House prices are a matter of opinion whereas debt is real.
Mervin King, former Governor of the Bank of England.
The fun continues apace in Australia as people too young to have ever experienced a significant downturn are coming to terms with the first in their adult lives.
Our old friend, The Pwoperdee Doctor, is calling on the Reserve Bank of Australia to cut interest rates, not for him, you understand, but for the sake of the kids;
And later this week, more questionable content from The Doctor;
His content sometimes seems suspiciously like financial advice. This, for example, seems to be encouraging first time buyers into a falling market;
Since when was instant negative equity ‘The Great Australian Dream’?
Here’s a question for The Doctor; would you advise a close relative of yours to buy their first property today or wait a while for the falls to flatline? If not, be prepared for a little legal action in a year or two seeking a contribution from you for giving poor advice when someone sitting in a 2 bed apartment finds it’s now worth $100k less than they paid for it.
Over at the Sydney Morning Herald, a media outlet that previously relied almost entirely on its property listing subsidiary for any chance of making a profit most years, reality is starting to sink in.
One has to enjoy the circular nature of Finder’s Graham Cooke’s logic and his demonstration of a Nobel Laureate’s mastery of mathematics;
Yes folks, that’s right; if property falls by 20%, people who bought recently with a 20% or less deposit will be in negative equity. I bet he had a team of monkeys up all night with calculators working that out.
Actually, it’s worse because stamp duty is several percent depending on the jurisdiction so negative equity is achieved earlier.
This is all so unexpected, of course. Nobody could have seen this coming.
Which reminds us of Taleb’s classic chart from ‘Black Swan’;
Meanwhile, theres an interesting bet on between the Kouk and Tony Locantro;
Specifically, we are wagering $15,000 to $2,500 that Sydney or Melbourne or national wide house prices will or will not fall by more than 35 per cent from their peak at any stage before and up to the December quarter 2021.
Bill’s Opinion
At the current trajectory, Stephen Koukoulas will lose $15,000.
Of course, no market ever moves in a straight line and, as we saw in 2008, expecting any government to simply let markets run their course in a downturn is a very naive position to take.
It’s far more likely that interest rates will be cut, regulators will be told to ease lending restrictions, banks will be reminded who really owns them and the Millennials will be encouraged into another generational wealth transfer over to their parents’ generation.
By the way, this is all happening at a point in the economic cycle where money should still be made. The USA is unlikely to go into recession in 2019 and that should have been good news for the Australian economy. That the mood seems not so cheery in the “Lucky Country” speaks volumes.
If you’re about to buy your first property, why not wait until you’ve seen 3 to 6 months of no falls in prices, just to be certain you’re not jumping in a year too early?
Ask a financial planner (a good one, not one who relies on selling you “products”) whether some physical silver or gold might be a good thing to own right now, perhaps? Ask also about uranium mining shares.
After all, there’s always an inherent risk to catching falling knives…..
Some more tiny drops to come and then flat line before the next and massive leg up starts in 2020.
Since you are talking about a house to live in, any day is a good day to buy a property so you should be out there now chucking in aggressive offers like a man with no arms on a hands free phone.
It takes time to find a house that you like, that is in your price range, that the missus likes, that the seller agrees to sell to you. Say three months absolutely quickest from first search through to final settlement.
So I wouldn’t be waiting, get out there and make offers, when the agents say no, just say well if the seller changes their mind give me a bell to see if I am still interested. Given that unsold stock is and will continue to increase then you will have many more options to rinse and repeat this process whereby the seller will have less. If the seller doesn’t need to sell they wont, they will just take it off the market, if they do you may not know this initially, you will find out in time though and it might be a while after you had made your rejected offer.
Also tell the agent that you are flexible on terms. Then if they start discussing terms with you then you know that you have a bite on price.
Which reminds me of; “….it is difficult to predict, especially the future“.
And thanks for the lesson on negotiation, old man. It’s great to have such wise and sage advice offered for free here. If I ever find myself having to negotiate for anything significant I’m certain you’ll be the first person I call after I’ve left a voicemail for Theresa May.
Too late with May, I am her middle man on the scupper Brexit strategy.
Give Corbyn a bell and see if you can help him out with his duffel coast selection, for this winter of discontent.
I still can’t work whether she’s played a blinder or has been deliberately making an utter custard of the whole thing.
I suppose we’ll only know for sure on the morning of March 30th.
A 35% drop is nothing short of a rout. It’s possible in Indian Country (a patchie here, a patchie there) but nationally? It depends on your metric. Case-Shiller shows a 34% drop in US housing prices from 2005 forward but I can’t see that much in US Census Bureau data.
Wife #2, bless her money-grubbing cotton socks, was an estate agent; at the time I was with a property developer. I had and may still have a fair understanding of the game. Bardon is right. In a tough market, put in a low offer and leave it on the table. If the seller explicitly rejects the offer, instruct the agent to revive it by re-submitting it, as many times as necessary. As you will probably be trying to liquidate your own property at the same time, you have an inside track into the way the seller’s mind works.
On liquidation, highly unlikely, buy a house on a 95% RAMS loan, keep your own money for later on, then pay it off at these very low rates, then watch it inflate away against your banker sized pay rises, bonuses and all that, or just rent it out and live in your mum’s granny flat, no need to liquidate.
-35% is politically unconscionable, the kitchen sink will be thrown at it way earlier than that.
As you say though, there will be some isolated casualties on the road to that and a smart negotiator will seek those out and play their cards well.
The idea that it’s in any way a good time for the first time buyers to get in while the monthly declines are still occurring is lunacy though.
The only discernible drops will be in real prices, you will need a magnifying glass to see the nominal price dip.
I’ll be generous in my interpretation of the meaning of this out of context statement:
“Whereas prices can be considered the collective opinion of potential purchasers (and are often informed by the collective opinion of suppliers) and are enforced by said collective, debt is more formal and almost always a contractual arrangement enforced by law. So, while we can differ in our opinion of a given house’s worth, the debt arrangement I agree to upon once I’ve purchased the house is detailed down to the penny and no longer a matter of opinion.”
Yes, that’s my take on what he meant.
Oh, I thought you were disparaging him. I’ll head back to the reading comprehension rubber room forthwith.
Hmm, perhaps my writing style isn’t at clear as I’d hoped!
Its clear alright, its just that you are a serial complainant.
The opinion bit is about to be removed from house prices as well and it looks like buying a home is going to be done a lot more efficiently, cheaper and quicker according to the Comptroller General, and he be the man.
“OK, Computer: How Much Is My House Worth?
Proposed regulations would allow the majority of homes to be bought and sold without being appraised by a human
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser [the link may be paywalled; alternative source]. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms. From a report:The proposal was made earlier this month by the Office of the Comptroller of the Currency, the Federal Deposit Insurance. and the Federal Reserve. It would increase to $400,000, from $250,000, the value of homes that can be bought and sold without a tape-measure-toting appraiser visiting a property. ”
https://tech.slashdot.org/story/18/12/02/204217/proposed-regulations-would-allow-the-majority-of-us-homes-to-be-bought-and-sold-without-being-appraised-by-a-human