House prices in freefall
- Thread starter L Bernham
- Start date
There's a townhouse around the corner from me which has had its price dropped from
$525k -> $440k after an unsuccessful advertising campaign and then an unsuccessful auction.
The thing is it was about $200K overpriced to begin with. 100sqm of space over 3 levels
should give you an idea of how little land this joint is sitting on.
It still hasn't sold and I don't expect it will be until that greater fool stumbles along.
andy
$525k -> $440k after an unsuccessful advertising campaign and then an unsuccessful auction.
The thing is it was about $200K overpriced to begin with. 100sqm of space over 3 levels
should give you an idea of how little land this joint is sitting on.
It still hasn't sold and I don't expect it will be until that greater fool stumbles along.
andy
I still have a price list that I obtained 12 months ago for some inner-city unit developments. A couple of them were just completed and ready to move in. I am seeing units from these completed projects listed on realestate.com for $30K or so lower than the first-hand list price. For one extreme case, a river-view unit that was listed for $397,000 on the developer's price list is now listed for $330,000 by the seller.
Not sure if it is happening across the board, but some investors in innery-city units are definitely panicking.
Not sure if it is happening across the board, but some investors in innery-city units are definitely panicking.
Don't know about buying prices, since it is not of too much interest to me NOW, but please allow me to share with you some observations from the rental market:
1) We rent a house in Mosman, Sydney, it belongs with several adjoining houses to the same landlord. Reading the local paper I saw that similar dwellings to the one we rent, were advertised for lease at the end of 2003 (Oct-Nov-Dec) at a similar price. For a long time. From what I saw passing them by - none were leased at the asked price. They just looked empty. Personally, I thought that the lease price (similar to what I pay) is fair, but probably the rental market didn't think so.
2) Unfortunately, or not, we got a 60 days notice to move. Why? The landlord decided to sell his houses (so we were told by the agents), so I am at the rental maket now. Comparing to what we saw in June last year, I think that our rental budget stretches much further. I think that we can add a bedroom, or improve a position, or both, for pertty much the same sum.
3) Just saw a house - nice, just renovated, spacious, but the location is too loud, and I think that the living room is too small. Had a chatter with the REA, and told her of our situation, she told me that many of their clients decide to sell now after they don't get the expected rent from the market.
4) Now I begin to get a bit worried - if it becomes a trend, and all the investors will sell their holdings, who will subsidy my dwellings at 1.75% a year?
1) We rent a house in Mosman, Sydney, it belongs with several adjoining houses to the same landlord. Reading the local paper I saw that similar dwellings to the one we rent, were advertised for lease at the end of 2003 (Oct-Nov-Dec) at a similar price. For a long time. From what I saw passing them by - none were leased at the asked price. They just looked empty. Personally, I thought that the lease price (similar to what I pay) is fair, but probably the rental market didn't think so.
2) Unfortunately, or not, we got a 60 days notice to move. Why? The landlord decided to sell his houses (so we were told by the agents), so I am at the rental maket now. Comparing to what we saw in June last year, I think that our rental budget stretches much further. I think that we can add a bedroom, or improve a position, or both, for pertty much the same sum.
3) Just saw a house - nice, just renovated, spacious, but the location is too loud, and I think that the living room is too small. Had a chatter with the REA, and told her of our situation, she told me that many of their clients decide to sell now after they don't get the expected rent from the market.
4) Now I begin to get a bit worried - if it becomes a trend, and all the investors will sell their holdings, who will subsidy my dwellings at 1.75% a year?
Hi all,
In the regional town that I keep an eye on(Colac, and have IP there), the frenetic buying of last year is no longer with us. Houses are staying on the market much longer, but there is NO evidence of any panic selling. Prices in the REA windows are not being dropped. Houses in the better areas of town that seem to offer potential(renovate or redevelop) are still selling quickly.
On the rental side of things, prices crept up last year, and even thoough the number of vacancies seemed high in spring/early summer, it has now fallen again. Some friends of ours have just re-let property at the asked prices(one house and one unit).
Maybe others can give a local report, and we can see if we can find this place called freefall(other than the inner apartments, but jakk will tell us when they are cheap!)
bye
In the regional town that I keep an eye on(Colac, and have IP there), the frenetic buying of last year is no longer with us. Houses are staying on the market much longer, but there is NO evidence of any panic selling. Prices in the REA windows are not being dropped. Houses in the better areas of town that seem to offer potential(renovate or redevelop) are still selling quickly.
On the rental side of things, prices crept up last year, and even thoough the number of vacancies seemed high in spring/early summer, it has now fallen again. Some friends of ours have just re-let property at the asked prices(one house and one unit).
Maybe others can give a local report, and we can see if we can find this place called freefall(other than the inner apartments, but jakk will tell us when they are cheap!)
bye
Thats the key really. It was the last of the 'greater fools' that set the price at the peak. It always is. The desperate ones who have missed out on so many of these gains, that the smarter ones of us managed to pick up early. They are willing to pay any price to secure that one last property reminaing.
The sellers of these properties realise that there is a boom so set the price at a ridiculously high level knowing that there is a good chance of it selling anyway.
The thing is It only takes a few sales to revalue hundreds of properties. When a very similar townhouse sold for that $525K it didnt take very long at all for owners of other townhouses to revalue their own at $525K. Unfortunately this also means that when the next townhouse sells for $440K there can be no objections from these others when they have to reduce the value of their own.
LB
My experience in the last 2 weeks is this: in specific hot northside Brisbane suburbs, homes that have been on the market since mid December were snapped up this week. Houses in the shire north of Brisbane (Pine Rivers) have flooded the market, and buyers are scarce.
Therefore, I think buying is still strong on fundamentals (close to metro, facilities, strong job market nearby) and weaker in the outer burbs.
Therefore, I think buying is still strong on fundamentals (close to metro, facilities, strong job market nearby) and weaker in the outer burbs.
The homepriceguide website works today.
I checked 8 postcodes in sydney and the price of 7 is
where it was early December, the 8th postcode was 5K lower.
I am suspecting that areas where all their properties were selling at auction till now will see some correction as greedey vendors and REA's won't be able to overprice their properties anymore.
But where is the freefall??? Anyone seen it (other than LB?)
Maybe I should visit a Jenman registered agent, they could have those freefall bargains on their books........
I checked 8 postcodes in sydney and the price of 7 is
where it was early December, the 8th postcode was 5K lower.
I am suspecting that areas where all their properties were selling at auction till now will see some correction as greedey vendors and REA's won't be able to overprice their properties anymore.
But where is the freefall??? Anyone seen it (other than LB?)
Maybe I should visit a Jenman registered agent, they could have those freefall bargains on their books........
Don't bother, Jenman hasnt updated his agents yet, at least not up here. My local one doesn't have any cheapies on his books. well, maybe $5-10k off the listed price !
Eastern Sydney Viewpoint
Good to see you back LB. The forum has been quiet without your unique viewpoint.
From my observations we will not see homes in Sydney drop 45% or even 30% as 70% are owner occupied and they will sit and hold regardless of value. Can say however the home market has stopped going up here in the inner east.
As for units….. who knows what carnage will follow?? I have heard of some bargains already going round Chippendale. 1 b + carpark for $256k renting for $290 week. Used to be the reverse.
What is happening in Sydney now is a standoff. Sellers holding on in denial the boom of over, sellers holding back waiting for bargains. With the recent record X mas spending the RBA will go again and then it will get interesting.
For me, my money is on middle of next year the time to buy again but in the Country NSW.
Peter
Good to see you back LB. The forum has been quiet without your unique viewpoint.
From my observations we will not see homes in Sydney drop 45% or even 30% as 70% are owner occupied and they will sit and hold regardless of value. Can say however the home market has stopped going up here in the inner east.
As for units….. who knows what carnage will follow?? I have heard of some bargains already going round Chippendale. 1 b + carpark for $256k renting for $290 week. Used to be the reverse.
What is happening in Sydney now is a standoff. Sellers holding on in denial the boom of over, sellers holding back waiting for bargains. With the recent record X mas spending the RBA will go again and then it will get interesting.
For me, my money is on middle of next year the time to buy again but in the Country NSW.
Peter
Gday LB,
if property prices are to fall as far as you predict , l think there will be alot of vendors having to accept prices far lower than they expect.
So as the Master of price falling predections l would love to find out your
TOP TEN REASONS FOR VENDORS TO LOWER THEIR PRICE EXPECTATIONS.
lf the market is going to fall 40% or more in the next 5 years that means people must be accepting these lower offers.
Anybody who has good valid reasons should feel free to inform me as to how and why these greatly reduced prices should and will be accepted.
Regards Mitch
if property prices are to fall as far as you predict , l think there will be alot of vendors having to accept prices far lower than they expect.
So as the Master of price falling predections l would love to find out your
TOP TEN REASONS FOR VENDORS TO LOWER THEIR PRICE EXPECTATIONS.
lf the market is going to fall 40% or more in the next 5 years that means people must be accepting these lower offers.
Anybody who has good valid reasons should feel free to inform me as to how and why these greatly reduced prices should and will be accepted.
Regards Mitch
IMHO rates in OZ depends on the rates in USA. A lot of talking of need to raise soon. Peter
Hi Acey,
With a fear of looking like a fool as I’m no economist (p.s. that's an invite to those who are to help!) I have a go to support my comment.
Firstly, I agree that OZ and USA are different economies. So different it would be impossible to list all the variables here but I believe is the USA world financial impact is so huge as they say "USA sneezes, Aust catches a cold" or as it is a present "USA optimistic, Aust booming".
So my comment is intended to remind all that the Aust is only a small player in the scheme of things and whilst we can move away a little as we are at the moment, if the US stays low with its rates, the RBA is restricted in the rises it can apply in OZ.
We saw this link over the last two years when the boom, economic and property in OZ, could have easily accommodated higher rates but RBA held off because of fears of a world recession which is largely a recession in the USA. Low rates fuelled the IP boom, we Forumites did well and the rest is history.
Now the RBA has raised rates, combined with excellent economic forecasts for 2004 we see the AUS $ at 75c instead of 55c. Everyone wants the Aus $ it seems. The resulting drop in exports affects balance of trade, stunts local manufacturing economy, so RBA cannot raise rates too much without delivering a body blow to these large employers and the economy OA.
So, as stated I believe the RBA will watch closely USA rates and if RBUSA raise rates we will get more here. If they hold, it will be a brave RBA which sends the AUS$ to 80c when farmers are still in drought and breadwinners at Mining Companies, Food Producers, Car Makers, etc... start being told their hours and numbers are being cut back due to decreased exports.
How did I go? Peter 147
With a fear of looking like a fool as I’m no economist (p.s. that's an invite to those who are to help!) I have a go to support my comment.
Firstly, I agree that OZ and USA are different economies. So different it would be impossible to list all the variables here but I believe is the USA world financial impact is so huge as they say "USA sneezes, Aust catches a cold" or as it is a present "USA optimistic, Aust booming".
So my comment is intended to remind all that the Aust is only a small player in the scheme of things and whilst we can move away a little as we are at the moment, if the US stays low with its rates, the RBA is restricted in the rises it can apply in OZ.
We saw this link over the last two years when the boom, economic and property in OZ, could have easily accommodated higher rates but RBA held off because of fears of a world recession which is largely a recession in the USA. Low rates fuelled the IP boom, we Forumites did well and the rest is history.
Now the RBA has raised rates, combined with excellent economic forecasts for 2004 we see the AUS $ at 75c instead of 55c. Everyone wants the Aus $ it seems. The resulting drop in exports affects balance of trade, stunts local manufacturing economy, so RBA cannot raise rates too much without delivering a body blow to these large employers and the economy OA.
So, as stated I believe the RBA will watch closely USA rates and if RBUSA raise rates we will get more here. If they hold, it will be a brave RBA which sends the AUS$ to 80c when farmers are still in drought and breadwinners at Mining Companies, Food Producers, Car Makers, etc... start being told their hours and numbers are being cut back due to decreased exports.
How did I go? Peter 147
Peter....Not a bad effort at all.
If you look at Have a gander at No. 8 - Interest Rates Overseas. you'll see that there certainly has been a relationship between US and Australian interest rates in the past.
I see no reason why there will not continue to be so in the future.
(What your looking at is the two diagrams on the right hand side of the first page)
The bottom of those two graphs shows the movement of Australian and US interest rates over the period 1991-2003 (and a few other nations). Unless my eyes are playing tricks, our interest rate tracks very closely to that of the US. If anything we have tended to lag ever so slightly behind them in terms of lowering or rising rates (ie. we are the follower, not the leader).
Looking now at the top graph.
The differential (currently standing at 4.25%) between Australian interest rates (5.25%) and US interest rates (1.00%) has only opened up considerably in the last 3 years.
In fact for a brief moment, in early 2001, Australia and the US had the same interest rate of 5.00%
What happened after that?
The RBA held steady for 5 months (from April to September 2001), while the US Fed kept cutting rates.
Essentially the RBA has remained relatively inactive in terms of altering the cash rate (that doesn't mean their stance hasn't changed) just that movements in the cash rate between 4.25 and 5.25% aren't exactly mind blowing.
However, the US Fed has continued to cut rates. Over the period May 2000 - Dec 2001 the interest rate in the US fell from 6.5% to 1.75% (September 11 did exacerbate the fall, but by then the trend was well established).
And you can see that in the graphs.
RBA Interest Rate Changes since 1990.
US Federal Reserve Interest Rate Changes since July 1990.
On the exchange rates....
IMHO the interest rate differential is increasingly of concern to the RBA.
On 4 November 2003, when the RBA decided to raise the cash rate from 4.75 to 5.00% the $AUD/$USD exchange rate was 0.6975.
On 2 December 2003, when the RBA decided to raise the cash rate from 5.00 to 5.25% the $AUD/$USD exchange rate was 0.7341.
On 12 January 2004 the exchange rate was 0.7787.
As at 4pm AEST 21/1/04 the exchange rate was 0.7698.
That is a 10% appreciation in little over 2 months.
References: Historical Exchange Rate Data and RBA Website.
Looking further back...
The $AUD spent the vast majority of its' time in the 1990's in the mid-high 70's compared to the USD (it even topped 80 cents for a while in 1996).
That wasn't such a big deal when both economies where growing strongly. But times have changed.
The $AUD hit the proverbial brick wall and went as low as 48 cents US (in early 2001) - and since then has bounced back almost 60%!
At about this time (if not slightly earlier) it was evident that the US economy was headed for a stall so the Fed started slashing rates (as mentioned above).
For whatever reason(s), Australia has continued to be the economic miracle of the western world.
However, the US economy did grind to a halt and it remains sluggish (at best).
So, with the US economy still treading water , the exchange rate is of concern.
It might not be the RBA's primary concern at the moment - but it has to be up there.
MB
If you look at Have a gander at No. 8 - Interest Rates Overseas. you'll see that there certainly has been a relationship between US and Australian interest rates in the past.
I see no reason why there will not continue to be so in the future.
(What your looking at is the two diagrams on the right hand side of the first page)
The bottom of those two graphs shows the movement of Australian and US interest rates over the period 1991-2003 (and a few other nations). Unless my eyes are playing tricks, our interest rate tracks very closely to that of the US. If anything we have tended to lag ever so slightly behind them in terms of lowering or rising rates (ie. we are the follower, not the leader).
Looking now at the top graph.
The differential (currently standing at 4.25%) between Australian interest rates (5.25%) and US interest rates (1.00%) has only opened up considerably in the last 3 years.
In fact for a brief moment, in early 2001, Australia and the US had the same interest rate of 5.00%
What happened after that?
The RBA held steady for 5 months (from April to September 2001), while the US Fed kept cutting rates.
Essentially the RBA has remained relatively inactive in terms of altering the cash rate (that doesn't mean their stance hasn't changed) just that movements in the cash rate between 4.25 and 5.25% aren't exactly mind blowing.
However, the US Fed has continued to cut rates. Over the period May 2000 - Dec 2001 the interest rate in the US fell from 6.5% to 1.75% (September 11 did exacerbate the fall, but by then the trend was well established).
And you can see that in the graphs.
RBA Interest Rate Changes since 1990.
US Federal Reserve Interest Rate Changes since July 1990.
On the exchange rates....
IMHO the interest rate differential is increasingly of concern to the RBA.
On 4 November 2003, when the RBA decided to raise the cash rate from 4.75 to 5.00% the $AUD/$USD exchange rate was 0.6975.
On 2 December 2003, when the RBA decided to raise the cash rate from 5.00 to 5.25% the $AUD/$USD exchange rate was 0.7341.
On 12 January 2004 the exchange rate was 0.7787.
As at 4pm AEST 21/1/04 the exchange rate was 0.7698.
That is a 10% appreciation in little over 2 months.
References: Historical Exchange Rate Data and RBA Website.
Looking further back...
The $AUD spent the vast majority of its' time in the 1990's in the mid-high 70's compared to the USD (it even topped 80 cents for a while in 1996).
That wasn't such a big deal when both economies where growing strongly. But times have changed.
The $AUD hit the proverbial brick wall and went as low as 48 cents US (in early 2001) - and since then has bounced back almost 60%!
At about this time (if not slightly earlier) it was evident that the US economy was headed for a stall so the Fed started slashing rates (as mentioned above).
For whatever reason(s), Australia has continued to be the economic miracle of the western world.
However, the US economy did grind to a halt and it remains sluggish (at best).
So, with the US economy still treading water , the exchange rate is of concern.
It might not be the RBA's primary concern at the moment - but it has to be up there.
MB
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speaking of interest rates and RBA interventions,
I went to the RBA website and checked out the people who are on the RBA board.
http://www.rba.gov.au/AboutTheRBA/rba_board.html
Considering the important role the RBA plays in our economy, I was surpised to see that most of the people on the board hold director positions in multiple companies.
I wonder if these guys could use their position on the board and influence our economy to move in one direction or another to suit their business dealings.
Its a scary thought......
I went to the RBA website and checked out the people who are on the RBA board.
http://www.rba.gov.au/AboutTheRBA/rba_board.html
Considering the important role the RBA plays in our economy, I was surpised to see that most of the people on the board hold director positions in multiple companies.
I wonder if these guys could use their position on the board and influence our economy to move in one direction or another to suit their business dealings.
Its a scary thought......
BV,
Would you prefer to see people who are not active leaders in our economy to make economic decisions?
Theoritically they should not be able to influence the board to their own specific interest, but influence only to the extent that the real world economy (not the one university professors living)
would benefit.
In practical terms they might have some influence which may be beneficial to their companies, albeit high interest rate is NOT good for any business as especially todays over committed housing environment the consumers will have less money to spend on the various companies goods and services, which leads to reduced employment, which leads to even less spending, etc, etc.
I personally believe that the RBA kept the interest rates too high and if they raise it further it just would show a single mindedness on crushing the housing market, which happens to be one of the biggest employer. The market would have cooled anyway as price rises would have made less and less people interested to purchase, partially due to financial limitations.
For us an a country and economy in an open trading world economy to be successful, every aspect is vitally important, thus interest rates which can make us uncompetitive (rising currency, rising cost, rising wage demads, etc).
While I do not think that the RBA has it right, I am still happier to see some real business people making decisions what effects all of us, then some uni profs who are testing their own theories and belief systems.
Just the 2c.
Tibor
Would you prefer to see people who are not active leaders in our economy to make economic decisions?
Theoritically they should not be able to influence the board to their own specific interest, but influence only to the extent that the real world economy (not the one university professors living)
would benefit.
In practical terms they might have some influence which may be beneficial to their companies, albeit high interest rate is NOT good for any business as especially todays over committed housing environment the consumers will have less money to spend on the various companies goods and services, which leads to reduced employment, which leads to even less spending, etc, etc.
I personally believe that the RBA kept the interest rates too high and if they raise it further it just would show a single mindedness on crushing the housing market, which happens to be one of the biggest employer. The market would have cooled anyway as price rises would have made less and less people interested to purchase, partially due to financial limitations.
For us an a country and economy in an open trading world economy to be successful, every aspect is vitally important, thus interest rates which can make us uncompetitive (rising currency, rising cost, rising wage demads, etc).
While I do not think that the RBA has it right, I am still happier to see some real business people making decisions what effects all of us, then some uni profs who are testing their own theories and belief systems.
Just the 2c.
Tibor
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