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Isn’t This What We Wanted To Happen All Along?

A report from News.com.au in Australia. “We’ve all seen the worrying headlines — house prices are falling, with tens of thousands of dollars wiped off the values of homes across the country. In fact, we’ve been in panic mode for much of 2018 as Sydney and Melbourne’s housing industry in particular took hit after hit. Last month, Deloitte Access Economics partner Chris Richardson told news.com.au house prices were falling ‘by about $1000 a week in both Sydney and Melbourne.'”

“Meanwhile, CoreLogic figures from late last month also revealed the median house price in Sydney had fallen by $72,041 in a year, and $45,376 in Melbourne. Those figures seem pretty scary on paper.”

“But isn’t this what we actually wanted to happen all along? Not too long ago, the focus was on the struggling first homebuyers being priced out of the market by cashed-up, greedy investors in our biggest cities and demands for action on housing affordability.”

“House prices are causing a lot of people sleepless nights. The pace of price falls just won’t stop accelerating. Where will the impact hit? One of the first to fall could be property spruikers who use complex financial arrangements to help people get into houses.”

“One property spruiker was recently taken down, not by insolvency but by the consumer watchdog. The company, which made most of its money from running seminars, promised people they could buy a house for $1. Australian Competition and Consumer Commission whacked the company and its director Rick Otton with an $18 million fine.”

“‘We Buy Houses and Mr Otton peddled false hope to people simply looking to get a foothold in the housing market or invest money in real estate for their future,’ ACCC chair Rod Sims said.”

“Then there’s Nathan Birch, a property investor and investment scheme operator, whose website claims he owns more than 200 properties and that he makes more than $500,000 in ‘passive income’ a year. If these claims are true, we could do the maths and see that each property is making a passive income of about $2500 a year. Less than I would have expected, given that holding property is neither riskless nor effort-free.”

“Birch uses the hard-sell to make people who aren’t investing in property feel like they are missing out. ‘What if I told you that we are living in a system, designed to benefit just a few — at the expense of ordinary people … The fact is we are living in the world’s biggest Ponzi scheme. It’s a system that rips power away from many individuals … and transfers it to a handful of shadowy elites,’ he says.”

“Apparently, he drives a Bentley with the number plate CSHFLO, and Birch says a report appearing in The Australian Financial Review earlier this year claiming he was being sued for missing his mortgage payments was not true.”

“In a property downturn, we can expect more stories like that of Kate Moloney. Kate was dubbed property investor of the year 2012 by Your Investment Property Magazine, but she was deep in the red by 2016. She owned 16 properties in mining towns and said ‘if we were to sell our properties, we would still owe the banks about $3 million dollars (not including arrears interest and selling costs)’.”

“I expect journalists will have a field day tracking down all those young people who appeared in the press in ‘inspirational’ (or at least aspirational) stories about owning a vast property portfolio by age 22. Finding out how they are going with prices down 20 per cent will be very interesting.”

“Real estate agents can’t be finding it easy either. The number of houses trading hands in Australia is at record lows, that means the number of commissions trading hands. (Oh, how my heart bleeds for all those twenty-something real estate agents who won’t be able to keep up the lease payments on their Mercedes!)”

The Daily Telegraph. “Nearly a third of Sydney’s newly completed units are now worth less than what their buyers will have to pay for them. Many of the homes were purchased at inflated prices agreed during the housing boom two years ago but dropped in value as the market slumped over the time it took to build them.”

“To add to the pain, buyers now face an uphill battle to pay the full purchase price since lending policies are preventing banks from issuing mortgages that exceeded the market value of homes.”

“Without a large enough mortgage to cover the full contract price, the buyers would have to cover the shortfall with additional savings or be forced to surrender 5-10 per cent deposits already paid to developers.”

“And the trend could get worse. Cordell-CoreLogic figures show the supply of new apartments is set to increase by up to 144.4 per cent over the next two years in the city’s construction hot spots. CoreLogic head of research Tim Lawless said many pockets of Sydney were already oversupplied. ‘It would be tempting for many these buyers to walk away but they usually can’t,’ Mr Lawless said.”

“Bannermans Lawyers principal David Bannerman said the worst affected buyers would be investors who bought off-the-plan with intentions of selling them for a profit before settlement but failed to attract a buyer. ‘They may never have considered how they’d finance these properties because they always intended to flick them on,’ he said. ‘Now they have to find that money somewhere else.'”

“Apartment buyer Tom Christensen, 31, said buying a Surry Hills unit off-the-plan has left him ‘scarred.’ He and his partner bought the property four years ago for $1.65 million and despite being contracted to be completed in 2015 it was only finished this year.”

“‘If we’d settled when it was supposed to be built the value would have been much higher but now it’s dropped,’ Mr Christensen said.”

“They also discovered the developer had been living in their penthouse and damaged some of the interior, leaving scuff marks on the carpet and hammering more than 40 hooks into the walls. ‘We should have got the apartment in December 2015, but because it took four years we lost out all the capital gains we could have got when the market was rising. Now it’s built, but the (market) has changed,’ he said.”

This Post Has 21 Comments
  1. ‘I expect journalists will have a field day tracking down all those young people who appeared in the press in ‘inspirational’ (or at least aspirational) stories about owning a vast property portfolio by age 22’

    Well, it’s a tough job but somebody has to blog about it.

    1. This comment got caught in spam so I’m reposting it:

      “A while back somebody posted a video by Tim and Julie Harris. They’re real estate coaches. I’ve been listening to their podcast lately. They’ve been doing a series on the real estate reset happening right now. It’s been very insightful with multiple anecdotes that shed light on the current market.”

      “Teaser: one of the anecdotes was a mortgage officer in LA who only does multi-million dollar home loans. He told Tim Harris that his business has all but dried up in the last few months.”

      https://timandjulieharris.com/2018/11/23/podcast-urgent-massive-real-estate-reset-happening-now-part-4.html

      1. ‘his business has all but dried up in the last few months’

        I’m sure he realized the good times wouldn’t last forever and saved like crazy as all mortgage guys do.

        There goes the Audi!

        1. Oh, how my heart bleeds for all those twenty-something real estate agents who won’t be able to keep up the lease payments on their Mercedes!

          Now this is funny!!

          I

      2. Glad you posted it, It was a good listen thanks! Makes one wonder how many realtors actually listen / absorb this information. Do they all insist on lying or just truly unaware that we are in a RE downturn? I must have some weird radar for housing market conversations because I hear realtors and investors talking in public about the markets often and it’s the rosey talk.

  2. ‘Nearly a third of Sydney’s newly completed units are now worth less than what their buyers will have to pay for them…And the trend could get worse. Cordell-CoreLogic figures show the supply of new apartments is set to increase by up to 144.4 per cent over the next two years’

    Yeah, you guys and gals aren’t completely fooked or anything…

  3. In fact, we’ve been in panic mode for much of 2018 as Sydney and Melbourne’s housing industry in particular took hit after hit.

    Ya know, this “panic mode” seems to have passed me by entirely. In fact, when I see bursting bubbles and hear the wails and lamentations of speculators and FBs, all I feel is pure schadenfreude and delight that true price discovery is finally re-asserting itself after the past ten years of Keynesian monetary lunacy.

  4. “Apartment buyer Tom Christensen, 31, said buying a Surry Hills unit off-the-plan has left him ‘scarred.’ He and his partner bought the property four years ago for $1.65 million and despite being contracted to be completed in 2015 it was only finished this year.”

    Throwing away money on rent seems like a good idea in retrospect, ay, Tom?

    1. What’s missing from this tale of woe is, had Tom closed earlier and sold his airbox, there would just be some different FB holding the bag with an even larger mortgage.

  5. “In a property downturn, we can expect more stories like that of Kate Moloney. Kate was dubbed property investor of the year 2012 by Your Investment Property Magazine, but she was deep in the red by 2016.”

    I hope that Kate enjoyed her fifteen minutes of fame.

  6. Sometimes I have seen lack of relavence in Australian articles as pertaining to our domestic situation. However given recent trends here I am beginning to believe that we are on the same path but at slightly different point on the curve. None the less, the curves in the two countries may prove to be quite similar. Lots of downward indicators here and this weekend’s crypto crash may be another. Not sure what affects that will have on overall economy, but certainly not helping.

  7. A Chinese recession is inevitable – don’t think it won’t affect you
    Kenneth Rogoff
    Analysts say a Chinese recession would only hurt the region. That may be wishful thinking
    Wed 7 Nov 2018 11.00 EST
    A man sits on a rock as washing hangs on barbed wire nearby with demolished and derelict old housing blocks in the background

    When China finally has its inevitable growth recession – which will almost surely be amplified by a financial crisis, given the economy’s massive leverage – how will the rest of world be affected? With US President Donald Trump’s trade war hitting China just as growth was already slowing, this is no idle question.

    Typical estimates, for example those embodied in the International Monetary Fund’s assessments of country risk, suggest an economic slowdown in China will hurt everyone. But the acute pain, according to the IMF, will be more regionally concentrated and confined than would be the case for a deep recession in the United States. Unfortunately, this might be wishful thinking.

  8. “But isn’t this what we actually wanted to happen all along? Not too long ago, the focus was on the struggling first homebuyers being priced out of the market by cashed-up, greedy investors in our biggest cities and demands for action on housing affordability.”

    You could say the same thing about stock prices. If they plunge by, say, 60 percent overall, and panicked boards of directors eventually get desperate enough to redirect some money from executive pay to dividend yields, we might eventually be able to buy the S&P 500 and get a historically average dividend yield on our investment.

    Maybe not me and Ben, who are about the same age, but our children.

    1. The stock market’s current selloff can slow down now, provided 401(k) investors keep their heads buried in the sand until next January. If they figure out how much they lost any sooner, they may dump their stock HODLings en masse, exacerbating the crash.

      How reassuring!

      Here’s how the S&P 500 can avoid the next ‘Big Red Wave’ of selling
      By Barbara Kollmeyer
      Published: Nov 26, 2018 7:32 a.m. ET
      Critical information for the U.S. trading day
      Avoiding another wipeout for stocks

      After a gloomy patch for the markets around Thanksgiving, there is a more buoyant mood to start the new week.

      Jani Ziedins, of the CrackedMarket blog, says the equity slide could be nearing its bottom, though only “if this selloff stays confined to people who actively follow the market.”.

      Ziedins warns that if the negativity spreads to the average investor “who only looks at their quarterly statements, prices could fall a lot further if that much larger crowd starts dumping stocks too.” The good news is that most investors won’t see September-December statements until the new year, and next month’s stock performance is still up for grabs.

  9. Regarding the Tim and Julie Harris podcast posted above,
    Tim said – “Don’t worry, we won’t have a collapse like we did in 2006 – 2009, just a correction.”

    WRONG!!!!

  10. The time now is to invest in Precious Metals. Very cheap prices for gold/silver. There is going to be a banking collapse as well as a real estate. Student loans, mortgages, bond collapse will plague Joe 6pack for years. FDIC will need more govt money to prop up the failing banks due to people/ businesses and govt failure to make their payments.

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