THE MARKET – OTHER INDICATORS – UPDATE 16 NOVEMBER 2012

I want to address some questions I’ve had asking where the market really is in its “cycle” and why I keep saying it’s scary. Other than the arguments I’ve already put forward, I’ll address other factors that I study (daily) and why I remain convinced the entire residential market is fragile and will remain so for a while yet.

In Canberra, for instance, building starts in the first quarter of calendar 2012 were down around 50 percent on the same period last year – and that wasn’t terribly special anyway!  That’s not me making it up – that’s direct from the Australian Bureau of Statistics (if you can believe them – maybe it was 60% or 70% – in any case they were happy to put their name on 50+% so I’ll accept that).

An all time record number of Builders and Building Companies are going belly up.  Lots of contractors, many sole traders, are being hung out to dry.  It makes my blood boil.  I was personally involved in one of these many years ago when a close friend had just delivered $40,000.00 of let’s call it “product” into the garage of a house under construction.  About midday the next day the Receivers moved in and impounded the lot.  This wonderful, hard working old school tradesman lost $40,000.00 and was already owed more than $20,000 for labour and product already installed in the house.  Poor guy was forced into bankruptcy himself.

This is happening all over Australia right now.  It’s an epidemic in anyone’s language.  If you’re thinking of building (why on Earth WOULD you?  Are you insane?) then make a LOT of enquiry as to the stability of the Builder or Company.  Call ASIC.  Call your State Consumer Affairs.  Call anyone and everyone.  Find out where they’re building and go and talk to the sub-contractors onsite to see if they’re happy with the company.  If they aren’t being paid, or are suffering unexplained delays in being paid, they’ll tell you.

Latest casualty? Procorp Group in New South Wales. 50 people out of work. 500 creditors (that they know of!) and nearly 100 homes partly constructed and dozens more under contract but not started.  Imagine the heartache for all those families who may face years staring at an unfinished home… and the stress…the poor old sub contractors getting it in the neck – again!

Another NSW Builder, even larger, went bust last month owing as much as $20 million to sub contractors.

Now look to building supply companies, large ones… James Hardie down 35% on the same time last year, CSR down 50%!  What makes me laugh, and cry, are the outrageous comments by senior executives of some companies in the building products game designed to appease the market and shareholders/investors and are so far out of touch with what’s really happening as to be ridiculous.  Surely they must be throwing SPIN out there.  Surely they can’t be stupid people?  These are smart people saying dumb things.

I’d love nothing better than to say “All is Well” and “House prices will continue to double every ten years” but I can’t and I won’t.  Australia is overpriced, oversupplied in many areas, and is continuing to correct as I write.

So much for the housing crisis and shortage that was being spruiked not so very long ago.  Anyone who believed that rubbish and tried to jam it down my throat was politely told to go and find all these homeless people, because there must have been, if you took this nonsense literally, a million and a half Australians living in parks and under bridges.

Other indicators are in pretty sad shape.  As a former air traffic controller I know a few people in the aviation industry.  The air freight guys are freaking out as volumes keep falling.  They tell me their opposite numbers in the sea borne shipping world are also wringing their hands as empty, unused and un-booked shipping containers pile up all over the place.

The Baltic Dry Index is a great indicator. In 2008, this index peaked at nearly 12,000 points. Before year end the index had tanked by nearly 95 PERCENT to under 700 points! This index provides feedback as to the price of moving major raw materials by sea transport.

Next year it bounced to over 4,500 points but by early 2011 had, once again fallen off a cliff to just over 1,000 points!  From there it had a nervous rise to 2,000 but sank again to just 647 points in February 2012. A couple of days ago it was just above 1,000.

These are the BIG PICTURE, World-wide figures that don’t lie and that you should monitor.  We are not immune from “the World’s diseases”.  We are part of the World and we Aussies won’t be able to stay floating around in some kind of rose-tinted haze forever.

The only people doing reasonably well seem to be Couriers who deliver the increasing amount of merchandise bought online…good on them. I wish that could be said for the rest of us.

 

 

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