According to a poll of 237 property professionals, House prices in Australia are now expected to fall in 2011. NAB conducted the survey from a pool of expert respondents including real estate agents/managers, property developers, fund managers and owner/investors.
They expected property prices will not only fail to keep up with inflation, they will actually fall a modest 0.5 percent. These results come after Residex published data last week showing house prices in Australia fell 1.1 percent in the December 2010 quarter, suggesting a 0.5 percent fall could be on the light side.
“There has…been a significant downward revision in house price expectations over the next 12 months,” said National Australia Bank chief economist Alan Oster. “The house price expectations of our survey respondents have been downgraded significantly from our previous survey.”
Demographia has just released the results of its 7th Annual International Housing Affordability Survey. It compared house prices to household income in 325 cities around the world and found Hong Kong had the most expensive housing followed by Sydney in 2nd place and Melbourne 4th place. The report noted “Australia’s major markets have a severely unaffordable Median Multiple of 7.1, nearly 2.4 times the 3.0 affordability standard. Each of the major markets, with the exception of Sydney had housing affordability within the 3.0 norm during the 1980s.”
This abnormal increase in House prices since the 1980’s has seen household debt surge with banks having to go off shore to get more funding to fuel our appetite for housing. Ratings agency Finch reports the ratio of Household debt to disposable income in Australia is 159 percent, more than the levels in the US, UK and Spain at the top of their housing bubbles. Fitch says Australia’s reliance on external wholesale funding is a key vulnerability, but believes our banks will be able to manage a severe downturn. “Even in a severe downturn, gross losses incurred by the four major banks in their mortgage portfolios would be manageable,” said John Miles, senior director at Fitch Ratings. A 40 percent drop in Australia house prices was used to model the “severe” downturn.
» House prices to ease in 2011: NAB survey – The Sydney Morning Herald, 25th January 2011.
» House price expectations turn negative – The Australian, 25th January 2011.
» 7th Annual Demographia International Housing Affordability Survey: 2011. – Demographia, January 2011.
» Lenders to weather housing slump, says Fitch – The Sydney Morning Herald, 24th January 2011.
Come to Daddy!
Come to papa!
Just let the meddlers stand out of the way, let it crash…then let us rebuild the economy.
Iceland did, and now I’m told they have a far more certain and positive future than the other economies that tried to control the drop…ie..PIIGS, USA, UK etc.
A sharp drop would be horrific….but a slow gradual decline is a death but a thousand cuts.
Well these articles try to take the soft approach with the subject….. always paint everything in the best possible light, mention a small modest fall rather than anything worse. Don’t wana panic the dumb fools do we?
A neighbor across the road from myself has finally sold his house after putting it on the market 2.3 years ago, yup, thats 2.3 years ago, he originally listed it at $470k and I watched via realestate.com.au as over the coming months the price started to fall, he went from agent to agent as I followed changes to his listing on realestate.com.au
About six months ago he went for a private listing with no billboard outside the property and no price on the web add and managed to sell it finally, he wouldn’t tell me the final selling price, he knew I was aware of his original asking price.
Guess embarrassment may have had something to do with it.
One thing I do know. my neighbor’s place definitely went for a price drop greater than 0.5%, so much for safe as houses……..
40% isnt that bad. That would bring things back to normal – how can that be a bad thing?
Oh the humanity …not.
Ive been following a property in Mullumbimby for 2.5yrs now. Originally the owner wanted 1.2mil for it and now its down to 875,000. 20 acres of prime land with ocean views.
When I viewed the property, the real estate agent told me prices in this neck of the woods never went down.
I wonder how much further it will have of dropped in 12 months time?
Down we go it may be fast or it may be slow but the end result will be the same!
Two people I know in Melbourne who are trying to sell at the moment.. One in Ringwood North, and the other in Glen Waverley.. Both want over $800,000 for their houses, because thats what the agents say they should expect based on sale prices 6 months ago. Both have had the properties on the market for 3 months now with little interest at that price range (both have had offers in the low 600’s).. One is 60, considering retiring, and wanting to sell his Melbourne house to move to a country property. The other is 50 and wanted to downsize his house, and ‘invest’ the balance in an investment property.. Neither of which are ‘forced’ to sell, as they are both still employed.. So therefore they can hold out ‘until they get the right price’.. Neither of these properties are listed on any real estate website, and they do not have a for sale sign out the front.. The agents are now advising against this to vendors.. Why? “Because you don’t want people to know there are lots of houses up for sale, if they think this is the only one available in the area, they will be more likely to pay more”…. Now isn’t that misleading??
The camels back is employment.. If any of these people that are ‘holding out’ lose their jobs.. then they will be ‘forced’ to accept the current offers that are lower… for the moment, the forcing hand being employment is holding up..
The key to making the property market correct itself 40% for example is people needing be more better educated and informed on the matter of housing. As a good portion of Australians are gullible fools with little understanding of managing household expenditure and dept, so this is going to be a challenge indeed. With the media tossing up all these “housing shortage” stories and “low unemployment” stories this is just adding fuel to the fire.
I think it will take many years for the market to correct itself especially in some of the more affluent areas.
Until people are force to sell they will hang out for historic prices.
Eventually, the realisation of no capital gains in the near future will flood the maket with greater fools trying to get out while still in front.
The temptation to buy must be resisted until there are no reality shows on houses, and valuations are at 14 times annual income.
Must stop laughing and rubbing my hands together in anticipation of capitalising on ill informed fools.
Happy days are ahead in this depression caused by a contraction in debt.
Here in the former “worlds most liveable city” Melbourne,prices just wont drop, much! Given all the support and assistance by governments to create and sustain the price bubble and given the Australian dollar is at record high making overseas borrowing by our lenders relativily cheap, I am wondering when we will see a correction.
Not that it’s going to worry me but what will the effect of a levy be on home mortgage owners? Equal to or worse than an interest rate rise? Anyone out there know? Julia didn’t take up my idea of a tax deduction for home repairs. Red Queens have their own barrow to push but roll on a federal by-election.
Assuming unemployment remains low and the banking system is still strong the only force I can see within to drive prices down is peoples realisation that negative gearing is now redundant and anticipated capital gains are not their, nor will they be for many more years to come. This uncertainty will deter many investors from the property market and also cause many current investors to sell up while they’re still ahead. This should promote decreases up to 15-20% depending on the area. To get decreases more than this is not going to happen unless China puts the brakes on and/or you have severe unemployment over 8-9% and record number of foreclosures.
Australians have had it too good for too long, now it’s time to face the cold hard reality of whats ahead in the next years or so.
Just a note about the Fitch research, they modeled a 40% fall in housing prices, but their assumptions included employment stays as is as do all other parts of the economy. What they fail to realize that if property prices start falling, the building industry will start turning downwards. This will result in a loss of jobs which will have wider ramifications throughout the Australian employment landscape.
More people with less money means that there will be less retail deposits, which will result in a greater demand for international funds.
Once again a ratings agency has modeled once piece of information in isolation and have come out with a result that says everything will be just fine.
What a complete joke!!
NG redundant?
That would be a nice dream. Sadly NG is not redundant. To new median income investors… maybe.
2 reasons:
1. Seasoned Investors have plenty of Capital gains from the last decade. These guys are experienced long term investors and they see this mild slow down as a great buying opportunity to load up on multiple properties.
2. High-Income earners will always use the generous NG scheme to offset the tax they pay on their incomes.
The market would have to have a severe crash for NG to become at least less attractive.
AverageBloke
I can’t reference this , but I remember reading that the vast majority of property NG’ers are middle income, <70K a year. I guess what you would call amateur investors, these are the guys that will ditch and run.
The seasoned investors by definition will now be approaching retirement, what do they do? cash in or live off rental income? I don’t know the answer to that but I can’t see them buying more property?
High-Income earners are generally more intelligent and don’t see losing money as “investing” (there is a reason they are richer than Joe average) , these guys don’t feature as strongly in the tax return data for residential property (from what I could remember).
Rich, you hit NG on the head. Yes you are correct it’s the middle class people I was referring to mainly. (those earning <$70-80K / Annum) Once they realise their properties aren’t increasing in value nor will they for many years to come, they gotta be stupid if they keep their properties as they will potentially be losing thousands per annum, which is a lot to the average Mum/Dad investor. If this happens housing supply should slowly increase and rents should decrease slightly, therefore some NG investors will be losing even more money if this happens.