Supply of Homes on Australia Market Soars Rapidly, Major Crash Coming
Mike Mish Shedlock
As supply soars, buyers turn away. "No Bid" or "Passed Auction" are the two most dangerous words down under.
> WANT to know the most dangerous words in the market right now? “Passed in.”
> Ever been to an auction where nobody bids? If buyers and sellers can’t agree on a price, the house is passed in. Usually if a house is passed in it remains unsold — sometimes for months.
> This is a real estate agent’s nightmare. Their marketing campaign for the house has failed, they don’t get any commission and their client is cross. Worse, they have to keep working on selling the place.
> A passed-in house will still be on the market next weekend, when the real estate agent is trying to sell other properties. And the weekend after, as more and more other houses are put up for sale.
> As Australia’s auction clearance rates fall to a dismal 41 percent, the more stock builds up in the market, and the more options buyers have to choose from.
> In Sydney, the number of places for sale is the highest in many years, and rising still.
> Homes that got passed in are not the only ones clogging up the results pages when you search for real estate. New homes keep being finished, and that adds to supply.
Pipeline Still Increasing
Interest Only Cliff
The Reserve Bank of Australia now requires buyers to pay principal plus interest. Buyers are trapped with rising payments and falling prices.
Pent Up Selling Supply
Would be sellers attempt to hold homes off the market.
Meanwhile pent-up selling demand is rising fast as is the supply of new homes with no buyers.
Sellers Not Stupid?
The writer stated "Sellers are not stupid. They don’t sell houses into a falling market if they can avoid it."
Actually, they are stupid. This situation is likely to last for years.
The smart move would be to dump homes now for whatever they can get.
It would have been even smarter to not buy overpriced homes in the first place.
Chain Reaction Pipeline
Look at that pipeline. It's mostly condos. Buyers who put down $10,000 will find banks unable to lend them money at closing.
They should count themselves lucky. Being out a $10,000 down payment is far better than being out $100,000 on a $400,000 home.
And what about the builders? I expect many to go bankrupt. The homes will be sold for whatever the foreclosing bank can get.
News AU discusses crash scenarios.
> In the event of a housing market crash, which even the PM concedes is a possibility, the effects won’t be felt equally across the nation.
> An Australian housing crash is no longer a wild hypothesis pushed by a few people, it is a major talking point. The TV program 60 Minutesdid a big investigation last week and now PM Scott Morrison has been out warning we could have a devastating house price crash if a few policies are tweaked. (Is it wise for him to talk like that when these things run on confidence? That’s another question.)
The article lists three scenarios: 1) steady prices, 2) slowly falling prices, and 3) Oh No!
> Housing market analyst Martin North says there is a 20 per cent chance that house prices could fall by 40 per cent in the next few years.
> Will they really? North was challenged to a bet on that by another economist and didn’t want to put his money where his mouth is. Most economists think being willing to back your forecast with money is the only real way to prove you believe in it. (Are economists bad people for wanting to bet on these sort of things that could drive families to the wall? Maybe.)
> Is North right that the risk of an imminent big crash is 20 per cent? I think the chance is lower.
I vote for option number 3, Oh No, except for one thing:
North is an Optimist!
This is going to be ugly, very ugly. Expect a prolonged crash over many years.
By the way, it is absurd to suggest betting on such outcomes makes anyone a bad person.
Economist Steve Keen who famously lost a bet by being far too early on an Australia housing crash is a great guy (even though we strongly disagree about MMT).
Mike "Mish" Shedlock