Seller Strike, Buyer Strike

bailout - it's the homeowners in that are in distress
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1 May 2012

• ABS House Price Index -4.5% YOY

• RBA interest rate cut -0.5%

The solid new trend of falling house prices is confirmed by the ABS today with real prices now in retreat for seven quarters and the downward path accelerating. Property markets operate on a very long cycle. Once broad trends are established, they continue, says Prosper Australia.

Today’s ABS House Price Index 6216.0 is a lagging measure, but fresher statistics like building approvals, housing finance and auction clearance rates have been consistently weak for 12 months or longer and show no change to conditions.

“There is a seller strike and a buyer strike,” Prosper Australia Campaign Manager David Collyer said today.

“We are seeing a house price ‘slow melt’ as sellers hold out for peak prices while buyer indifference means few properties are sold.

The stand-off is now nearly two years old.

“Arguments today’s -0.5 per cent interest rate cut by the Reserve Bank of Australia will raise house prices have no basis in fact.

“This is evidence of panic, of a central bank departing from the measured and gradual adjustments in which they take pride. Confidence will be shaken, not improved, by this dramatic move.

“The economic entrails are very ugly: poor housing affordability, banks newly cautious, housing oversupply, weak conditions for all outside mining, a struggling jobs market, rising unemployment, citizens paying down debt as fast as possible and economic devastation overseas.

“I say, the strike will end in seller capitulation. After all, buyers do not have to commit, while the need for owners to reposition their balance sheets simply becomes more and more urgent.

The Negative Gearers are approaching exhaustion. Their strategy requires strong capital gains and makes galloping losses in a steady or declining market. For how long will they be content to subsidize the renter of their investment property?

Baby Boomers downsizing cannot hold out either – retirement looms. For many, current prices are so utterly divorced from what they paid that a few per cent less now will not make much difference to their giant gains.

Either seller group is capable of blocking the exits and tipping the price falls into a steep decline. For both, the first-mover advantage to meeting buyers in a falling market are profound. They get the best price, the flexibility of cash and they sterilize risk.

“Prosper repeats and restates its price projection of a 15 per cent price fall this calendar year, with a 20 per cent fall entirely possible,” Collyer concluded.

“Don’t Buy Now!”



Media contact: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

3 Comments

  1. Aussie Roy01-05-2012

    It still surprises me, how many people still believe there was no bubble, no speculation in our housing market. Seriously how can seemingly smart people be so dumb, the results of the worlds (US Spain Ireland UK etc) over speculated housing market is there for all to see.

    House prices are driven by emotion and debt, house values are driven by wages. Prices need to fall 30 40% before these two measurements are back in line. The price “rot” has only just begun.

  2. Ben01-05-2012

    Aussie Roy,

    You’re forgetting we have kangaroos!

  3. Bryan Kavanagh01-05-2012

    Yes, kangaroos …. AND China (don’t forget China), makes the gigantic Australian real estate bubble different from all the others. (Well, it does, doesn’t it?)

    I’ve got to chuckle at the vast majority of my fellow Australians – especially those in real estate – who feel they can rationalise ridiculous real estate prices and the tax regime that helps get them up to nosebleed heights. If you didn’t laugh, you’d tear your hair out.

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