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!