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Fear Changes To Panic Only When Price Falls Don’t Plateau And The Emotional Virus Infects Everything

A report from the Australian Financial Review. “Developers are offering financial advisers and mortgage brokers ‘massive’ commissions of nearly 9 per cent to sell completed apartments, or about $70,000 for an $800,000 apartment. That’s a 30 per cent increase commission on the highest rates paid last year and is a top-up on the additional commission or cash payments paid by clients for arranging a deal, or finance.”

“Deals are flooding the market, particularly around central Melbourne, as vacancies levels rise, projects started at the height of the real estate boom are completed, demand falls and potential buyers grow increasingly wary of dodgy building standards and fire risk from exterior cladding. Overseas’ buyer numbers have also fallen steeply.”

“Two out of three Melbourne apartments sold off the plan during the past eight years have made no price gains, or have lost money upon resale, despite a property boom and record immigration, according to analysis by BIS Oxford Economics. In Brisbane about half are selling at a loss, or no profit, over the same period, while for Sydney it is about one in four since 2015, the analysis reveals.”

“The number of vacant investor-owned properties in Melbourne remains high, with as many as 16.2 per cent homes sitting empty, according to analysis based on water usage.”

From The Feed. “Around 16 per cent of investment properties in Melbourne could be empty, according to a new report by Prosper Australia. Vacant properties indicate owners are leaving residential homes unused, without putting them on the rental market, or up for purchase.”

“The report analysed the water consumption of over a million properties in the city and found a total of 60,000 homes used little to no water in 2017. No water usage suggests no occupant. Prosper Australia project director Karl Fitzgerald said vacancies are unethical and should not be encouraged.”

“‘We grew up with this narrative that the harder you work the luckier you are, but now the economic system is rigged for landowners to buy and wait to make money,’ he said.”

“Melbourne remains the number one target for foreign investors in Australia, according to last years annual report by The Foreign Investment Review Board. But Mr Fitzgerald said domestic investors are the majority. ‘Excessive foreign investment should be addressed, but domestic investors remain the largest investors.'”

“The average house price in Melbourne is around $800,000 and there are over 24,000 homeless people in the city.”

From Domain News. “Sydney renters are spoilt for choice, with lower prices and less competition as more properties hit the market. Domain senior research analyst Dr Nicola Powell said the number of units on the market across Sydney was up more than 20 per cent year on year, while houses were up almost 13 per cent.”

“‘Current rental conditions provide tenants with a window of opportunity to negotiate rents and terms,’ Dr Powell said. ‘Meanwhile landlords will face greater competition to secure a tenant resulting in rent reductions.'”

“With an increasing number of rentals coming onto the market, the days of finding a tenant in less than a week are long gone, said Rachel Beadman, head of property management at Phillips Pantzer Donnelley.

“‘It’s competitive and days on market are getting longer, Ms Beadman said. ‘A year ago you wouldn’t have had people putting an offer in under the market asking price, traditionally price were driven up … whereas now it’s going the other way.'”

“‘If a property is on the market for $1000 a week, [tenants] are probably trying for around $900,’ Ms Beadman said. Rents for high-end, family houses had come down more significantly, dropping hundreds of dollars, she said.”

“Lauren Beare of The Agency said that in her 18 years in the industry, she had never experienced a market where tenants had so much choice. While once tenants turned up to open homes, they had not even set foot in, with completed applications, they were now knocking back offers to go for their preferred property.”

“Ms Beare said the time taken to find a tenant on the lower north shore rose about 20 per cent and that, with prices falling, landlords who didn’t meet the market faced an even longer wait. ‘As much as we want to advertise the rent at the current level [when re-letting], it’s going to sit on the market for weeks if we do that,’ she said.”

From ABC News. “NAB has revised down its prediction for property prices in Australia’s two biggest cities, saying the fall in values since the start of last year has exceeded its forecasts. ‘We now expect Sydney to decline by around 20 per cent from peak to trough, while Melbourne is expected to fall around 15 per cent,’ NAB Group chief economist Alan Oster said.”

“According to CoreLogic estimates, real estate prices in Sydney have fallen about 14 per cent since their peak in 2017 while the slump in Melbourne has averaged about 10 per cent.”

The Irish Examiner. “The worst case scenario is that Australia could be the location of the next impact crater for the IMF to fret over and the first since Cyprus 2012 to experience haircuts on deposits. The best case scenario is that Australia becomes a textbook example of controlled deflation of a housing bubble.”

“Last month global financial markets flashed a strong warning that all is not well; the US bond market curve inverted. This is almost always a harbinger of a recession to come later this year or next. What happens in the USA impacts Australia as much as it does Europe but the economy Down Under is also bound at the hip to Chinese Construction demand for commodities like iron ore.”

“Chinese household debt has now risen to half of its GDP much earlier along the pathway to prosperity taken by South Korea and Japan and 40% of its loan book is real estate. Half of new debt is residential in a country that is sitting on at least 60 million empty dwellings.”

“Credit growth is collapsing to zero this year in Australia according to UBS forecasts. Homeloan demand has shrunk, foreign buyers are pulling out, there is a clamp down on fresh interest only mortgages and First Time Buyer sales have tanked to lows not seen for 17 years.”

“Unless you’ve been through one, it is very hard to grasp the psychology of a bubble burst. Rising deafness accompanies the journey to the tipping point, fear changes to panic only when price falls don’t plateau and the emotional virus released infects everything.”

“It is reasonable, in light of the prevailing evidence, to ask if we are watching the early signs of an Australian debt asteroid strike. No one knows for sure, on its own the AUD $2 trillion held by foreign creditors indicates the potential fallout field but these things don’t happen in isolation and debt is elevated elsewhere. That is why Australia matters. Lets hope they don’t do a full Irish.”

This Post Has 80 Comments
  1. ‘NAB has revised down its prediction for property prices in Australia’s two biggest cities, saying the fall in values since the start of last year has exceeded its forecasts’

    He he, this is the second time this has happened.

    1. Gosh, I would think that would make it harder for realtors to lure in buyers from off the sidelines. Which would only exert more downward pressure on prices.

      Suddenly, I feel an unfathomable sadness as I think of those poor FBs, speculators, and starving realtors – NOT.

  2. ‘Unless you’ve been through one, it is very hard to grasp the psychology of a bubble burst. Rising deafness accompanies the journey to the tipping point, fear changes to panic only when price falls don’t plateau and the emotional virus released infects everything’

    Alright, which of you wrote this?

    1. Odd, I must have impunity to that emotional virus. I just can’t get worked up at all about cratering shack prices. In fact, I feel pure unadulterated schadenfreude to see true price discovery start to assert itself, and speculators and FBs finally starting to get their just desserts.

      1. I’m also a genetic mutant in that regard. It could reflect my parents’ hardscrabble upbringing during the Great Depression years. I’ve always had a healthy respect for what could go wrong when the economy goes south, and lived within my means to provide for a rainy day fund. This admittedly is hard when surrounded by people living high on the credit hog.

  3. I remember when you used to have a precious metals blog, Ben. I never did read it because I never really paid attention to that stuff and was more focused on housing. I made my first silver purchase ever today – $500 in US silver eagles.

    I bought coins from 2000 – 2006. Most appear in very good shape. A few have a little dark tarnish in the grooves. I paid $20 per coin at the shop. When I looked up the price to buy at the online stores, the price seemed fair, because SD Bullion where I was thinking of buying is quoting over $20 for the same coins.

    I really don’t know much about this, it’s my first attempt at protecting myself from what I think is more QE on the way. I am going to keep buying silver eagles weekly for the foreseeable future. With the spot price dropping, it seemed to me a good time to buy.

    1. I wanted to add that the price was $5 over spot because I only bought 25 coins. I would have had to buy 300 to get a price of $3.50 over spot. I didn’t want to buy 300 coins yet. I could have bought rounds for $1 and change over spot.

      I need to learn a little more about this. I also think that I could probably wheel and deal with this guy in the future since he now knows I am serious about buying.

      1. I like what are called junk silver coins. You pay very little premium to spot, or shouldn’t. Make sure they are 90% (not 40%) silver, and adjust for the ratio. And when you sell, it can be a little or a lot. All dealers will buy junk silver. Plus you don’t have to baby them.

        1. I like what are called junk silver coins.

          As do I. I have some Eagles, but Grampa said “why do you like them? There’s a premium.”

          1. “…why do you like them? There’s a premium.”

            That’s why I only wanted to buy $500 worth today. I need to understand a little more about what I am doing. I want to buy a lot more silver than this, but it was my first foray into it so I want to tread lightly.

            I think I overpaid a bit but don’t have a lot of options in terms of coin shops around. The only other bet is online and that’s a bit sketchy, to me. You can’t see what you’re buying.

        2. I’ll look up “junk silver” and also see what he has the next time I go back. I actually might go look around a bit again tomorrow if I have time.

        3. I have quarters and dimes pre -1964 , worn so they are in the junk class but still so much nicer looking than the new coins.

          Once in a blue moon I will find a silver dime, never a quarter though.

    2. There was a smash-down of precious metals today. The usual market manipulators were up to their tricks, but I loves me a good buying opportunity.

      1. As mentioned above, I bought my first silver eagles today. The price seemed a bit rich, but I don’t have many shops around.

        1. Precious metals got monkey-hammered yesterday due to contrived investor fears of a Fed rate hike. Reality check: the Keynesian fraudsters at the Fed will never hike of their own volition, at least not until their investment banker handlers go massively short on the Wall Street pump & dump, then signal their Fed accomplices to actuate the next Great Muppet Reaping by suddenly hiking interest rates.

          https://www.kitco.com/news/2019-04-11/Fear-Of-A-Fed-Rate-Hike-Drives-Gold-Down-1-5-Silver-Down-2.html

  4. “The best case scenario is that Australia becomes a textbook example of controlled deflation of a housing bubble.”

    I’d love feedback from the people here — which would be preferable, controlled deflation or a faster crash?

    1. A foamed runway guards the banks. A crash frees the debtors and brings the price of bread down for the honest folk.

    2. “which would be preferable, controlled deflation or a faster crash?”

      – As if you have a choice. No menu of options. There’s nothing controlled about a bubble bursting. They tend to be symmetrical in time. The aftermath of a housing bubble 2.0 isn’t going to be pretty, just reference housing bubble 1.0.

    3. I’m rooting for a full-blown crash. Only then will there be enough public outrage to carry out a full-scale purge of corrupt and captured policymakers, enforcers, and regulators who let things get to this point. Only then will we get a reinstatement of Glass-Steagal, an end to corporate stock buy-backs using borrowed money, and the kind of regulation and oversight needed to reverse decades of policies that enabled and abetted the kind of runaway speculative excesses that created these bubbles in the first place. Most of all, there might finally be enough former sheeple becoming awake and aware to demand that the Fed finally be audited, then shut down, and along with it the swindles it has been running against the 99% since its misbegotten 1913 inception.

    4. “which would be preferable, controlled deflation or a faster crash?”I

      Ha, James is on tour singin’ “Oh, Mexico”

      https://m.youtube.com/watch?v=dnvfbLOvlYw

      Sing a song for
      the wrong and the wicked
      and the strong and the sick,
      as thick as thieve$.
      for the faceless fear
      that was never so near,
      too clear to mi$believe.
      well the sea is jumping salty
      and the porpoise has the blues,
      my recollection’s faulty
      and i cannot find my shoes.
      and my wiring is misfiring
      due to cigarette$ and booze,
      i’m behind in my dues,
      i just now got the news.
      he seems to tell us lies
      and still we will believe him,
      then together he will lead us
      into darkne$$, my friends.
      Let it fall down, let it fall down, let it all fall down.
      let it fall down, let it fall down, let it all fall down.
      The man says stand to one side, son,
      we got to keep this big ball rolling.
      it’s just a question of controlling
      for whom the bell is tolling.
      Let it fall down, let it fall down, let it all fall down.
      let it fall down, let it fall down, let it all fall down.
      There’ll be suffering and starvation
      in the streets, young man.
      just where have you been, old man?
      just look out of your window, man.
      Let it fall down, let it fall down, let it all fall down.
      let it fall down, let it fall down, let it all fall down.
      Well, it ain’t nobody’s fault
      but our own,
      still, at least we might could
      show the good sense
      to know when we’ve been wrong,
      and it’s already taken too long

  5. “Chinese household debt has now risen to half of its GDP much earlier along the pathway to prosperity taken by South Korea and Japan and 40% of its loan book is real estate. Half of new debt is residential in a country that is sitting on at least 60 million empty dwellings.

    This is some housing shortage?

    1. I’d love feedback from the people here — which would be preferable, controlled deflation or a faster crash?

      If it were possible, controlled deflation. My general feeling is that it is best to do things that have large ramifications gradually wherever possible, like raising the mandatory retirement age, or eliminating the mortgage interest tax deduction, or increasing taxes. Easy credit is a lot like a drug: going cold turkey could kill the patient. Gradual and predictable gives people some planning time and allows coping.

      1. I’m going to disagree with you. I’m all for ripping the band-aid off, no matter what. I’d rather go through a tremendous amount of pain for a short period than an excruciatingly long, drawn out period of nagging pain.

        1. What if that “tremendous amount of pain” is a samurai sword to a major artery, and almost certain death. In this case, western civilization?

      2. “If it were possible, controlled deflation.”

        How do you know when deflation is controlled? When the Japanese economy cratered after 1990, they had fast deflation followed by slower, protracted deflation over decades. By contrast, the Fed appeared to engineer asset bubble reflation after 2009, after a few years of recession and asset price deflation. Looking in from the outside of central bank policy, it is quite hard to parse the organic components of these business cycle trends from the controlled parts.

  6. How will things work out for U.S. homeowners whose retirement plan is home equity appreciation in case U.S. home prices follow Canada’s and Australia’s down the crapper?

    Former SEC lawyer sounds alarm on ‘the greatest retirement crisis’ in history
    By Shawn Langlois
    Published: Apr 11, 2019 2:27 p.m. ET
    “‘Too frail to work, too poor to retire’” will become the new normal for many elderly Americans”

    “Pension detective” Ted Siedle, a former SEC lawyer who now runs Benchmark Financial Services, was awarded a record $78 million for blowing the whistle on JPMorgan Chase’s failure to inform wealthy clients about conflicts of interest that drove the bank’s investment advice.

    Furthermore, Siedle’s firm has taken the lead in over $1 trillion in forensic investigations of the money management industry and he’s testified in front of Congress as an expert on mutual funds, so he knows a thing or two what goes on behind closed doors in the financial services industry.

    That’s what makes this take on today’s public pension system so troubling:

    We are on the precipice of the greatest retirement crisis in the history of the world.

    1. I don’t completely buy the “too frail to work.” There are lots of jobs that elderly people can do and stereotypes abound that pose artificial constraints. Granted, some physical work like manufacturing, construction, the trades, and much healthcare work is physically taxing, so perhaps these jobs might be off-limits for those with mobility impairments. But in this knowledge economy, there will be a demand for elderly workers.

      1. In the US, people treat the elderly very poorly, even their own family and children like to stick them in a nursing home and forget about them. Not only is it unfortunate, it’s despicable. On top of that, there is a real problem with age discrimination in the workplace.

        1. We didn’t do that with my parents. My sisters and I hold them close in their tenth decade.

          1. In Portland, OR … knot “senior nor ederly” … $treet car fare$ category is called: “honored citizen”

          2. Americans do treat their parents like terribly on average, but there may be a reason for it.

            My gen-x dad kicked me out at 18 and never gave me a nickel afterwards.

            In contrast, my Brazilian wifes parents are the most loving and supportive parents you could ever ask for. They by no means spoiled her, but certainly sacrificed so she could go to college and have a better life, etc. They still keep her room empty, and beg us to make month long visits.

            My long term plan is to get a house with an in law suite so we can care for them. I have no long term plan for my father.

            My point is what goes around comes around, and in my experience american parents are also on average crappier than others

          3. My gen-x dad kicked me out at 18 and never gave me a nickel afterwards

            That was you and your dad, not America vs Brazil.

            How long did you expect to freeload off him as an adult anyway?

            My dad was my best friend. He gave me a handshake at 17 and encouraged me to be a man and make a life (away from home). At 18 he had already been to Iwo Jima. He was always available for advice or hands on help, but not a nickel. We hunted and fished together our whole lives. I moved close when he retired, but didn’t give him a nickel. I helped him with hands on things and played cribbage with him. When he passed, I looked after my mom.

          4. “My gen-x dad kicked me out at 18 and never gave me a nickel afterwards.”

            I’ve personally seen that in a couple of Mexican-American family situations in my personal circle of people. It seems unnecessarily harsh given the high rents and lack of opportunities our young people face in today’s economy. I came of economic adulthood during a similarly difficult time, during Paul Volcker’s inflation purge, and my parents were very accommodating of my siblings and me starting out in the world. My wife and I are taking a similarly gentle approach, helping to make sure our kids have the necessary occupational skills before weening them off parental support.

          5. Im just making 2 points.

            1. What goes around comes around

            2. Other cultures are more family-oriented in general. Children stay at home longer, get more support, etc. So they feel more attached. Having lived both styles, that is my take on it.

        2. Stuff the old folks in nursing homes and the kids in day care centers. “Livin’ the dream, bro.”

      2. “But in this knowledge economy, there will be a demand for elderly workers.”

        At wage rates where they will be willing to work and where an employer will be willing to hire them rather than a freshly college graduate trained in the latest technology and able to work more reliably for less pay due to lower health care and other living costs?

    2. May I suggest the Peak Prosperity dot com audio interview with Ted Seidle as an addendum to that marketwatch article. Ted has quite the resume.

      peakprosperity.com

      You’re welcome.

    3. This could be such a problem the government steps in to fix it making it worse for those who did sacrifice and save. A sort of leveling it all out for the greater good.

    1. Dont worry – we are also going to borrow for infrastructure. Light Rail will surely payoff in Seattle

      ——————–

      By the broadest measure of borrowing in China, called total social financing, Tianjin’s government, corporations and households owe more than $760 billion, according to an estimate by Rhodium Group. The annual interest owed by all borrowers in Tianjin totaled 12 times its annual nominal economic growth, Rhodium said, citing the most recent numbers.

    1. Does that moody’s chart actually show prices turning around in 2020? After a 15 year bubble, just a couple of years of pain and everything gets back on track? How much kangaroo kool aid and wombat punch are these Aussies drinking?

      1. Yes, we’ll be off to the races again…BTFD!

        And watch the wombat punch jokes…we don’t need no racism in here

      2. “wombat punch” … Eye likes it!

        Does it work to cure $helter “$helter.monkey pox”?

    1. My feminist sister thinks it’s because of media bias against all women candidates. I get annoyed with that talk sometimes but I gotta wonder if there’s something to it this time. I would think Warren would be taken at least as seriously as Bernie and much more seriously than all the 2nd stringers plus Joe. Even with the DNA snafu, if you lean left she should seem like a pretty good candidate.

      1. I had to admit to my progressive friends that i disliked all female politicians. But then I thought about it for a few minutes and realized I dislike all male politicians as well. So I guess Im alright.

      2. I really like Warren. I respected her work on the CFPB and she was one of the few politicians who were attempting to hold the banksters to account during the GFC. I really do believe her heart is in the right place and would make a great president.

        1. Sanders or Warren are pretty much the only Dems that I would even consider. If Biden is on the ticket, not a chance, I’ll be pulling the lever for DJT.

      3. Nope, the media seems to pushing Kamala Harris. And they certainly favored Hillary.
        But look at the way the media treats Republican women….

        1. Look at the way DJT treated Carly Fiorina, not that I liked her much. But it was pretty messed up. The best Republican woman would be Nikki Haley. She is respected by Dems, Republicans, and Independents.

    1. I rented a BMW X5 last summer using Turo. Went well except it was difficult to find the Turo lot near LAX while on foot.

      But yeah…not sure I’d want to be on the other side of that transaction. Especially with a muscle or sports car. I suppose they could measure tread depth and such but the guys running the lot didn’t seem to care at all. And I’m not even the type that babies my car. But I abuse it intelligently and the moron factor is almost sure to be high among renters of that type of car.

  7. How are the porcine beauticians’ ongoing efforts to paint lipstick on the pig working out?

    1. If investors really believed a correction was coming, why wouldn’t they dump their shares today? Why risk getting left holding the bag?

      A stock-market correction is coming, but don’t ‘head for the hills yet’, says BNY Mellon
      By Barbara Kollmeyer
      Published: Apr 12, 2019 10:40 a.m. ET
      Not so fast…

      After days of dull stock action, we’re seeing signs of life as earnings season kicks off.

      China blasted out pretty upbeat exports data Friday, setting the tone for what could be an upbeat day, helped by upbeat results out of J.P. Morgan and Wells Fargo.

      The S&P barely budged this week ahead of earnings season as investors avoided taking risks – the index is up 15% so far this year. “That being said, nobody is rushing to the exits looking to lock in the big gains either,” notes Michael O’Rourke, chief market strategist at JonesTrading.

      Liz Young, director of market strategy at BNY Mellon, is among those who are a bit unsettled by how far and fast equities have risen this year. But in our call of the day, she maintains this isn’t a moment for investors to “head for the hills.”

      “What’s making me nervous about [the stock rally] is that we seem to be ignoring some of the risks that still remain,” Young told MarketWatch in an interview. Unanswered questions remain over whether we’ll get an earnings recession, a potential U.S.-China trade deal and Brexit resolved, she said.

    2. Risk of earnings recession rises, as S&P 500 profits to fall for first time in 3 years
      By Ciara Linnane and Tomi Kilgore
      Published: Apr 12, 2019 8:36 a.m. ET
      Trade tensions, weather and slowing growth are pulling down earnings expectations
      Getty Images/iStockphoto

      Investors should start bracing themselves for an earnings recession, with first-quarter numbers for the S&P 500 expected to suffer the first decline in nearly three years, as macroeconomic headwinds continue to pull down analyst estimates.

      Although some say low investor expectations and the stabilization of the macro outlook suggest the recent stock market rally can continue toward fresh highs, others are worried that macro uncertainties and risks to the earnings outlook for the rest of the year have yet to be fully appreciated.

      1. Here’s a healthy sign…not!

        The Wall Street Journal
        Heard on the Street
        How the World Economy Became a China Property Play
        The Chinese housing market is picking up, likely boosting growth in Japan and Germany
        By Mike Bird
        Updated April 11, 2019 6:27 a.m. ET

        There are signs of life in China’s property market. Even those without exposure to Chinese assets will feel the warmth.

        New-home sales in China’s biggest cities rose 26% in March compared with the same month in 2018, according to data from 23 listed developers compiled by Nomura. That marks an abrupt reversal of the trend in January and February, when official data showed a contraction.

        To Read the Full Story
        Subscribe

    3. This economic slowdown is not a blip, warns strategist who manages $4.5B
      By Shawn Langlois
      Published: Apr 10, 2019 2:24 p.m. ET

      Decisions, decisions.

      Merely a blip or long-term problems?

      Investors are grappling with mixed signals these days, and how they react to all the noise could have serious consequences for their portfolios, according to Bleakley Advisory Group’s Peter Boockvar.

      Specifically, he said stocks suggest an economic slowdown is only temporary in this climate, while the bond market’s message is much more ominous.

    4. “porcine beautician$’”

      The “choo$e.a.color” lip$tick appointment is $cheduled @ 12 pm PST

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