I was almost relieved to see ABC Four Corners finally bring some sense to the argument that Housing in Australia is a No Lose, Bulletproof and Unassailable fortress of wealth.
I stand by my assertions that this market is poised for failure. I am seeing in south east Queensland some REAL (not imagined) failures happening every single day. For example three are 3 fairly major apartment developments within 5 kms of each other. One has failed as the builder went belly up. The new builder has yet to start the last leg of the project because there is NO FUNDING! Huge banners on each had prices for one bedroom apartments (facing the car park, the main road or the railway line (your choice!) starting at $389,000 and $399,000. Over about 7 months, the banner’s prices went down and down to eventually $319,000. The banners disappeared altogether. Not because all the nasty tiny 1 bedroom apartments had sold, but because the Banks will only finance 50% of the Contract price of such disasters because they are too small, have a limited market and quite frankly, the downside risk to the Banks is too high.
I saw a Studio Apartment that sold for $199,000 in 2006, $239,000 in 2009, sell last week for $169,000. Progress? Everyone making money? I don’t think so.
Fancy agents are advertising their “record prices” achieved last month! Rubbish. One place was sold for $20,000,000. Wow! Trouble is it sold for $32,000,000 8 years ago! A record? For what, the last 7.8 years? Probably. Liars!
Here is some of what happened on Four Corners recently, copied from their site and acknowledged as not my own work…
Betting on the house: Australia’s real estate obsession driving us to the brink. “I think it’s a powder keg.” Investment consultant
The statistics are startling. Australians are carrying more personal debt than ever before. For every one dollar earned, on average, Australians have nearly two dollars of debt. We hold the dubious position of having the second highest level of household debt in the world. Much of this stems from our obsession with buying real estate.
“Housing has never been rational. In Australia, it’s probably more akin to a religion or a cult so it’s all about faith. You’re either a believer in property or you’re not.” Former banker
On Monday, Four Corners investigates the forces driving our debt fuelled housing boom and the risks it poses for the nation.
“I’ve been studying the market here for a good number of years and I have never seen this perfect storm of issues coming together.” Financial analyst.
The program draws together key experts to map the danger zones in the housing market and will reveal the Australian suburbs currently experiencing the highest levels of mortgage stress.
“It’s the nightmare that you live with all the time. You wake up in the morning and you think, ‘How much longer will we be living here?’ Constantly.” Mortgage holder
Experts are warning that a wave of home owners and property investors will be unable to cope if there’s an increase in interest rates or a change in their personal circumstances.
“You’re effectively toast if you lose your job or the main breadwinner does. That’s the point of fragility that we’re at now.” Investment consultant
Regulators have been tightening the screws on lending requirements but there are concerns it’s too little too late.
“All bubbles really depend on loose credit, that’s one of the things that’s really fuelled the Australian housing market. Anyone with a pulse could essentially get a mortgage.” Economist and investment fund adviser
The program investigates the lending practices that have driven the boom in residential lending, and asks, 10 years on from the global financial crisis, if the banks are prepared for a potential crash landing.
“If there’s a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector. The banks could in fact experience higher losses because households are more indebted.” Ratings agency analyst.
It all points to exactly what I’ve been forecasting for the last 3 years. The demise of this market has been delayed by aggressive interest rate cuts by the Central Bank, the Mining boom with huge wage earners be able to buy multiple properties, and the Chinese getting their capital out of China as fast as they can. All 3 major influences have stopped dead… here it comes!