The Housing Bubble

A report from Sourceable in Australia. “The peak of the boom in residential construction in Queensland appears to be coming to an end. In its latest report, the Master Builders Association of Queensland says it expects dwelling commencements to fall from what it expects will be a record 48,000 in 2016 to a still healthy 43,000 in 2017 before dropping back further to 40,000 the following year. ‘Beyond the existing pipeline of work demand is softening. There are reports of softer rents, more modest price growth,” said Master Builders deputy CEO Paul Bidwell.”

“As at September last year, ABS data suggests that the value of work in the residential pipeline throughout the state stood at record levels of $6,708 billion – almost three times its level four years earlier. Nevertheless, building approvals have slowed. Moreover, significant volumes of new supply which are set to come online are causing raising concerns that some parts of the market might be pushed into a situation of oversupply. Apart from the supply issue, however, there are also other headwinds as the loss of 30,0000 jobs over the past twelve months and subdued income growth has limited consumer spending confidence and power.”

The Australian. “Brisbane inner-city apartment sales have fallen almost a third over the last year amid warnings high prices in newer developments may not stack up at ­valuation time, new analysis ­predicts. The analysis, however, said there was little evidence of significant settlement risk, despite stretched out time frames — ­especially for foreign buyers.”

“‘Projects on sites purchased later in the cycle (potentially at an above market rate) are likely to be exposed to higher levels of settlement risk,’ property services firm JLL’s latest Brisbane Apartment ­Market Commentary said. ‘The higher asking prices for units in such projects may struggle to meet valuation benchmarks upon completion.’”

From Business Insider. “Australia is currently in the middle of an unprecedented apartment building binge, particularly in the eastern capitals. The skies are littered with cranes, but with so much high rise construction activity going on, there’s been more than a little unease over the prospect of an apartment glut forming, particularly in Brisbane and Melbourne’s inner city areas.”

“According to CoreLogic, nearly 20% of all units sold at a loss in Brisbane during the September quarter, while 10.5% of Melbourne sales were also for less than what the originally purchase price. According to figures released by the ABS, there were over 30,000 ‘other’ residential dwellings — almost entirely units — under construction in Queensland in the 2016 September quarter. Most of them are in Brisbane. There was an even larger number – in excess of 45,000 – under construction in Melbourne over the same period. A lot of stock has yet to hit these markets, in other words.”

The New Daily. “New data has illustrated just how reliant the nation is on sustained house price growth. Roy Morgan Research reported that Australians are less heavily geared on property than in recent years, but that pockets of risk are emerging. The fear underlying these figures, even in strongly ‘improved’ areas like Sydney and Melbourne, is that if price growth – the factor that is lowering gearing levels – stalls or reverses then many households may be in serious trouble. For example, if they are forced to sell they might incur a capital loss.”

“The Roy Morgan study also estimated that 302,000 borrowers, or about 7 per cent of all mortgage holders, had little or no equity in their homes. ‘With some early signs that home loan rates are rising, the problem is likely to worsen as repayments increase and home values may decline, which has the potential to lower equity levels even further,’ Roy Morgan spokesman Norman Morris said.”

The Daily Telegraph. “More homebuyers are missing loan repayments, with mortgage defaults soaring a whopping 25 per cent across Australia in a year. Debt-ridden families are struggling to pay off monster mortgages as cost-cutting bosses slash their work hours and overtime. And global credit ratings giant Standard & Poor’s (S & P) is warning that even more Aussies will fall behind in their mortgage payments this year. Home loan ‘delinquencies’ rose by one-quarter in the 12 months to November, with one in every 87 mortgages at least one month in arrears, S & P ­revealed. The number of homeowners more than three months behind in payments jumped 41 per cent.”

“S & P warned the levels of people in arrears would get worse this year, with analyst Erin Kitson saying underemployment was partly to blame. ‘Arrears are higher than they were a year ago, even though interest rates are relatively low and unemployment is relatively stable,’ she said.”

The Courier Mail. “Perth house prices will continue to fall in 2017 and won’t start to recover until the middle of 2018, WA’s biggest property developer warns. In a bleak new year prediction, Nigel Satterley said a 5 per cent drop in the city’s median house price was likely within the next six months. The millionaire businessman said an oversupply of listings and fierce competition among sellers would drive prices further down.”

“Referring to the bulk of Perth’s listed houses — those valued between $350,000 and $1 million — Mr Satterley said: ‘People buying this year are going to be buying near the bottom of the market. It’s a good time to buy. WA-wide, this is the most competitive I’ve seen the new house and land market since 1970.’”

The Daily Mercury. “The number of empty homes in Mackay has increased for the first time in more than 12 months. According to REIQ figures, the vacancy rate in Mackay for the quarter ending in December increased a full percent from 6.9% to 7.9%. The increase has put Mackay’s vacancy rate ahead of Townsville as the second highest vacancy rate of Queensland’s regional centres. Only Gladstone has more vacancies with 9.9%.”

“Elders Real Estate Mackay principal Sally Richards said she believes the rental market had definitely improved, saying December was one of the biggest months in 2016. ‘We’ve noticed properties are talking less time to rent especially houses with pools at this time of year, however, units are taking longer to rent because there is a slight oversupply.’”

The Gladstone Observer. “Real Estate agents in Gladstone have already called it but property gurus Herron Todd White have made it official, the property market in Gladstone has hit the bottom. For at least 12 months, as property prices continued to tumble, Herron Todd White said Gladstone’s residential market was ‘approaching the bottom.’ But after its latest Month in Review report, the experts say it is ‘no longer all doom and gloom and it is unlikely that values will drop any further. The key driver at present is the affordability of property in the Gladstone region…value levels are the lowest they have been in over a decade.’”

“Although the market has hit the bottom, the report stated that the road ahead may be difficult, especially for the unit market in town. ‘The vacancy rate is slowly dropping however until it is at least halved, there is unlikely to be nay pressure put on the rental market and rental levels,’ the report said. ‘2016 saw a significant increase in the number of mortgage defaults in the Gladstone region (and) with the possibility of increasing interest rates this year from major lenders, we suspect these properties will continue to roll in during 2017.’”