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They Just Thought It Was Going To Go Up As Far As The Eye Could See

A report from Domain News in Australia. “Sydneysiders who snapped up off-the-plan apartments at the peak of the property boom are now short-changed, with banks valuing their properties well below the agreed price.”

 “Buyers unable to borrow the required amount to settle on their apartment are being forced to turn to friends and family, take out personal loans or even sell off assets to bridge the gap between what banks will now lend them off the back of lower property valuations and what they need to pay.”

“First-home buyers and investors were most likely to be affected, according to BIS Oxford Economics’ head of residential research Angie Zigomanis. ‘The bank might use the equity in the [family] home to cover the shortfall,’ said Mr Zigomanis. ‘It’s going to be challenging to have a valuation above your purchase price if you bought in 2017.'”

“The proportion of buyers unable to settle has almost doubled due to tighter lending restrictions, according to Dennis Vertzayias, national director for residential at Colliers International.”

“‘These buyers are not [as] emotionally invested … they’re prepared to walk away and lose their 10 per cent deposit [if they can’t get finance],’ said Mr Vertzayias, adding that multiple external factors had seen settlement defaults climb to 20 per cent.”

“He said those affected, mostly foreign buyers, would lose their deposit and, in some rare cases, be liable to cover any price differential if the property resold at a loss. More than 14 per cent of Sydney apartment owners’ resales are at a loss, a rise from 11 per cent in the past 18 months, according to CoreLogic research. Meanwhile, the number of off-the-plan apartments valued at a lower price jumped from 11 per cent in April last year to 30 per cent in September.”

“‘We’ve had valuations that have fallen short about $60,000, or about a 5 per cent difference,’ said Capio Property Group chief executive Mark Bainey. ‘Everyone has been able to settle. ‘[But] I’ve heard of other developments … where they’ve come in $100,000 or $150,000 lower … that’s where you can see problems.'”

From News.com.au. “As the housing market cools, sellers are having to splash out tens of thousands of dollars on renovations to make their homes look brand new to appeal to ‘picky’ buyers. Raine & Horne luxury sales agent Matthew Mifsud said in a slowing market, if the property ‘doesn’t stand out the buyers won’t even come.’ Falling prices have brought out ‘bargain hunters’ who are looking for discounts of up to 5 per cent.”

“Century 21 sales executive Joanne Dai said a lot of the larger developments were slowing down as the housing market cooled. ‘It’s become more competitive, you can negotiate. Before it was, ‘This is it, take it or leave it.’ She added: ‘I don’t know how much of a silver lining it is.'”


From ABC News. “As house prices continue their downward trajectory on the eastern seaboard, property owners across the Nullarbor are watching on with interest. Perth is more than four years into a housing downturn that is yet to bottom out after median house prices peaked at $585,000 in November 2014, according to Landgate figures.”

“As panicked owner-occupiers and property investors in Sydney and Melbourne try to predict what will happen from here, real estate observers and economists say the WA market may provide some clues.”

“The reality is that Sydney has further to fall than Perth did, according to Bankwest chief economist Alan Langford. ‘If you get that far out of kilter with incomes, you’re going to have a steep fall,’ he said.”

“In Perth, even after four years the decline in market sentiment has yet to reverse course, plunging to new depths in housing data released this week.”

“There doesn’t seem to be any perception amongst anybody out there in the market, generally, that they’re going to make any substantial capital gains, if any at all,’ said Real Estate Institute of Western Australia president Damian Collins ‘Whereas you go back 18 months ago, in Sydney and Melbourne, there was the exact opposite. They just thought it was going to go up 15 per cent per annum as far as the eye could see.'”

The Sydney Morning Herald. “Australia’s house price slump has sent a chill through a swathe of the economy and threatens to inflict more damage if it prompts already cautious consumers to further cut down on spending.”

“With the prospect of the biggest fall in Sydney house prices since the 1990s, more than $9 billion has been wiped off the combined market values of seven of the country’s largest building suppliers since June (from about $39 billion to $30 billion).”

“Ratings agency Moody’s warned this week that a prolonged weakening of house prices would create a ‘negative wealth effect’ on spending. ‘The consumer is the majority of GDP,’ said JP Morgan senior economist Ben Jarman.”












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This Post Has 41 Comments

  1. ‘He said those affected, mostly foreign buyers, would lose their deposit’

    So much for the all cash Chinese buyers.

    1. There are no foreign buyers/money. Maybe less than 5% of total transactions.

      But enough to scare the FB’s in buying things they can’t afford. Amerika, what a fukushima!

  3. “Buyers unable to borrow the required amount to settle on their apartment are being forced to turn to friends and family, take out personal loans or even sell off assets to bridge the gap between what banks will now lend them off the back of lower property valuations and what they need to pay.”

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

  4. ‘Whereas you go back 18 months ago, in Sydney and Melbourne, there was the exact opposite. They just thought it was going to go up 15 per cent per annum as far as the eye could see’

    Clearly thinking 15% is indefinitely in the bag was irrational. And to go from unreasonable exuberance to panic in a brief time has bubble written all over it.

    1. bargain hunters’ who are looking for discounts of up to 5 per cent.”

      5%. OK, reality creeps in slowly. Move the decimal point over to 50% and you will be a little closer to reality.

      1. Especially for the trac shacks for 500K and the mobile fake outs made to look like trac shacks for 470K in Seattle. Don’t be fooled by the stylish “Peppercorn” paint, the crisp white trim on that particle board mill work glued on, or those re-painted cottage doors.

      2. ‘Everyone has been able to settle. ‘[But] I’ve heard of other developments … where they’ve come in $100,000 or $150,000 lower … that’s where you can see problems.’”

        The 5% they speak of is an “outlier” area, look at Sydney, Melbourne, or any area in AUS where the frenzy was most pronounced. We have read in previous posts of much higher % declines in The AUSTRALIA RE. Remember the Chris and Brad Kerr who’s home went to auction and had one bid for 800k less than the 2.4m previous asking.

        “‘Yes we are heartbroken,’ Mr Kerr said. ‘We expected to get something more reasonable than this. This is garbage.’”

        http://housingbubble.blog/?p=363

  5. We are next. The headlines progression is so similar.

    What is surprising is the rate that the headlines are changing. Prices will, and are, changing slowly in many areas but slowing sales will hasten markdowns. Take a picture now because things will look different 60 days from now. Just ask those in Australia.

    1. +1 the US RE snowball is building up much quicker than I thought it would. I think we will see it really gain speed after the 2019 tax season

    2. I looked on zillow at my old hood in coastal north san diego county. Total dumps on a really bad street (right up against the I-5 and the constant noise, sometimes deafening) are going in the 700s. These are nearly 50 year old places, just dumps. Huge commute if you have to go anywhere virtually any time of the day. Whats interesting is all the moon shot prices came this year – just as rates are rising and sales slowing. When I sold 15 years ago the top was marked by fraud – a buyer overpaid – probably cash back and never moved in. Curious if the same thing is going on now.

      Anyway, I’m calling for at least a 30% decline in dumps like that. I cant imagine anyone with an IQ greater than their shoe size buying any of those places. Completely nondescript places farther away from the freeway are going in the 800s. Just over 20 years ago they were in the low 200s. Think about that insanity. Those places arent worth 250 to me – so many better places. Fools and their money!

  6. ‘It’s going to be challenging to have a valuation above your purchase price if you bought in 2017.’

    The poor, poor HODLers…

  7. ‘If you get that far out of kilter with incomes, you’re going to have a steep fall,’

    Californians, read the handwriting on the wall.

    1. Yep…

      Where the House-Price-to-Income Ratio Is Most Out of Whack
      Richard Florida
      May 29, 2018
      The rule of thumb is that the cost of your house should equal roughly 2.6 years of income. But in some U.S. cities, home prices are almost 10 times what the median household earns.
      …
      Least Affordable Metros
      Metro Years of Median Household Income to Buy Median Home
      Los Angeles, CA 9.6
      San Jose, CA 9.5
      San Francisco, CA 9.2
      San Diego, CA 7.9
      Honolulu, HI 7.6
      Ventura, CA 7.2
      Sacramento, CA 5.9
      Stockton, CA 5.9
      Riverside, CA 5.9
      Portland, OR 5.6
      Seattle, WA 5.6
      New York, NY 5.4
      Fresno, CA 5.4
      Denver, CO 5.4
      …

      1. California seems to be populating that list… need us some of that a good ole housing Ebola to set things straight and get back to reality

        2. Two Utah areas on that list don’t surprise me: Provo and Salt Lake City. Utah is being overrun with CA equity locusts. Hopefully the trend starts to reverse itself in the next year or so.

          1. it Is truly spreading like a plague. People I talk to that are sick of the prices here often talk about Oregon, Utah, Colorado, Nevada as places to move. The real epicenter of this isn’t necessarily a geographical location rather a infestation from foreign money and then the local ones caught in the middle of it all. I think the latter are a lower percentage of this mania but still part of the problem as a whole

      3. Stockton, Fresno? LOL
        And they say it’s not a bubble.

        Eevrytown USA is in massive housing bubble. End of discussion.

  9. Bahahahahahaha … totally dumb down a population and this is what you will get to harvest …

    “They just thought it was going to go up 15 per cent per annum as far as the eye could see.’”

  11. Knife-catchers beware.

    “The worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few people as possible escape the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another.

    In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall. Even the man who waited for volume of trading to return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next 24 months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.”

    John Kenneth Galbraith, The Great Crash of 1929

    1. “Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few people as possible escape the common misfortune.”

      Brings to mind the slow boil of the Bitcoin meltdown…plenty of chances for more HODLers to buy the dip, only to get scalded…

    2. “The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall.”

      Sounds like there were an unlimited number of knifecatchers back in 1929. But I disagree with Galbraith’s portrayal of them as victims. My grandfather, who was a country English teacher of modest means, made himself a small fortune buying stock shares that were dumped by wreckless gamblers who bought on margin, then dumped them in the inevitable crash. There is no God-given right to borrow yourself into riches.

      1. The stock market bubble is absolutely eye-popping. Until it gets down below 10,000 it is hard to imagine any bargain hunting.

        1. I doubt they will let it happen. Especially with the president we have. He will make sure it’s the FED…..rightly so, too.

          Fun times ahead.

          1. I doubt they will let it happen.

            Market forces and true price discovery are always going to re-assert themselves at some point. The Fed can defer the financial reckoning day with its money-printing and artificially low interest rates, as they’ve done since 2009, but that only makes the eventual reckoning that much worse.

    3. Not to worry…this time is different.

      Business
      Stock markets tumble on worries over trade, fear of economic slowdown
      By John C. Roper, Staff writer Dec. 7, 2018
      Stocks took a beating this week. Photo: Richard Drew, STF / Associated Press

      The facade of the New York Stock Exchange. Stock markets turned lower Friday, capping a fretful week for investors.Photo: Richard Drew, STF / Associated Press

      Stocks took a beating this week.Photo: Mark Lennihan, STF / Associated Press

      Stocks tumbled again Friday, capping a fretful week for investors who are concerned about U.S.-China trade relations, a jobs report that fell short of expectations, and the potential for a global economic slowdown.

      Major stock indexes fell by 4 percent in a week that saw the Dow Jones Industrial Average plunge nearly 800 points on Tuesday and 550 points on Friday as it neared what analyst call a correction — when stocks decline by 10 percent or more from their peak. The Dow is down 9 percent from its recent peak of 26,828 reached Oct. 3.
      …

  13. The great thing about being wealthy and powerful is that you can totally miss on your predictions, yet never need apologize, especially if all your peers agreed.

    2,592 views|Dec 7, 2018,12:01 pm
    Surprise! The Late-Year Bond Rally
    Nathan Vardi, Forbes Staff
    Hedge Funds & Private Equity
    Following the money trail
    Fed Chair Jerome Powell Discusses Monitoring Financial Stability In NYC
    Getty Images

    In August, Jamie Dimon, CEO of JPMorgan Chase & Co. and the nation’s most prominent banker, predicted the yield on the benchmark 10-year Treasury note could reach 4% in 2018. He cautioned investors to prepare for 5% or higher.

    Dimon’s call was not a contrarian one. It had become conventional wisdom on Wall Street that rates were headed higher and that the Federal Reserve would be tightening monetary policy for the foreseeable future.

    Jeffrey Gundlach, the billionaire bond king who predicted the yield on the 10-year Treasury would hit 6% in 2020, said in October as rates were spiking that the 10-year yield was in the middle of its move upward and would soon reach 3.6%.

    In 2018, the biggest billionaire names in bond market investing over the last 30 years all echoed this sentiment. Ray Dalio was talking about the potential for the largest bear market in bonds in nearly 30 years. Bill Gross and Paul Tudor Jones forecasted that bonds would plunge.

    The point is not to pounce on the predictions of prominent money managers, but to illustrate how prevalent the idea was on Wall Street that yields were set to rise. It might also explain the speed at which this narrative has reversed and a bond rally emerged at the end of 2018.

    It seems like a lot of big market players—like sovereign wealth funds and other institutional investors—were waiting for yields to rise before making their bond purchases and are finding themselves drastically underweight U.S. Treasuries. Have some of them been buying?
    …
    Not many on Wall Street were calling for the yield on the 10-year Treasury note to be at 2.85% in December, but that is where it settled on Friday. Some still can’t believe it. Dimon said on Wednesday that “the 10-year should already be at 4%.” The Federal Reserve is still expected to raise rates again later this month. But some might start joking that Powell is going ahead with the December rate hike to assert Fed independence and to not appear to be following the orders of President Trump.

  14. i know that we are talking about residential property mostly … but there are some even more scary stuff that will make this even worse.

    https://www.sovereignman.com/trends/i-thought-this-deal-was-absurd-but-pensions-are-piling-in-24351/

    Calstrs, one of the largest pension funds in the US, has allocated $5.7 billion to opportunistic real estate. And they think they’re going to make 13% to 30% on these investments (compared to 6% to 9% with traditional real estate).
    What could possibly go wrong here?

    Remember, pension funds are supposed to be some of the most conservative investors on the planet. Millions of people rely on them to make prudent investments to provide them with a decent income in retirement, not to make large, risky bets hoping for outsized returns.
    But pensions are desperate. And they’re swinging for the fences just to make ends meet.

    Pensions have nearly doubled their allocation to real estate since 2006 (investing an extra $120 billion into the sector).
    But a certain type of real estate investment called “opportunistic investments” has grown sixfold over the same period.
    “Opportunistic investments” is just a fancy term for being a real estate developer. In other words, pension funds are basically building spec properties now.
    At least with a normal real estate investment, the funds can buy an asset and earn a reliable income stream. But now they’re buying speculative land, developing it (often taking on debt to do so) and hoping to flip it to someone at a higher price somewhere down the line.

    1. “Remember, pension funds are supposed to be some of the most conservative investors on the planet.”

      Remember two things about those pukes who manage pension funds:

      1. The hefty fees they get to collect from managing money is from money that belongs to somebody else.

      2. If things go wrong, hey, it isn’t their money.

      The incentives are skewed.

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