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Here comes the Avalanche, Tsunami, Running of the Bulls, Muslide – all at once.

G’day from The Hague on a lovely, sunny day.

Of course it comes as no surprise to me to read of a now 40% reduction in housing loan applications. What makes me laugh is the Analyst’s reasons. It’s really simple. Capital flows to where it’s a happy, warm, snug and secure place, and investors are not interested in putting money where, for instance in April alone, places like Darwin had a 1.2% fall on median house price, and the “Mega Market Darling”, Sydney had  only a 1 month drop of 0.7%. Annualise “that” dear readers!

The Reserve Bank has nowhere to move, Labor, even though it lost, as usual spooked investors with its nonsense, and people are now just scared of these rapidly increasing rates of depreciation.

I’ve warned of this unsustainable growth for years. I’ve warned friends to “get out”. Some have listened, some, sadly, have not.

It’s only going to get worse. I now have access to USD$10,000,000.00 to buy Australian Real Estate when I think it’s time to get back in. It’s definitely not now, and I believe my formula of the CPI line, less 10%, will be place where I once again become interested.

 

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The Head Scratching Starts

It’s interesting to read the increasing number of media “releases” about the parlous state of the real estate market.  Apartments off the plan, nearing completion or finished looking for a buyer are just something to step aside from.  Run a mile. It reminds me of a particular high rise that was “amped up” off the plan and sold as “solid gold” when it plainly wasn’t. When settlement was due, the bubble on this kind of shit had well and truly burst. A lot of buyers walked away from their $200,000+ deposits, accusing marketers, promoters and the developer of sprouting bullshit n’ lies. Plenty of real, provable cases of apartments eventually changing hands for, in some cases, 70% less than the original contract.

Next!

Every time some turd in government talks about messing with negative gearing, naturally investors will do a tortoise and pull their heads in. Imagine developing 300 apartments aimed at the investor/rental market and having some numpty in Canberra blurt that crap!

But I digress. The cat is out of the bag, Pandoras Box opened and even the rats are jumping ship. Some friends who took my advice and sold for $1.55m just watched their old house change hands for $1.1m after 18 months as their purchaser’s business faltered.

This is REAL folks. Real estate is on the nose and the correction to normality has well and truly matured.

As I’ve said before, I will re enter the market when the downward graph passes through the line that starts in mid 2001, plus compounded CPI, and even then, it may dip below that compound CPI as people lose their nerve, put their hands firmly in their pockets and WAIT. It’s a game of chicken.

The Reserve Bank is a freakin’ One Trick Wonder that’s run out of ideas, and the various Governments and multiple Prime Ministers that have presided over this 18 year mess have ruined millions of lives.

I keep hearing of finacially unsophisticated people being conned by just bad brokers and Bank Johnnies into massive lines of credit on the supersonic increase in equity in their largest asset. Many of these Lines are now under water through irresponsible and criminally negligent practices. But, as we saw with the U.S. led GFC, no one did any serious gaol time.

“Nappy Land” is awash with negative equity, with Agents being “politely asked” by Banks and other Lenders to avoid the “Mortgagee In Possession” logo lest a stampede ensue. It’s too late. There’s a LOT of talk online and the “Average Joe” is only now beginning to understand the massive impact this has now and will have on them.

I’m so glad I have not one cent in this sector. It’s an unfolding, living nightmare.

 

Hi from Gaeta, Italy

Driving extensively across Italy it’s easy to validate an Economist that I met here opinion that the Italian economy is stuffed.

Similarly, you’d have to be living under a rock not to see that Australia’s real estate market is in the 15 to 20% range of a 100% correction.

My prediction is that prices will correct to below the CPI line drawn since 2001and that will be the point at which I may re enter the real estate market.

Example. I sold a small 3 bedroom house in 2002 for $199,000.00.  CPI puts this house today at about $305,000.00. It’s last sale was $485,000.00, crazy money.

Expect the correction to see this house in the high 200’s. Then and only then, would I consider buying.

OECD chimes in

It is now rapidly coming to fruition. The “reset we had to have” is well underway. I’m back on the Gold Coast from Europe for a couple of weeks. Met a lot of interesting people during my 6 months of continuous travel, many in finance, banking and real estate. There is an ongoing massacre in “Nappy Land” and my research sees many houses in the First Home Buyer belt changing hands for 25% less than they paid. This cancer will spread and affect the whole market.

Even the OECD now believes we are in for a hard landing. I agree.

No real estate for me.

And so it continues

One million Aussie owner occupied homes now officially in “Mortgage Stress”.

Tell us something we don’t already know!

USA nearing full employment and the Fed looking at 2 interest rates hikes sooner rather than later.

Anyone say “Perfect Storm”?

G’day from the wee fishing village of Anstruther near Edinburgh, Scotland

Well, it’s all happening as I predicted. 11 straight months of falling house prices

Banks and other lenders, unable to source cheap money, jacking up their loan rates independently of the Reserve Bank’s direction.  Interest rates go up, affordability drops, house prices decline. When a market is already in decline, and buyers are heading for the exits, (oh, no, wait…. they’ve already left!) Shit!  Ahhhhhh…..oh oh! We’re screwed…

I told you a long time ago. Sell your house and rent. Only a very few listened.

If you had a house worth say $800,000 in January this year, you have kissed goodbye to a minimum $60,000 depending on your marketplace. Perhaps more….and…even if wanted OUT now, there’s no buyers!

Oh deary deary me.  Should’ve listened

 

Even in the United Kingdom

G’day from Gerrards Cross outside London where the market here is really nervous! Reports across all media, with some nice areas around here suffering sales rate falls as much as 65%.

I’ve spoken with 3 real estate agency principals and they are all shaking their heads.  The market is at the “impasse” stage, with “scared of losing”, stubborn sellers sitting on high listing prices, and nervous buyers, fearful of rising interest rates and of paying too much, sit on their hands.

It won’t be long before “stretched” buyers start to “meet the market” and the true correction starts.

Now the Big Names are calling it

Here we go folks.  If you have a lot of equity in your home, or you own investment properties and have built up equity….sell NOW!

Major players in the world of economic crystal balling are calling the WHOLE MARKET in an ever increasing rate of fall. We are now looking at an annualised 8+% fall in the major markets.  If major markets with attractive fundamentals (close to CBD, transport, beach, attractions, facilities) are going to take an 8+% hit per annum over the next 2 years, then outlying, marginal markets, already under mortgage stress, will take a massive pounding!

My forecast for outlying ‘Nappy land’ areas, and apartments in general, is a 20 to 25% fall by the end of 2020.

If you have an $800,000 property, it will be worth (maybe, if there are ANY ‘un-spooked’ buyers left), from $600,000 to $640,000.  Can you afford to throw two hundred thousand dollars into the street?  At $700.00 a week , that’s five and half year’s rent!

Residential property is now officially ‘on-the-nose’.  Get out!

Here it comes – and it ain’t pretty

At last, some truth.

This link from Bloomberg News 31 July 2018

https://www.bloomberg.com/news/articles/2018-07-31/are-house-prices-falling-from-sydney-to-new-york

This is but the tip of the iceberg.

Direct reports to me from Agents and Lenders in the marketplace are painting a far worse picture than that illustrated even by Bloomberg.

There are large areas where mortgage stress has been festering for the last couple of years.  Now we have a rising interest rate scenario combined with a rapidly falling sentiment.  Not a great combination.

Approaching tipping point

Amazing how it happens.  Political pressure and self interest ensure the general public receive almost no real news about their biggest investment…. until, of of course, it is far too late for the majority to get out of the way.

And so, it seems, today, for me at least, is the tipping point.  In reading all the major newspapers over the last week or so, there is more bad news about the faltering real estate market than I’ve seen in any previous twelve month period. And I will blow my own trumpet here – it is all OLD NEWS!  I have been writing about this day for the last 3 years.  The craziness in the market – the craziness in the eyes of desperate ill-informed bidders at auctions, and the interference of the Chinese Government, through it’s agents, in using money sent to Australia to blow Auctions out of the water!

The sheer fright will start in Nappy Land, with over geared, lied-to youngsters with massively high percentage mortgages against their poorly built and badly located “dream houses’ in the middle of nowhere.  The suffering will start here and be the greatest pain to the people who, sadly, can least afford it.  There is so much of this “crap” property that I would not be surprised to see 50% drops as streets fill up with Auction signs emblazoned with “Mortgagee In Possession” stickers at 45 degree angles, as if to add to the misery knowing that the Banks are going steal back your biggest  possession (Notice I did not say “asset” because it ain’t an asset if it’s an albatross!).  Property the Banks financed knowing full well that this day would come.  Brokers who continue to complete bullshit Loan Applications to Bankers who rubber stamp and approve anything with a thready pulse!

I read the local joke of a paper where colourful articles showcase multi-million dollar sales in flash locations as if the owners have made yet another couple of million profit. The facts are that these behemoths have been on the market for 2 years or more, have started at $4.9 million ask and were finally sold for $3.75 million.  What is not revealed is that the mortgage was $3.5 million and the necessary renovations cost $500,000.00 to make the place pass a Building and Pest Inspection!  I know these figures as FACT but I won’t embarrass anyone with the address/s.  The house next door, nearly identical in form, function, size and aspect, sold in 2013 for $5.5 million. Using the RBA Inflation calculator, the neighbours house would have to sell, in 2018, for at least $6.25 million just to get their money back!

Its all smoke and mirrors and I call bullshit on all of it!

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