Supply of Homes on Australia Market Soars Rapidly, Major Crash Coming

Australia's biggest housing markets are in trouble. Supply overwhelms buyers in most major markets. Price will follow.

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.

Crash?

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

Comments (4)
No. 1-4
Stuki
Stuki

"Being out a $10,000 down payment is far better than being out $100,000 on a $400,000 home."

More like, being out $100,000 on a $100,000 home they paid $400,000 for....

Tengen
Tengen

Seems like an Aussie housing crash would dwarf the US one since the loans are full recourse. Unless the banks declare some type of jubilee after the fact, the market wouldn't revive for quite a while.

Rather than the US, maybe Spain (another recourse country) would be a better comparison for Australia. They never recovered from their 2007 bust and there's no end in sight.

John212
John212

do you know what this is? this is gov workers wages for the state of vic.

do you know how many people in this state are on this? alot every 6 months for these people wages go up. Property in the end will go up eventually but not for good reasons. In 5 years time the multiple for wages gov jobs will match prices. Australia is not the US, inflation here is encouraged by gov significantly, with prices increasing everywhere all the time.

pgp
pgp

Rushing off to bankruptcy court isn't especially common in Australia, at least not as common as it is in the USA or Europe. I believe, the process isn't a simple one and is certainly not something the would-be bread winner wants to put their families through. More likely people will negotiate mortgage "holidays" with their banks and in that vein the government will likely provide assistance or legislation to enforce such practices from the banks.

That doesn't mean prices can't drop but if the above scenario is correct, supply might quickly decline (by 15%) then hold over a long period of time as neither buyer nor seller are willing or able to get in or out of the real-estate quagmire.

The real concern for Australia is its banana-republic dependence on housing construction. What happens when those construction jobs decline. Does everyone rush off to take time-shift jobs in mining? An industry already suffering from declining Chinese demand. Perhaps they rush into agriculture, an economic resource dedicated to feeding Asia with grade 1 produce while the natives eat grade 2 and 3 left overs.

It's possible the bankruptcy laws will have to change, the courts expanded, so that more and more over-indentured Aussie "battlers" can more easily write off their V8 super-car leases, interest-free-period furniture/electronics hire-purchases and mobile-phone contracts. The effect on the economy given such narrow industrial diversity would likely be profound.