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We Are Seeing Some Wealth Destruction

A report from News.com.au in Australia. “Experts have been left stunned after Aussie house prices plunged at ‘the fastest rate of decline ever seen.’ And there’s more pain to come. ‘If you had asked me in September last year I probably would have been surprised to see Sydney and Melbourne values down more than 4 per cent over the rolling quarter,’ said CoreLogic head of research Tim Lawless. ‘We have seen the downturn accelerate over the last three months. At 4 per cent down in Melbourne that’s the fastest rate of decline we’ve ever seen of any rolling three-month period, and Sydney is virtually (the fastest outside) a really brief period in the ‘80s.'”

“He conceded that ‘we are seeing some wealth destruction.’ CoreLogic now forecasts total declines in Sydney and Melbourne of 18-20 per cent, but notes that comes after prices rose nearly 80 per cent and 60 per cent respectively. ‘Most homeowners would still have a great deal of equity in their properties,’ he said. ‘It’s really just those owners that have bought in the last couple of years that are facing the prospect of negative equity.'”

From WA Today. “Scores of apartments in a multimillion-dollar Sydney complex will be sold in one line by receivers after the project’s developer fell victim to Australia’s property slump. In a further sign of cracks in the apartment market, receivers and managers Newpoint Advisory are selling 61 units in the just-completed, multi-storey Elysee project in Epping in Sydney’s north-west.”

“A one bedroom apartment in Elysee was selling for up to $788,000 and two bedroom units were going for $1.08 million before the project fell over. The apartment fire sale follows Sydney and Melbourne being branded the worst performing housing markets in the country.”

“The country’s largest property players face an escalating risk of buyers failing to pay at settlement time because of falling apartment and land prices, analysts say. ‘We see Mirvac as most at risk followed by Lendlease and Stockland,’ UBS analysts Grant McCasker and James Druce said. The most at risk projects are in Sydney’s Marrickville and Olympic Park which ‘appear already out of the money’ because Sydney’s apartment price index has fallen 5 per cent since launch, the analysts said.”

From the Daily Mail “Up to 50 per cent of home loan applications are being rejected by the big banks, with the availability of credit likely to be even further restricted in the coming weeks. Ray White deputy chairman Sam White said the banking royal commission, sparked in part by irresponsible lending, has created such uncertainly within the sector even credit teams were unsure whether to approve or reject loan applications.”

“‘There’s no upside in saying yes, only downside, so it’s easier to say no,’ he told The Australian.   ‘For most of the major lender­s – the big four banks – the decline rates would be above 40 per cent at the moment… Even in the GFC, it was nothing like this.'”

This Post Has 66 Comments
    1. Lived there and sold right as bubble 1.0 burst. The stats dont lie – lots of greedheads heading to the exit at the same time. Some of those recent listings arent worth 1/3 of the ask IMO.

      Sad, used to be a cool place 20 years ago. I was just at a potluck last night talking to someone who lived in LA years ago but left because it was unaffordable. I made the point that IMO even if you can afford it the quality of life can still be pretty low. Too many crabby people, too much traffic, taxes way too high, etc.

  1. ‘Even in the GFC, it was nothing like this’

    For those who don’t know, the GFC is what the Australian media call the “great financial crisis.” The GFC was caused, in Australian mythology, entirely by the US subprime crash. See, they never, ever had a housing bubble in Australia by their accounts, and to this day you will almost never see the B word mentioned.

    But when they invoke the GFC, it’s understood things are getting crashy.

    1. So the Aussies blame the USA for their previous house price crash? That’s quite bizarre. Human beings are more stupid than I ever imagined.

  2. ‘The most at risk projects are in Sydney’s Marrickville and Olympic Park which ‘appear already out of the money’ because Sydney’s apartment price index has fallen 5 per cent since launch’

    5% and they are fooked. This is why when you see student towers in the US at 75% occupancy, they are bankrupt. All of their profit and then some is gone. These guys were “chasing yield” don’t ya know!

    1. “….student towers in the US at 75% occupancy…”

      “luxury” student housing in all it forms has just got to be one of the greatest scams ever devised.

      What makes the situation particularly hideous is that many students pay for all this unnecessary excess with borrowed money, some non-dischargeable.

      1. Looking back, living away from home without any responsibilities was pretty luxurious even in a dorm room with two roommates.

        1. Hearing “Take me back, take me back, take me back to those good old days” in my head. Hwy will appreciate that one!

  3. ‘we are seeing some wealth destruction’

    Central banks may do more harm than good, says head of India’s central bank
    By Greg Robb

    Published: June 18, 2016

    “A bridge that relies on wealth effects, you better hope that you got enough growth to justify the asset price increase which created the wealth effect in the first place.” – Raghuram Rajan

    https://www.marketwatch.com/story/in-interview-indias-rajan-says-monetary-policy-has-run-its-course-2016-04-15?siteid=yhoof2&yptr=yahoo

    1. https://www.scpr.org/programs/airtalk/2019/01/31/64137/socal-housing-market-stabilizing-prices-cooling-de/

      The housing and commercial real estate markets have both seen a decrease in Chinese investment again this quarter. That makes it the third quarter in a row where Chinese investors sold more property than they bought. U.S. homes are more expensive. The dollar is getting stronger while China’s economic growth is slowing. Political tensions are rising between the United States and China. All of those factors tie into the national decline, but the trend is appearing in Los Angeles, too.

    2. “we are seeing some wealth destruction”

      We never hear about the wealth destruction of decades of high rents. Or of people spending 50%+ of their income to service their home loan.

      1. Or of homeless people who gave up on life due to not being able to find employment that pays enough to cover the astronomical rent…

    3. I’m sorry, Raj, I’m just not seeing the incomes to support the new $800k shacks they’re building down the street. In fact, there’s not even local incomes for $300k shacks. Uh-oh….

    1. ‘There’s no up$ide in saying yes, only down$ide, so it’s ea$ier to say no,’

      $ounds like the Auzzie’$ are entirely void of “Non-bank$” as fund$ lender$ … being an i$land onto them$elves provides $ecure in$ulation!

    1. Jan 7, 2019 12:50
      Trump’s FHFA director will shrink Fannie/Freddie

      The Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, is under new management this month. President Donald Trump has nominated Vice President Mike Pence’s chief economist, Mark Calabria, to become the new FHFA director. In the interim, the Joseph Otting, Comptroller of the Currency, will serve as the acting director of the FHFA.

      Jim Parrott, a nonresident fellow at the Urban Institute and owner of Falling Creek Advisors, discussed the implications of the change. Parrott was a senior adviser for several years at the National Economic Council in the Obama White House.

      In a recent article for the Urban Institute, why did you write that the most important question in housing policy this year will be what sort of FHFA director will Mark Calabria become?

        1. Very interesting! What are the chances the Trump administration will succeed in this ambitious endeavor to wean the REIC off GSE-based welfare?

          1. Mick Mulvaney led the effort at OMB. He’s now Chief of Staff. From other things I’ve read, the length of the shutdown may have triggered a RIF.

  4. from Yahoo news

    “Weeks after Rep. Alexandria Ocasio-Cortez, D-N.Y., made headlines by calling for a top marginal income tax rate of 70 percent in an interview with “60 Minutes,” her fellow freshman congresswoman, Rep. Ilhan Omar, D-Minn., suggested that the rich could pay even more…So, 70 percent, 80 percent, we’ve had it as high as 90 percent. So, that’s a place we can start.”

    What the socialists want is everything from everyone who is not at the center of power. Elizabeth is just throwing out a teaser with her take 2% of what the wealthy have suggestion. If the end point of socialism is evil, the baby steps down that alley are equally so.

      1. I don’t know, but taxing net worth seems a bad move. Starting at the top (because people who got rich doing business in the USA are bad) doesn’t make it any better.

        1. anything that keeps billionaires from hoarding is good for the economy. I pay fat prop taxes on my biggest asset (my home) so we can have good schools and road. Why not hit a up someone with $51 mill is assets and extra $20k a year. it wont be missed, and if they dont like it, spend that mill on something. funny how
          W-2 sheeple making less than $200k are worried about billionaires who already rigged the system in their favor. Read the plan.

          1. it wont be missed

            That’s a thieve’s line as old as time. We all pay taxes. That doesn’t mean your neighbor’s saved money belongs to you because he has more. $51Million is an arbitrary smokescreen and dishonest. If you got the principle to fly then you could change it to $100 without any moral compromise. Saying that anyone who saved up a certain amount of money stole it is also dishonest.

            I don’t want to drag this into a debate on the evils of Socialism, but what you propose here demands at least to have a light shined on it and you.

          2. To clear up any perceived notions after this exchange, which I will leave here as well, my husband thought I was too liberal to date 14 years ago. Most people still assume that of me.

          3. My husband has lived his entire life in CA (NorCal and SoCal) so this revelation years later was somewhat surprising to me. I have nothing to gain, but rather much to lose, by correcting other people’s assumptions in my real life.

      2. We are stuck with crony capitalism and “too big to fail” the last 50 yrs. We are due for an update and stopping the corp moochers.
        got trickle down? got >$22 trill debt? we can do better!

        1. We can do better but socialism in not the answer! What you think is “crony capitalism” is globalist self-enrichment. We need to oust the globalists not gleefully skip through the gate of socialism they’re opening.

          1. People can flee the progressive policies of California or New York. Where are people to flee when the nation embraces policies even more extreme?!?!

          2. Even “socialist” countries cant get socialism right. Power corrupts the leaders and they steal from the people. Dont let the GOP scare you. Most independents just want to end the fraud and corruption and gov waste. Have a real Democracy where the people have a say. USA already socialized lots of things, cops, firemen, public schools, rds, jails…..

          3. “Dont let the GOP scare you.” I read and think for myself. I’ve had a lot of down time the last two years to do just that.

            “Most independents just want to end the fraud and corruption and gov waste.” I do too!!

            “Have a real Democracy where the people have a say.” The United States is a constitutional republic not a democracy.

            “USA already socialized lots of things, cops, firemen, public schools, rds, jails…..” No, the federal government has usurped power from the states.

          4. dont let the GOP scare you into thinking the choices are crony capitalism or socialism. they like to scare the gullible.

          5. “dont let the GOP scare you into thinking the choices are crony capitalism or socialism. they like to scare the gullible.”

            They like to present the world in black and white:

            ‘We either build this wall or it’s open borders’

          6. WestWorld5 is still caught up in false dichotomies (left-right, DvR), as evidenced by his repeated use of “GOP.” The world and everything in life is much more greyscale.

    1. What’s clear is the current system is NOT working. We need not only massive changes in the tax structure, but also the bloated government red tape which has made it darn near impossible to start and run a small business. You have to have huge gross profits to keep up.

      I don’t ever see it changing, but I think income taxes on labor are the epitome of usery and exploitation. I think a consumption tax is much more fair.

        1. It’s 132 pages. I don’t have time for that. Can you point me to exactly what you’re citing which pertains to my post? Thank you.

  5. You can tell the devastating toll China’s growth slowdown has taken on the global economy from last month’s record blowout on Wall Street.

    1. The Wall Street Journal
      China Slowdown Hits Growth Around the Globe
      Asia, Europe and U.S. struggle to adjust to giant’s sluggish demand and shifting export patterns
      By Chuin-Wei Yap in Hong Kong and
      William Boston in Berlin
      Jan. 31, 2019 6:00 a.m. ET

      China’s slowing economy is sending shock waves through its trading partners around the world.

      Beijing’s struggle with domestic weaknesses, including a huge debt buildup, overinvestment and constraints on private businesses, are combining with trade tensions to drag down growth in the world’s second-largest economy to its slowest rate in three decades. The falloff in factory production and consumption is taking a toll on how much China buys from companies elsewhere in Asia, the U.S. and Europe. And the slowdown is rippling…

      RELATED VIDEO
      What New Data Says About China’s Slowing Economy
      China’s economy grew at its slowest pace since 1990 last year. The 6.6% growth rate is due in part to the continuing trade conflict with the U.S. and China’s efforts to get a handle on debt.

      1. Tiananmen $quare was a bu$t! … (No inflation$, No problem$!)

        ” … the protest$ reflected anxietie$ about the country’s future in the popular consciousness and among the political elite. The reform$ of the 1980s had led to a na$cent market economy which benefitted some people, but seriously di$affected others and the one-party political $ystem also faced a challenge of legitimacy. Common grievance$ at the time included inflation …

    2. It’$ only the 1$t day of Feburary Professor!

      Home » $cience » Phy$ics » Fundamental$

      How Does the Di$tance Between Dominoe$ Affect the Rate at Which They Fall?
      By Timothy Burns; |April 25, 2017

      The physics which affect chains of falling dominoes are subject to measurable physical forces, including gravity, momentum, and force vector analysis. The reaction is affected by the size and mass of the dominoes as well.

      If the tiles are positioned farther apart, each falling tile pick will pick up more speed and, therefore, generate greater inertial force before it topples into the next tile. So, when the tiles are farther apart, the first tile hits the second one with greater force, and the chain reaction can be expected to accelerate faster than when the tiles are lined up closer together.

      1. Except that when the tiles are farther apart they hit the next tile closer to the ground and at more of a downward angle, sending more of their energy downward and less in propelling the next domino forward. In the extreme, the next domino won’t even fall over. Like most things, there’s a happy medium.

        1. Thee “Powell’$ Put” lean$ @ no movement$ angle for next 5x month’$ … (Just.in.time, for $ummer vacation movement$)

          velocity is also important for those that are musically inclined as well.

          Debussy: “Music is the space between the notes.”

          (FED blah, blah, blah’$, is the white noi$e in the background)

          1. I not fully under$tanding the “Powell Put” but I’m $en$ing that he’$ $pacing out the “domino tile$.”

    3. Judging by the complete reversal of the stock market, it wouldn’t appear to be anything more than a hiccup from a flea.

  6. “Experts have been left stunned after Aussie house prices plunged at ‘the fastest rate of decline ever seen.’

    If they were truly experts, instead of REIC shills and touts, they would’ve seen this coming a mile away.

  7. Ray White deputy chairman Sam White said the banking royal commission, sparked in part by irresponsible lending, has created such uncertainly within the sector even credit teams were unsure whether to approve or reject loan applications.”

    But…but…our resident REIC shills assured us that it’s different this time, because loose lending is a thing of the past.

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