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The Process Can Prove Very Nasty In Reverse

A report from The New Daily in Australia. “The traditional December auction slump seems worse than ever this year, with preliminary results showing a combined capital city clearance rate of just 43.1 per cent – the 10th consecutive week where less than half of homes taken to auction have sold. Sydney’s weekend clearance rate sat at 41.4 per cent, Domain reported, with unreported results likely to see it fall into the 30s.”

“SQM’s Louis Christopher recently noted the data showed there had only been three prior times since the 1980s when Sydney auction clearance rates had sunk into the 30s. ‘That was in October/November 2008 during the GFC, May 2004 after the NSW vendor stamp duty was introduced, and July 1989 when the cash rate hit 17 per cent,’ Property Observer reported.”

“As clearance rates have fallen through spring, sale prices have also dropped back as the remaining buyers become Scrooge-like bargain hunters. The weekend turnover in Sydney totalled just $129 million in sales, well down on the near $600 million this time last year, Domain reported.”

“Melbourne had $258 million in recorded weekend sales, compared to $826 million the same weekend last year. There were definitely far fewer buyers around than in spring, with many no bid auctions, agents say.”

“Of the 17 advised Glen Waverley auction results the priciest offering failed to sell, with the townhouse-approved 697 High Street Road holding passed in on a $1.5 million vendor bid. Melbourne’s cheapest sale was $305,000 for a one-bedroom apartment at Box Hill. The sale of 406/1 Watts Street, Box Hill was well below the $320,000 to $352,000 price guidance.”

“The recent $370-a-week rental also sold well below its 2011 $390,000 sale price, CoreLogic advised.”

From Perth Now in Australia. “More than 14,500 WA mortgage holders are trapped in a home worth less than the loan they took out to pay for it. And according to Digital Finance Analytics, about 726,000 households in Australia own less than 15 per cent of their property — 21 per cent of all borrowers — putting them at risk if house prices drop.”

“Homeowners in WA were most likely to be in the red, with 14,500 owing more than the value of their home. About 130,500 households in WA — 32 per cent — hold less than 15 per cent equity in their properties, placing them at risk of mortgage stress.”

“Negative equity is considered among the worst problems for households as they become trapped in unaffordable homes and are unable to pay the difference between the value of their home and the loan they took out to buy it. There are fears more could be plunged into negative equity if house prices continue to fall.”

“Perth house prices have fallen more than 15 per cent since 2013, with the city considered the most affordable of any Australian capital. Perth’s median property price of $450,000 is about five times the average salary, compared with a multiple of 10 in Sydney, where typical prices are almost $1 million.”

The Otago Daily Times in New Zealand. “John Maynard Keynes called it ‘animal spirits.’ It refers to the collective emotions that can drive markets. Endemic optimism or pessimism are the key culprits.”

“The Sydney housing market is experiencing the latter at present after years of riding the former. Median house prices have slumped by over 6% in the past year. The pace of decline appears to be accelerating. Auction clearance rates have fallen dramatically and there is a huge backlog of unsold properties. Vendors appear to be willing to take a hit in order to sell.”

“It is worth exploring the anatomy of this slump because it highlights a little appreciated aspect of the economic landscape that is applicable to New Zealand. Banks can get it horribly wrong in their lending practices and this has enormous implications for a society. Far more than any other industry in a modern economy.”

“The dirty little secret of modern economics is that private banks create most of the money in the economy. Most modern money is simply debits and credits in bank computer systems. During a housing boom, banks are collectively willing to lend more because the value of collateral is going up. People want to borrow more to climb on the rising housing ladder.”

“So the debits and credits in the banking system magically multiply. House prices rise, people are eager to borrow more, banks are eager to lend more, so house prices continue to rise. A self-fulfilling cycle emerges. But then the music stops.”

“At this stage, the cycle shifts into reverse. This is now playing out in Sydney and other housing hot spots in Australia.”

“As house prices start falling and houses become harder to sell, the banks take fright. They become less willing to lend. They are fearful of bad debts and the falling value of their collateral. Because there is less bank lending there are fewer buyers in the market. Because there are fewer buyers the prices of houses continue to fall. Vendors who are urgent to sell are forced to take a hit. As house prices continue to fall, banks are more reluctant to lend. A vicious downward spiral has emerged.”

“The key dynamic of the banking system that makes it unique from other industries is the ability to create credit. The deregulation of the finance sector in the past 40 years has unleashed this genie. A housing boom allows the banks to create more credit, which further fuels the boom, allowing more credit creation. Unfortunately, this process can prove very nasty in reverse. This is now playing out in Sydney and other parts of Australia. Let’s hope it’s not contagious.”

This Post Has 31 Comments
  1. ‘unreported results likely to see it fall into the 30s’

    This is a crash number in Australia. A year ago it would have been north of 70%.

    ‘The weekend turnover in Sydney totalled just $129 million in sales, well down on the near $600 million this time last year…Melbourne had $258 million in recorded weekend sales, compared to $826 million the same weekend last year’

    These statistics show how poorly the markets are fairing.

  2. ‘Perth house prices have fallen more than 15 per cent since 2013, with the city considered the most affordable of any Australian capital. Perth’s median property price of $450,000 is about five times the average salary, compared with a multiple of 10 in Sydney, where typical prices are almost $1 million’

    We’ve got some multiples like this in the US too. It’s all fun until somebody loses an eye.

    1. “We’ve got some multiples like this in the US too. It’s all fun until somebody loses an eye.”

      Or (door number two) it really becomes fun if you are positioned on the correct side of the loans.

      😁

      I’m not looking for them to losing an eye; I’m looking for them to lose their ass.

      Bahahahahahahahahahahahahahahahahahahaha.

  3. “So the debits and credits in the banking system magically multiply. House prices rise, people are eager to borrow more, banks are eager to lend more, so house prices continue to rise. A self-fulfilling cycle emerges. But then the music stops.”

    “At this $tage, the cycle $hifts into rever$e.”

    Which leads to an alternative HHB Title Introduction:

    Examining the home price collap$e and its effect$ on owner$, lender$, regulator$, realtor$ and World economies$ as a whole.

  4. “Negative equity is considered among the worst problems for households as they become trapped in unaffordable homes and are unable to pay the difference between the value of their home and the loan they took out to buy it. There are fears more could be plunged into negative equity if house prices continue to fall.”

    Throwing away money on rent is starting to look a lot smarter than buying into a housing bubble, ay, FBs?

  5. Is it my imagination or is Australia pretty similar to the US but just slightly a bit further down the curve. Events that evolve there might be a fair predictor of those coming here.

    Too be seen.

    1. That’s my impression as well. Note their market is tanking during the red hot summer sales season, as the seasons are reversed in Oz.

  6. Anecdote: I still have not heard a single person, in public, talk about the weak real estate market, and certainly not falling prices here in the US. My guess is that the majority of people still have no idea.

    1. I had a young California couple move into a property I manage about 5 months ago. They had been looking to buy something but volunteered that prices were falling “even in California”. The husband had been on a corporate visit to Seattle and said prices were falling up there too.

      1. A colleague of mine just fired his realtor because his place has been listed for more than three months without a single offer and only three showings. He seems completely unaware (or in denial) that there has been a downturn in the housing market in Kansas City (where his house is for sale) and thinks she’s just not trying hard enough.

        1. Lemme guess, she is dead set on that “my neighbor got x dollar” price, not willing to lower and has the self entitlement to get her said price…

      2. This reminds me of a potential negative consequence for renters of falling home prices, which is temporarily inflated rents, thanks to would-be buyers instead renting, while trying to avoid catching themselves falling knives.

  7. I have noticed a,downturn in listings in one area I watch closely. This is not to say that sales have picked up. Upon closer look I discovered increases in listing cancellations and expirations. These properties sat on market forever before being pulled. We are around a month into our season here and I think they finally just gave up. Can’t blame that one on the realtors, other than to question why they would take on obviously over priced listings.

    1. I’m with you there jdog. I have made it a habit to watch daily. I save or “heart” listings and have been watching them either sit or get pulled off and relisted later. I just noticed one recently and shared it on here. The listing now starts with “buyers quit…”. I have seen listings sell which is unfortunate for the FB but they are far and few between. All I can say is that the downward trend I have been watching has only been ramping up here. People, including realtors, I talk to have gone from being clueless to accepting that the market is actually shifting although the interest rate hikes is usually what they have blamed. It’s a good time to be sitting on the sidelines 😉

  8. I saw that one on the earlier post. Nothing fancy, just “Buyers quit’ short and sweet I guess.

    I am watching a target area because it is where I grew up and would like to return. It is a barrier island and prices have become absurd, especially for waterfront. In Florida in our area, I have noticed both in the last downturn and subsequent recovery, the luxury market moved first and most rapidly. This is OK if you are moving up. Even if all properties go down 15 to 20%, would be happy to loose that much of existing value in my place in exchange for a waterfront island house that is down 20%. Would come out way ahead.

    As much as we grill realtors here, I find the good ones will talk straight to you, especially if they have been around. I have had a couple discussions with some and words were not minced. They know what is happening and several mls properties have sellers who are agents. It is frustrating for agents to have unrealistic sellers.

    1. “It is frustrating for agents to have unrealistic sellers”. Long as the agent doesn’t set the expectation of the dream price… I do agree not all realtors are out to mislead sellers or buyers but the majority that do can alter ones bias towards the mass of them. I personally know a realtor who has been telling me to continue waiting to buy as is he and his wife. He went through the last bubble and has said the same thing we hear on the HBB about how this time it could be much worse.

  9. Accidental landlords — an unwelcome consequence of the housing market shock
    By Andrea Riquier
    Published: Nov 30, 2018 4:48 p.m. ET
    Unsettled markets — housing and job — have left many Americans in a role they never thought they’d have: landlord
    Issi and Amy Romem
    Amy and Issi Romem’s young children love the outdoor space at their new home. They may never know how much effort it took for their parents to secure it for them.

    During the bubble years of the mid-2000s, Americans were encouraged, often inappropriately, to become homeowners. As prices spiraled unsustainably higher, buyers — and lenders — stretched even more to reach that goal.

    Then it all came crashing down.

    Prices dropped about 40% nationwide, lenders stopped lending and mortgage companies stopped answering the phone when distressed homeowners called. In the deep recession that followed the market shock, millions of jobs and trillions of dollars of housing wealth disappeared. America, the land of opportunity and mobility, was suddenly stagnant and uncooperative.

    In the midst of it all, many Americans made decisions and accommodations that they might never have considered otherwise. One small representation of that is what you might call the rise of the “accidental landlord.”

    For some that meant a mortgage from the market’s peak became unaffordable. For others, it has meant being stuck on the property ladder, unable to climb. It’s not clear if this financial crisis left more people in the position of owning a home and needing to unexpectedly rent it out than in past periods, but there are good reasons to think that the lack of dynamism in the economy, now a decade past the 2007-2009 crisis, has left a mark.

  10. Who is the FB of last resort for Bitcoin? What an excellent question!

    I guess by definition, that would also be the greatest fool.

    RE: “True believers are betting on a simple repeat of past asset bubbles, like dot-com stocks or real estate: a system-wide cleansing of bad actors before the roller-coaster ride begins anew.”

    Apparently these idiots suffer collective amnesia about the fate of bubble assets with litlle or no fundamental value, like tulip bulbs, Beanie Babies and Pets.com stock shares.

    In short, during the completion of the bubble collapse process, the price eventually goes to $0, never again to recover.

    It’s also good to bear in mind that Bitcoin is not actually a currency, deceptive nomenclature notwithstanding to the contrary.

    Markets
    Bitcoin’s Crash Looks Like a Real Currency Crisis
    In a virtual world without a central bank, who is the buyer of last resort?
    By Lionel Laurent
    November 26, 2018, 10:00 PM PST
    Bitcoins. Photographer: Dan Kitwood/Getty Images Europe
    Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.

    Bitcoin is in crisis. You can never really declare it dead — the idea of an electronic currency that is theoretically borderless and lawless will always live on somewhere — but its price has slumped 80 percent in less than a year, wiping about $700 billion off cryptocurrency markets.

    Where does it go from here? True believers are betting on a simple repeat of past asset bubbles, like dot-com stocks or real estate: a system-wide cleansing of bad actors before the roller-coaster ride begins anew. On that argument there’s a price for everything, even niche assets with no intrinsic value. Maybe Bitcoin should be above $3,700.

    But the virtual currency’s behavior since the start of the year doesn’t just look like a bubble bursting; it looks more like a currency under attack. Most of the price collapse happened between December and February, falling from almost $19,000 to about $7,000. Until this month, the $6,000-to-$7,000 range seemed unbreakable. There was a floor in the price — until it caved.

    https://www.bloomberg.com/opinion/articles/2018-11-27/bitcoin-crash-is-a-real-currency-crisis

    1. “True believer$ are betting on a simple repeat of past a$$et bubble$ …”

      Echo, rhymes$ or Deja vu? … “True Believer$,” $ounds like a cult

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