You Don't Need "Massive Levels of Forced Sales". You are running the risk of the straw man/arguing with yourself caper again.
You do need very high levels of forced sales. Take Sydney for example. In the past year there were approximately 80,000 house and unit sales across Sydney. On average, these properties sold for approx 3% below the most recent late 2007 peak. Not 50%, just 3%. The vast majority of these were of course not forced sales. There were plenty of buyers willing and able to pay current prices. On average, buyers and sellers met at 3% down, despite the fact that there may have been exceptional forced sales at 40% down.
In order for the Sydney
median to fall by 50%, you need all those willing buyers at 3% down to disappear, and for the majority of sales in Sydney to be forced sellers selling to buyers who are only willing to buy at a 50% discount. What will cause that to happen? This is my question to nonrecourse.
Remember... 80,000 sales in Sydney alone over the past year. If the majority of vendors from that 80,000 are forced sellers selling at a 50% discount, then yes the median could fall by 50% and yes I would categorise that as "
Massive Levels of Forced Sales". What will cause that to happen?
Western Sydney 05/06 dropped like a stone. There weren't "massive numbers" of forced sales. There was, however, a whole bunch of punters who paid too much/borrowed to much in the years prior. The sales that occured were disasters but most people in W Sydney didn't sell, most people weren't in arrears and most people didn't lose their jobs.
The median house price across the whole of Western Sydney fell by about 4% in 2004 and 3% in 2005. By 2006 the median was steady and then it rose in 2007. So we had a Western Sydney peak to trough nominal fall of about 7% followed by prices rising again. Of course, certain
individual properties fell by 40%. Some
individual suburb medians fell by 20%, but across the whole of Western Sydney, the forced sales and the normal sales averaged out to a 7% fall over two years. On average, buyers and vendors met at 7% down, not 40%. My question to nonrecourse is what will cause vendors to meet at 50% down, on average, across the whole of Australia, in order to cause the Australian median to fall by 50%?
It doesn't matter in a bubble, parts of W Sydney 02-04 were a bubble and I saw a lot of 40% losses on individual properties.
Certainly there were individual properties that sold for 40% discounts during the slump, in the same way that some individual properties sold for 40% annual gains during the boom. But they are the exceptions. On average, across Western Sydney, median prices only fell by 7%.
Oh, and it goes without saying that the price on your house can drop without you actually selling it in exactly the same way it went up without you selling it. As an investor, this matters nought if your yield is OK.
Yes, but in the case of Western Sydney, median property prices didn't drop by the 40% exception. They dropped by the 7% average. If I had an 'average' Western Sydney house, and I had it revalued without selling it, then the valuation would come in at a 7% reduction. Yes, if my house was right beside three houses that had sold for a 50% discount, then my valuation would come in at a 50% reduction. But that would be the exception not the norm.
If I lived in a street with 200 houses, and even if two of those houses were forced sales to lucky buyers for a 50% discount, while 10 others sold for a 5% discount (because those vendors didn't need to sell, and the buyers were willing to buy at 5% down), then my valuation would come in at a 5% reduction. You see, for median prices to fall by 50%, then 50% down sales need to become the norm, not the exception. This means massive levels of forced sales.
So again, I repeat my question. Given that nonrecourse believes that unemployment will remain a reasonably low levels, interest rates will be low, and rents will increase, what exactly will force so many people to sell that it causes a 50% dive in residential property values right across Australia? Nonrecourse is suggesting that across Australia, vendors and buyers will on average meet at 50% down. It will take massive levels of forced sales to make this happen. Exceptional sales at 50% down won't do it. There needs to be nobody buying at 5% down. Nobody buying at 10% down. The average buyer needs to be willing only to buy at a 50% discount. Specifically what aspect of the 'soft depression' will make this happen?
Nonrecourse reminds me of some of the more fanatical gloomers from the other forum. Back in early 2007 these gloomers, such as JamesP1746, Hired Goon, and various Ed Karan clones etc. were all claiming that the Australian median would be down by 40% (nominal) by the end of 2007. Then as the year rolled on they said they really meant 30-40% in some regions. And then towards the end of 2008 they were proudly proclaiming - 'Look, I was right' while pointing to individual properties (usually the same few properties in Kellyville) that had fallen by 30%.
And now, in 2009, just like nonrecourse, they are fully confident that the big 30/40/50% falls will happen over the following year or so. It's always
next year for the big crash. LoneCrow is claiming 90% falls are on the way. And by the end on 2009 they will again be pointing to individual properties that have fallen by 30% and claiming vindication.
The more sensible gloomers from the other site - FHB, RE, Croc, Gravy, Salinger, Mantronic, Boof etc. have all realised that those big 40% falls across the board are never coming and have decided to just buy now. At least some of them are learning.
Many of the fanatical gloomers from 2008 (JP1746, Exocet and his various Ed Karan clones etc), the ones who were confident that the 40% falls would happen by the end of 2008... well, they've just stopped posting. Gone. And many of the gloomers who do remain have modified their predictions to 30% fall in real terms over many years, long stagnation etc. Of course, there is always plenty of new blood joining up, brimming with deluded confidence that the massive falls are just around the corner, Stingray, Maria Santa etc. But in time they will learn too. As will nonrecourse.
Cheers,
Shadow.
