Fears of falling house prices - SMH

Jonathan Chancellor and Jacob Saulwick
July 31, 2008


ANXIETY that residential property will follow the sharemarket into free fall is casting a pall over the housing market.

Sydney house prices fell by about 2 per cent during the June quarter, say two reports released yesterday.

After the biggest quarterly drop in four years, experts are divided about how much further house prices will fall.

Australia was now "a nation of economic hypochondriacs", the chief executive of property monitoring firm Residex, John Edwards, said yesterday.

The housing market was caught up in a wave of nervousness created by the jittery sharemarket, he said, but Sydney house prices would inch up by about 3 per cent a year in the next five years.

Another report, by Australian Property Monitors, predicted house prices in capital cities would fall another 10 per cent in the next year.

Sydney house prices dropped by 2.1 per cent in the three months to the end of June, says Australian Property Monitors. Prices dropped marginally in the inner city, eastern suburbs, and in the west, but were stable or rose across the rest of the city.

"Rapidly rising mortgage rates and a looming economic slowdown will usher in a sustained period of property market weakness," said the general manager of Australian Property Monitors, Michael McNamara.

Despite the anxiety, which is discouraging purchases, record prices continue to be set, the latest being an $11.5 million Coffs Harbour beachfront sale. The buyer bought Noorinya, and two adjoining houses on the Sapphire Beach headland.

The national research director at RP Data, Tim Lawless, said sales volumes since June last year have dropped by more than 30 per cent in most capital cities.
 
The reality is, public sentiment drives everything.
Example if BHP shares were predicted to nose dive by numerous media articles, would you buy them on negative speculation..of course not.
Negative sentiment has flooded the housing market and in doing so has self perpetuated the problem. As I write there are properties being sold and properties being listed. Each has it's own features and desirability factor that will determine it's sale price and time on the market. Yes it only takes one/two people to buy a house, so price is driven by competitive demand and consumer confidence in the market. What is lacking at the moment is both of those ingredients. I have always likened the share market to a school of small fish that dart this way and that, in large numbers. Always following the leader or speculators in this scenario. Much of our property market is also reacting in this manner. Many just sitting on there hands and going with the flow.
I am first to admit that we all fear paying to much for something we are being told is becoming a depreciating asset in the current market.
I can only speculate that no wonder the property market is floundering at the moment, with people fearing price free falls. Once again self perpetuating itself. The RBA's multiple IR increases has been one of the primary catalyst that has crippled the foundations of property as a stable investment, costing buyers more in an enviornment that appears to offer less security both short and long term. Banks on the other hand, I believe will be at the helm of the property chopping block long after the RBA maintains/reduces IR in 2009. I think independant bank rate rises will be the new black, as we see US Sub Prime losses being recouped in creative ways back on our shores. The million dollar question is do we invest now or wait? well for me, my commitment levels are high so I shall hold the forte for as long as sustainable. I am however maintaining a positive outlook, almost certain that I will look back at this post in 2010 and laugh quite loudly at the power of public sentiment. Remember life is to short to invest time in just property...Try people as well..:D
 
I will wait till the middle of 2010. Investing now is to risky. I once saw a market where prices dropped more than 50% in 6 to 9 months timespace and it was realy scary. :eek:
 
property market to follow sharemarket....i dont think so

Hey all,
Mass media may control what we are fed on a day to day basis about the latest stats etc.....but do the majority of australians really care whether the "HOME" that they purchased to put a roof over thier families heads has increased or decreased in value daily???

The ever increasing access to information and analysis/over analysis which face investors today may be blinding some to the fact that "People need shelter!!!"

We will always need housing, and over the next 10 years the extra 2-3 million new Australians (figure plucked out of the air :)) will need shelter also...

That will probably put pressure on the exhisting housing stock and we might have to build a few more,

as for comparing a freefalling stockmarket to a freefalling property market....i dont know how this is even an argument...

100% of people "need" a roof over thier heads...0% of people "need" shares in anything.

Cheers,
 
I will wait till the middle of 2010. Investing now is to risky. I once saw a market where prices dropped more than 50% in 6 to 9 months timespace and it was realy scary. :eek:

Was this in Russia Barnes, I am almost certain that property has not dropped 50% in 6-9 months in Australia before unless is was absolutley overpriced to start with.
 
Was this in Russia Barnes, I am almost certain that property has not dropped 50% in 6-9 months in Australia before unless is was absolutley overpriced to start with.

Yep, it was in Moscow, late 1998 till the summer of 1999. Interesting times, a lot of people lost up to 60% of purchases in early 98, but some made a fortune buying a year later. :)
 
Yep, it was in Moscow, late 1998 till the summer of 1999. Interesting times, a lot of people lost up to 60% of purchases in early 98, but some made a fortune buying a year later. :)

Exactly, it doesnt really matter if the value of your property is dropping by 50%.. unless you need to sell it.

If you have no intention of selling your properties when values are dropping then it doesn't mean squat.

The problem lies in whether or not prices will start to increase, or increase enough by the time you are ready to sell.
 
There are only two drivers of any market, property or shares or any commodity.

That is fear or greed.

People will pay more for an item if they think it will be more expensive next year (greed).

People will pay less if they think it will be cheaper next year (fear).

It really is that simple.

If the majority fear falling prices, then they will hold off buying and the market WILL fall. The opposite also applies, hence our prolonged property boom.

How far and for how long? Your crystal ball is as good as mine.
Marg
 
Exactly, it doesnt really matter if the value of your property is dropping by 50%.. unless you need to sell it.

If you have no intention of selling your properties when values are dropping then it doesn't mean squat.

The problem lies in whether or not prices will start to increase, or increase enough by the time you are ready to sell.

It's not that simple. You can have a LOC on that property with no intention of selling it. If the price fell as much as 50%, I think that the bank where you have your LOC will be at least worried.:(
 
If the price fell as much as 50%, I think that the bank where you have your LOC will be at least worried.:(

I don't think so somehow. I don't think they'd even think about it unless you were late with a mortgage payment. I reckon if you keep up the interest payments on your LOC, then they're happy.
 
Today a friend of mine told me he expected house prices to drop next year as 'they are overpriced' from what he read in the newspaper.

It looks like the negative outlook on house prices is spreading through the media. It could already be up to the point where poor market sentiment is enough to keep prices flat at best. I don't believe that prices will fall dramatically though.

Time to be cautious. I wouldn't bet on a quick turnaround. Who knows what the market mood will be in a year? So many things can happen.

Cheers,
 
There are only two drivers of any market, property or shares or any commodity.

That is fear or greed.

You forgot the I have to live somewhere driver.

Today a friend of mine told me he expected house prices to drop next year as 'they are overpriced' from what he read in the newspaper.

It looks like the negative outlook on house prices is spreading through the media. It could already be up to the point where poor market sentiment is enough to keep prices flat at best. I don't believe that prices will fall dramatically though.

Time to be cautious. I wouldn't bet on a quick turnaround. Who knows what the market mood will be in a year? So many things can happen.

Cheers,

Maybe. But you would be surprised how fast market sentiment can swing if theres a couple good IR drops (which, by the way, I am not predicting).
 
I really hope prices dont fall cause I am paying off a big loan. But one thing that makes me optimistic is the big growth in rents. If rents go up then that makes people more likely to buy. It also make IPs more attractive so I cannot see increased rental prices and dropping prices (is that logical) any comments on rent and property prices?
 
just remember though.

the banks have decoupled themselves from the RBA

so even if the RBA lowers the cash rate. the banks have so much control, as there is no competition, that they don't have to lower rates.

In my opinion if the RBA lowers rates, the banks will not, as it is an opportunity to increase there margins, and make a profit, after the big losses they have had and are most likely to continue to have during these times of business horrors.

SO really if the RBA cuts rates, it means more profits for banks.

as a side note...

it is also interesting to see that WBC, and CBA have not been as hardly hit as ANZ and NAB.

thats a different story though.

for me. if everyone is thinking of buying in the next 12-18 months.... then it really is going to create another rapid inrease in prices, and then the australian property market does become a speculative place, and then we will be back to where we are now, where the market became overheated.

also for what its worth. i would keep my eye on places that are affordable right now. frankston for me looks good value.
 
The financial markets have been predicting a rate cut that is 4 months off all year. Then they changr their mind when they see the CPI figures.
 
The financial markets have been predicting a rate cut that is 4 months off all year. Then they changr their mind when they see the CPI figures.

I haven't seen such a close market expectation all year... for most of the past year the market expectation has been for a cut in mid 2009. Recently that has come right back until the market is now pricing in a cut in three months time.

Back in February (on GHPC) I made a call that the March rise would be the last, and the next move would be down, this year. As you can imagine that didn't go down very well over there! :D

Now the media are starting to talk very seriously about a cut by September... see links below... some commentators even think they will cut next week! However I think that would be too much of shock... they would need to give us a warning first.

http://www.news.com.au/dailytelegraph/story/0,22049,24109480-5014103,00.html

http://www.news.com.au/couriermail/story/0,23739,24108881-3122,00.html


Will the banks pass it on?

The banks source around 50% of their funding from overseas, so I believe they will not pass on the full cut. They will pass on around half of the RBA cut. This means that the RBA might have to cut by 50 basis points to ensure that the banks pass on at least 25 basis points.

My prediction... RBA cuts by 25 basis points in September or October. Banks only pass on half of this, so the RBA cuts by 50 basis points in October or November.

I believe they will indicate in their August statement that rates are likely to move down next... just to pre-warn the market...

Shadow.
 
I haven't seen such a close market expectation all year... for most of the past year the market expectation has been for a cut in mid 2009. Recently that has come right back until the market is now pricing in a cut in three months time.

Back in February (on GHPC) I made a call that the March rise would be the last, and the next move would be down, this year. As you can imagine that didn't go down very well over there! :D

Now the media are starting to talk very seriously about a cut by September... see links below... some commentators even think they will cut next week! However I think that would be too much of shock... they would need to give us a warning first.

http://www.news.com.au/dailytelegraph/story/0,22049,24109480-5014103,00.html

http://www.news.com.au/couriermail/story/0,23739,24108881-3122,00.html


Will the banks pass it on?

The banks source around 50% of their funding from overseas, so I believe they will not pass on the full cut. They will pass on around half of the RBA cut. This means that the RBA might have to cut by 50 basis points to ensure that the banks pass on at least 25 basis points.

My prediction... RBA cuts by 25 basis points in September or October. Banks only pass on half of this, so the RBA cuts by 50 basis points in October or November.

I believe they will indicate in their August statement that rates are likely to move down next... just to pre-warn the market...

Shadow.

Agreed Shadow.

Funny thing is (on a side note), I just realised I have been banned by GHPC as well! I dont remember saying anything worthy of getting banned, other than not agreeing! Oh well, I guess they just want members who kiss each others a***!

I really feel sorry for them though, they have linked these articles to their forums, but many are still "recommending" a 0.5% increase....poor souls....:D

Good news is bad news for them.
 
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