Home loan approvals have fallen to 10 year lows in Australia and is set to put further downwards pressure on house prices over the coming year. Approvals for owner occupied housing loans fell 1.5 percent, seasonally adjusted, for the March 2011 quarter.
As most buyers require loans to purchase property, home loan approvals generally lead home prices by about 6 months. This suggests house prices are expected to continue falling for the foreseeable future, as there are fewer buyers, but many more sellers. SQM Research shows stock on the market has surged 68.7% for the year to April, equating to an additional 151,000 homes on the market compared to April last year.
» 5609.0 – Housing Finance, Australia, Mar 2011 – The Australian Bureau of Statistics, 16th May 2011.
» Home-loan levels dive amid housing slump – The Australian, 16th May 2011.
Wow, even I am a little surprised that it certainly does appear the tide is turning, and about time. I have no real objections to house prices making modest gains over the years, nor landlords securing their personal financial future with an investment property. But its taken me a couple of years of following the Aussie property madness, to realise what con job the First Home ( vendors ) Grant was, and that Negative Gearing in 2011, is a simple tax dodge which has also put unneeded upward pressure on prices. Well, it appears now we are getting some form of correction. Will this process speed up, or go slow ? I don’t know. But if these interest rate rises come in as is widely expected, what ever downward process is in place at moment certainly ain’t over yet. Pity the people whom bought in at top dollar, and small deposits, 2-3 years ago, and now want out, as buying that property could turn out to be one of the worst choices they had made.
One house I’ve been keeping an eye on has gone from $450k to 420 to 380 in 6 months. Another did the same drop over 2 years. RE agents maintain the idea that the price you buyers see is what the sellers want. I’d offer 350 but will have to wait until it drops to that I think.
The Oz house price crash is in progress as we speak and prices are declining rapidly. The majority of Aussies exist in an economic environment they can neither understand fully nor benefit from in any way. The facts here are that Aussie housing market speculators brought this all upon themselves by bidding up the value of low quality housing via sky-high debt levels and (non optional) dual incomes, and this way of life has become so engrained in Australian culture now that almost every sucker out there is convinced prices can’t ever go back to where they were in the past, when an average single income could easily afford to buy an average house. Just have a look at some of the inane comments and assertions from the real estate spruiker crowd on forums like somersoft to realise just how deeply engrained this “house prices always go up” myth has become.
Gerald Jenkins
Australian Property Forum
This certainly mirrors what happened in the UK where a dip in mortgage approvals always indicated a further downward leg in the property crash. I’m noticing a distinct change in sentiment in Sydney; more and more people seem to be talking about the likelyhood of prices continuing to fall. Once sentiment turns, the crash becomes self reinforcing as potential buyers, quite sensibly, wait on the sidelines to see how far things will go.
Having recently moved to Sydney from London, I’ve noticed that there seems to be a whole subclass of hard working but low paid people here who have given up hope of ever owning a property. I hope for their sake that we do see a real correction soon.
It needs to correct alot more before a working person can buy a modest home.
@Gerald Jenkins
Your comments are spot on. My parents purchased their house back in the 60’s based on 1 middle class income and paid off their mortgage in 5-6 years. Also consider mortgage payments were 15-20% of disposable income, therefore there was more money left over for savings and consumables.
Take into account in those days the Loan to Valuation ratio (LVR) in the 60’s / 70’s was around 65-70%, meaning a house worth $100,000 would require a deposit of $30,000 – $35,000. Now the LVR is up around 95% depending on the bank, therefore $30,000 can buy you a house for over $500,000, hence why people are in so much dept.
To revert back to the 1970’s would be a good thing as it would encourage people to start saving and get off the easy credit wagon. House prices are on their way down and need to half in value to be in line with average incomes. As much as I would love to see this happen I can’t see these type of decreases unless there is severe unemployment and credit market drys up completely.
This does not surprise Yoda. Yoda say house on the moon less than shoebox in Sydney or cave in Melbourne
Loan growth was at unsustainable levels, induced by government policy and when even the family pet has a mortgage something has to change. I love this – unprecedented levels of loan growth.
Bank earnings will reflect this trend. Deflation in asset prices is here to stay for a decade. Believe it or not.
Yoda you got that right. House prices have to come back for a duration of time, ten years well said. Houses have to catch up to wages by 3 to 4 times someone wage. Since 1986 THE AVERAGE wage has grown 100% . The average house about 800%. Now that is a bomb in the making. Devaluing of houses will and is happening and will be good for future generations. They say “The church was built on the blood of martyrs” I believe the future will be strong on the many defaults of house prices. It makes sense to give someone a house they can afford and making them an asset to Australia and not a liability under stress.
We have to slay this beast before it destroys the future of our children and dismembers our generation. Many will be hurt but think of safe our children will be and how families will strengthen
“Its contained” “There will be no crash” Yeh and Yoda will be the next PM ! Yoda better looking than current PM in own opinion.
Buyers can demand new cars, holidays, free moving costs to buy a property from desperate vendors.
Game on.
Asking price is wishful thinking. The reality for many is being stuck in a debt trap with no freedom.
Unemployment is the keystone to hold it all together – Cashflow is king today. Lose job, OMG
The mortgage holder will suffer in silence and put on a brave face. The banks don’t want your house back as they can’t sell it either.
Calling all suckers – Soon to a lender’s window near you will be ’36 months interest free loans’ and “Teazer rates” to get loans written.
“…Yeh and Yoda will be the next PM…” I’ll be voting for ya’ Yoda, careful if you’re wishing for it.
Cashflow or even cash will be King alright. Telling price will be the new ‘black’ (something I keep hearing in todays vernacular).
Asking Price = (The Thing’s Value + Someone’s Debt + What They Think Their Profit Should Be) * A Modest Markup
Telling Price = The Lesser Of [What You Think The Things Value Is, What You Will Offer] * A Negotiated Fractional Correction
Spendid.
What kind of mother calls their kid “Botrot”.
Here’s a different example of a second tier lender can’t get a simple $200,000 loan organised within a 60 day settlement.
Let’s call the bank Bank East, they forgot to send forms to be signed, then sent the wrong form initially and now buyer is incurring interest charges because it failed to settle. Legal action has been threatened accordingly.
So it’s not just the house price and demand that is affecting loan growth – it is also incompetence from the lenders as well.
Yoda say dig for gold in river bed and don’t tell anyone if you find some. Especially the “big red”
Sorry Yoda, its’ an emotional thing for me. My Mother’s name is Yoda, dumped me when I was very young, been looking for her ever since. Last vague memory I have of her is a story she told me of gold in a river bed, don’t quite remember the rest of it.
Sorry to go off topic admin, just had a tearful longing memory.
hey botrot,
That was brilliant!! Yoda sorry I had to laugh.
Keep up the good work.