10/40-years-of-housing-bubbles-and.html .
The one sure way to prevent present prices from crashing is to increase loan-servicing capacity by cutting taxes on current income or expenditure (e.g. by abolishing GST or payroll tax) and replacing the revenue by increasing taxes on “capital gains” (cf. http://blog.lvrg.org.au/2010/11/price-indices-say-housing-has-peaked.html and http://is.gd/pbaYR6). Buyers should go on strike until that happens.
I agree with all this sentiment.
BUT…
We must be careful what we wish for: a housing downturn will absolutely hammer the Australian economy…
What will bring this bubble undone is its very success: having successfully driven house prices skywards,
the cost of entry into the market is now prohibitive so that the flow of new entrants is drying up. Since
the Scheme depends on a constant flow of new entrants, this alone will bring it unstuck.
Note sure it was a good thing for you guys to call for this, as it is clearly already happening (the crash) but nevertheless, what we really do need is a Royal Commission into the crap that call themselves real estate agents, real estate market analysts and the like.
The real estate industry has more undesirable types than ever the tow truck driving industry, or the security industry ever had, and this scum is totally out of control.
@Steve. I agree with you regarding the flawed system, that fills the pockets of parties propogating house ownership myths and spreading fear for those ‘not in the market’. It is crazy to think that these days the law surrounding purchases is still grounded in common law, making it risky for the unsavy not to use solicitors and agents.
Where I agree prices are high, they still reflect what people are willing to pay. I have heard the same story for 15 years from every would be property nostradamus that a burst of the housing bubble was imminent and that purchasing would lead to financial ruin. The point is that the property market doesn’t exist in isolation. When you look at the volatility of the share markets over the last 2 decades it’s understandable that people see value in the utility in a roof over their head which also serves as an investment. I’m not saying that it’s a great investment, but it’s one that makes sense to people.
I just don’t see the possibility of a crash in the fundamentals with the ever increasing population, steadily growing economy, the supposed mining boom, and the relatively low unemployment and increasing wages post GFC. If the bubble was going to burst it would have been in 2008. Australia at present has one of the highest interest rates in the developed world (resaon the dollar is increasing), the FHB benefits have been somewhat relaxed, and post GFC the share market has again risen some 50%. You would think that all these factors should result in a serious correction of the housing market, but really it hasn’t. What are people expecting the happen to make the bubble burst? Is this notion driven by something real, tangible, and previouly proven, or is just an emotional plight of those that are yet to purchase.
To get the word out there, you guys need to do some media releases. Or submit it to newspapers. (news releases)
Totally agree William – this needs some mainstream media attention to help take it to the next level.
@William @Jacon: Let me assure you this press release went to every media outlet in the country. The mainstream media will never give such a campaign oxygen. We rely on the internet and word of mouth. Vote at GetUp, Like the Facebook page. Tell your friends. I remind you this campaign is merely 4 days old. We have only just begun.
Maybe if First Home Buyers did what we all did and bought a humble first abode and drove an older car they would not have a problem finding cheaper properties in their price range. What makes First Home Buyers think they are entitled to a 4 bedroom brick home with 2 garages and a theater room + a shiny new Prado on the drive.
Get with reality folks, do what your parents did and buy, renovate, sell and upgrade….Sounds like too much work – well that may be another problem…
Bart Meuller
http://hungrybeast.abc.net.au/team
Suggest to try and get exposure on a program such as Hungry Beast on ABC 2. This is the kind of stuff they go for.
This idea could really take off. It is the greedy banks and real estate industries worst nightmare. It may even force the government to do something about it instead of the first vendors home grant and capital gains deductions for existing property investors.
Hello, I have just read through this blog, and I believe this is a an immensely important issue.
Simply I think that the present circumstances seem at times ominous.
I chose the word ominous as in my view a society that functions well, does so due to the level of empathy that its members feel for one another.
At a certain time in life we all need a place to call home. I believe Housing affordability has implications for the success or failure of our society, As at a community level whether we pay a bank it’s fee, or the land lord their rent, will very likely determine our right to become a more permanent of a community.
I deeply regret that a person who rents cannot usually say with certainty where they and their family will live in 2,3, or 4 yrs time. Equally a person with the burden of an onerous mortgage will face uncertainty in the face of the pressure to meet their repayments.
But what can I suggest as an answer to these issues?
Perhaps we need to again focus on a house as a place to live with in our community, rather than a vehicle to be traded.
Good luck with your call to arms, Prosper Australia. It might educate people to the BS and excesses of the property market.
I just saw this thread supporting the campaign on one of the australian property forums, seems like the word is spreading!
http://australianpropertyforum.com/topic/8506527
Up to 4th position now. Nice one!
Jay.
I got this link via MacroBusiness.com.au, and have relayed it to interest.co.nz. New Zealand and Australia are so inextricably linked with this problem. We, too, are headed for an inevitable property prices fall. After all, ‘your’ banks..are our banks..! If your market doesn’t drag ours down…ours will surely drag down yours!
I just came across this link via Getup via a comment on this article in The Age:
http://www.theage.com.au/business/property/fringe-prices-out-of-reach-20110327-1cc1r.html
If you would like an investor’s point of view of why to avoid housing, I have been following Kris Sayce’s sage advice: http://www.moneymorning.com.au/
Also a well known international investment group visited Australia recently and here is what they had to say:
http://www.fool.com/investing/international/2011/02/08/one-last-giant-property-bubble.aspx
If you search both these site, there are many articles about the state of Australian property.
I have been talking to a brick wall of deaf & ignorant (with a few listening & thinking, but seldom acting) now for months. The Australian RE crisis is self-made and would have been avoidable… but now no longer is! It is the result of blatantly obvious issues not being addressed in time!
A sustainable market is based on a sustainable functionality, preferably positive gearing (positive cash flow) as that would allow a traditional business model to replace speculation & artificial incentives driving a market into the abyss.
I am realistic enough that a positively geared market model is not something possible overnight… especially as Australian interest rates are about 3 times higher than the international average in developed countries.
But I would have at least expected that current imbalances would have been analysed properly and measures for correction taken. But, nil, nada! A hopeless disaster!
None of the major players (government, RBA, banks, RE industry, stats spruikers, media) has shown ANY leadership in addressing issues!
Re: Buyers strike campaign. Outright dumb! All that does is help to further destabilise the market with the intent to crash it! We need market reform not a market crash bringing down the system! Imagine the consequences! Why destroy something that has fundamentally great potential just because it is currently in a self-made state of disarray? All it needs is fixing!
90% of all negatively geared property is in existing dwellings so the idea of investors providing homes for renters is complete self serving rubbish. NG should be available only for NEW houses so that stock increases – but that would be bad news for the parasites.
BTW don’t worry about any sympathy re the speculators – do you think they give a damn about you?
I whole-heartedly endorse this buyers’ strike and encourage all prospective purchasers to boycott the market. Stick it to the speculators!
Well, until I’ve bought that is.
Strike Buying any home – The day of reckoning has arrived for the ‘smart’ Specvestors with a good eye for property !
Who will they sell to in order to make a profit apart from selling to them selves – let the Specvestors cannibalize themselves!
DONT part with your hard earned money to feed a greedy specvestor.
True value (based on returns) are what they were valued in 1999/2000 – don’t offer them any more than the 1999/2000 value – in fact don’t offer them anything!
Strike – Strike – Stike – Dont Buy – Dont Buy – Dont Buy
All governments in power since 1999 are to blame – something could have been done to curtail this house price absurdity & this legalized price gouging – housing, one of one of the most important necessities apart from food and clothing has been speculated at the behest of specvestors.
Let the housing Armageddon unwind – the young, the prudent and the patient will be rewarded with affordable prices (relative to average income)
Now it is time for the governments & the sepcvestors to reap what they sow!
Can’t wait for it all to crash
I’ll be selling popcorn and hot dogs on the side lines while its all happening as I watch the Specvestors cannibalize themselves
I would strongly suggest extending this campaign to ‘reforming’ capital gains tax for first home buyers (FHBs).
I have been trying to boost my savings by investing in the stock market, exposing my hard-earned capital to risk and contributing to a pool of funding for Australian companies. It makes me sick to have to send a big [for me] cheque to the ATO just because I was lucky to make some gains before the GFC kicked in.
I read a comment on cutting payroll tax and increasing CGT – why not cut BOTH for people who can’t afford a mortgage yet? Increasing CGT only increases the obstacles for FHBs as they are PENALISED FOR SAVING their money.
I’ll be right next to you Specvestors with the fairyfloss and balloons. Burst bubble .. burst!
Too funny, I’m Canadian and we have our own version of the property bubble. The reasons the real estate agents give for our house prices being absurdly high are the same reasons I’ve heard here.
It’s crap here in Canada and it’s crap in Australia.
Support the idea, first home buyers are hanging themself by paying up fat agents and excessive housing price, this is a the biggest ripoff in your life time. The great aus housing dream is a nightmare for young generation. It is the ripe time for a reform to take place, cut negative gearing, limit agent commission, encourage people to save money. The housing price must come down, so keep good work, lets go strike and wake up policy makers, it is not fair that we have to pay more tax because we don’t have an investment property.
There is no reason in this world for housing ( land) prices to be so expensive. Its as ridiculous as saying the most expensive commodity the Eskimos have is ice. Prices are manufactured and totally artificial. When I am asked about my opinion on housing prices my reply is standard. “ depends on the lever of stupidity of investors” . If bloody housing is so great and stable how come institutional investors wont touch it?. When one comments ( usually Real estate agent )that its a good long term investment what are they comparing it to? Commercial property? Blue chip shares? What
I’ve had this attitude (avoid buying until the bubble bursts) since I saw an ABC doco in 2007 which predicted a financial crisis because of american sub prime mortgage rates resetting.
It’s good to see I haven’t been kidding myself as it’s been a few years and I’ve been starting to worry that maybe I got it wrong.
Additionally – property value (to a lesser extent than shares) depends on how people feel about the worth of property. If enough first time/home buyers like myself are wary and stay away, then the investor market will panic and prices will drop *sooner* rather than later. So come one and all and join up!!
In the meantime strikers should take a look at the First Home Saver Account – have that ready for the day when the bubble does eventually burst….
Another point in favor of not buying – did you know that being a home owner increases your likelihood of being unemployed? Because if you’re a home owner you’re less likely to be willing to move to get work…
I just need to buy a suitable property to live in. I have cash, but refuse to pay the inflated prices to feed the greedy!
just another woe added to my misery….
I bought my townhouse in Cairns in July 2008 – It cost 145k. I thought that was a decent price – you could not get a cheaper TH in cairns. So i bought it – i only had 11k deposit but i thought it will be ok.
i lost my job last year so i had it on the market. The best offer i got was 105k.
I dont know what to do. I thought i was doing the right thing by buying a cheaper place and using what money i had for a deposit but it seems i made the worst mistake of my life. Agents are telling me price will not rise for at least another 18 months. Along with this – the Body corporate fee went up by $1000 (just over actually) as a result of a 100% increase in insurance. And no doubt council rates will rise again this year.
I wish cyclone Yasi blew it away.
I have now rented it out but the rent is not covering costs! its fantastic…
Welcome to my nightmare. Property is a waste of time these days – it was ok 30 years ago when it was worth it – not now.
Real Estate agents have a lot to answer for too.
they charge these redicouous prices and for what ???
I was quoted: 2.5 first 18k, then 1.5% for remainder + advertising costs, listing costs, search costs and what ever else they can get away with.
I hate RE agents – it is very bad and cynical of me – but i cant wait to see these bujsiness go broke for being a complete rip off.
I will never buy proprty again – Id rather live in a small box and pay rent then have the overhanging axe just waiting to fall on my neck! Stress worry anxiety and i thought i was doing the right thing!
makes me sick