Latest Entries »
(Source: The Financial Review 31 January 2012)
The Australian newspaper reports that “Fitch” the International credit rating agency may need to cut Australia’s biggest banks credit rating. Currently CBA, NAB and Westpac are rated just AA, the second highest level with the ANZ rated one notch below. (Most banks are second highest because of too much exposure to the residential housing market).
The ratings agency is concerned that the banks are too reliant on overseas wholesale debt funding of about 40%. This level of overseas debt funding could leave Australia’s banks overly exposed should another global banking crisis occur through global credit markets closing down as happened in 2008 when the GFC hit.
So Australia could be in for a double whammy as financing costs go up, credit drys up as the world financial economy freezes, and most likely this freeze will be worse than 2008 as many Governments have tried to borrow and spend their way into prosperity.
It is interesting to note that of recent times the ‘Baltic dry index’ has crashed to levels not seen since the GFC. ( source: http://econintersect.com/wordpress/?p=18556 ). This article has some interesting facts on the BDI and claims that “The Baltic Dry Index (BDI) is in recession territory. It has been a good friend to pundits who make economic predictions. Sorry to say, our friend is sick – but there is every reason to believe the illness was caused by forces far beyond a fall in demand. Global trade contraction is one of the first warning signs of a recession. The BDI tracts the prices paid for spot shipping contracts to move raw materials (commodities) on 20 specific routes. It does not measure shipping prices for movements of finished goods”.
2012 could well be the year of the “Long Term Global Financial Disruption” LTGFD or as my parents would say Depression.
The WordPress.com stats helper monkeys prepared a 2011 annual report for this blog.
Here’s an excerpt:
The concert hall at the Syndey Opera House holds 2,700 people. This blog was viewed about 24,000 times in 2011. If it were a concert at Sydney Opera House, it would take about 9 sold-out performances for that many people to see it.
Growth rate in retail sales has been ”trending down” for the past two decades” Productivity Commission.
Because of this, a new retailing model is fast emerging, says Stuart Harker, global retail sector leader at PricewaterhouseCoopers.
“It’s not a technology push,” he says. ”It’s a consumer pull”.
Read more: http://www.theage.com.au/business/the-shops-are-dropping-as-consumers-call-the-shots-20110806
Sorry but you can’t trust the Governments spin doctors we’re all heading for a world wide depression – they are repeating the mistakes of the 1930′s all over again, the US is going down with all the other countries:
The real estate navigator – along time ago I asked my father what a depression is – he said “Everyone had something to sell but no one had the money to buy” – Cash will be king
Links – See also
- World markets plunge on debt fears
- Debt wrangling: Your guide to economic chaos
- Worst retails sales for 50 years
- Currency Wars
- 60 Billion wiped off the value of shares
- Bottomless pit for ECBonds
- Black Friday 5 August 2011
- Employment was the last of the dominos to fall
- Markets go into free fall because of fear and because people are forced to sell.
See also
January 2011
Fast forward to August 2011
Marc Faber – The whole system will collapse
Depression keeps getting put on hold due to Government Stimulus
Video produced by Real Estate 4 Ransom (http://realestate4ransom.com/)
The trailer to a 40 min fast paced documentary on how property speculation crashed the global economy. It looks at how economic theory was kidnapped and the policy manipulations that allowed this to happen.
The real estate navigator has been busy researching residential property prices generally in Victoria and from a brief sample of localities it would appear that residential property prices (median) in some parts of country Victoria have continued to rise over the past 6 months but at the expense of much much lower sales volumes. Country prices appear to be playing catch up to its city cousins as city buyers are forced to look further afield for more affordable housing. Not since 1991 have sales volumes fallen so rapidly but this time volumes are worse than 1991- by as much as 60% (since the peak sales volume in 2010) – this is not a good look if you a real estate agent operating on low margins and high volumes as was seen lately with the discount firm GoGeko going into administration. The Financial Review reported on Thursday that monthly property sales for Australia “Nationally” is 16% below the 5 year average and Melbourne 29% below. It is most likely that prices in Country Victoria will ease and/or decrease over the next 12 months in line with decreases in Melbourne. There now appears to be strong correlations to the 1991 property correction which unfortunately for home sellers took around 5 – 7 years of stagnated property prices before it improved, this time around it could take 10 years. To back up this argument, the Financial Review (Thursday 28 July Page 46) quoted a recent AMP report in which it states that “House prices in Australia’s capital cities and major regional centres have become so severely unaffordable over the past decade that it will take 10 years of flat house prices and steady growth to bring home ownership back in reach”.
City prices on the other hand appear to have peaked and have fallen for 6 consecutive months as was reported in the Australian today. The Australian states “CAPITAL city house prices chalked up their sixth consecutive monthly fall in June amid warnings rising interest rates could accelerate the slide.
The RP Data-Rismark Hedonic Home Value Index fell 0.2 per cent in June from May, according to a survey of almost 150,000 homes nationally. Over the second quarter, home values were down 0.9 per cent. The house price slide in June follows a fall of 0.3 per cent in May, 0.4 per cent in April and 0.5 per cent in March.
The latest decline comes as speculation grows the Reserve Bank of Australia could raise interest rate next week for the first time since November, responding to a worrying rise in inflation over the last six months”.
The Australian states that house prices in Australia are considered to be highly elevated, having risen sharply over recent decades amid easy credit conditions and that further interest rate rises will cause house prices to soften a bit further.
Forget the Internet – it’s the Landlords fault
Wow what a roller coaster year 2011 has been. It’s the year when Australia’s chickens have come home to roost as consumers stop spending, the Government continues to create massive uncertainty, and retailers blame everything from the increase in internet sales to the carbon tax. All puns aside it would appear that the real culprits of this downturn are not Internet sales but a prolonged boom which saw massive sales volumes and slim margins, now that consumers have experienced increasing costs of living due to rising fuel and living costs, they have tightened the purse strings.
The tide has now turned and is heading back out to sea we are seeing many retailers foundations exposed (i.e. In the form of slim margins and rising costs). You only have to look around and see the fall out of this recession in recent times as Colorado and now Premier investment businesses either trim back or close and the true culprits are now being named such as excessive rents tied to inflation, falling sales, slim margins and massive competition.
Not a good time to be a commercial landlord – Retail rents likely to come back to reality just like in 1991. More vacant shops.
The Age newspaper reports “Premier Retail, the owner of major fashion brands Just Jeans, Jay Jays, Peter Alexander, Portmans and others, will close 50 loss-making stores and shed staff in a response to “challenging” retail conditions, but the company says it is “planning to open up to 100 stores in the next three years in popular, high-performing centres”.
Mark McInnes, the recently-appointed chief executive of Premier Retail, and former boss of David Jones, said the company relied heavily on trade over the school holidays but sales had been sluggish during the recent holiday period.
“Our business is highly school holiday [July] dependent,” Mr McInnes said in a statement today.
Is it due to the internet – I think not – Its a recession we have to have (which was put on hold for 12 months when Rudd propped up the economy with his stimulous”.
Australian house prices are unlikely to fall dramatically over the next two years, according to a new study, with steady residential property prices forecast through 2011, and prices in some capital cities even tipped to show moderate growth.
According to a report by BIS Shrapnel, Residential Property Prospects, 2011 to 2014, the residential housing market, which weakened in 2010, is expected to improve from 2011/12. Read more at : http://www.businessspectator.com.au/bs.nsf/Article/House-price-crash-unlikely-study-pd20110625-J64LL?opendocument&src=idp
THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash, warns legendary US investor and co-founder of global investment management firm GMO, Jeremy Grantham.
Source : http://www.theaustralian.com.au/business/housing-market-a-time-bomb-says-investment-legend/story-e6frg8zx-1225880119320
He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
“You cannot possibly miss it,” he said.
“The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
“Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be.”
http://www.rs.realestate.com.au/cgi-bin/rsearch?a=ars
Things must be grim – no auction updates since the 19th of June and its now the 23rd of July 2011.
Source : http://www.couriermail.com.au/life/homesproperty/gecko-chief-ousted-as-agencies-teeter/story-e6frequ6-1226098631961
ADMINISTRATORS of real estate agency Go Gecko closed two shopfronts, with about 10 people sacked, ahead of a review of other agencies.
Several years ago the real estate agency discounter GoGeko New Zealand went into administration due to falling sales volumes, now GoGeko Australia who recently increased its cap from $5950 to $6950 has also gone into administration due to falling sales volumes.
Real Estate Institute of Queensland chair Pamela Bennett said a capped commission meant Go Gecko had to survive on large volume and a strong rent book for cashflow.
People often underestimate the overheads of running a real estate agency and with property deals across the state down about 45 per cent from their high in 2007 thats a recipe for disaster to those relying on low profit margins and high volumes.
Indications are that around 5 per cent (of agencies) have closed doors and sales staff numbers are down about 30 per cent.
Chief executive of home price data group Residex, John Edwards says “The economy could slow further with a ‘perfect storm’ of falling house prices and tax uncertainty dragging domestic growth lower … that sliding home prices could be a leading indicator of what was happening in the broader economy. A slump in house prices – the biggest source of wealth for most Australians – would further crimp the spending and borrowing needed to keep the economy expanding”
“I can tell you that in the whole time I have been studying the market I have not seen the makings of such a perfect storm”.
Source: (Read more at http://smh.domain.com.au/real-estate-news/residex-perfect-storm-threatens-economy-20110720-1hofm.html)
Auction Clearance Rates 19 June 2011
OPEN COMMENTS:
What is happening in your area in regards to the economy, employment, house prices, houses for sale and retailing. Please send me your comments on what you believe Australia’s economy will do over the next 18 months. Please include your State (and suburb – optional).
Auction results for week ending 15 May 2011
“So where’s the floor in this FALLING MARKET” says Ben Hurley from the Financial Review (21May).
The drivers of inflated prices are gone and interest rates are set to rise. Enter an era of ‘fair value’ in real estate says Ben.
If your a real estate agent who has only just entered the industry in the past 10 years your in for a shock. Sales rates will fall as the gap between what buyers will pay and vendors will accept widens. Don’t expect to convince sellers to drop as many will owe more than the property is worth and won’t be able to sell. The days of easy commissions for minimal work are gone. Many agents will return to teaching, banking, building or what ever career they were in before. Only the professional agents who are in the industry because they love it will remain.
Based on what happened in the early 1990′s, I predict this buyers market could well continue for the next 5 years.
Many agents will no doubt be updating their resumes.
Auction Clearance Rates 8 May 2011
Here’s proof the Australian house prices are crashing.
2,572 is the number of homes for sale in Caboolture (Brisbane) and nearby suburbs. 4 is the number of properties sold last week. (Source FinReview 24 May).
Auction Results
The FinReview 7 May page 6
“The number of houses and apartments for sale has soared creating a supply glut that could cause prices to fall over the next 12 months”
“Melbourne has … 104.6 per cent spike (double) in the number of properties for sale last month compared to the same time last year”.
SQM research believes that “Melbourne house prices … will correct in the order of 5 to 7 percent.”
Australia is starting to see the effects of the Government’s artificial stimulus packages wearing off (see left graphic). Couple this with continued higher fuel prices and interest rates will see Australian property prices go further into negative growth territory over the next 2 years at least.
Late 2011 and in 2012 expect to see rising unemployment, Government downsizing, tougher bank lending, increasing personal bankruptcy, more companies in voluntary administration. The amount of housing coming onto the market will continue to exceed demand (Auction clearance rates are less than half at March 2011) leading to further price reductions and a continued downward pressure on vendor expectations. It will become common place for properties to be listed with several agents as vendors become desperate to sell.
[UPDATE MARCH QUARTER ABS STATS]
ABS HOUSE PRICES MARCH QUARTER 2011
ABS Australian House Prices Dec 2009 - Dec 2010
“The ANZ results showed a 12.6 per cent increase in the value of loans that are considered 90 days in arrears. There are now $1bn worth of mortgages in arrears, with a sharp spike in the number of troubled loans in Queensland. The trend emerged before the states floods and cyclone in January. ANZs Australian chief executive, Phil Chronican, told The Australian the bank was monitoring the pick-up, which was blamed on higher interest rates and growing cost-of-living pressures. “It is a concern, we dont want to overstate it but the arrears have hit a level that we have not seen for a long time,” Mr Chronican said.
Mr Chronican said while ANZs $165bn mortgage book remained in good shape, it was concerns over future “credit quality” that stopped the bank from entering the recent mortgage competition war. “There is still a good level of business to be done without going out on risk curve,” he said.
The arrears rise prompted Mr Smith to reveal that current interest rates were appropriate to keep household stress levels from rising. The national housing market, he said, was not in a bubble but some capital city price declines were “appropriate” to maintain price stability”.
via ANZs wake-up call for industry over structural shift | The Australian.
Monique Wakelin (Buyers Advocate) says “The 2011 property market has seen increased supply, slowing demand and softening prices. These are perfect conditions for the wise and contrarian investor to pick up quality property ahead of the next wave of capital growth”. Source Weekend Australian 30 May Weekend Property Pg 3
This simplistic comment by Monique might sound great in theory but this downturn is in my opinion a train wreck in slow motion as the years of debt accumulation unravels. Take for example the comments in today’s Financial Review on page 3 “House prices have suffered a record fall and the growth in lending for homes has slumped to it’s lowest level in 35 years, amid predictions the housing market has further to fall.”.
In my opinion house prices will continue to fall as buyer confidence is further eroded. Take for example – it now takes up to 2 months to sell a home (up from 45 days) coupled with a 30 percent increase in the number of homes for sale, and buyers running for cover, expect to see further price falls. This falling market may not collapse over night (unless there is another major world financial hickup) but it will unravel over the next 12 to 18 months – with subdued capital growth flatlining over the next 5 years as the low rental returns currently being experienced return to more realistic levels of around 5 to 7 per cent.
When the market returns back to it’s fundamentals and away from the speculative Ponzi get rich mentality, that’s when well start to see a normal housing market and not a bubble
The Age Newspaper is reporting -
- The data for Melbourne contradicts recent Real Estate Institute of Victoria figures which show a significant 6 per cent fall, by $36,000 to $565,000, in the city’s median house price.
- “Evidence to date shows that the Australian housing market is making a very controlled exit from the strong growth conditions of 2009/10,”
- The fall in house prices follows near-record levels of housing stock coming on the market, the period homes are advertised for sale has also lengthened considerably.
- Last month Reserve Bank of Australia chief Glenn Stevens said he was not “terribly troubled” about the level of house prices in Australia as house price to income ratios were “not exceptional by global standards.”
- APM senior economist Andrew Wilson said softening house prices were a “hangover” from strong price growth in 2009 and 2010, driven by record activity from first home buyers.
The Real Estate Navigator says – House prices are overvalued in Melbourne – Recent indicators from Residex indicate current low returns on investment for Melbourne residential housing compared to other capitals. Country house prices have remained stable but falls in Melbourne will translate to lower prices in the Country over the coming months.
The WATODAY is reporting that “Perth property prices are expected to continue to fall for the rest of the year in what could be the citys worst property recession since before the Global Financial Crisis”.
And while WAs strong economic prospects could prompt a recovery, analysts now fear the property market will need to show a significant turnaround before the negative sentiment can be reversed.
via Perth property in freefall as price slump shows no sign of ending.
“Overpriced real estate in places such as Melbourne, Sydney and Perth, and a stagnant capital growth are a powerful incentive for investors to consider selling” ( FinReveiw April 21 pg 55)
