A ‘Scourge Of Negative Equity’ In Australia
A housing update from the Australian. “The scourge of negative equity has spread to Brisbane as the property downturn continues to slug investors and the lower end of the housing market.”
“According to Australia’s largest mortgage broker, falling property values in parts of Brisbane has led to an increase in the number of owners with mortgages bigger than the value of their homes.”
“‘In some of the outer Brisbane suburbs we are seeing valuations for house-and-land packages purchased mainly for investment purposes falling short of purchase prices,’ AFG executive director Malcolm Watkins said.”
“AFG said some new construction projects in that state were being independently valued at 20 per cent below asking prices. ‘That’s your first classic sign that things are slowing right off and people are becoming far more cautious,’ Mr Watkins said.”
“However, it is Sydney where prices have fallen the most, with the highest proportion of families facing the prospect of negative equity. ‘Many owner-occupiers, seeking to refinance their homes, are being disappointed by the lower-than-expected valuations being achieved,’ Mr Watkins said. ‘If larger numbers of owners are forced to sell, this will trigger even greater declines, affecting more property values.’”
“Apartment values had fallen by as much as 20 per cent in Green Square, where developers were opting to rent out apartments rather than sell them for fear of further price falls.”
“Figures showing a reduction in new home approvals in Western Australia have prompted suggestions that the state’s housing boom is coming to an end.”
“The Master Builders Association director Michael McLean says, ‘The bubble seems to be bursting in WA’s housing sector with capacity dwelling units of around 21,000 being met with these latest statistics, which I might add are prior to the latest interest hike, and so that’s also going to exacerbate affordability for new home buyers.’”
This blog is changing servers, so there may be some technical problems for a few hours.
Crikey!
I knew it! Moving over to the NAR’s new server banks, all part of their deal to make Ben cash out and stay quiet! Noooooo!
(just kidding)
As a long time lurker (from the first blogspot site) I am impressed how your diligent reporting has this mess easily exposed to so many people. Two years ago, we certainly had very little company.
The fact that you need to upgrade servers is a great sign!
Scourge?
Scourge!
I like how the foreign press tends to get Biblical with their descriptions.
A scourge on all (non-productive) flippers families!
“A plague o’ all your houses!”
–Adapted from Romeo and Juliet (III, i, 94)
I don’t believe this, auztralia is an islandm. they aren’t making any more land!
Lots of Australians under water.
Not a good place to be. Lots of sting rays there, particularly in Australia.
Crikey!
You have an obvious lack of humor and taste.
Well Duh!
Groo does what groo does best.
Last we heard, the Australian market had achieved a soft landing, with prices leveling off to a permanently high plateau. But now we learn about the scourge of negative equity, which seems to be spreading away from Sydney to the edges of the outback. I anticipate something similar in the US real estate market, even though anyone who knows how to read and is paying attention could have already read numerous warnings about getting back in too soon on this blog. As many US stock market participants who were eager to jump back in after the Great Crash of 1929 learned the hard way, it can take a mania many years to unwind, with many sucker rallies along the way.
I suspect the so-called Aussie soft landing was largely a staying action made possible by easy credit - owners had equity/credit to keep them afloat for a long time, but eventually it has run out and forced sales are revealing actual market prices.
And as you suggest, it’s a long way to the bottom.
sure, it’s a good example of how slowly things are developing in most of the world (of course in Europe with all its socialism and burocracy things are developing even slower). The bubble will probably go through many stages before it is finished for good. Of course Oz did not have a soft landing, they have just started to look for an airport because they lost one of their engines. To be continued …
Cheers!
- falling property values in parts of Brisbane has led to an increase in the number of owners with mortgages bigger than the value of their homes.
Those Aussies are doing great. I recently saw one of there guys on TV selling a broom sweeper. Don’t believe these reports.
Note that in many economic aspects Australia is the Canada of the South. It’s also interesting that Oz’s last bubble area, Western Oz, is the counterpart to Canada’s bubbleland, BC and Alberta.
But since housing prices in Oz didn’t start declining until after the Sydney Olympics, we can be sure that housing prices in Vancouver won’t go down until after the 2010 Winter Olympics.
They’re not making any more land in Australia or Canada. Buy now or you’ll be priced out forever. We have reached a permantently high plateau.
RE only goes up, except in the land down under (in which case it only goes down!)
home prices in the Netherlands are still rising (even though they ARE making more land over here) and because it has been like that for more than 15 years, it might take until after 2020 before this bubble finally bottoms.
In fact, if the latest global warming predictions are true, many Dutch homes might be physically underwater before their mortgages are underwater ;-(
What’s this about the “lower-end” of the housing market being hurt the most by a downturn? I thought that it was always the pricier, more expensive, homes that had the greatest depreciations in real-estate corrections. Isn’t this what has always happened in previous real-estate downturns?
Funny you bring this point up. My nephew is an architect for a very very high end construction company in the Phx area…I mean, these homes cost a million to build, let alone sell. His company is completely booked out into 2008…now, they don’t do volume, maybe 10 houses a year, in different stages…but he has told me that even while “normal” residential homes pile up and don’t sell, their customers are still building. That really doesn’t answer your question about depreciation, but he has told me that these type of people seem to him to not really care. They, for the most part, are pretty sophisticated about business, and know what’s going on in Phx…they still want to build their multi-million dollar mansions/second homes. Weird.
not weird; all over the world differences in income level are surging. In my country over the last 20 years, the difference between median wage and top level management wages increased from 18x to 420x. Probably in the US and UK it’s similar. While most of the population is feeling the pinch, the top 1% are getting 30% richer or so every year.
It’s the same story with building multi-million dollar yachts (one of the things my country does well). The companies that make them are fully booked for several years.
In my country I’m also hearing from time to time that most problems are at the bottom of the housing market. The top segment of the market looks like the most healthy part to me, indeed these are the buyers who couldn’t care less if they have to pay a million more for their home …
Precisely why using medians is such a poor guage of true market conditions or pricing. People at the top couldn’t care less about a housing bubble; they simply buy houses they want to live in, regardless of the expense. Therefore, the median will continually be skewed higher until more lower-priced volume comes back into the picture.
The uber-rich I’ve met know that SFR housing isn’t a great investment and is actually more a liability than anything. Because of this they aren’t concerned about depreciation and they’re not looking for the ATM-machine wealth effect.
Same here re: workers/CEOs…. Hope I live long enuf to watch the lightbulbs go off and see by what process the dim bulbs “resolve” the issue…
I’m from Australia, Brisbane actually………….and I sold my home in 2003 and am currently renting. The house I rent now in a new 4br, 3 bathroom 3500 sq ft.new home……….the investor/owner paid $760,000 for it ……….tried to sell it and the best offer he got was $525,000. I pay $1,400 pm rent. Bank cash deposits for 12mths are yielding 6.5%. Blocks of land in this area (non waterfront) sold for $300,000 two years ago and now there are plenty between $200,000-$225,000.
So Americans are not the only people in a real estate downturn……….forget what the press say……….we are nowhere near the bottom here yet. I’ve seen this all before and it’s going to the same pattern.
I would appreciate if people would get off the Steve Irwin jokes………it’s a very sad time for us here. Steves home and business is located about 40 kilometers from where I am and the locals are shocked because what has happened to him.
Thank you in anticipation.
I am sorry for your loss and your country’s loss…and I agree that jokes about the accident are mean-spirited. My kids LOVED him…he was responsible for getting many kids interested and involved with wildlife and conservation.
He was so over-the-top and passionate about his work…and that was so refreshing in this age of the PETA people.
I second Catherine’s comment. Steve Irwin was a great conservationist.
Why couldn’t we lose somebody from the REIC instead?
We were shocked and saddened too and extend our sympathies in your loss.
My kids loved him. He will be missed.
I too was very saddened to hear the news about Steve. His show was such a refreshing change from the network garbage produced here. I loved his passion and excitement and it was very clear that he had the utmost respect for the animals he worked with.
Sad indeed - and there was a real-estate angle to his life and works. Irwin was a ‘conservationist’ in the old-school sense, in that he used his personal funds to purchase habitat to save it from development. Put his money where his mouth was, so to speak.
Helluva good guy. He will be missed.
just watched the ITV ‘Prehistoric Parc’ series that started here today on TV, and immediately had to think of Steve (I guess the writer of the series based the main character on Steve).
sad coincidence …
“What’s this about the “lower-end” of the housing market being hurt the most by a downturn?”
Regardless of how previous downturns have progressed, in the US it has to be the high end to get hurt the most. Its simple supply and demand. They’ve built zillions of “luxury” homes over the last 5 years, but nothing at the lower end.
yes, the high end will probably go down more because it has seen bigger gains (I guess, at least that’s how it is in Europe).
But the trouble often starts af the bottom of the pyramid, that’s wat all the folk higher up are feeding on. So the lower end will probably get hurt first, probably that is also where you find the most buyers in a vulnerable position.
We’ll know when the “scourge of negative equity” reaches our shores. When in the throes of a nasty divorce your wife makes you keep the house!
“Regardless of how previous downturns have progressed, in the US it has to be the high end to get hurt the most.”
I really disagree. Subprime mortgages now constitute about 28% of the market, up from like 8% before the boom. You have people with option ARMs out there who think they’re going to get that 2.5% teaser rate forever.
The lower end neighborhoods are already getting slammed in cities in the midwest, Philadelphia, and even in recently hot markets like Boston. I bet Washington, DC, will soon be on the list.
And who’s going to take the biggest hit job-wise when the homebuilders finally cut back construction?
There’s going to be plenty of pain to go around, but my feeling is the the homeowners in the lower middle class are going to be in tough shape in a year or so.
Everybody thinks that the social/price class they are in terms of housing is the one that will go down the least .I just think that the very high high end and the very low end housing holds up the best ,but maybe it will be different this time . I guess it dependa on if the area had a bubble going or not . I’m sure there must of been some town in America that wasn’t in a bubble ,( don’t expose the name of the town if you don’t want the locust to come ).
Live in OC and my relatives live in Sydney occasionally, I visited there a couple of times, last time is on last spring. They own a 4 acre farm in Sydney suburb, about 25 minutes away from downtown. As of that time, sine they brought, the prices have gone up around 150% (because of the land value go up more than the building itself) in just about three years, and it worth around $3 million. As far as I know, ten years ago, the prices just around $700K.
I also visited a couple of my relative’s friends and, just like OC, people are taking about RE investment everywhere, I always feel O.C. is sooo overvalued, but believe me, Sydney is even more overvalue than OC. And much less jobs over there.
I had suggested my relatives to sell there house (I sold my house last summer), it should worth no more than $1 million plus high maintenance fee for a farm, but they think it’s a long term investment and land values will not go down too much.
As of today, the values already went down 15% from the peak, but I think it will need to go down at least another 20% - 30%. However, $3 million in the bank, can cash in $150K.
BTW, IMHO, Sydney’s RE markets is about 1 year ahead of US market, so it offers good indications for U.S.
Yogurt,
NOT true. The Olympics will not do anything to continue to inflate the bubble in Vancouver, just as EXPO 86 and a host of other mega projects did not.
just watch what the Olympics will do to the Chinese property bubble
Didn’t ya see the smiley?
Australian is coming off the dreaded double top, and Britain is in the same mess. I loved reading all the stories of how they both raised rates and the market held up fine. Well, it’s not lasting obviously. Uk is ready to raise rates again, and the economy just had its last gasp at growth in all likeliness. As for Australia, they were lucky to try to get ahead of the curve on rates, but commodity price bubble bailed them out to an extent. You cant stop the bubble…it rules. And it will have its way. Here, there and everywhere. So many to deflate, so much time…what’s the hurry?
the difference is that homeprices in the UK are still rising (in the last months even faster than in the previous years) despite a voodoo-economy. The Netherlands and some other EU countries are exactly the same. Maybe Australia is a bit ahead of the curve, or maybe we will see an echo bubble soon in Oz as well when their government tries to rescue the bubble economy.