April 27, 2017

On A Quiet Day You Can Hear The Values Falling

A report from ABC News in Australia. “It’s two weeks from the federal budget, and the Government is under pressure to come up with a strategy to put the brakes on rising house prices. The Coalition has long argued that if more housing supply comes on to the market, record prices rises could be dampened. But there are different views on whether increased supply will help make housing more affordable, or if it will instead fuel more investment into an already overheated housing market. Lindsay David, of LF Economics, argues that if there really was a housing supply shortage, rents would also be skyrocketing, like they did in mining towns during the minerals boom.”

“‘When you’re in the pit of an irrational exuberance it doesn’t matter how many new dwellings you build,’ he said.”

From The Australian. “One of the biggest bull runs the Sydney housing market has seen is drawing to an end, with house prices falling this month as the crackdown by regulators starts to bite. CoreLogic head of research Tim Lawless said that recent restrictions from the banking regulator had pushed up home lending rates, taking the heat from investor enthusiasm. Sydney, in particular, had seen a wave of investors, so the impact of the regulator’s crackdown — most recently aimed at limiting interest-only loans — was likely to be more pronounced, Mr Lawless said.”

“‘It’s too early really to tell on the basis of one month’s figures, but if we are moving through the peak, it will be a moderate slowdown,’ he said.”

From The Newspaper. “Australians are racking up extreme levels of debt to buy homes that are among the world’s most expensive, a ticking time bomb that could wreck the economy if it is hit by a sudden shock, experts warn. The nation has a household debt-to-GDP ratio of 123 per cent, largely housing debt - second only to Switzerland, according to the Bank of International Settlements. Those levels exceed the US, Spain and Ireland before their property market crashes, global ratings agency Moody’s said in a report this month, warning Australians also held limited liquid assets.”

“‘Australians have borrowed up a storm and housing prices in this nation are now dangerously dumb,’ prominent Australian economist Chris Richardson said this month.”

The Courier Mail. “Melbourne-based developers arriving in Brisbane with plenty of cash and big plans to build high rise inner-city apartments have been commonplace over the past few years. While there are plenty still building high-rises there have also been plenty of plans dashed — or delayed — as Brisbane copes with an apparent apartment over supply. This time last year Melbourne-based Hamilton Corporation was spruiking two Fortitude Valley apartment projects.”

“They announced that 80 per cent of its Elixir apartment project was pre-sold while it also launched a 111-apartment project. A quick drive around by Business Confidential found the Robertson St site remained a big hole in the ground, while there is a big ‘For Lease’ sign on the Berwick St site which last year was up for sale.”

From Ten Eyewitness News. “Even though Sydney and Melbourne’s skyrocketing house prices have shown no immediate signs of letting up, it’s a different story on the west coast, now experts fear Perth could be the ‘Canary in the Coal Mine’ warning us all of the disaster just around the corner. The Western Australian capital enjoyed a high demand in property in 2007 and 2012, largely due to the mining boom which lead to a strong price growth.”

“However, home owners are now battling to pay over inflated mortgages with house prices declining at an alarming rate. Prices have dropped by double-digit percentages in some areas, with Mandurah in south Perth seeing some residents’ property prices fall by a remarkable 40 per cent in a decade. If you’re reading this from Sydney and Melbourne, consider it a warning. ‘There’s probably a lesson for Sydney and Melbourne today of perhaps what’s coming after the market turns,’ Perth property valuer Gavin Hegney told the ABC’s 7:30 program.”

“He pointed to the fact that West Australia was once considered ‘infallible’, considered to be booming on par with the other major cities. Unfortunately, that’s no longer the case. 35-year-old property owner Daniel Johnston also appeared on the 7:30 program, and told about how he purchased an investment in Mandurah for $580,000 in 2007… which is now worth only $350,000. He spoke about fears of losing his family home, as they struggle to keep up with the mortgage repayments. ‘We thought it might slow, the property price, but never expected the drop that Mandurah has had, It’s nearly halved,’ he told 7:30.”

From News.com.au. “Families in Western Australia are at breaking point, plagued with mounting debts they can’t pay off, as they face the reality of a collapsing economy. As properties decrease significantly in value and unemployment rates rise, many are now struggling to find jobs to make ends meet.Could this be the future of Melbourne and Sydney? Western Australia was once a booming product resources hub, with thousands moving to areas around Perth from interstate and overseas to work.”

“It had one of the strongest economies in the nation with housing prices on par and even higher than Sydney and Melbourne in the early 2000s. Fastforward to 2017 and WA now has the weakest economy in the country, with a high unemployment rate and a collapsing property market. Perth property valuer Gavin Hegney told ABC’s 7.30 program homes at the top end of Perth and on the urban fringe were decreasing in value and lessons could be learned from WA’s collapse. ‘Perth was booming, booming along and the east coast was on its knees,’ he said. ‘It’s the complete reverse today.

“Brad Wright was a project engineer working around WA, earning about $250,000 a year. Now he works as a security guard part-time while he tries to dig himself out of a dire financial position. He had two investment properties and a home in a luxurious suburb of Perth during the boom. He borrowed almost $1 million and said waiting for his loan approval was ‘as easy as buying an ice cream.’ ‘People have had their incomes slashed to 10, 20 per cent of what they were normally being paid and they have to meet enormous payments,’ he told 7.30.”

“He said the stress of trying to deal with the bank and find a solution to his troubles pushed him almost to the point of suicide. He said he didn’t know what he would do if he had to resort to selling the family home. ‘We will basically be kicked out on to the street with just the clothes we’re wearing and substantial debts,’ he said.”

“Lifeline financial counsellor Jenny Cecil said they were servicing a new group of clients — those struggling as a result of the economy collapsing. Many had been high income earners. She said a lot of clients were now using credit cards to maintain mortgage payments, electricity bills and council rates, making their financial positions even harder. In Mandurah, about an hour and a half from Perth, a home five minutes from the shopping centre and three minutes from the beach can be purchased for just $399,000.”

“There has been an 18 per cent drop in the price of properties in Mandurah in the last 10 years. What used to be an issue of an undersupply of housing in WA is now an issue of oversupply and both housing prices and rental prices have dropped dramatically. ‘They say in the top end of Perth on a quiet day you can hear the property values falling,’ Mr Hegney said. ‘And property values at the top end of the market have probably dropped 30 per cent from where they were at the peak of the market in 2009.’”