Melbourne and Sydney has witnessed substantial property price falls in November as auction clearance rates took a tumble.
According to CoreLogic RP Data, Melbourne property prices fell a sizeable 3.5 per cent in November, followed by Sydney notching up a 1.4 per cent decline for the month. Australia’s two largest property markets sent the Australian index of prices in the eight capital cities down 1.5 per cent.
As we reported back in May, (“Passive foreign investment watchdog relieved of enforcement duties“) and September (“Residential property worth over $1 billion now under investigation by Foreign Investment taskforce“) new laws on Foreign investment come into force today.
In response to a question about the cash rate raised last week at the Australian Business Economists (ABE) Annual Dinner, RBA governor said “We’ve got Christmas. We should just chill out, come back and see what the data says.”
True to his word, the Reserve Bank chilled out today leaving the official cash rate on hold at 2 per cent.
Some of the data Stevens refers to has been weak.
Last Thursday, the Australian Bureau of Statistics released business investment spending for the September quarter down 9.2 per cent. The annual result was a 20 per cent fall. The quarterly figure was the worst on record for the 28 year-old survey, with CAPEX down across the board, not just mining. Building and construction was down 9.8 per cent, and services and hospitality down 10 per cent. There had been hope, the services sector would pick up some of the slack from the mining downturn.
Market Economics managing director Stephen Koukoulas told the ABC, the figures were “horrid.”
“Across the board, it is pretty grim and there’s no evidence that a pick-up in business confidence has translated into business investment,”
Stevens concluded his ABE annual dinner speech with what he called “My final, fairly uncontroversial predictions:”
The business cycle will continue. There will be economic downturns from time to time. If one of those turns out to be a big one, it will be very new experience for quite a lot of Australians. Close to half the workforce has never seen really high, nationwide unemployment. A lot of people in business have, I suspect, not seen how tough conditions can become when virtually every industry and region is contracting. That they have not seen this is a good thing – in the sense that it results from the fact that we have not a really serious downturn for a long time now. But if one comes, it will be a shock.
» RBA’s Glenn Stevens planning on a ‘chill out’ Christmas despite nit-pickers – The Sydney Morning Herald, 26th November 2015.
» Business investment spending down 20 per cent, ‘grim’ across all sectors – The ABC, 26th November 2015.
A 3.5% fall for Melbourne property for the month of November is massive.
In real estate language that equates to a fall of 42% annualised.
Luckily, such language is never applied by the Real Estate industry to annualise monthly results when there in the negative.
“Chilled out”.
More like “frozen”. They’ve created a monster. Trying to control the dragon by moving the tail around will only be successful for so long.
I’ve been bearish on housing for 15 years now, but all the dominoes are being placed in line. Unemployment is being under reported, there’s no doubt about that at all.
Business is in dire trouble, I know plenty of people who are or will close over the next 6 months.
Our government STILL can’t contain the budget, let alone think of a surplus.
We have the big 4, the safest banks in the world (lol), bringing out all sorts of excuses about not classifying loans, to not having full disclosure on loans. It’s a farce.
Only the most ignorant would think that anything good can come of this over the next 18 months.
With business investment down such huge percentages, an ag sector in trouble, and a mining sector that’s self destructing, it’s pretty clear that the end game is a massive wealth wipe out.
Of course, if it had occurred in 2009, it would have been evil and destructive, but since then we’ve only ramped up Private, business and government debt to levels never seen in this country (hang on, never seen these levels of private debt in the world!), plus allowed our terms of trade to implode.
You’ve had years to prepare for financial Armageddon. Did you take advantage? Or live life like a Jones?
When the pillar supporting the lucky country solely rests on real estate, RBA has more reasons to cut the cash rate into the negative zone. Then the big question is whether it is worthwhile to sink the whole continent by gambling with real estate…
Sad to see a $1 million + p/a public servant Glenn Stevens talk in terms of ifs and maybes. He obviously has no clue as to the real state of the economy and how to avoid the coming serious downturn. Depending on how much of the economy is left when he comes back in February he will no doubt toss a coin to decide whether to decrease the interest rates. Enough is enough it’s time to shut down the crony protecting RBA and make some real decisions.
There is frenzied activity occurring in Brisbane. There are cranes all over the place – the city, Fortitude Valley and surrounds, Milton to Toowong and further out in places like Wynnum (I’ve been told) and Nundah. A site in Albion, right next to the train station, (that has stood vacant since 2009) now has a massive crane on it.
I haven’t seen this many cranes in Brisbane in the few decades that I’ve lived here.
Seppo couple has found a way to beat high house prices.
https://youtu.be/GSWQscbq4tM
David, I have been told there is something like 5000 plus new apartments being built in that corner of QLD. My son who is there at the moment says there is already a number of empty flats where he is and 500 new ones are going in within a 1km radius.
There is a shortage of jobs already, so who will fill the new buildings?
On another forum there are a number of people asking how to get out of their off the plan purchases as there is still some 12-18 months to go till the buildings are finished. But with the increase in numbers of new complexes they are now worried they will lose money before they can take possession and move in or put tenants in. That is if they can even get a tenant.
They talk about rate decisions on the news as if a constantly decreasing cash rate is owed to people with mortgages. “There wasn’t any relief for home owners before Christmas this year… maybe there will be after the new year”
It’s like they are ungrateful that the cash rate is at the lowest ever and that people deserve it to be constantly lowered.
David
Can’t be as many cranes than there are in Melbourne. There are more cranes here than there are holes in a crumpet.
3.5% per month = 51% annualised.
(1.035^12)
I believe you applied 3% (1.03^12)
A drop of 3.5% is a whopping 51% annualised! Be interesting to see what happens here. Let’s give the next generation a chance in this market. I am sick and tired of reading and hearing about this never ending upward market and how property is the golden goose that keep laying all the golden eggs. This is not going to last forever and we all know it. About time we have some common sense applied and things slow down.
Here’s a great article by Gavin Putland about negative gearing: http://www.grputland.com/2015/11/negative-gearing-in-context.html
There’s lots more so go read the whole thing.
“A drop of 3.5% is a whopping 51% annualised”
what sort of flaky math is that? 3.5% continuous is 3.5% for the year. Not 52%
Just a preview of the housing deflation Tsunami heading towards Australia from China. Hong Kong sales are down 42% since November last year. This weekend 570 units are coming up for first time sale in HK, which shows massive overbuilding as in Melb,Syd & Bris. I can’t wait to see what inducements developers here will be offering with high end sales. Last time this happened on the Gold Coast they were offering free Mercs with every purchase.
David C. as Gavin Putland points out we do not need to abolish Negative Gearing just quarantine it against the expenses incurred in owning the investment property. The top 10% high net income investors would soon lose interest especially in a falling market not wishing to subsidise their pleb renters. The mass sales would then cause the market to fall further and make housing more affordable for everyone.
I don’t see it slowing down in Northcote. A house sold last weekend for 1.65 million. 1 year ago it would have been worth 1.2 mil.
My apologies for being off topic but, just how is the NW of WA holding up.
http://www.sqmresearch.com.au/weekly-rents.php?postcode=6753&t=1
This must be so financially devastating to so many, how many are also exposed to the Perth market also…..
@Steve – Ouch! Rents down 82.8% for the year! Asking Sales prices down 41.9%.
http://www.domain.com.au/news/slowing-market-triggers-the-highest-rate-of-auction-withdrawals-since-2012-20151204-glegtc/
“But he (Nic Krasnostein – RE moron) acknowledged the sense of urgency and FOMO (fear of missing out), which had been pushing buyers into a frenzy over the past three years of the boom, was gone.”
What he means is they’ve run out of greater fools!
Interesting to see what Melbourne’s rates are like tomorrow or at the end of the week when the passins actually get recorded.
@18 Yes, it certainly seems like people may be starting to think with some logic.
I’ve never liked the idea of auctions,when applied to housing,they create artificially inflated prices. Looks like we are heading back to the more realistic days of private sales, where the seller sets a fair price and the buyer either agrees or disagrees.
Finally,the power is returning to the purchaser. The choice is theirs after all. Who wants to fork out thousands more than they should? Better to turn around, politely say ‘no thanks’ and walk away. The more people start doing this, the sooner change will start happening.
Something that I compare it to are cars, you hardly ever get a higher price for your car when it goes to auction, in fact you are likely to lose out. Much better off selling privately.
This is what I’d like to see happen to housing, the auction route should have connotations of fear ie:repossession and represent loss. Oh how the times are changing!
https://www.realestate.com.au/auction-results/
This is interesting, 60% clearance rate in Melbourne:
https://www.realestate.com.au/auction-results/vic
BUT, my parents’ house, which they told me with all the arrogance in the world would sell no problems, passed in and it’s not listed yet. I wonder if it will be there by the end of the week?
@21
Found this posted on Macrobusiness:
VIC
Reported Clearance Rate: 63%
1603 Total Scheduled Auctions
Sold prior to auction: 162 Passed in: 466 Sold at auction: 677 Withdrawn: 35 Sold after auction: 13
Total sold 852
Actual clearance rate of 53 %
@22 Sky, Yep, there are 250 that still haven’t been reported. Parents’ house still not reported even though it is obvious on the RealEstate.com site that it passed in.
Lazy guys these Real Estate agents 😉
Ignore the auction results. They’ve been useless for years.
It seems criminal that they use the reported number as the denominator and not the total number of listed auctions. I’m amazed that this is not regulated.
The best analogy I’ve come across is this — it would be like me sitting a multiple choice exam with 100 questions, only completing half the test and subsequently being scored out of the 50 questions completed and not the entire exam. Well, it’s actually worse than that — as I did complete the remaining 50 questions, but these weren’t considered in the denominator for scoring purposes.
I understand that the reported number is revised over the week and that the results listed on Saturday are ‘preliminary’, but how close does the reported number come to the number of listed auctions? Am I able to easily access data showing reported numbers vs total listings over the course of each week?
Some people say to just look at the trend — but aren’t agents / spruikers more likely to under-report when the market turns sour? Is a better metric to look at the drop in percentage of reported listings (reported / total listings * 100) to gauge bias? Here I’m assuming a higher percentage of reported listings is a result of agents spruiking a strong market, while a lower percentage is an attempt to downplay a weak, ‘cooling’ (collapsing?) market allowing for clearance rates to be inflated back up by the reduced sample size.
I’m interested in this figure because that is the figure the media reports on. When it hit a so-called 88% Channel Nine news were first on Sunday to spruik in the name of “real-information”. Silent now though. Worse check out The Age’s article on hitting up the parents for a home loan:
http://www.theage.com.au/business/property/those-who-get-a-parental-gift-much-more-likely-to-own-a-home-20151206-glgrp4.html
Couldn’t have done too well Saturday hahahaha
The reason I say ignore the auction results, is because they are a total farce. It would be like buying iron ore/copper shares in 2012 based on the miners output……. their output meant nothing, especially when you add in things like the stockpiles held by the London metals exchange.
Looking at the auction results will give you false readings, both up and down. They are totally inaccurate for any purpose.
Housing is a market, and it only takes a few idiots at the top to keep buying and the mirage of a strong market continues.
Interestingly, the BIS (bank of international settlements) has now come out saying interest rates are too low, especially looking at USA. I can’t see them hiking, but if the BIS, and the media, keep up with this pressure then the clowns might lift. A good couple of rises in the USA will be good fun.
Hi Alcatrax,
Here is the maths I refer to. 101 Finance
http://financetrain.com/how-to-annualize-monthly-returns-example/
Helicopter money is about to start in Finland. Macquarie Bank predicted 12 to 18 months before it started in failing economies. How long will it be before Australia tries it in response to Glenn Steven’s “possible downturn that will cause a shock” ?
http://www.zerohedge.com/news/2015-12-06/it-begins-desperate-finland-set-unleash-helicopter-money-drop-all-citizens
Re comment #28
1.02^12-1 = 0.2682 ????? what on earth does the caret mean?
@ 30
Alcatrax
The caret means “to the power of”.
Which means, in this case, 1.02 to the power of 12
Which means, 1.02 times itself twelve times.
1.02^1=1.02
1.02^2=1.02*1.02=1.0404
1.02^3=1.02*1.02*1.02=1.061208
….
….
1.02^11=1.02 times itself 11 times = 1.2434
1.02^12=1.02 times itself 12 times = 1.2682
So, with Melbourne prices falling 3.5% in ONE month…= 1.035
After two months (cos it’s per month) at that rate it is 1.035 *1.035 = 1.035^2 = 1.0712
After three months 1.035*1.035*1.035 = 1.035^3 = 1.1087
……..
After twelve months 1.035 ^ 12 = 1.5110 ie 51% annually
This is the same way the bank charges your credit card. The annual rate may be 20% annual, but that works out at 20/12=1.66% per month.
But if they charge monthly (as they all do) your actual rate is 1.66%^12= 1.0166 ^ 12 = 1.22 so 22%.
Same with home loans etc….
You must be very careful with interest rates, and how they are applied.
Yes those calculations make sense, although the English terms they are expressed in do not ie, referring back to the OP in comment #1 quote
“A 3.5% fall for Melbourne property for the month of November….In real estate language that equates to a fall of 42% annualised.”
Annualisation that way makes sense when calculating compounding interest, but it doesn’t make sense when talking about falls in auction sales. you’d average out the falls over each month, not apply indexes.
If the fall is exactly 3.5% less sales per month, then the fall for the year is exactly 3.5%, not 3.5%+ (3.5 x 0.42).
As you have alluded to people should not put too much inference in Auction results anyway, because the figures are routinely fudged by the state RE Associations to make auctions appear to punters as an excellent way to sell.
The meaning of an auction has changed through this particular lengthy boom. Once it meant distressed sale, bargain to be picked up. Now Real Estate agents have changed it to mean an frenzy of bidding advantageous to achieving excessive prices for a seller. Once the bust gets under way, the former meaning will resume its rightful place.
This sell by auction paradigm is most pronounced in Capital cities. But go to a property auction in a non metropolitan area, and the bidders rarely ever pay too much, they have traditionally abided by the theme of a distressed sale throughout the boom.
How could this be? Why is there an indexation when not a simple calculation of multiplication on the number of months (which occurs when you earn interest on your deposit)? Seems a little unfair and a complete act of theft on the banks part.
@33
The bankers are thieves. Central banks are the most active. Read “The Creature From Jeckyll Island” and you will learn how and why, inflation targets, deficit spending and centrally set interest rates take from your pay each and every minute of every day.
Unfair? Yes.
Theft? Yes.
But if you’re aware of how they do it, you’re in a much better place to take care of yourself and your family.
So ultimately the Real Estate idiots never did post the Parents’ house as a pass-in and left 250 properties from their stats and it’s Friday. LOL, deliberate attempt to fudge their own dodgy figures.
So 53% sales it is and who knows what wasn’t even recorded on the “Total Scheduled Auctions” figure which didn’t sell.
I guess those who want to be fooled (like my parents’ were, with all the arrogance from talking to RE reps and reading spruiking articles knew everything without research) will just keep fooling themselves.
Quiet this week on the RE front, wonder what the RE clowns are hiding now? hahaha
@Alcatrax its not a 3.5% decline in auction sales, it is a 3.5% decline in property prices! Maybe you should read the article first, before you start commenting.
@ Sully, it doesnt matter whether its sales, prices, or whatever, the theory is the same. Perhaps you should re read it?
@Alcatrax, firstly you criticised the first commenter on his ‘maths’ by claiming a 3.5% decline in November is 3.5% ‘continuous’ for the year (whatever the hell that means). Then you stared waffling on about ‘auctions’ when that has absolutely nothing to do with the 3.5% decline in property prices seen in Melbourne for the month of November. Clearly the first commenter was simply suggesting that annualising a 3.5% decline per month for 12 months will result in a large decline (I understood what he was implying, even if the ‘maths’ wasn’t exactly correct, because I actually read the article). Oh, by the way, annualising percentage increases/decreases for property prices is perfectly acceptable (hell eveybody involved in the property industry have been doing it while prices were increasing).