Can You Smell the Fear?




A home should be a secure retreat where owners sleep soundly. Instead, they are waking in a cold sweat to the living nightmare of falling house prices. Values are down but the family mortgage is not. Call it what you like – wealth destruction, equity erasure or capital wipeout – there is no way to put lipstick on this pig.

On Tuesday, SQM Research released their forecast for price movements this year. Louis Christopher is as dour as a maiden aunt.

In short, his price predictions for calendar 2011 are bleak:

Perth -9.8%, Brisbane -9.6%, Darwin -8.3%, Melbourne -7.5%, Sydney -6%, Adelaide -4.3%, Hobart -3.5%, Canberra -3.4%.

Christopher sees larger falls in some frothy sub-markets:

Surfers Paradise and Sunshine Coast QLD -18 to -24%, Mandurah WA -18 to -20%, Sydney NSW prestige -17 to -20%, Melbourne VIC inner -13 to -15%

And, ahem, inflation is running at 3 per cent, so any clear-eyed person will subtract that as well.
To put this into perspective, a chic median-price apartment in Melbourne’s Docklands selling in January for $600,000 will lose $90,000 by year’s end. Less another $18,000 for inflation and owners are down $108,000. Ouch.

Docklands is particularly ugly, as Earthsharing’s Speculative Vacancies Report last week showed. According to their water meters, 23.3% of these to-die-for apartments are vacant. No wonder developers are putting away their cranes. The owners – many just put down a tiny pre-construction deposit – have every incentive to sell.

Nationally, SQM Research showed April residential listings for sale at 370,638, up 68.7% in a year. Buyers are spoiled for choice, but don’t like the prices and are sitting on their hands.

After working out they cannot afford a home, first home buyers have turned away in sadness to invest in education, the share market or quality of life. Arranging them again in an orderly queue to sign away their lives to debt-slavery will be very difficult.

* Will the downturn trigger a sell off by negative gearers’ gambling solely on capital gains?

* What will we do with all these empty homes and apartments?

* Will short-selling of the big Aussie banks force down their shares?

* Will overseas depositors withdraw funds from our banks forcing a non-RBA interest rate rise?

Look out for the next thrilling episode of this nail-biting serial! Don’t Buy Now!

3 Comments

  1. Paul Meleng26-05-2011

    The agents will have to learn to drive mining trucks. If you are a real estate agent and sales have stopped, get a real job immediately as it won’t get better for a long time. Go and live ina caravan and earn big bucks and save up some money. I overheard a hard working middle aged lady saying the same as people used to say in 1983… “Yes, we were going to sell and buy a new place but we’ve decided now to just do some improvements.”. People just take it off the market after a while. Agents on commission lose money driving a few canny bargain hunters around but they never buy until the blood is dripping down the walls. When the agent is not doing that they are having depressing conversations with vendors about lowering the price. Of course, many agents, believing the story, watching clients become rich, and earning large taxable incomes in the last part of the mania become heavily geared investors themselves. Then the sales stop and the income stops and they become forced sellers. It is a scenario few have experienced before unless they were in the game 30 years ago. What they say they expect to happen is just a guess.

  2. Robert van Coppenhagen27-05-2011

    I have to keep reminding myself that people who don’t know about economics and finance actually find the topic of falling house prices very disturbing.

    Gloating about falling house prices (or even mentioning them) can be a quick way of making yourself unpopular. I have been accused of scaremongering just by talking about the current state of the market let alone where I think things are headed.

    This is not a criticism of the work that we are all doing to raise awareness that now is not a good time to buy, just a warning that we need to be clever about the way that we go about it.

  3. PT31-05-2011

    re: “What should we do about all these empty homes and apartments?”

    Over the last ten years, anyone who was good at maths was homeless as they were out-bid by both those who were bad at maths and those who didn’t even care about the maths.

    Bankers and economists who could see the obvious were passed over for promotion or sacked, and their jobs / promotions were given, once again, to those who were bad at maths and those who didn’t even care about the maths.

    No wonder no-one cared about maths when I was at school! For the last ten years you were better off without it!!! (???)

    Anyway, once the property market all falls over in a heap, it might be time to sack all those who are bad at maths and try and dig up all those who were sacked / missed being promoted because they “couldn’t perform.” And if we end up with an American style “tax payers bail out financial institutions” type deal, it should only be fair that empty houses are repossessed and distributed to those who missed out because they were good at maths.

    Of course, the devil is in the detail. I certainly haven’t figured out how to make that happen … yet. Any ideas?

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