According to research conducted by the National Australia Bank, expectation of house asset price rises have fallen around the country. NAB chief economist Alan Oster said ”There has been a very big change in expectations.”
Melbourne lead the falls with most respondents predicting prices will only increase 0.7 percent over the next year, down from the expected 5.8 percent growth in March when the last survey was conducted. A 0.7 percent rise would see prices fall in real terms (not keeping up with inflation).
Sydney siders now expect just 2 percent price rises for the year, down from 5 percent in March.
Perth respondents predict prices in WA to rise 2 percent from the 5.5 percent predicted in March.
Adelaide also fell to 2 percent, from the previous result of 5 percent.
Canberra residents are the most optimistic, predicting a gain of 2.9 percent over the next 12 months, down from 5.1 percent last quarter.
Developers have contributed the fall in expectations to the drying up of credit. Since the start of the year, many banks have asked for 20% deposits on investment loans (and for FHB). Some of the plan investors were caught out, after committing to purchasing properties only to find out they can’t access the funds now due to the banks tightening of credit.
Owner buyers have sited interest rates and a bigger divergence between incomes (loan serviceability) and home prices as the reason for their fall in optimism.
Since the start of the year, mortgage approvals have been spiraling downwards, hitting 9 year lows two months ago. This has resulted in auction clearance rates falling around the country. The fall in clearance rates staring April also coincides with the Federal Government’s reversal of FIRB legislation which allowed an influx of foreign buyers prop up the weak Australian market.
ยป Home prices seen stagnating: survey – The Sydney Morning Herald, 29th July 2010.
Investors’ expectations drive asset prices.
This is expecially true in a bubble as asset growth is driven by speculation rather than economic fundamentals.
When investors’ expectations fall, then the asset price growth will inevitably slow.
I have come up with a list of reasons why property prices will either stagnate or fall:
If prices keep climbing forever – who will be able to afford it? and where will all the low-paid service workers live?
Unfortunately this is the end of the road – and most of the clever investors have already cashed out.
In my apartment complex, a serious investor with a large property portfolio sold all 6 apartments he owned in the complex across February-May. I had the pleasure of attending the auctions and seeing the lucky ‘buyers’..
Most of them were ‘Mum and Dad’ investors, many of them even proclaiming after ‘winning’ the auction that this was there first investment property.
Anyone else heard stories of the hardcore property investors cashing out, and selling at the peak to “mum and dad” investors?
Agree with J Hill
Any clever property investors have already got out the market in the first half of the year.
Investor selling a property in our building. It is on the market 48m2 for $550k. Over $10,000/m2 for an average run down unit, no view, noisy, no balcony etc – overvalued by estate agents / banks / property valuers / insurers and conned by people at Auctions. They are all in on the overvaluation. It has been on the market for 3 months with NOT ONE OFFER!
Why do banks charge insurance for deposits under 20% – because they know risk of default / negative equity is high at the moment.
We have reached the peak ……………..now for the sharp fall or slow decline over the next decade.
The only thing that can save this market is the government not releasing land for developers.
It’s amazing that this unaffordable property issue has not been talked about in the election. Are they oblivious to what is actually happening ?
Apartments have slowed down but good standard homes in good areas are still selling. A drop of a few percentage points won’t stop Property Hoarders… as it is a good time to screw sellers down and pick up a bargain.
@ J Hill I know a large investor in my area cashing out in both residential and commercial. We rent a shop from him, been on the market 6 weeks only 1 looker to date. Being in retail I can report a major drop off over the past few months and consumers seem to have lost their appetite for spending.
Consumers appetite for spending was due to two factors:
– Stimulus payments
– Wealth Effect of rising property prices.
Whilst the stimulus payments would have been spent in 2Q-3Q last year, the money multiplier effect will have lasted a few more months. It’s the old supply chain issue – you pay the butcher for the meat, the butcher pays the wholesaler, the wholesaler pays the farmer, the farmer spends the money. It would be fair to argue in a lot of cases that the money took a little while to pass through the supply chain while everyone took there 10-20% cut (as they do), and its now reached the end.
Also, having worked for an Auto Manufacturer between 2006 and 2008 in the Motor Finance arm – we were directly competing with people using ‘equity’ in their houses to purchase cars instead of taking out automotive loans. I wont say directly which company it was (think blue and american) but there were estimates by 2008 within the industry that nearly 70% of private vehicle sales were financed through ‘home equity’.. The strong car sales months through early 2010 correlate with the house prices rising rapidly. It would be very interesting to plot vehicle sales over the last 5 years, with monthly house price increases.
I think many people would be surprised how many people have accessed their ‘equity’ already to fund motor vehicles and home renovations.