POP! The real estate bubble has burst

The Great Australian Land Bubble burst at 10.30pm AEST on Monday 11 April 2011, according to Prosper Australia campaign manager David Collyer.

“The era of towering prices – of superhuman personal sacrifice by every young couple to fund a mortgage to buy a simple home – has just come to an end,” Collyer said.

“Now comes the grand unwinding, where house prices go into free-fall, owners despair, buyers sit on their hands and our banks call in ‘underwater’ loans where payments are not being made, selling homeowners up for whatever they can recover.

Australian house prices have been receding since April 2010 according to RP Data. The supply of houses has exceeded demand since then.

“Falling values and falling volumes over an extended time are decisive indicators of a new bearish trend,” Collyer said.

“Throughout the Buyers Strike, Prosper has characterized the bust as ‘Imminent’. We now say the inflection point has arrived: Australian prices have passed Top Dead Centre.

“The fatal puncture was delivered in the Housing Finance figures from the ABS on 6 April. They were shocking – the lowest in 32 years – and followed three months of similar dismal commitments. First home buyer commitments showed the largest fall.

Overnight, US commentator Mike ‘Mish’ Shedlock of Mish’s Global Economic Trend Analysis pointed to the bust. Shedlock is not a larger or more important figure than the IMF, the OECD, The Economist or Jeremy Grantham and others who have issued stern warnings of our bubble and impending bust. But the onus of proof has now reversed: the narrative has moved decisively from ‘prove we are in a bubble’, to ‘prove the bubble has not burst’.

“Australians would never trust a home-grown expert, but slavishly follow the work of overseas economic seers. Shedlock pointed out ‘The emperor has no clothes.’ This observation can be made by a small boy and abruptly, decisively change perceptions,” Collyer said.

The Rudd government took a major risk with the First Home Owners Scheme – more correctly described by Steve Keen as the First Home Vendors Boost – and gave the Australian market another leg up even though our peer countries had turned decisively down. This merely delayed and worsened the terrible costs of the return trip.

Rudd was determined to see the bubble did not burst on his watch. The FHOG is now discredited; anathema to Gen Y buyers who observed its effect and learned it simply inflated prices and went into the pockets of sellers.

“This wilful waste of taxpayers’ money merely increased the anger and frustration of first home buyers.

“The federal government has no further tricks in its bag. I can’t think of anything it can do to turn public sentiment around this time.

“Global investors will short sell the Australian banks directly and drive them down. The banks are an excellent proxy for the Australian housing market. Investors know exactly what to do, having already participated in the US, the UK, and the European property crashes,” Collyer concluded. ENDS

David Collyer owns ANZ shares.

21 Comments

  1. Yendis12-04-2011

    It is quite interesting that people have begun to realise the effects of such things as the First Home Buyers Grant (FHOG) and Negative Gearing. Two tax policies which produce effects adverse to the interests of the majority of people. Yet our Federal and State governments do not appear to know this. It is also evident that with other taxes this lack of knowledge as to their effects, prevails.

    Whilst there is much angst about the price of “houses” there does not appear to be too much inquiry as to why the prices keep going up. If food rose as house price does there would be an outcry from across the spectrum. One could expect demonstrations in the streets outside parliament. (Perhaps not in Australia, but other countries.)

    This continual rise in the price is due purely to the land component of the “house.” The building, as with all man made products depreciates. The land appreciates! It is this that makes the difference. The reason the land continues to appreciate are several; each site is unique; government money spent on public works such as roads, rails services, fire dept., police, medical services all reflect in the value of land. Landowners speculate on that value. The bigger they are the more successful their speculative dealings. Not reliant upon his home for his dealing insulates the big landowner, developer, from some of the vagaries of the market place, certainly at a personal level.

    This is not a good choice for the average home owner. Whilst he may speculate he has little to deal with and, seeking a roof over his head, must pay out as much as he makes one property on another. Should he be caught in the wrong phase of the market he will pay dearly. Should he be in the “right” phase of the market the amount made is restricted by his need for another home. (Such things as the FHOG raises the price of a house for everyone, not only the First Home Owner.)

    Seeing the problem – increasing land price – is a start. The answer to the problem lies primarily with the people and their representatives in the countries parliaments. It is evident that land value is made by the activities of the people. Their willingness to pay for the community services (listed above) and the willingness of individuals and companies to spend on individual contributions to the general wealth of the community, all make land value a creation of the public generally. It is a simple task to realise this public value for the community. First ascertain the extent of that value and then collect it as rent. Collecting it this way will produce good income with the least burden upon the consumer. This is not new. We have been doing it for centuries. It is just that certain landowners prefer to collect this rent for themselves. We should change that.

    The crash of house prices will, in all probability, bring down the price of all property and there will be some bad, really bad, side effects. If we do the right things, we collect the rent, then none of the bad things are needed to correct an intolerable situation.

  2. aushousingcrash12-04-2011

    “our banks call in ‘underwater’ loans where payments are not being made”

    The real excitement comes when the banks call in for top-up’s (margin calls) due to unsatisfactory value of underlying asset. Read your homeloan contract… its there !!

  3. SS Australis Ponziville12-04-2011

    The Ponzified housing bubble that engulfed Aus is a product of:
    1. maniupulated / manipulative govt policy makers,
    2. conniving interest-chasing banksters who play entrapment with naive FHBs,
    3. self-centred RE lobby, happy to serve up FHB on a plate to the banks for a 30 yr non-parole term of debt servitude, and
    4. MSM – media cheerleaders for the vested interests who have the policy ear of our elected ‘leaders’.

    The game has been so rigged for so long that I do not expect the ‘organisers’ to go quietly.

    Any substanial fall in prices will be met with:
    1. RBA hitting the panic button, or
    2. introduction of Loan Interest ‘holidays’ (happened in Ireland – but still prices got smashed), or
    3. possible changes to tax policy to bail out investors or make it easier for them to take on more debt (funded by tax payers of course)
    4. increase immigration intake of ‘high wealth’ individuals to address the ‘mining boom’ (just ignore the fact most will end up in the burbs Melbourne or Sydney), etc.

    The Hindenburg needed hydrogen to blow-up, SS Australis Ponziville has Interest-only Loans* and negative gearing* for 2nd hand residential housing.

    Welcome to Casino Australia – gamble on the Urban Myth that RE always goes up. Simple really, just gamble there is a ‘bigger fool’ out there.

    Time to lobby local MP (certified mail to receive a reply).
    http://www.prosper.org.au/2011/04/11/lobby-your-mp-on-housing-affordability/

  4. Pete12-04-2011

    Hahah you guys are morons

  5. Zippy13-04-2011

    Love this guys.
    Keep up the good fight.

  6. Rich13-04-2011

    Yendis, what you are proposing was tried in medieval times, it’s called a feudal society, except you want the government to replace the knights/Lords.
    The best thing is to not meddle at all, land prices in Australia have traditionally been low, because there is land aplenty. Recently (past 20-30 years) Governments have deliberately controlled the supply (have you tried to deal with a planning department?) and then the demand (FHVB, immigration etc). It’s not rocket science, the government should stop meddling and the price will reverts to a natural “affordable” level. The only meddling I would advocate would be that capital gains discounts on property sales should only occur if you have owned the property for 10 years minimum. Currently it is one year, the same as share trading which sees variations in one minute what property sees in one year??

  7. Ned13-04-2011

    This may not sound smart, but the FHBG, BER, Grants & taxpayer funded PPP’s are little more than ‘Public Private Zero sum- money laundering inflation game exercises’. Public private Partnerships like the Desal plant and MYKI confiscating public Finance on taxpayer credit cards to debt contracts syphoning off the money into private corporations greedy hands for stock market gambles. The Desal is a case of how private contractors can sue the public, and cause more Public Debt as a money laundering exercise, under the guise of breaching contract, this makes public liable to being fined by private corporations who are subsidised by the public and given a free ride on public debt for infulstructure projects. This would not happen under a Total National public infulstructure housing or infulstructure consumer protections project. The ACCC is a toothless tiger considering the hyperinflation in house prices and utilities etc, etc. The so-called fair Pay commission along with other agencies are a sham scam to keep wages down while inflation and land prices went to the moon. Those Golden hammers dropping at auctions, were nothing more than life sentences being handed down to FH-buyers, but how quickly are they to roll up their flags, jump into their flashy BMW and never be seen again when the games-up. Community Maggots Indeed!

  8. Yendis13-04-2011

    @Rich. You present an interesting point of view. “ The best thing is to not meddle at all,” this is the “laissez faire” argument and assumes that everything is OK. Patently, everything is not OK. Not only is the cost of a home becoming more unaffordable to first home buyers, those able to afford the money are literally buying into a scheme whereby what they buy will be far less valuable after they have bought it: there is also a background of homeless people and people who are struggling to afford whatever they may presently have. Undoubtedly there has/is some attempt by government via subsidy, grant, interest manipulation and “planning” rules to control the market to the interest of those currently holding land; it is obvious that these efforts have failed (not unusual for government) and this is evidenced by the falling market. The 18 year cycle of boom bust is not in the interests of either the consumer or business sectors of society. Many correspondents on the Get Up site have noted that buying a home is buying into a 30 + year “slavery” contract with a bank. And the rules of ownership were written by the bank!

    Something therefore has to change. There is no justice in the present system, it is fraught with risk, financial danger and is not in the general interest of our society. I prefer to stand up for the people rather than a system that not only doesn’t work but actively rips people off.

    Certainly I am not recommending a return to medieval times. Government has replaced the knights/Lords, as you put it, and they are certainly more “lords” than knights. The medieval system was “tried” for some 800 years and wages were certainly better (see: Six Centuries of Work & Wages. by Thorold Rogers). Our current “system” stems from the English land enclosures fostered by politician, church and “lords” of the land (landlords or Robber Barons whichever you prefer) which brought about the end to the feudal system. The “feudal society” you refer to was based upon the landowner paying to the Crown (government of the day) the dues. Other than that this does not comply with our ideas of “democracy” (we think we should all pay taxes) the system was not all that bad except for the occasional Sheriff of Nottingham. But then we had a Locksley to counter that. Today, of course, he would be labelled a “Terrorist.”

    Realistically there is no reason for the immense intrusion of government into our pockets. The land value is a community value and the rent should be paid – to us all. That would seriously alter your boom – bust land speculation and the misery, let alone the murder, is brings about

  9. Davidsb16-04-2011

    Who Am I?
    I am the basis of all wealth, the heritage of the wise the thrifty and the prudent.

    I am the poor mans joy and comfort, the rich mans prize, the right hand of capital, the silent partner of many thousands of successful men.

    I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down to children through generations as a thing of great worth.

    I am the choicest fruit of toil. Credit respects me. Yet I am humble. I stand before every man bidding him to know me for what I am and possess me.

    I grow and increase in value through countless days. Though I seem dormant my worth increases never failing, never ceasing. Time is my aid and population heaps upon my gain. Fire and the elements I defy, for they cannot destroy me.

    My possessors learn to believe in me; invariably they become envied. While all things wither and decay, I survive. The centuries find me younger, increasing in strength.

    I am the foundation of Banks, the producer of food and the basis of all wealth throughout the world.

    Yet I am so common that thousands, unthinking and unknowing pass me by. Who an I? I am Land.
    Author unknown?

    This may be found in many Real estate agents offices in Queensland. Is it an exercise in sophistry?

  10. Gary29-04-2011

    The real estate sector booms because people are greedy and lazy. How easy is it to stand in front of a house, wave some papers around and say ‘sold’. There’s no risk, no thought, no planning needed. If the price continues to go up then so do the associated profits…. However, what is the cost? Every man and his dog starts to invest in the magic elixir of real estate, it never goes out of vogue, never looses it’s value, it’s like pots of gold sitting in the streets and all you have to do is grab a shovel and fill up. But what happens to other areas of the economy? The industrial sector starts to decline, we can’t compete with Asia they’ll say. We can’t compete because we can’t invest, it’s all going to real estate. Then retail starts to decline, the internet is to blame. Jerry Harvey is pulling what hair he has left out…….. how could this happen to me? Docklands fails, Clive Peters goes under, Colorado goes under, Boarders goes under and the list goes on…….
    Yes it’s wonderful, invest and buy, invest and buy, keep building that tower of Babylon and ride the beast until your back is broke, it’s fantastic fun. When you’re in a casino and you keep spinning that roulette wheel and win every time it is fantastic. Until one day, the casino runs out of chips…… your money is worth nothing…… and there is no taxi to drive you home…….. The bubble goes pop!
    I really can’t understand the absurdity of some the people writing here, Yendis WTF?
    The government spends money on infrastructure? It is the land that appreciates? Maybe in a textbook but not in real life mate this does not happen. With real estate you get less for more all the time….. In addition there are no scruples when it comes to the real estate sector, if an agent could sell you land only big enough to place a flag pole on in the centre of Australia with no services or infrastructure for a million dollars they would. Australia’s real estate sector has been an orgiastic phenomenon in the local economy. The party is finally over and now it is time for most real estate agents to close and for agents to go get real jobs and actually contribute to the economy instead be part of a phenomena that has sucked Australia dry of potential.

  11. can’t wait01-05-2011

    The more the prices of houses, the more the prices of goods and services. Every business has to reside somewhere. It is to the disadvantage of community and people when most people invest in housing and push the prices up to the limit where people like me have to pay half of their income on a mortgage only to live somewhere. Some others can’t afford to have babies because both have to work to afford to live. This is inhumane and unjust. So let the housing prices fall and let the bubble burst. Let all those who have invested suffer great losses in order to think twice before they try to enslaven others specially the next generation. I can’t wait.

  12. Real Estate Rockhampton03-05-2011

    That is really a matter of concern for all the real estate company.

  13. Mark18-05-2011

    There’s going to be tears! Just brace yourselves.

  14. syd02-06-2011

    Call me naive but as someone considering entering the Sydney property market (as owner/occupier) my experience is that the bubble is alive and well. Eg; a 1 bedroom Darlinghurst apartment with an agent’s indicative price of $550,000 plus sold in a mad pre auction scramble for $650,000. As Pauline once said, please explain!

  15. Robert22-12-2011

    30 years ago you could get a house and land package in North Perth (Craigie) for $35k same deal now 20 times more yet the wages have not gone up that much. Then the land was owned by the govt then sold on to large corps who land bank it – basically hold us all to ransome. Landbanking, realestate agaents all a bunch of crooks and we know it, but whilst people are too stupid and greedy it continues until it goes pear shaped and it is and will continue to do so.
    There is nothing can be done, first time buyers should be able to afford a real house comfortably and not struggle, or having to wait for children until late thirties or rely on wills from their families to get them up the ladder.
    Australia is far too expensive to live take the common Mars bar UK less than $1 yet Aussie almost $3 – people should stop buying them, then the prices will come down – same with houses – we should not be held to ransome everything is out of control in 8)s could rent a 3 bed duplex in Perth for $55 a week same costs $350 now

    absolutely ridiculous – let the house prices crash – this will hurt many but will bring us all back to reality

  16. Oswaldo Fong16-01-2012

    A round of applause for your post.Thanks Again. Cool.

  17. a SOVEREIGN man05-02-2012

    People have been laughing at me for many years, when I told them, Australia’s real estate is a bubble and Australia ITSELF is highly overrated(mostly by Australians themselves, becuause they mostly listen to the same media owners, that is Rupert Murdoch and his Jesuit associates…). And Rupert Murdoch and his Jesuit buddies have VERY selfish interests…

    Great to see, the bubble is starting to burst! People have nothing seen yet. It has only started. Many Australians will wake up in pain in the years coming, but hey… many decades of dreaming “Australia is the greatest country in the world”, while being under the tight but discreet rule of a secret (mostly European) Jesuit oligarchy have seen the people of Australia become more and more enslaved.

    The revolution will be starting in Europe and America first, before it hits Australia too. The overthrowing of a several centuries old secret and hidden world government of a few dozen of (mostly European) royal bloodlines, will finally bring back the power to the people. But it will take a lot of courage and decades of struggle from us the normal people before…We WILL finally take our land back and our birthrights and our sovereignty. Our RIGHT to own a piece of land in sovereignty where nobody interferes and nobody charges a tax on it. And our RIGHT to live our lives the way WE WANT without any tyrant government interfering into our private affairs and our property.

  18. FML12-06-2012

    My God…Your all a bunch of crazy f**kers, stop speculating on a bunch of bullsh*t. Yeah realestate prices in Australia may drop a bit, but there is a thing called supply and demand. There’s no conspiracy theories or hidden agendas, the reason housing is unaffordable is because our cost of living has gone up, and the fact that we all have mobile phones, internet, foxtel, more than one family car, expensive holidays, name brand clothes and bags, a pair of shoes in every colour, the list goes on. We’re spending more on wants not needs, therefore struggle to pay our mortgages.

    We also do not want to live in undesirable locations, we all want to live in popular, desirable location and will very willingly pay an arm and a leg to do so. There is no gun to any ones head. The difference between the east and the west in Sydney is unbelievable, 90% of buyers can afford to live in the west but if given the chance I would bet 80% would rather live by the beach. Therefore the cost of the house by the beach goes up. Its common sense people, not conspiracy.

    FYI the property bubble did pop – after the GFC in 2008 in the upper end sub-prime real estate market only. The rest of the country did well and will continue to do well considering the circumstances.

    Ive got a degree in property which is a hell of a lot more than most of you. So please leave the speculating and analysing to the professionals.

  19. David Collyer12-06-2012

    Gosh, Belinda! We seem to have struck a nerve.

    Yes, there is the matter of supply and demand. As I write, there are 380,000 houses on the market unsold, with the same or more in shadow inventory. According to the ABS, prices nationwide have fallen over 9% in the last year and the current downward ‘pulse’ is at about -20%. Were first home buyers to rely on the mainstream media, they would be blissfully unaware of what is really happening out there.

    Our argument was never about desirable locations. They are rationed by scarcity AND price, just as Ferraris are. We are concerned about economic efficiency and social justice issues – particularly the role tax plays in creating (or not) a society where ALL can flourish.

    Prosper is a think tank of economists, econometricians, land valuers and tax experts, with far too many academic qualifications. Anyone who took note of our forecasts will have profited handsomely. The “professionals” employed by the politico-housing complex to spruik ‘onward and upward forever!’ and entice innocent home buyers to sign up to a lifetime of debt ought to be in jail.

  20. Big Nige26-10-2012

    What kind of idiot gets a degree in real estate! It does not take a genius to see Aus prices are overvalued.

Leave a Reply

*
*

https://prosper.org.au/2011/04/12/pop-the-real-estate-bubble-has-burst/