“For Sale Signs Abound” In Australia
The Gold Coast Bulletin reports from Australia. “Interest rates have hit their highest level in six years and Prime Minister John Howard says the pain for households is necessary to get inflation under control. But leading industry figures have warned there will repossessions ‘within weeks’ as a result of yesterday’s interest rate rise.”
“Gold Coast independent property valuer Iain Herriot said the rate rise was ‘really bad news’ for the investors who had stretched themselves to buy investment properties. ‘In a matter of weeks you’ll start to see investors selling their rental properties so they can hold on to the family home,’ said Mr Herriot.”
“‘It’s particularly prevalent in those new estate areas where people have been sold house-and-land packages that quite simply don’t add up in terms of market value,’ he said. ‘When they go to put their investment property on the market in the next couple of weeks because they can’t afford this interest rate squeeze, they are going to get a very rude shock.’”
“Leading valuer LandMark White said the rate rise would ‘murder’ the Queensland property market. Mr Herriot could see some benefit to first home buyers.’I think their Christmas stocking will be full of decent buying, unfortunately though it will be at someone else’s expense,’ he said.”
The Australian. “Low-doc, no-doc, half-a-doc loans. Any-doc-will-do. Get rich quick. On the outskirts of Sydney and Melbourne, things are getting ugly. ‘For Sale’ signs abound.”
“What they don’t tell you is who’s selling. The banks, you see, are telling the agents not to disclose the vendor, to not say a word. The bulk of these sales are mortgagee-in-possession jobs.”
“An ABC crew toured the western Sydney arc from north to south last week. Its findings were disturbing. The bulk of house auctions were mortgagee-in-possession sales.”
“Agents said it was the worst they’d seen it: negative equity everywhere, locks changed, savings lost. One house in western Sydney suburb Fairfield, a three-bedroom weatherboard number, had just been passed in at auction for $279,000. The bank was the vendor. It had been sold for $560,000 just 18 months earlier.”
“The banks are calling in their loans, folks. The credit binge is kaput and the waking hangover will be so bad the lawyers will be sorting it out. Who will sue whom? Mortgage brokers, banks, non-bank lenders, lawyers, mortgage insurers, dodgy valuers. Pick a box.”
“What of the banks and other assorted credit spruikers? Did they exercise the required care, outsourcing their sales to spivvy operators who loaded up their prey with home equity withdrawal products while rates rose and household disposable incomes sank? They’ll blame the brokers.”
The Sydney Morning Herald. “The managing director of property research firm Braxton Chase, Andrew Donnelly, said there were plenty of bargains in the market as higher interest rates force vendors to slash property prices.”
“‘We are regularly coming across developers selling at up to 20 per cent below current valuation,’ he said.”
“Mr Donnelly said investors were becoming more aggressive, and in Sydney had been known to put in offers of $320,000 to $330,000 for properties valued at $400,000.”
“‘And they’re being accepted simply because vendors and particularly developers are not able to afford the holding costs that these rate rises are putting on them,’ he said.”
“Mr Donnelly said that while mortgage repayments would rise as a result of Wednesday’s interest rate increase, which pushed official rates up to 6.25 per cent, the increase would have only a minor effect on investor returns.”
“‘In most cases any increases will be significantly outweighed by the capital gain that can be made from buying at a major discount,’ he said.”
‘Particularly on the outskirts of Sydney and other major cities excluding Perth, the situation will get worse and repossessions will rise,’ economist Craig James told Sky News today. ‘A number of people who have bought their house in the last two years will have negative equity. We expect to see more repossessions and sales as people are not able to keep up with their repayments,’ he said.’
‘And for some, the bad news has already hit - almost one-third of respondents said the value of their home had fallen in the past twelve months. Of those people who had seen the value of their property fall, one-quarter of this group indicated that their mortgage was now worth more than their home – or that they held ‘negative equity.’
‘Australia’s construction industry contracted last month amid continuing concern over the health of the housing sector.’
‘Dr Ron Woods blames the Reserve Bank for the pain in the mortgage belt, arguing that it fuelled the house price bubble in the eastern states by keeping rates too low for too long. RON WOODS: House prices going through the roof encouraged everyone to get in to make the easy, quick money. And the people in charge of controlling bubbles like that, the monetary authorities, should’ve put a lid on, should’ve put a lid on house prices, through more aggressive interest rate rises in 2002.’
‘All the rate rises we had since then, especially three this year, should’ve been put into 2002. We wouldn’t have had the bubble, you wouldn’t have had these people, many of whom are financially, fairly illiterate, would not have been suckered into that situation of seeing prices going up and up, and they wouldn’t have been suckered into the situation.’
‘STEPHEN LONG: But as one pundit quipped recently, Harry Hindsight is always the best analyst.’
This article certainly foreshadows what lies ahead for American homeowners, particularly those burdened by negative equity. It describes a dramatic reversal of fortunes. Yet, some really astute people think the ‘neg-eq’ effect will have zero impact on spending and the broader economy.
Well the australian prime minister is a clone of George W. Bush. I am not surprised that the kangaroos are as crazy as the yankee doodles. Australia is mesmorized by the US. Monkey see monkey do. Maudites bandes de singes!
I don’t think a REO here can hide the fact that it is indeed a REO. Let’s not wait for the FB to get desperate. Let’s wait for the banks to get desperate.
The multi listings often hide the fact, county records will clear that up, but you have to check each property you’re looking at.
As it is now my wife and I won’t even drive by a place until we’ve pulled the county records to see who owns the house, what they’ve paid for it, and what the official records show for square footage of the house and lot. A lot of houses grow, and we’re always sure to ask how the growth occured if we actually contact the agent. Some of the growth is in undocumented “improvements” of varying quailty some is just imaginary.
yes, good point - but I don’t see any desperate banks at all regarding the mortgage/housing bubble situation. Although lately in Europe banks are screaming that they are getting hit by a negative yield curve, so the ECB gang MUST do something NOW and LOWER shortterm rates. Apparently increasing longterm rates is not an option for the banks (in the Netherlands, longterm rates are at four-century lows, or maybe one should say all-time lows).
Traditionally, banks would stock up on Treasuries and make loads of money when rates start rising, but it seems that in the current finance economy it works exactly the other way. Dutch financial giant ING (the partent company of ING Direct which is supposed to be a very safe bank by US readers …) warned that every small rate increase means big losses now; their stock was pushed 5% down within a day (quite unusual loss for a Dutch financial company). I wonder where all the losses on all the grossly overvalued, 1:10 leveraged Dutch real estate will end up - for sure the banks will try to pass everything to the taxpayer.
“Low-doc, no-doc, half-a-doc loans. Any-doc-will-do. “
Just crazy, turning the keys of an asset worth $100,000’s over to someone you don’t even bother to find out if they can afford it or if they are even really who or what they say they are.
Should also include “Make your own doc”.
Or better yet “We’ll fab your doc”, “Your doc fabricated here”.
‘your doc fabricated here’ is available in the UK and probably some other countries; costs you some extra but then of course there is nothing better than buying an expensive home on a false ID
Ben, this thread nails the Australian situation. There has been a lot of talk about our soft landing………..just all crap and hype. Our pain is just beginning. This credit mania is global and the pain will also be global.
Thanks for your input!
Where are our 3 interest rate increases this year? If we are going to follow in the footsteps of Australia, don’t you think we are going to need to see some of that fiscal responsibility in this hemisphere?
I wish we would see some of this same type of news, and perhaps we will, only at a much slower rate. Argh, this waiting is killing me!
in Europe it’s even worse; despite four 0.25% ECB rate increases and despite already ridiculous valuations, mortgage rates have barely moved (so definitely lenders must think risk is zero) and valuations of homes keep going up. There is not even the slightest sign of panic in the EU housing market (although it does not look as healthy as 5 or 10 years ago).
My buddy in North Ryde confirms this for me all the time. They’re gonna’ have it tough for the next few years.
Luvs footie posts ” Ben, this thread nails the Australian situation. There has been a lot of talk about our soft landing………..just all crap and hype. Our pain is just beginning. This credit mania is global and the pain will also be global. ”
Ya, but you might run out of land.
LF: why are they saying that a quarter point rise in interest rates will immediately (within weeks) cause so many foreclosures? How quickly do mortgage payments adjust (monthly, yearly, etc.) there?
I understand there have been a string of rate increases, but it still seems like they’re basically saying this last rate increase is the proverbial straw that broke the camel’s back.
And, just as it seems that Australia is leading the US in the crash, it seems that certain markets here (Florida, SD, and Sacramento) seem to be leading the rest of the nation (with different markets trailing by different amounts of time). But, we will all end up in the same place eventually, since all of the markets were subject to the credit bubble that caused this housing bubble.
they said the same about a quarter point rise in the EU several times, and nothing has happened despite four of those hikes. I think it is mostly pressure from the banks and RE mob on politics to avoid further rate increases. All of the financial world is lobbying for lower rates to keep their fat paychecks and unlimited bonusses coming in. They don’t give a damn about soaring inflation or crashing property markets because whatever happens, they will profit from it.
WaitinginOC,
Most mortgages in Australia are ARM’s, with interest rate changes applying immediately. As in “your monthly payment starting next month is xxx”.
““What they don’t tell you is who’s selling. The banks, you see, are telling the agents not to disclose the vendor, to not say a word. The bulk of these sales are mortgagee-in-possession jobs.”
What does this tell you about Banks?……….just wonderful isn’t it.
LF, what types of mortgages do they have there? Do they have fixed rates, ARMS, IO, etc.?
You name it we had it……….there was a lot of loans taken out fixed rate for 2 or three years which then revert back to the going rate after that time………these are our time bombs……….bit like you arms deals, but maybe not quite so deadly
Gotta love the crap from CNN. One story talks about rising foreclosures and another talks about ’steady prices’.
“.. foreclosure properties… 43 percent (up) from a year earlier.”
http://money.cnn.com/2006/11/10/real_estate/Top_ten_cities_for_foreclosures/index.htm?postversion=2006111010
The other article…
“Industry trade group says existing home sales and prices should steady in 2007″
http://money.cnn.com/2006/11/10/real_estate/realtors_slump_not_bust/index.htm?postversion=2006111013
The key there is “induustry trade groups”. Guess which industry that is? Its the one who’s income is dependent on home sales. I wonder what their motivation is?
These stories from Oz are brutal. All the same, whatever madness went on in lending there absolutly pales next to the insanity I’ve witnessed in California. I have extensive experiance in both markets. Credit was/is a LOT tighter in Australia - and rates never went as low.
Whatever happens there will be twice as bad here.
Hard to say, considering the 2005 blowout here. I know there was a time when economists said the UK and Australia were further out there in percentage terms.
Not sure how detailed those studies were. For 90% of people property taxes in Australia are virtually non-existent (
No worries mate, it’ll never happen here. We have plateaued! Soon to be going back up just not as fast as in the last few years. Of course that’s BS we are toast!
Every week or so, I get a flyer from several local realtors here in Thousand Oaks. One just arrived and I’m going to type the exact wording from the flyer’s column called, “Dan’s Column”. Dan is, I think, the broker.
“Both the NAR and the CAR have recently indicated that the market is going to be a little slow throughout the remainder of the year. Both organizations also believe the market will begin to pick up in the first quarter of next year (2007). Because of these projections, I believe that if you are waiting for the market to go down before you buy, it may not be going much lower. In fact, it may very well be going up a little in the very near future. If you are thinking of buying or selling, call me today and let us begin the process of finding the right home for you.”
Also, in the flyer, he is advertising for people who might be thinking of getting into the “Very lucrative Real Estate business.” So, why would he be advertising for “help” when the property market is dead on it’s feet? I’ve been around long enough to answer that. He doesn’t care if you spend your money and time getting a real estate licence. All he cares about is getting as many “realtors” on his books so that his slimey a** is covered. Real Estate business is like almost every other business. It’s a numbers game. For example, 50 real estate salespeople working on commission only, might bring in 10 jobs. Those that brought in nada will starve ’cause they ain’t getting paid anyway. On the other hand, Mr. Slimey A** the Broker gets commission on 10 sales.
All you have to do is mess with the numbers. 25 salespeople bring in 5 jobs. 100 salespeople bring in 20 jobs, etc. ANY manager at a car dealership will tell you it’s a numbers game. Of course, some salespeople are very good. Of that 10 real estate sales spread between 50 salespeople I mentioned, 3 might have been brought in by just one of the salespeople. However, if that person is basically holding up the firm, he’s going to become a broker real soon and be on his way to becoming another sleezebag by simply hiring as many salespeople as he can. If 95% don’t make it……..tough life pal. See if WalMart still has your job open.
Mike, TO is nice area but pricey. I have a gut feeling since it flew high in the last 6 years, it could be ripe for failed HELOC and toxic loans. Property Taxes must be murder with the incresses in values. T O Westlake etc. a million bucks is zip.
Please keep us posted. I live in Ventura.
Mike about “Thousand Oaks” …. When I was a kid we called it “Thousand Jokes”……LOL
Not sure if this has already been posted here, but this site features a stunning video clip from CNBC yesterday. Basically, you have the CEOs from Toll, DR Horton, and Hovnanian all making comments as to just how bad things are and could be. Three minute clip, scroll down to the “death spiral” link. That’s what Horton called the current situation, a death spiral.
http://www.paperdinero.com/BNN.aspx?id=50
Then why the hell did the HB’s stocks go up again today?????
Waiter, more gin with my Paxil please.
Ben
I trade the stock market for a living (now) and I do okay. Long, long ago I discovered why the markets move. One word. Manipulation. Look no further. The Wall Street brokers don’t walk away with multi-million dollar bonus payouts for nothing.
The game is simple. Millions invest in the market. The big treasure chest is the 401k money. They make sure american workers get some of that back. Mostly around the 5% to 10% range on average. Keeps the sheeple happy to think their little nest egg is growing. And the brokers manipulate the numbers so they can keep those vacation homes in Bermuda, limo’s, etc, in the “Da Family”. They rape and pillage on the way up - AND on the way down.
The BIG treasure chest (which they are hoping will arrive one day) will be another attempt by the Bush Crime Family to privatize Social Security as a pay-off to their pals on the street. Paulson (of Goldman Sachs) who is now Treasury Secretary will do all he can to get that river of $$$ flowing into Wall Street where Da Boyz (the brokers) will rape and plunder like there’s no tomorrow.
Social Security IS a problem but handing the keys to the Social Security vault to the biggest bunch of crooks ever to walk this earth is asking for trouble.
This current rally (in which I have done VERY well) is a good example of manipulation. A classic. Not sure if it engineered so the Republicans would win the mid-term election but if you are looking for a logical explanation you’re not going to find one - outside of manipulation.
I don’t know, Mike, your post doesn’t quite ring true to me. No offense, I could be wrong. But there’s a little too much cliched blog-speak for me to be able to believe that you could engineer a good living as a trader.
Yup, had the same thoughts here.
I got dissed yesterday for “changing colors” but to survive trading, you have to be able to recoginze when you’re wrong and trade what you see, not what you think. I hate the term “manipulation,” as it is used generally by people who are not doing well as an excuse.
mugsy, I have no idea on that one. It confounds the hell out of me as well, not to mention GetStucco. I’m seriously beginning to believe along the same lines as Mike does. Manipulation by the boys on the street. Paulson’s appointment really put some serious doubts/conspiracy theories in my head, but maybe I’ve just been reading these blogs too much. My investment timeline at the moment is a good 30 years, but my problem is trying to decide what to do in that time. I’m just an average guy like most, although I’m trying to learn as much as possible in this arena.
CA Guy - There’s been a curious tendency on this blog recently (IMO) to confuse the issue of a very real housing price bubble with the stock market, which is really not at all bubbly. We can argue about it being overvalued or undervalued, but it is most definitely not a bubble.
Couple of mental exercises: (1) Think back to 1999. If you had known that the Nasdaq was going to fall by 80%, would you have ever imagined the economy would be so resilient, that we’d muddle through with only a mild recession and then quickly resume a nice growth patttern? Is it any more difficult to believe that a (say) 40% drop in real estate values over a couple of years won’t necessarily cripple the stock market?
(2) Imagine that there is a 50-50 chance of a particular HB (let’s pick LEN) going bankrupt in, say, the next 12 months, but that if it doesn’t go bankrupt that it will eventually earn money again and maintain (and grow) a positive net worth. This is not the most bearish scenario, probably not as bearish as GS would like, but is still reasonably bearish - a 50-50 chance of going under fairly soon. What would that make the company worth?
Well, LEN had peak earnings of almost $9/share - it never traded at more than 8 X earnings and it currently trades around 45, off a low of 38. You could certainly make a good argument that until bankruptcy is in the bag, that just having the OPTION on the potential of some decent earnings has to make the stock worth an amount that is a fairly high percentage of its current price.
The HB stocks are always so cheap at peak earnings that anything other than bankruptcy (and some WILL go bankrupt, but probably not all) just can’t drive their stocks down but so far.
This was my original point which GS got so upset about: I simply stated that even if the HBs were to take massive write-offs - which I think they will, reducing value of their inventory - which would ostensibly decimate their balance sheets, it really shouldn’t have a significant effect on their stock prices. Only the real likelihood of bankruptcy can drive the stock prices down much from here.
Final point - and I’ve been making this one since I started posting - it is very hard to make money on the short side of stocks, especially in “obvious” plays. I get the feeling a lot of money is being lost by people trying to talk down the housing stocks. The “manipulation” everyone feels from WS is more muscle than manipulation - they are always after the weak money. I have been muscled out of a lot of “good” short positions.
In fact, the so-called “too-risky” way to be a bear is actually the best way, IMO - uncovered call writing - for a couple of reasons. Options tend to be (or used to be, anyway) slightly overpriced (because of the asymmetry between the supply of buyers and writers), and writing options ties up a lot less capital than shorting stock, which is very costly for most traders. But you can’t walk away from your position, so it’s not for part-timers.
You had me until the point where you said that options are overpriced.
This isn’t the forum but I could debate you on that one all day.
Paul
If “main street” takes a rightious dump, like I think it will. Do you think “wall street” will follow? Will the impending housing/ lender decline…. be “unlinked from wall street.
I would like to hear your thoughts.
That’s why I qualified with “used to be”. I remember a study from about 20 years back which showed that options tended to trade around the asked side. Not that this is something that is easily measured - there’s no simple econometric trick to figure it out. I’m not really much involved now, and of course I do know that the VIX is very low and it looks like options are cheap today. Probably they tend to be cheap after a long period of historically low volatility in the market (today) and expensive after a long period of high volatility. Give me your take.
CA Guy posts “death spiral” link.
DS you are being paged.
Hey, Ben, you’ll like this!
http://www.underthecounter.net/archives/2006/11/life_in_the_fas.html
Ha! Ben, your blog is linked in this article.
Australia today is Florida one year from today.
Good call!! My sister and her developer husband live a couple hours north of Sydney. Prices peaked in their area in 2004 about a year before the U.S.
My wife was just in Warsaw, Poland. The same thing there. Prices have shot up over the last 2 years and seem to be stalling.
This is truly a global bubble.
Nope, Florida is way worse. The Australian economy is driven by selling things that the rest of the world wants (imagine that). The Floida economy is driven by sucking in money from specuvestors and snowbirds. It’s a complete house of cards.
I took two vacations to Australia in the late 1990s. I liked the country a lot, but what made it a great place was the people–very down to earth, with an honest relaxed friendliness, not like here where we’re all stressed out and amicability tends to be part of an act to sell you something. It makes me sad to see that greed and get-rich-quick took over like this.
Great column above from The Australian; I remember that newpaper being described to me by a Melbournian as the country’s serious paper. The tabloid was called the Herald-Sun, derided as “big pictures and little words.”
Snake charmer - I too spent some time in Australia; one month in Queensland while I was in the Marine Corps years ago. It is a great place, and the people are very cool indeed. On my most recent vacation we ran into alot of Aussies and New Zealanders, and the attitude from both groups was very refreshing.
‘In a matter of weeks you’ll start to see investors selling their rental properties so they can hold on to the family home,’ said Mr Herriot.
Ooooh… this has California written all over it!!!
Ain’t that the truth, tj!
RE in Oz is not all about the east coast though. Here in Western Australia, the Perth median house price is still in nosebleed territory: http://www.reiwa.com.au/res/res-salesgraph-display.cfm
I’m in a large regional town in WA where I bought a property 2004 (bottom was 2003) so I reckon another 3-4 years to run before the top.
West Australia has a resource based economy so while the commodity boom is still in progress we won’t see the declines the east has experienced. It will happen eventually, of course.
I was travelling along the coast cities of Australia last year around this time. A local person warned me about the housing bubble in California. He said the bubble was busrting in Australia and the same thing will happen in the US. The Australians were having open auction to sell house then. I saw empty high rise condos in Melbourne which prices had decreased 20% from the peak. Housing prices at Sydney was simply ridiculuos expensive. They were building lot of high rise condos in Brisbane. Along the Gold Coast, a high rise condo was selling for 500K Australian dollars and I didn’t quite figure out how could the average local people could afford these places with the average income there. This must sound familiar to you.
Now I started seeing auctions to sell houses where I live. I think what is happening in Australian will happen here. It seems that the US bubble scenario is one year behind that of the Australia.
Eventually? Try next year. The bottom will fall out of commodities when the US goes into recession.
Your attitude is also shared by Western Canada, BTW. We’ll see.
Ah yes, but if we’re talking gold and uranium, then west Oz is going to be where the jobs are
West Australia has a resource based economy so while the commodity boom is still in progress we won’t see the declines the east has experienced. It will happen eventually, of course.
Ain’t that the truth
The town I’m in, is mining based with some tourism. I’ve seen 2 boom and 2 busts, we’re now on the 3rd boom. The cycle lasts around 7 years for each so historically speaking we’ve got some years of boom left. Real estate has always overshot the end of the mineral boom by several years. The property I bought in 2004 is now up 70% in 2 years (and rising). If it gets the 100% mark, I’ll be seriously thinking about selling and renting.
I wouldn’t count too much on historic presedent.
in my region in the Netherlands (rural area, major income source government jobs and a bit of tourism), the previous boom was in the seventies, lasted 5 years for a 100% price gain that was fully corrected by a 1.5 year crash around 1980; after that prices went nowhere for about 10 years.
The current boom started around 1992 and is still in full swing, appreciation in my area is +600-1000% (with some properties already near the 1500% mark) and there is no sign that it is ending soon. I sold my home after it appreciated +300% (had to sell because of some stupid tax changes) and by now I’m totally priced out (forever it seems).
“The banks are calling in their loans, folks. The credit binge is kaput and the waking hangover will be so bad the lawyers will be sorting it out. Who will sue whom? Mortgage brokers, banks, non-bank lenders, lawyers, mortgage insurers, dodgy valuers. Pick a box.”
California, behold the handwriting on the wall…
“Interest rates have hit their highest level in six years and Prime Minister John Howard says the pain for households is necessary to get inflation under control.”
Inflation? What inflation? And what bubble, for that matter?