Home Prices ‘Crash’ In Australia
The Sydney Morning Herald reports from Australia. “A three bedroomhouse in St Clair sold for just $260,000 at the weekend, down about 42 per cent from its last sale at $450,000 in 2003 in a further sign of the depressed state of the Sydney property market.”
“Only one person bid on the house in the city’s west. The mortgagee sale was forced after the owners could not meet the interest payments on the $405,000 they borrowed to buy the house at the peak of the market.”
“Auction clearance rates are hovering around 48 per cent since the recent interest rate rise, but plummeting property prices have meant many vendors are confronting negative equity, where they owe more on the property than it is worth.”
“The Herald checked 16 properties in south-western and western suburbs listed at the weekend and found 60 per cent had prices or had attracted offers at a discount to their last sale price.”
“Lethbridge Park, near Penrith, recorded the second highest fall, when a townhouse that sold for $257,000 in 2003 was resold by mortgagees for $156,500, reflecting a roughly 40 per cent fall. At Heckenberg, a four-bedroom house that sold for $330,000 in 2003 resold at $255,000 in another mortgagee sale. Four of the seven registered buyers put in bids before the Adaminaby Street house sold at an approximate 22 per cent discount to the property-boom price.”
“At Parramatta, mortagees accepted $541,500 for an unrenovated house that fetched $736,000 in 2003 when it was sold as a deceased estate. The bank lent $580,000 on its 2003 sale.”
“Even the inner-suburban areas are showing signs of depressed prices. In Lilyfield a four-bedroom house on 607 square metres last sold at $1,355,000 unrenovated in boom-time 2003. It attracted a $1,179,000 top bid after its recent renovation by its owner-builder.”
“Given it has been 16 years since the last recession, long-time estate agents fear the fate of a generation of owners who had not experienced having a loan when times were tough. St Marys agent, Michael Beatty said: ‘There was a wave of people punting on the expectation of constant price rises until well into 2004, even after the three interest rate rises of late 2003. There has been significant price deflation and many now have negative equity in their homes.’”
“‘There are some sad stories. But we have to show the sellers the comparable sales and say honestly this is where the market is realistically at,’ he said.”
The New Zealand Herald. “With an estimated $40 billion worth of fixed interest rate mortgages up for renewal this year, lenders are bracing themselves for increasing numbers of people defaulting on their mortgages in the coming months.”
“Real estate agents, usually among the first to hear about mortgages gone wrong, are already seeing it. Carey Smith, chief executive of Ray White, says there has been a 22 per cent increase in the number of mortgagee property sales over the last quarter.”
“General Finance subsidiary Cairns Lockie Mortgage Bankers says there has been a big increase in what it calls its ‘dishonour roll,’ people failing to make their monthly mortgage payments. ‘Over the past three months, the number of missed payments has doubled,’ says director James Lockie.”
“Dave Shatford, at NZ Mortgage Finance and Approved Mortgage Brokers, says some New Zealanders simply cannot sustain a mortgage. ‘We sometimes say to people, ‘there’s no point in continuing to go backwards.’”
“Lockie tells customers consolidating their debt to cut up their credit cards. ‘They cut up their store cards and come back with another $10,000 or $20,000 of debt a year later. We turned down some loans the other day, the people were spending the equity in their house and… racking up consumer debt,’ he said.”
“Shatford says it is anticipating activity in the next few months. ‘All the signs are there. Our feeling is that we are going to see a lot more,’ he says.”
“Registered valuers Seagar and Partners say they have noticed a few more properties in the sought-after suburbs of Auckland getting into trouble. Principal Chris Seagar says often the owners have been trying to sell at a price they feel they have to, but the market thinks is too high. ‘If they’d been more willing sellers they may have sold without having to go to mortgagee sale,’ he says.”
‘Reserve Bank governor Ian Macfarlane has warned homeowners they could face another interest rate rise, while telling the state and federal governments to do their bit to keep inflation at bay. And he said low interest rates in other parts of the globe could feed inflation into Australia, and push rates here up even further.’
It would be nice if our new Fed chief had the ‘gonads’ to tell it like Macfarlane…
in general the governors from the central bank in New Zealand are pretty straightforward as well. But that didn’t prevent the Kiwi housing bubble … it’s all part of the worldwide credit bubble (at least for the anglo-saxon world) with some local flavors added like hard / soft commodities for Oz and NZ.
That house in Oz is butt-ugly. Hoooey, what a pig.
Do people have issues with landscaping? Anytime I see a house that looks like that, I immediately think “rental” and with an owner who does not give a crap…
Looks like the mailbox was visited by some neighborhood kids. I’d say with a baseball bat, but I think they play cricket in Oz.
Follow the article. The property was being neglected by the “owners” and it needs big $ to fix it. I attended, back in the mid-1980’s, one of those “How to make a fortune in real estate,” seminars. I went out of interest because my feeling is, if someone has a map to a gold mine, they ain’t gonna show you how to get there. Anyways, one of the “tricks” to discovering distressed property, was to tour a neighborhood and look for badly maintained lawns. In fact, just for fun, a buddy and I did tour Studio City in California and, lo and behold, we found quite a few properties which were indeed in foreclosure which had badly maintained lawns. Of course, if they were THAT good a deal, the realtor was usually buying the house themselves. Gee! What a surprise!
There’s a drought too…
That’s a very average/typical suburban hosue in Aus.
The house is not so horrible…it could be so much better with a good sized tree in front, a healthy lawn, other landscaping and get rid of that yellow curtain in the window!
But australia is an island, they’re not making any more land!
Oh, wait.
Crap.
42% is definitely a big reduction, however, I am not sure I would call it a crash if it has been reducing since 2003….
I would call it a crash if that happened in under a year.
“I would call it a crash if that happened in under a year.”
You have to start thinking in terms like “Dog Years” where 3 years for a house means 1 year in human time.
LOL!
I’d consider it a crash if I was the loon who paid $450,000 for it in 2003.
and who says it’s done falling in value ?
To M.B.A
Yep that’s a big drop……..and real estate prices are still falling here in Australia……….so much for our soft landing.
Real Estate here in Australia doesn’t crash like stock markets……it’s just to illiquid.
It’s like a crash in slow motion……..and very painful as well.
The general concenous over here is that real estate prices will continue to fall for at least another 2 or 3 years and then perhaps flatten out.
I bet if you bought a home a few years ago it feels like a crash.
Thank you for reporting in. We get so little news of the land down under and its real estate crash. Now that the US is turning the corner, we may see some real fireworks! Stay safe!
Houses are not easily liquidated stocks. A “property crash” moves like slowly falling dominios and can take several years. It’s estimated (on average) that from “peak” to “bottom” take between 18 and 20 quarters or, in other words, as long as 5 years. That said, the US bubble is pretty grossly inflated at this point and that 5 years might be compressed as the $1 trillion in exotic loans start to kick in in 2007 but it will still take up to 2009 probably to clean the mess up.
Of course, it could go up 30% in a year like 2004. So forget history, because this coming crash is going to make all others seems like a sunday school picnic.
“Lockie tells customers consolidating their debt to cut up their credit cards. ‘They cut up their store cards and come back with another $10,000 or $20,000 of debt a year later. We turned down some loans the other day, the people were spending the equity in their house and… racking up consumer debt,’ he said.”
==============================================================
Has the entire planet gone insane? I long for the day when people will just BUY they NEED and nothing more.
It is just a fact that the swarming masses have been used to living a life they really could not afford - ever - unless they mortgaged their future - which they just did…..
Buy shares in Prozac and Paxil!
Oh wait! They will not be able to afford that!
Buy shares in Pabst Blue Ribbon!
Kind of incredible when you think about it. People have collectively gone insane when it comes to consumption.
The girlfriend had Oprah on the other day and the show was about a bevy of women who could NOT control spending. They just had to buy, buy, buy…I was stunned…I guess I have been living under a rock or something.
Should be BUY ‘what’ they NEED…sorry…
The weekend edition of the SMH always shows only stories of house auctions where bidders paid well over the reserve price - just this weekend an article talked about someone paying $100k over the reserve on a 1.0 mill property - so its interesting that the Monday edition has sucha bearish article
‘We sometimes say to people, ‘there’s no point in continuing to go backwards.’
- Soon to be a California Motto’
Upside-down, backwards and under water is no way to go through life. Unless your Houdini.
A quick calculation indicates a 42% reduction in prices would get us back to 2003 prices in areas like Phoenix, is that enough of a reduction for locals to be able to buy again ? As a mental exercise would it make houses affordable in your own area again ? San Jose will still be insane but I suspect the Condo market will have some great bargains as they have saturated the market with them.
I don’t think it means that much. Around 2000, we had 20-30% price reductions for homes in Amsterdam. But that was after a 400-500% price runup in previous years, so these homes were still expensive after the price cut. And most of those reductions where in very specific market segments like luxury homes and apartments. The national average just kept climbing (although much slower than before 2000). Five years later we are seeing new all-time highs everywhere in the country.
Current gains for individual homes are around 1000% in some areas (measured from the start of the bubble in the early nineties), and the average sales price for the whole country is
45-80% higher than in 2000 when the Dutch ’soft landing’ began.
That 45-80% number is dependent on which statistic you believe but it is clear that despite those 20-30% reductions around 2000, the averages just kept climbing…
It would be my ultimate fantasy to be able to buy one of those super cool contemporary houses in Sydney Harbor or New Zealand, especially New Zealand. Gawd, they’re expensive though.
http://trendsideas.com/ViewArticle.aspx?topic=14®ion=1&article=6992
Awesome house, thanks for reminding me about trendsideas.
txchick- Trouble is, foreigners are not allowed to own real estate in Australia. I am almost certain of this - anyone know for sure?
The Aussies did this all by themsleves - no foreign genius investors to help them along.
The way around the rule is to set up an Aussie corporation and buy the property through the corporation.
you can buy property in NZ, but some properties (like those with lots of coastal area) are excluded. In fact, foreign speculators play an important part of the Kiwi property bubble, especially in ‘hot areas’ like Auckland, the Bay of Islands etc. But the trouble is that it’s difficult to gain permanent residency to really live in that nice home - especially for those who are older and have the money to buy them.
I grew up in Melbourne (I’m in CA now) and I’d love to live on Sydney harbor.
Unfortunately the last time harborside properties were affordable was 1943, when Japanese midget subs were sneaking into the harbor and torpedoing ships, causing a run of homeowners selling out and moving inland…
Wow! I have’nt researched the Australian or British housing markets lately and thought everything was going well down under, levelling out and not crashing.
Thanks for the update Ben.
It would be good to see average sales prices for the Ossie bubble; just a few unattractive or severely overpriced houses that sell at a discount doesn’t tell you very much. I get the impression that declines in the average sales price are limited to a few very speculative areas like Sydney.
Everything is going very well in the UK market, at least judging from what you can see at the surface (average home prices). EU property prices are surging again, it’s not like in the pre-2000 years but definitely the strongest runup in several years. It is also clear that the source of all these price gains is the flood of easy money from the ECB; seems there is no lender or bank left in the EU that cares about getting their mortgage money back.
In New Zealand average home prices are still increasing as well while ‘time on the market is’ is about the same as 1-2 years ago. And with the bank of NZ suggesting much lower interest rates in 1-2 years the Kiwi property bubble probably has time on its side.
Sydney is what? 25% of the country by population?
The latest from Ventura Couty, Ca. Just like many overheated areas, FOR SALE signs are springing up like weeds with a spattering of FOR RENT or FOR LEASE signs here and there as worried non-sellers try to cover their mortgage payments (I guess). Today I toured around a little. Interestingly enough, there were several SOLD signs on properties I had recently noticed were for sale so there are still some greater fools buying these financially bloated abodes. However, about a year ago I noticed a latino family had moved into a house not far from my house. Something looked out of whack. The house was For Sale at $825,000 before they bought it and the prices were firm so I assume they paid top dollar. What was strange was the youngish couple had about 5 kids. He drove a battered pickup. She drove a very old compact. They just didn’t look like people who could afford a $850,000 house unless they had won the lotto. I’m not being a snob because we have plenty of latino’s in this area who are professionals who can easily afford a $875,000 house - but this family was out of place. Anyways, the property went up for sale about 1 month ago and today I noticed it was sold. These people were not “flippers” and I’m wondering if they saw the writing on the wall, obviously having bought with a lo interest loan, and got out quick. Next. This one blew me away. A realtors sign (same area) pointing toward the direction of a house for sale, had a hand written “note” taped to it. It read, “Must Sell Today - Offers Being Taken Between 10 am - noon. Highest offer takes the house!” Jeez. This could get nasty because these re-set loans jhave hardly started to bite….
in my condo development(newbury park), there was a condo for sale in may/june. Looking up in county site indicated that the property had over due taxes. However this one got sold for 460K.
There IS another property for sale in this complex for 429K (3/2). several others from 460-480 . All 4/2 or 3/2 town homes.
I was thinking that this one would not sell, not for so much when it was a distress sale(to me it was obvious).
There are some greater fools around who will keep this going for some more time, I guess.
In my neighborhood in Ventura there are open houses on Thursdays, Saturdays and Sunday. Sometimes they stop the open houses before the time frame, because noone is looking to buy at these outrageous prices. Also, seeing lots of signs with Stop Your Foreclosure Now! with an 805#. Burn baby burn.
That is how you get the big markdowns; banks giving up and eating their losses. Don’t look for American flippers to cut prices like this; they can’t. USA is still 1-2 years away from this kind of price action, when the banks realize they are drowning in repo houses.
The implosion in the U.S. will follow a different path. Ours will be swift and steep. Our fundamentals and catalysts are different than that in Australia. The set up is so distorted in this debt bubble that it is misleading to rely on previous bubbles in mapping the path of this imploding mania. This one has many cross-currents and conflicting indicators that even the Fed will find it impossible to prevent the carnage or even to ease the pain. But as a contrarian looking at the big picture, my advice is this: if the whole world is drowning in debt, the contrarian play is to stay liquid and cash rich. The next step is to decide what form of cash would have the least depreciating buying power. To discuss that would take a much longer post.
psst, check out Ben’s metals blog for that non-depreciating kind of money, the yellow kind.
I have a fair amount of Gold and Silver. Gold has been static now for months around $620 and Silver at around $12 where both appear to have found a floor. My sense is that these are being somehow kept at bay in order to avoid the appearance of inflation, buit who would do such a thing, and why?
Who? Central banks. Why? Because without confidence in their currencies, they cannot maintain their fiat currency Ponzi scheme.
Who? Central banks. Why? Because without confidence in their currencies, they cannot maintain their fiat currency Ponzi scheme. As for gold holding steady, that is more than can be said for the USD.
So gold is dropping in Euros?
to see what is going on check this chart:
http://tinyurl.com/zn2eq
>but who would do such a thing, and why?
Oh, the sweet smell of sarcasm. Good luck fishing; looks like you got some bites already.
PMs are fine. But you have to know how to trade them. So far they are only catching the ride in the commodity boom. They have not acted on their own as a “true currency” like many of us bears anticipate. However, I think that day is approaching in the near future. PMs will likely sell off initially along with all commodities when a U.S. led recession reverberating worldwide.
I don’t know what precious metals are likely to do, but I do know that apart from their industrial uses, they might as well be diamonds, beanie babies, or Federal Reserve Notes, with value being set more by emotion than logic. If we have another bubble, that’s as good a place as anywhere to have some bets, I guess.
I’d rather own long bonds. I think the 10-year will go to 4 1/4% in the next month. This is going to be more like Japan 1990.
…with value being set more by emotion than logic.
You might say that since gold’s value is purely psychological, it’s the only truly safe store of value. Don’t ignore history… capitalize on it.
I’d rather own long bonds.
Japan is and has been a creditor nation, whereas the U.S. is the world’s largest debtor. Rates will rise because those financing our debt will demand it. When they do, those 10 years will be be great liner for the bird cage.
Have you seen the price of price of famous artwork these days? A Picasso going for $15 million at auction. The price is obscene. And what about all the other famous artists; Marc Chagall — Salvador Dali — Leonardo Da Vinci –Paul Klee — Henri Matisse — Claude Monet–
Pablo Picasso — Pierre Auguste Renoir — Henri Rousseau–
Henri de Toulouse-Lautrec — Vincent Van Gogh — Andy Warhol, their works are going for multi-millions. And who’s paying these obscene prices? The big boys thats who. With what? A fiat currency.
But you can’t live in a painting, or even eat one. So why are people willing to pay so much for them? Because their scarce. Same concept as precious metals. Unlike fiat currency that is quickly loosing it’s value.
stay cash rich? It’s not that easy …
Cash piled up at home is not a good idea unless you expect things to unravel very soon; with real inflation at 8-11% yoy in both US and Europe it’s a loosing strategy. Money in the bank is not much better (especially in Europe with its century-low interest rates) you will always stay behind inflation and please remember what happened in Argentina.
And for the money that holds it value despite all the Central Bank counterfeiting, as mentioned above many gold bugs have lost money in the last year. All markets can be manipulated for some time and I’m sure there will be even more manipulation once the worldwide housing markets start tanking.
I really don’t think the resets will be as bad as many are saying -yet. The lenders seem to have no problem putting a FB into another suicide loan while replacing the existing one. It is buying people more time. Some are getting new 5 year loans that stay low during that period. The day of reckoning is being pushed back, but the final outcome will be much worse.
This crash will be slow moving.
I guess we’ll have to wait and see how many can’t just refi into another loan without bringing money to the table in case of lost equity or equity stripping. Most people don’t have a spare $10K let alone $100K in cash. It will be interesting to watch this all unfold and see the cascade effects.
Agree. Lenders are facing a serious problem with the potential for a humungous number of potential foreclosures, something they definetly don’t want in this enviroment of excess supply. They will more than likely give the borrowers a break and try to roll them into something with a lower payment. Who knows , we may see 60-70 year amortization. It’s already in Japan.
Yes, but Australia, Great Britain, Spain and the Netherlands have all had soft landings, therefore the U.S. will get one as well. Nice try.
Somebody needs to update us from Spain, as I suspect they should be going down right about now. We have a contributor with Netherlands updates indicating that they are still holding up well, and occasionally we hear about sucker’s rallies in the UK.
My city in the outskirts of the East Bay in California is fully into the inventory explosion phase. I took a few pictures and sent them to Ben, hopefully they’ll make next week’s update to the photo gallery.
I think the timing of the correction will approximate Australia, given that they also accept busts as an economic side effect of booms. I don’t think the commodities boom is going to keep giving Oz the boost it has, so look out below. Our own commodities/construction booms fed into the runup and fed off of it, so their busts will accelerate our fall.
regarding Spain: from what I’m hearing from my family in Spain, prices are picking up again despite growing inventory (many towns look like they have exploded in recent years, building activity everywhere) and probably some problems in speculative areas near the Mediterranean coast. Quite a change from the serious RE worries early this year.
It’s the same story in most of the EU. Both UK and Netherlands had their biggest home price gains in about 5 years over the last three months, and the explanation is simple: the ECB is printing money like there is no tomorrow. If you think the FED is bad, just look at the ECB … we have the same 10-11% yoy increase in money supply, but ECB rates are much lower and EU mortgage rates are not even following the ECB rate up (in many countries longterm rates are still close to the lowest rates in history).
I agree that there has not been a soft landing in Europe; the EU housing market is just magically levitating on easy money and I don’t think this will end very soon. There are now so many believers in the special qualities of RE investment (in some EU markets like Netherlands the latest crash is one generation ago!) that the downslide might as well take one whole generation.
42% off 2003 prices in the Land of Oz? Whatever happened to the permanently high plateau their prices had reached?
Real estate does not crash as stocks do………….
Real estate can be likened to tides.
We have normal sized tides and we have king tides. In real estate we have normal appreciation and booms.
The pattern of tidal flow is exactly like the rising and falling of real estate value. Let’s take a look……..when the tide turns to come in it starts slowly at first and then picks up speed and as it gets closer to the top the rate slows again as it reaches the top. Same occurs on the way out…….slowly at first and then gathers pace and again the rate slows toward the bottom of the tide.
Another thing………the higher the king tide ……….the lower the low tide…………Same with real estate………..the bigger the boom ………the bigger the bust. jmho
There is a huge difference between booming Western Australia and the rest of the country. I read “The Australian” online every day. My impression is that so far this report might be just some scattered houses in over-priced but undesirable suburbs. I don’t think prices in generally are falling like that yet in Sydney.
I believe St Clair is a suburb of Sydney, in NSW.
yes, I agree; from all that I’m reading (but that might not be representative, as I don’t read the Oz newspapers etc.) prices are holding up pretty well except in some areas where there was way too much speculation (like Sydney apartments).
Yup.
Overall median prices for Sydney are down about 5% from the peak. Other major cities about the same, except Perth which is up something like 20% this calendar year (35% over the last 12 months).
Where I live (Canberra), house prices have just about recovered to peak levels, but apartments/condo’s are still down a little.
It’s really only the specuvestors that have been hurt.
“the bigger the boom ………the bigger the bust”
Netherlands +/- 1975-1980: 5-year, + 100% price runup.
Netherlands +/- 1980: 1.5 year, -40% price crash + high inflation; all gains erased in a few years.
Netherlands +/- 1992-2006: 15 year, +1000% price runup.
We need a -85% crash just to get back to the historical trendline.
Do you really believe that can happen?? All the Dutch banks and pension funds would be bankrupt long before that happens.
omment by steelietown
2006-08-20 13:48:12
But australia is an island, they’re not making any more land!
Oh, wait.
Crap.
An island almost as big as the United States!
With a fraction of the population of the U.S.A.!
Uh….
Dammit, is there no where this credit housing bubble hasn’t touched? >_
Dammit, is there no where this credit housing bubble hasn’t touched?
well, probably Germany … they had their own black hole to suck up all the easy money.
a bit more on the Australian scene
http://www.abc.net.au/worldtoday/content/2006/s1718206.htm
“He also said that if you look at the pattern of past recessions in Australia, they have almost always accompanied a global downturn, and essentially been precipitated by a serious failing in the wider world economy.”
Well, then, no worries, mate! The world economy is just grand, with no storm clouds on the horiz…
I hope the Aussies save more than the Americans do, because there’s going to be some belt-tightening.
>been precipitated by a serious failing in the wider world economy
This Australia slump started in 2003, right? During the “deflation scare”? My point is that people here are reading too much into this; Australia is a LAGGING indicator, not a LEADING indicator.
Watch commodity prices - Australia is more dependent on them than your typical first world nation.
Australia was a few months ahead of the rest of the world going into the early 90s recession, it was hit hard by the slowdown in Japan.
I think they still have some residual momentum for now from the flush high commodity prices of recent years.
Goverment debt is quite low but last I heard the personal savings rate was at US-like levels, pretty anemic.
Dont forget Australia market start to decline when govement imposed
fines on baring RE agents from the Industry on
dummy bids …
BTW- They were using Australia as example of Soft Landing last 2-3 months. Good example of Hardlanding down the road IMHO!
http://au.pfinance.yahoo.com/021011/1/26n.html
Victoria: Big fines for dummy bids
ADVERTISEMENT
New legislation to be introduced into Victorian Parliament today will provide for $24,000 fines for people engaging in dummy bidding at property auctions.
Real estate firms will face fines of up to $60,000 if their agents accept dummy bids, or $20,000 fines if they’re involved in overquoting or underquoting. The auctioneer will also be required to state when the vendor’s reserve price has been reached during an auction.
Agents and vendors will be required to agree on realistic prices prior to auctions and agents won’t be permitted to advertise properties below the prices stated in the sale contracts. The Department of Consumer Affairs will be notified if an agent regularly sells properties above contract of sale prices.