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They Were Not Aware Of What Was Coming, Like A Lot Of People Who Are In The Same Boat

A report from the Sydney Morning Herald in Australia. “It’s probably fair to say that Sydney house prices have now officially fallen over the cliff and Melbourne looks to be not too far behind. It has taken almost 18 months for the decline to move into overdrive but we are now getting alarmingly close to record-hitting territory. On selected parts of Sydney (Ryde) and Melbourne (inner east), for example, the falls have been between 11.5 and 12.1 per cent. These numbers are head-spinning.”

“Property analytics group CoreLogic paints a picture of a market that has changed radically over the past 18 months. According to its head of research Tim Lawless, ‘the rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic’s vendor metrics, with clearance rates tracking in the low 40 per cent range while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have over recent years.'”

From Ten Daily. “‘We’ve recently seen small and steady declines but this month nationally, the 0.7 percent fall is the biggest monthly since November 2008, which was late in the global financial crisis,’ Cameron Kusher, head of CoreLogic research, told 10 daily. ‘The 1.4 percent drop in Sydney was the biggest monthly fall since early 2004.'”

“Dr Chris Martin, of the University of NSW’s City Futures Research Centre said government policy settings such as negative gearing had made investing in property a very attractive and profitable proposition, and led to vast sums of money flooding the market, and people borrowing large amounts to secure their place in the housing boom.”

“‘The devotion to prices go to show we’ve got a problem with housing speculation, that’s been the driver of house price growth,’ Martin said. ‘These things are watched so anxiously because so many people have borrowed world-beating amounts of money to throw at housing in the hope someone else will come later and borrow even more and spend even more, to pay off the cost of that bet.'”

“‘It has meant that not only investors but also owner-occupiers are buying with an eye on what prices are going to do. They’ve become speculators too, and prices have been rampant and increased very rapidly,’ he said. ‘The other side of that is that people are anxious about the prospect of future increases, so if they stop buying, prices can go down rapidly as well.'”

The Australian Financial Review. “Buyers in the business of flipping houses are starting to come unstuck with many finding they have mistimed the market and now face substantial losses. In the past two years a buyer frenzy across Sydney saw old houses ripe for renovation being snapped up for inflated prices by investors hoping to make a tidy profit after a quick makeover.”

“But prices have now fallen 9.5 per cent since they peaked in July 2017 and those who bought and renovated just as the market turned are now facing problems when they go to sell”

“‘Now is not the time to be flipping,’ director at Ray White Surry Hills Ercan Ersan said. ‘Last year there was a real fear of missing out, there was a sense the market would keep going up and up, but, whether it’s shares, property or cash itself, markets fluctuate.'”

“One property currently listed for sale is a small three-bedroom terrace in Newtown that last sold in October 2017 for $1.3 million after 15 days on the market. A year on and despite being ‘completely transformed.’ the newly-renovated cottage is being marketed at $1.225 million, after 84 days on the market.”

“With an estimated stamp duty bill of about $60,000 and a conservative $50,000 makeover budget, the owner is likely to lose at least $185,000 if they sell at the current advertised price.”

“Selling agent Darren Pearce, of BresicWhitney, said the vendors had renovated several other properties around Sydney but had been caught out in the current market.”

“‘Unfortunately we’ve had to go through this journey – obviously they aren’t happy,’ Mr Pearce said. ‘They’ve been good at [buying and renovating properties] but they were not aware of what was coming, like a lot of people who are in the same boat.'”

“Across town in the Sydney’s eastern suburbs a three-bedroom apartment in Rose Bay that sold for $1.525 million in September 2016 is now back on the market, after a lick of paint, for $1.39 million. After paying an estimated $70,000 on stamp duty, and extra on cosmetic changes, the owners are likely to lose more than $300,000, if they sell at the currently-advertised price.”

This Post Has 47 Comments
  1. ‘It has meant that not only investors but also owner-occupiers are buying with an eye on what prices are going to do. They’ve become speculators too’

    Yep.

    1. after a lick of paint…the owners are likely to lose more than $300,000

      The origin of the game Musical Chairs is obscure, but may date back to the time of the Crusades.

  2. “…government policy settings such as negative gearing had made investing in property a very attractive and profitable proposition, and led to vast sums of money flooding the market, and people borrowing large amounts to secure their place in the housing boom.”

    Luckily that could never come to pass here in Republican-controlled America.

    Could it!?

    1. Are My Property Taxes Still Deductible in 2018? — The Motley Fool
      https://www.fool.com/taxes/2018/…/are-my-property-taxes-still-deductible-in-2018.as…

      Aug 2, 2018 – You live in a high-tax state, and you paid property taxes of $12,000 and state income tax of $18,000 in 2018. Because of the reduced SALT deduction, even though you paid $30,000 in state and local taxes, only $10,000 of this amount is deductible.

      1. If you live in California, it’s a good time to rent and not have to pay property taxes. Given how irrationally exuberant home prices here have once again become, it’s likely going to take a long time for home purchase prices to come down sufficiently to equilibrate with the increased property taxes.

      2. Link broken 🙁

        Still, looks like the rule change was designed to hit the coasts the hardest.. imagine that… I wonder who lives there…

      3. So that’s $20k that’s no longer deductible at let’s say 35% tax bracket. That works out to $7k per year or $580/month. On a $600k house that’s similar to 1.5% jump in interest rates. And we all saw what a 1% increase can do. Also keep in mind that this will be impacting people who already own, not just new buyers that haven’t locked in a payment.

    2. Republican-controlled America.

      I see “Resist” stickers on cars around here, today on a vehicle with county plates. I wish they would be more specific. Kind of like “Remember” without saying the Alamo.

  3. ““‘Now is not the time to be flipping,’ director at Ray White Surry Hills Ercan Ersan said. ‘Last year there was a real fear of missing out, there was a sense the market would keep going up and up, but, whether it’s shares, property or cash itself, markets fluctuate.’”

    “One property currently listed for sale is a small three-bedroom terrace in Newtown that last sold in October 2017 for $1.3 million after 15 days on the market. A year on and despite being ‘completely transformed.’ the newly-renovated cottage is being marketed at $1.225 million, after 84 days on the market.”

    “With an estimated stamp duty bill of about $60,000 and a conservative $50,000 makeover budget, the owner is likely to lose at least $185,000 if they sell at the current advertised price.”

    “Selling agent Darren Pearce, of BresicWhitney, said the vendors had renovated several other properties around Sydney but had been caught out in the current market.”

    “‘Unfortunately we’ve had to go through this journey – obviously they aren’t happy,’ Mr Pearce said. ‘They’ve been good at [buying and renovating properties] but they were not aware of what was coming, like a lot of people who are in the same boat.’””

    Stories like this warm my heart. These “flippers” are an absolute cancer upon the face of the housing market. Such a thing should never even exist.

    What I really don’t understand either are the buyers who were purchasing these flipped properties after they were complete, for a massively higher price. One of the first things I do when I buy a house is look when it was last purchased, and for how much.

    Also, an appraisal is in order. Historically, remodels return pennies on the dollar. There is all sorts of fraud going on because appraisers should never have approved the resales.

    1. appraisers should never have approved the resales.

      An appraiser is just a consultant. They shouldn’t “approve” sales. Consultants usually give the advice that will be paid for.

      1. It was a poorly written sentence. I should have said “appraisers’ values should have never supported the sale price.”

        1. Not sure if you saw the news recently, but major regulatory bodies in the US (US Fed board of governors, OCC, and FDIC) are pushing to raise the threshold to $400k for the amount that of a house sale the is required to get an appraisal. The current threshold is $250k. I can’t quite decide if this is a good thing or a bad thing. On the one hand, since a lot of appraisals are bunk anyway, I guess might as well save the $500. Some data jockey in India will now use Zillow-like price algorithm data and spit something out. I reckon that this process is likely to be about as accurate as many appraisals.

          1. I had to get an appraisal to get my PMI finally removed, and they sent someone in person, who walked the whole house and the property.

            I didn’t realize there was a $250K threshold for requiring an appraisal. So does that mean I can take out a $150K mortgage for a trashed $75Kish house and the bank wouldn’t be the wiser until the bank foreclosed and tried to sell?

          2. I can take out a $150K mortgage

            All mortgages being sold to or backed by the Feds need an appraisal I believe. To get a bogus mortgage without an appraisal you need to find a stupid lender who will hold the mortgage.

            After four years and a rising market you finally have 20% equity. Congratulations. Fortunately, if the market drops 40% again (or much more) there will be no margin call.

  4. After paying an estimated $70,000 on stamp duty, and extra on cosmetic changes, the owners are likely to lose more than $300,000, if they sell at the currently-advertised price.”

    I love the smell of burning speculators in the morning. It smells like…victory.

    1. Lots o’burning going on…

      ******

      “With an estimated stamp duty bill of about $60,000 and a conservative $50,000 makeover budget, the owner is likely to lose at least $185,000 if they sell at the current advertised price.”

    1. “The Bay Area housing market is showing signs of a top. Next comes downward momentum in prices, which could occur as early as Spring 2019, that is when the real panic could set in.”

      Looking forward to spring break 2019 🙂

      1. There are two townhouses for sale in our complex, been up for sale for months. Last year even 6 months ago both would have been under contract in weeks. The demand tap has been turned off. We have normal seasonality as well. I saw my first “price reduced’ sign. Haven’t seen that in years. The bottom is 2-3 years out so don’t get too excited.

          1. I would expect it to take at least five years to unravel, and that’s in the absense of extraordinary accommodation that was used to reflate the Housing Bubble circa 2013. If the Fed comes back with more rounds of Quantitative Easing, all bets are off.

        1. “The bottom is 2-3 years out so don’t get too excited”

          If that’s what it takes I’ll wait 2-3 years no problem. I’ll be enjoying the panic on the way down during those 2-3 said years 😉

  5. The Treasury yield curve is starting to flash early warning signs of recession, just as US housing prices are beginning to drop in markets formerly referred to as red hot. It seems like a perfect storm is brewing for a truly epic housing market meltdown.

    Key yield curve hits flattest in 11 years; 3-year and 5-year note invert for first time since 2007
    By Sunny Oh
    Published: Dec 3, 2018 4:35 p.m. ET
    3-year and 5-year note inverts for first time since 2007

    Bond investors are anticipating an increasingly dark landscape for the U.S. economy amid global growth headwinds, higher interest rates and the potential for a full-blown trade war.

    Against that backdrop, the yield curve’s slope, measured by the spread between short-dated and long-dated yields, are closing in on a so-called inversion.

    That is because a flat yield curve currently reflects investors’ fears that the broader economy is succumbing to tighter financial conditions as the Federal Reserve pushes up interest rates. The central bank is projected to raise rates by another quarter-percentage point in December, even as investors are uncertain if the central bank will slow down its hiking path.

    An inversion implies investors are selling short-dated bonds at a brisker pace than their long-dated counterparts. Bond prices rise as yields fall.

    On Monday, the spread between the 2-year note (TMUBMUSD02Y, -0.43%) and the 10-year (TMUBMUSD10Y, -0.95%) narrowed 4 basis points to 0.16 percentage point on Monday, its flattest levels since July 2007.

    When triggered, this bond market indicator has been an accurate predictor of recessions, though the timing between an inversion and an economic downturn can vary from six months to as much as two years, strategists have said.

  6. Is Mr Market overdue for a proverbial 100 year flood?

    Home
    Investing
    Stocks
    Outside the Box
    Opinion: Elliott Wave theory suggests an unsettling event will occur in the stock market
    By Avi Gilburt
    Published: Dec 3, 2018 11:13 a.m. ET
    We’re due for a prolonged bear market

    I often read articles, along with the comments, to gauge the stock market’s sentiment from an anecdotal perspective. I recently noticed a quote by investor Sir John Templeton:

    “For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers, and many individual investors too, made money in stocks, especially those of smaller companies.

    “There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up. As national economies become more integrated and interdependent, as communication becomes easier and cheaper, business is likely to boom. Trade and travel will grow. Wealth will increase. And stock prices should rise accordingly.”

    This is certainly an appropriate assessment of the past 100 years. But what happens if we are now approaching an event that we only experience once in a hundred years?

      1. There is nothing new under the sun.

        “This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for non-existing capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.” – Ludwig von Mises – 1952

        1. By the late 50s, it was unraveling. I have an elderly friend who once told me that he got a house in San Diego for cheap when he was starting out as a young man…back in 1959!

    1. Toll Brothers stock dives after disappointing guidance; CEO blames media for housing slowdown

      Right. Because the media has been so forthright when it comes to covering the bursting housing bubble.

    2. What a tool, unless by “media” he means the HBB blog?
      How about loss of State and local tax deduction? How about interest rates going up by 50% or so? How about Asian demand evaporating? How about mass deportation affecting demand amongst families with some undocumented members. I can think of a lot more factors affecting demand than a news article explaining to the public what has already happened.

  7. Did you get duped into buying stocks to participate in the Santa Claus rally, only to discover that Santa isn’t real?

    1. Merry Christmas to Wall Street permabulls from the Fed!

      Fed warns that a ‘particularly large’ plunge in market prices is possible if risks materialize
      – The Federal issues a cautionary note about risks to financial stability.
      – It says trade tensions, geopolitical uncertainty and a buildup in corporate debt among firms with weak balance sheets pose strong threats.
      Jeff Cox
      Published 10:00 AM ET Wed, 28 Nov 2018 Updated 2:17 PM ET Wed, 28 Nov 2018

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