Home sales in decline

EvanJames said :

…perhaps we already have a situation where many people have borrowed too much of a house’s value on paper, so that the slightest change in the market that causes the paper value to dip slightly is enough to see that person (and their bank) in a situation of negative equity: that the house is now worth less than the loan.

This is what tipped the US into the financial crisis that became the GFC. It’s just a wobble for us at present, no one’s calling it loudly, but I’ve been watching it with interest.

Changes in the paper value weren’t enough to cause the financial crisis – more is needed. Specifically, it requires that those indebted persons either can’t or don’t want to continue making the repayments; the banks decide to ‘foreclose’ in US parlance (exercise the mortgagee’s right of sale); AND the realised sale value is significantly below the outstanding loan amount (note the effects of the so-called ‘jingle mail’ or no-recourse loans have been overblown by property bulls – the no-recourse states weren’t all that badly affected). But that is what is required for a broader economic collapse.

Having said that, it is still possible for house prices to drop significantly without triggering financial armageddon. Lending practices were slightly more robust in AU; they didn’t have the fannie mae and freddie mac situations like in the US. Prices have come of a lot since the peak and sellers have already started readjusting their expectations. I’ve already spotted a few bargains and will probably move on one of them.

Amanda Hugankis said :

thebrownstreak69 said :

I wouldn’t get too excited, since prices are reported to be up since January – not that I would trust data taken during such a short period.

Buy when you can afford. Start small then trade up in a few years.

I’d also be getting in before you turn 50, as after that banks tend to be reluctant to give you a 25 or 30 year loan unless you can demonstrate how you’ll continue to make payments after you retire.

……. if we get a retirement …

Good point.

thebrownstreak69 said :

I wouldn’t get too excited, since prices are reported to be up since January – not that I would trust data taken during such a short period.

Buy when you can afford. Start small then trade up in a few years.

I’d also be getting in before you turn 50, as after that banks tend to be reluctant to give you a 25 or 30 year loan unless you can demonstrate how you’ll continue to make payments after you retire.

……. if we get a retirement …

“RP Data’s Tim Lawless says the property market is unlikely to improve until after the Federal Election” – hard to see how they will improve after the election, even under a (miraculously) re-elected Labor Government, which will still be squeezing hard on existing commitments to pay for big ticket promises like Gonski and NDIS (neither of which may create all that many jobs in Canberra).

I think we will be seeing many more For Sale and For Lease signs, and market forces will surely, eventually, see prices ease back, if not tumble. A worthwhile reduction in Canberra residential and commercial accommodation costs, relative to Sydney/Melbourne/Brisbane might even help to attract some private sector economic activity to this town – I have a feeling we’re going to need as much of that as we can get.

Anyone looking at the allhomes research data knows that prices have stagnated and total volumes and total value is way down on the peak.

This means that people who want to sell currently have enough time, jobs, money and patience to wait till they get the price being currently asked.

So the market is not going to go up because there currently aren’t enough buyers willing (or able) to pay the prices being asked but it isn’t going to go down significantly because the owners don’t have that much pressure to sell quickly.
If a significant number of public servants get sacked or the overall economy takes a downturn that could change.

allyroger said :

Except Deref, if you bought recently and then had to sell due to a change in circumstance. You would then be up the creek.

That’s true.

I wouldn’t get too excited, since prices are reported to be up since January – not that I would trust data taken during such a short period.

Buy when you can afford. Start small then trade up in a few years.

I’d also be getting in before you turn 50, as after that banks tend to be reluctant to give you a 25 or 30 year loan unless you can demonstrate how you’ll continue to make payments after you retire.

Except Deref, if you bought recently and then had to sell due to a change in circumstance. You would then be up the creek.

EvanJames said :

It’s hard to determine real trends from slices of recent data, but what we have is a large number of people who were in the market before it tended sharply upward (after Howard, I figure). Prices quadrupled in a pretty short period. So these people have a fat asset, if they sell they get a pretty good hunk of money to see them into their next housing purchase.

But that’s crap, isn’t it.

Getting half a million towards your purchase of a $700k house is no better (in fact it’s worse) than getting half that for half that. If prices halve across the board, owner-occupiers are no worse off and new home buyers are dramatically better off. Investors who bought high lose, of course, but that’s the risk you take with any investment.

http://i.imgur.com/7iaDwcB.jpg