The Housing Bubble

A report from Bloomberg on Australia. “Australia’s east-coast property bubble is showing signs of deflating at a faster clip as home-lending data recorded the longest losing streak in almost a decade. Housing finance fell 1.4 percent in April, the fifth straight monthly drop and the longest stretch of declines since September 2008. A key factor weighing on Sydney’s market is tighter credit, as regulators force banks to cut back on the riskiest mortgages. Fewer interest-only loans — which are cheaper in the early years because borrowers don’t repay principal — means Sydney prices are now out of reach for many investors. Chinese buyers, a previous driver of demand, have also receded due to difficulties in moving cash from the mainland.”

“For Australian borrowers, there’s little prospect of relief for household income as wage growth has stagnated for the past five years. The economy’s private debt-to-income ratio is also at a record 189 percent, leaving little scope to increase leverage anyway.”

From the Daily Telegraph. “Desperate apartment sellers in the Greater Parramatta area have had to watch their properties languish unsold for months after listing them due to rampant building creating an oversupply of high rise units. Research showed the region has Sydney’s largest pipeline of residential building projects in the works, despite a recent drop in demand from buyers. This has ramped up competition among sellers to bait buyers and made it difficult for them to offload properties quickly without offering major price adjustments.”

“High levels of development were also ‘cutting in’, said Realestate.com.au chief economist Nerida Conisbee. ‘We’re seeing very low demand for apartments in Sydney at the moment — there has been a significant drop off driven by far fewer local and offshore investors,’ Ms Conisbee said. ‘Far fewer people looking to buy means properties take longer to sell and eventually that leads to prices declining.’”

“A report released by property consultants Urbis showed plenty more homes are on the way for Parramatta. The area had Sydney’s largest future housing supply with over 11,000 apartments in the pipeline. This included 2,048 apartments in the application phase and a further 4,555 with development approval, the report showed.”

From the Daily Mail. “Location Score analyst Jeremy Sheppard said in an interview with real estate talk, ‘over the last few years the location score has been steadily declining. Sky high prices subdue demand like nothing else.’ A lack of urgency also seems to be aiding in the steady decrease in the housing market. Suburbs with high numbers of apartments continuously getting released onto the market, such as Parramatta and Blacktown, are among the riskiest to buy investment properties. ”

“‘We’re seeing very low growth if anything at all and that’s because the demand has been very much balanced with the level of supply,’ Sheppard said. ‘The results reveal Sydney’s market slowdown is well and truly entrenched with buyer demand waning. Vendors must become realistic about their pricing, or risk seeing extended days on market until they reprice appropriately.’”

From Domain News. “Australian property owners are likely to hold on to their properties longer than they should in a declining market due to the fear of making a loss, new research suggests. This will be particularly painful for highly leveraged investors who bought at the peak of the market with the expectation that prices would keep rising. Dr Daniel Richards, lecturer of Wealth Management at RMIT University found investors often sold too early, or held on too long in a falling market due to feelings of regret.”

“‘People don’t sell at a loss. Emotion is what’s driving that, particularly regret,’ he said. ‘And housing is almost the most emotional investment you’ll ever make.’ Dr Richards said that many investors will try to ride out this downturn, but that it would cost them. ‘If you’ve bought a house and it’s gone down in value you should get out rather than wait for it all to go bad,’ he said.”

“APRA’s tightening lending standards present a pivot point for those who bought with interest-only mortgages, particularly given the Reserve Bank has flagged some borrowers will be unable to roll over their loans to cover the principal and the interest.”

From the Courier Mail. “Queensland richlister Tony Quinn, and wife Christina, have made a $470,000 loss on the sale of their luxury Main Beach apartment. The Quinns sold the sub-penthouse just before it was scheduled to go to auction and now we can reveal the sale price was $2.15 million. Property records show the Quinn family bought the three-bedroom apartment in Main Beach’s Axis building for $2.62 million back in 2006.”

From ABC News. “A central Queensland man impacted by the collapse of a local building company says he did not know his family’s half-built ‘dream home’ would not be finished — until he read a note in the company’s window. Metro Builders put the note in its Yeppoon office window over the weekend, informing people that its business had ‘become unsustainable.’ Local man Luke Renshaw said he had so far paid the company $350,000 — including a payment of $80,000 just a few weeks ago — to build a new home with a pool and shed for his family in Tanby.”

“The company was officially put into liquidation this week. Master Builders’ regional manager, Dennis Bryant, estimated at least 24 homes had been left in various stages of building. Mr Bryant said this process could take months, and if people decided to pay other companies to finish or even protect their half-built homes in the interim, they would not be compensated. ‘People are paying rent while they’re waiting for [QBCC to act]; they’re paying interest on their loans,’ Mr Bryant said. ‘And their structure is subject to the elements and to vandalism. I know that occasionally happens.’”

“Yet Mr Bryant said it was sub-contractors and tradespeople owed money by Metro who he had the most sympathy for. ‘They’re the blokes who are really copping it,’ he said. Mr Bryant said he did not expect sub-contractors to recoup much of their losses. ‘They’ve basically got to suck it up. I’m not saying that in a derogatory fashion. It’s tragic for them,’ he said. ‘People in small businesses have very little ability to absorb a big financial hit, and it could mean that one or two of them might just go under.’”

From the Katherine Times. “Katherine house prices have dropped about $39,000 in the past year, the NT Parliament has been told. NT Treasury information shows median house prices have fallen from $349,000 down to $310,000 on average in Katherine. Treasurer Nicole Manison said the NT Government is soon to release a population strategy to try and boost population across the NT.”

“‘Ultimately you need people to create that housing demand and to stimulate that growth and that need for investment,’ she said. ‘What we need to do is ensure that we have more people moving to the Northern Territory and buying into the Territory.’”