Prosper Australia, the organisation behind the Home Buyer’s Strike, has today announced the “Great Australian Land Bubble” has popped. According to Prosper, the statement has been made on the back of extremely poor housing finance figures released by the ABS.
Figures from SQM Research show residential properties advertised for sale is up 3.8% for the month. There is now 356,000 residential properties for sale, a 47.5 percent increase over the last 12 months.
It is unlikely we will see a new first home buyers grant/boost this year to save the market from inevitable collapse.
In reference to the First Home Buyers Boost introduced during the GFC, the Prosper press release said “Rudd was determined to see the bubble did not burst on his watch”. Treasury documents show the scheme was designed to encourage young buyers who had already been saving for a home to bring forward their purchase and “prevent the collapse of the housing market”. Louis Christopher from SQM Research said last year that “The scheme was all about saving the market from a big correction, It was never about improving affordability for first-home buyers.”
Earlier this year, a Real Estate Lobby group lashed out at the Gillard Government for ignoring them. After the election last year, Julia Gillard abolished the position of a dedicated housing minister, and according to the lobby group, they have not been asked for their expertise or research since. Some speculate, the distancing of the government from the Real Estate Industry and the removal of a single responsible minister is in preparation for the inevitable.
Both State and Federal governments face tough budgets. At a State level, the low turnover of properties is effecting stamp duty, and as consumers claw back spending, GST revenue is also contracting. At a Federal level, the Treasury has warned the government of a $4.5 billion dollar shortfall from personal and company tax returns, much of it from a shortfall of Capital Gains Tax (CGT). During the election last year, a promise was made by the Gillard government to return the budget to surplus in 2012-13. Treasurer Wayne Swan indicates this will still happen, suggesting this will be a tough budget and one absent of any stimulus to pump up the ailing housing market.
After a bold announcement by Prosper that the Real Estate Bubble has burst, we make the prediction that Australia will be in a fresh financial crisis within 3 to 9 months.
Despite Rudd saying on October the 15th 2008, “As Prime Minister I will not sit idly by and watch Australian households suffer the worst effects of a global crisis we did not create,” Australian Household’s had an unsustainable debt bubble when the GFC hit. By using a series of very generous stimulus packages, we were able to delay the debt driven meltdown to the extent that most Australian’s believed we dodged the GFC all together.
Today, credit is no longer expanding. Households are scared to borrow and/or spend. While Retailers are having a tough time now, we believe when the housing bubble starts to collapse and with the negative wealth effect there will, unfortunately, be much more pain inflicted on the economy.
» POP! The Real Estate Bubble Has Burst – Propser, April 12th 2011.
» Swan primes voters for tough budget – The Sydney Morning Herald, April 10th 2011.
» Capital gains tax receipt fallout trims Budget outlook – News Limited, April 12th 2011.
» Property sector turns on PM – The Australian, 31st January 2011.
3 to 9 months seems a bit premature doesn’t it?
If we use the US experience, their house bubble peaked in 2005, the GFC was of course in Sept 2008 – about 3 years later.
From the data it looks like the Aus house bubble peaked in May 2010. Which probably means the real meltdown is probably still some ways off – maybe in 2012/13.
Its a no brainer, kicking the can down the road worked for a while, but Juliar and her mob have tripped and fallen.
I agree that we did not take our medicine when the Western world did, So our Day of reckoning is still ahead.
The illiquidity of houses will hurt those that wish to flee, no buyers until big discounts, mortgagee forced sales start appearing.
Give it another year or two and capital gains will be a dirty word for property investors that continue to lose cashflow every year they work so hard for. A broken strategy indeed.
Full credit to Steve Keen, he has copped a pounding from critics for his forecasts, but the tide is turning in his favour of some serious carnage lying ahead regarding house prices and the effects on our fractional reserve banking system.
I agree with Cyrus that the market peaked in May last year. In fact we sold our house then and moved into our motorhome.
I think that Australians have seen the fall in the US, UK and other markets. We can see that it is better to sell now rather than wait for the good times to return or prices anchored to the very highest expectations to be achieved.
The RE agents who “buy” listings with high quotes only to later try to “condition” their clients to the real market (see Jenman) are now becoming responsible fot the increasing number of houses on the market. (SQM research site)
That said I noticed a few more sold signs around our NSW Far Sth coast town in the last few weeks. Possibly due to banks easing up a bit and Swan buying the rubbish loans off mortgage co’s in order to cash them up.
this is not the US Cyrus….
although, sometimes it may feel like we’re one of the US states….
They forgot to add the massive spike in Negative Gearing Tax breaks that costs the Government 8- 10 billion dollars a year whilst robbing home ownership from hard working people.
Surely property prices can’t fall to much, as soon as it drops say 10-15% in value you will see investors/ home buyers rushing in to get a cheap bargain. As long as wages and jobs sustain, inflation kept low i just cant see this being to bad like the US, Britain etc.
I agree now would not be the time to invest if your just a regular mum & dad buying a investment home, also i would wait a while if i was looking to by to see how it all pans out. I have just read too many articles similar to this and im wondering if this POP will ever sound. Life is too short to worry about the what ifs!
Still some way to go before any correction. A house which was sold in our street in 2008 for $660,000 just sold again for $780,000. Some people are going to be sverely burnt.
I think the panic will spread faster than in the US Cyrus. Their bubble in comparison had a bit more “stealth” to it. Ours has been coming for so long everyones expecting it and the exits will be all blocked with trampled sellers…
It’s not so much that we’re scared to spend, there’s just nothing left to spend after buying food and paying rent/mortgage and other essential purchases
“Surely property prices can
Shannell Sugrue “I think the panic will spread faster than in the US”
Maybe – but you could be wrong. Australia currently has a lot going for it and depending on the commodity cycle we could very well experience a “soft landing”.
By “soft landing” I don’t mean that prices plateau. I still think prices will fall 40%+ – but it might take longer than we expect. In Japan for example house prices took 15 years to fall and bottom out – and the Japanese never experienced a financial crisis or high unemployment.
I agree with Shannell it will spread fast once panic sets in and more over the world economic environment has changed a lot since the 2005 peak in the US.
For Australia it all depends on China. If China goes belly up we will do the same. However whilst China isn’t experiencing the explosive growth of the last few years, it is still experiencing significant growth.
Our economy is not reliant upon China the problem we have is that we have been deindustrialised by free trade, we are suffering from chronic underinvestment in infrastructure, public transport, science, and the energy sector. The government has been driven into insolvency by privatisation and tax cuts for the rich (the stock of debt is low but the ability to fund services has been severely degraded). Education and health have been in absolute decline.
This has resulted in negative productivity growth and falling real wages. The falling real wages has resulted in a reduction in consumer spending as ‘harry’ alluded too. However the housing bubble has been covering these problems up for years. Note the housing bubble is not the cause of our economic problems rather it has been covering them up.
The fall in the housing market will depend on the pace of economic decline caused by falling wages, deindustralisation etc. This at present is relatively moderate but will accelerate. I expect the economy will go into recession this year but only will be really noticed next year. They will blame the floods for it in the meantime.
Gillard meanwhile is planning on balancing the budget off the backs of the poor and small business while pretending it is to save the environment, in just the same way they pretend alcohol and tobacco tax is for health. This will aggravate economic decline. I expect every dollar they tax with the carbon tax will decrease the economy by more than one dollar and it will make the deficit worse while compounding the oncoming depression.
I predict the carbon tax exclusively will be blamed for the depression the Greens will then be scapegoated and blamed for the whole thing and will subsequently be annihilated as a political force for the rest of time. Meanwhile the Liberal party will take power and put in place false solutions that will only exacerbate problems. It is at this juncture that the social consciousness will allow for solutions to be put in place.
Chris, i agree the carbon tax is an absolute economy killer. It is regretful that the gov’t can’t see that just one simple measure could meet our emission targets. All we need to do is provide solar hot water heating for every household and avoid all the pollution from a coal fired 1400Mw power station in each big state. We could pay for this through our power bills over say 10 years. You can forget sequestration – it’s just an exercise in delay – as it can’t work. It takes more energy to bury the CO2 than it captures.
I guess the the government always prefers taxing us to real solutions.
Bring on a Federal election!
“if others think along the same lines as I do then a 15% drop can have the reverse effect. If I was looking to purchase and prices started dropping I would be hesitant to commit for fear of paying more than I might need to if I just waited a bit longer”.
Fed Up,
If you follow that sought of mentality towards buying a property you will never know the right time to buy. In 2008 the GFC caused prices to drop in Perth some 20%. I witnessed a property sell for 450K and 12 months later that same property sold for 600k. The market ebbs & flows and if you are constantly sitting on the side line trying to pick the bottom in the market you will lose. I bet the people who bought in the GFC have a big smile on their face now (if they sold as prices recovered).
I dont know why everyone in Australia actually believes that the property market is going to lose value.
Even if the value of houses goes down how long do you figure it will take the govt/ reserve bank and businesses too slash your wages making affordability still just as hard?.
Just something for anyone considering timing the market to think of.
Its delusional to think the powers to be are going to just let prices go down. LOL i use to ponder the idea of prices dropping then i just swoop in and bag a bargain. Then i snapped out of it. Our wages would be dropped in a second to adjust to lower property prices as unemployment would be higher and we would have to be experiencing a recession.
The govt and business have many ways to control what prices we pay for things.
Its a game of cards and the masses of people arn’t playing with a full deck. Sad but true
So, Ryan, you are essentially saying “It’s different here”. On the basis of the points you raised, consider the actual outcomes:
1. Lower property prices will lead to a reduction in wages. If this is the case, prepare for a raft of mortgage delinquencies and desperately cheap housing sales – after all in people are not being paid, then they cannot pay high costs for housing (AFTER meeting all other costs of living).
2. Govt. / Businesses having “many ways of controlling what we pay for things” – if this “control” mechanism you allude to involves increasing actual costs (inflation), I was under the impression that this is NOT what our Govt. prefers – certainly the RBA Mandate is to prevent excessive inflation. Control of emergent inflation via the usual tool of rate rises will certainly devastate the “recently indebted’, as well as nailing what tatters of export manufacture we have left. Higher dollar costs are already making China look elsewhere, and if the Asuuie $ rises further (on the back of interest rate rises), our much-vaunted mineral exports will be hit too.
Malinvestment arising from the Aussie housing obssession has already caused, and will continue to cause, economic damage seen as inadequate infrastructure investment, and lack of a coherent long-term future plan (water, energy, healthcare – take your pick) at State and Federal levels. Housing build quality is poor in comparison with the US, EU and many competing Nations, so the “smart wealthy Overseas investors” have already woken up to the reality that seems to elude us all.
Inevitably the Market WILL correct, but when is anyone’s guess. Comparing the outcome with Japan is to ignore the massive land area available here, and the miniscule population. Also, Japan was, and still is a major economic power (just look whose cars the majority of Aussies drive . . .), whereas all we’ve really got is what we can dig up and flog off – and if we start to charge too much, Brazil has big coal, and mineral reserves too – and a far cheaper workforce.
So – exactly what will “support” the continuing overvaluation of accommodation here? Once the sentiment’s gone, so have the prices.
Carbon tax a economy killer, what planet are you guys living on! If nothing is done about global warming we will far greater problems to worry about then housing prices. Lets put things into perspective this great housing bubble was started by Howard/Costello government we allowed foreign debt to skyrocket to over one trillion dollars. When questioned on the bubble Howard responded ‘everybody likes to see their houses go up in value”. Gillard/Swan are simply following the status quo created by the previous regime
In my area there are 4 extra houses a day going for sale on realestate.com, I count them. Prices haven’t fallen because this is the denial faze. Next comes the panic stage. This happens in every bubble.
Carbon tax a economy killer, what planet are you guys living on!…. Earth, same as you Fred.
Taxes aren’t what will save us, you have to reduce CO2, we all do. This problem was noted at least 10 years ago in New Scientist. I believed it then and I believe it now. Rising sea levels will devastate economies and that is already baked into the cake. Hitting the consumer for ‘pass through’ business costs won’t change anything and neither will the miniscule payments by gov’t to less well off taxpayers.
We have to get consumers who are already under severe cost pressures to adopt solar technologies, store water, grow vegies and fruit, ride bicycles, use less airconditioning, cook with gas, wear a jumper indoors in cold weather, build more efficient homes etc. take your pick.
Rod yes I agree with your statements…
The whole global warming issue is a product of consumerism nothing else.
The issue of buying more stuff that really doesnt solve the issue
(solar/battery configs were useless in the 80s and still are today. note: for real world needs)
People would need to have a minimalist approach to life if a solution is to be found.
We are the problem so we need to change! not Oh Dr give me the anti-heroine symptoms drug.
We are addicts to an unsustainable cuture.
So thats it you all need to go to ReHab
10yr plus gains and no correction, it will be a brutal slide. 5yrs ago Spain’s housing market was strong, 2008 it popped – last yr it collapsed totally. For us next three mths into Winter will be brutal, total collapse. Mining won’t save us (that is currently correcting – commods) As Rudd created a consumption wealth effect from 2008…On housing prices.
We are doomed. Bottom maybe end 2011, depending on RBA rate cut possible bank bailouts and underwriting…but we also have an inflation wipe-out trade coming. Total FUBAR for the Aust econ 2011 and 2012
Man made global warming is a hoax.
Some good viewing here
http://youtu.be/hpWa7VW-OME
Government departments, ie councils, immigration, politicians etc are the reason why the Gillard/Swan team are pushing for more tax. These departments are sucking-up so much revenue that it is behond a joke! I read recently that the public sector in Tasmania cost more to run then the total GDP in that state!. All the while continuing to giving themselves pay rises and providing poorer services.
In my opinion I think this is all a relatively simple phenomenon:-
Wages have not risen substantially to cover the cost of mortgages. The current ratio stands to high and this in respect to TWO full time incomes. Coupled with the fact that the cost of living is rising due to various influences (natural disasters, petrol prices etc) people are stretched to the limit. The percentage of disposable income is decreased after paying off the mortgage and only leaves a small amount left to pay for life’s necessities. This has lead to a reduction in consumer spending, take a walk through Chadstone Shopping Centre there is a HEAP of sales on.
The carbon tax will be the nail in the coffin.