staringclown

Slump looms as a third of new home sales abandoned

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Slump looms as a third of new home sales abandoned

This isn't good.

Melbourne's outer-suburban property market is facing a serious slump as distressed buyers and builders cancel one in every three new home purchases.

The collapse in sales could have serious repercussions for the state economy and the building industry, which employs more than 250,000 Victorians.

"We've never seen this before, so it's a very strong signal that the fundamentals are wrong," said Colin Keane, director of analyst group Research4, who compiled the new research.

He said the current cancellation rate of more than 30 per cent compared to an average two years ago of about 5 per cent.

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Developers have had nearly 1800 lots returned to them this year as buyers have aborted plans to build homes in the city's housing estates, according to the National Land Survey Program.

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"The developers are basically trying to buy their settlement. It's easier to pay them the difference than to try to sell the block again," said a valuer, who asked to remain anonymous.

Read more: http://www.theage.com.au/business/slump-looms-as-a-third-of-new-home-sales-abandoned-20121128-2ad95.html#ixzz2DWcdVUgi

Reading between teh lines it is as much a case of an economic choice to walk away from the deposit as it is a "distresed buyer". The bloick has fallen in value so why go through with the purchase if only $1000.00 is put down?

Actually surprises me 70% are settling if land prices are down 20%+

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Reading between teh lines it is as much a case of an economic choice to walk away from the deposit as it is a "distresed buyer". The bloick has fallen in value so why go through with the purchase if only $1000.00 is put down?

Actually surprises me 70% are settling if land prices are down 20%+

Beginning of the end, perhaps?

I've always thought that a drying up of the first/young buyer tributary to the housing cash/demand stream will precipitate the housing collapse (rather than the theory that a slow down at the top end will exert downward pressure on the other market segments). That's why I've been reading with interest articles such as this and the reports of developers throwing cars, etc, at suckers to try to sell blocks...

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"We've never seen this before, so it's a very strong signal that the fundamentals are wrong," said Colin Keane, director of analyst group Research4, who compiled the new research.

The fundamentals are wrong:) Hello. They've been wrong for a decade or two:)

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"We've never seen this before, so it's a very strong signal that the fundamentals are wrong," said Colin Keane, director of analyst group Research4, who compiled the new research.

The fundamentals are wrong:) Hello. They've been wrong for a decade or two:)

I agree Umm.

In terms of what I regard as the fundamentals. (Land & Homes should be available to the average Australian at around 3 times the average yearly wage!) I would suggest that should be the fundamental premise upon which all policy regarding housing is determined.

But what fundamentals might Colin be talking about. ("Homes should be doubling in value every 7 years" - or "House & Land prices only ever go up" - or is it to do with the processes of land purchase, govt bureaucracy, construction costs, govt bureaucracy, mortgage payments, govt bureaucracy, etc, etc....)

If an analyst and researcher of this calibre can't work it out, no wonder the rest of us are having trouble, and our country is in such predicament with home affordability.

Is it really that hard to understand?:huh:

After all we've been discussing it for nearly 5 years on this forum.

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"We've never seen this before, so it's a very strong signal that the fundamentals are wrong," said Colin Keane, director of analyst group Research4, who compiled the new research.

The fundamentals are wrong:) Hello. They've been wrong for a decade or two:)

nah, it was different here... until now.

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Sol, as urchin suggests, it's all pointing to the game being up. People that used to argue balck and blue with me that Ozzie property could not fail have stopped arguing. The vibe is more than cautious now.

Doesn't mean we'll crash, could dip and track sideways for years yet. One way or the other, I wager that within the next decade, an average 3 bedder will again cost 3-4 times the average wage for a given area.

Was looking at servicing loans on places that interested me in Adelaide today and (given a 20% deposit) repayments would only be $100 PW more than renting an equivalent. Of course IRs are lowish, so I'd either need another 20% deposit, or 20% reduction in prices for it to be a safe buy - but it is getting closer. If prices don't move, even if my savings don't increase and wages grow @ 3% PA, it's only 7 years until things even out.

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Sol, as urchin suggests, it's all pointing to the game being up. People that used to argue balck and blue with me that Ozzie property could not fail have stopped arguing. The vibe is more than cautious now.

Doesn't mean we'll crash, could dip and track sideways for years yet. One way or the other, I wager that within the next decade, an average 3 bedder will again cost 3-4 times the average wage for a given area.

Are you predicting 3-4 average individual's wage or household?

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Are you predicting 3-4 average individual's wage or household?

Individuals - I think:)

The average full time wage is 65k or so, average full time income 55k or so. So, in 7 years, average wage is 80k and av full time income is 68kish. Entry level homes between 200 & 300k. Bigger middle class homes (dual income, 100k earners and so on) 300-400k. Only minimal drops from where they are now, some places more than others.

Or, property shaves approximately 20% quickly and starts growing again in line with wages.

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Individuals - I think:)

The average full time wage is 65k or so, average full time income 55k or so. So, in 7 years, average wage is 80k and av full time income is 68kish. Entry level homes between 200 & 300k. Bigger middle class homes (dual income, 100k earners and so on) 300-400k. Only minimal drops from where they are now, some places more than others.

Or, property shaves approximately 20% quickly and starts growing again in line with wages.

What's your definition of entry level house? 2 bedroom, 1 bathroom, < 120sqm floor area?

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Yea, the 200k places I see as 2 bedroom flats, or 3 bedders in outer suburbs, 1 bathroom, smaller blocks and so on. I'm not saying they are fair value ATM - they would have to be 150-270k to be that now.

I spent a while thinking it was unfair that starting families now couldn't get the same oppurtunity my parents did. 3 bedrroms on 1/4 acre, near a train line and a resonable school. But lifestyles have changed. People have changed. We live longer and less have kids. A nice 2 bedroom flat to an up and coming workaholic couple, or individual, is probably worth as much to them as a 3 bedder with some grass out the back is to a young family. It's sad for those of us that do have kids that those kids don't get to grow up with as much space - but that is the modern world, i guess.

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Yea, the 200k places I see as 2 bedroom flats, or 3 bedders in outer suburbs, 1 bathroom, smaller blocks and so on. I'm not saying they are fair value ATM - they would have to be 150-270k to be that now.

I spent a while thinking it was unfair that starting families now couldn't get the same oppurtunity my parents did. 3 bedrroms on 1/4 acre, near a train line and a resonable school. But lifestyles have changed. People have changed. We live longer and less have kids. A nice 2 bedroom flat to an up and coming workaholic couple, or individual, is probably worth as much to them as a 3 bedder with some grass out the back is to a young family. It's sad for those of us that do have kids that those kids don't get to grow up with as much space - but that is the modern world, i guess.

I agree with the fair value point, not much in Australia is fair value.

I think a fair amount of wealth destruction would be involved if the market was to return to $200k for 2 bedroom units within 20 kilometres of Sydney CBD. In that kind of environment, buying a house for your children to have a nice childhood would be the least of your worries. I'd guess the crime born out of desperation and poverty would create a dangerous and uncomfortable environment.

1/4 acre blocks are a thing of the past in the cities. Heck, even in Cairns it is becoming really difficult to get that size within 20 kilometres of the city, unless you're looking at older houses and older areas, and you'll pay fairly big money in the decent areas.

Blocks larger than about 900sqm where ever I've seen them are way beyond entry level affordability.

Edited by tux

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What's your definition of entry level house? 2 bedroom, 1 bathroom, < 120sqm floor area?

That's an entry level rental. tongue.gif

Edited by Mr Medved

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I agree with the fair value point, not much in Australia is fair value.

I think a fair amount of wealth destruction would be involved if the market was to return to $200k for 2 bedroom units within 20 kilometres of Sydney CBD. In that kind of environment, buying a house for your children to have a nice childhood would be the least of your worries. I'd guess the crime born out of desperation and poverty would create a dangerous and uncomfortable environment.

1/4 acre blocks are a thing of the past in the cities. Heck, even in Cairns it is becoming really difficult to get that size within 20 kilometres of the city, unless you're looking at older houses and older areas, and you'll pay fairly big money in the decent areas.

Blocks larger than about 900sqm where ever I've seen them are way beyond entry level affordability.

I don't know that destruction of wealth would lead to violence. It hasn't in other place where property bubbles have burst or stagnated.

Say someone is in major negative equity - what choice do they have but to keep paying the bank for a bad purchase? How will that lead to desperation and an uncomfortable environment? The desperation that leads to crime is not because a wage earner has no spare cash and are paying down a bad investment, it is when people can't eat, find shelter or service addictions to alcohol, drugs - whatever.

Sure, a decrease in demmand for property will have an effect on jobs and wages - which will inturn decrease the demmand further. But things will settle - just with REAs and tradies being paid a lot less than what they have become used to:) Some will find other jobs, some will become unemployed. Eventually the government might have to step in and buyout dud homes for bargain basement prices to increase the public housing stock.

If property prices dropped 20% tommorrow - a lot of people would be pissed off but I don't think there would be panic in the streets. Perhaps a few punchups as the bears laugh at the bulls:) But no panic. If the ATMs went down - that may cause panic. If a big bank folded, that would also cause panic. Stagant prices for 7-10 years should stop our banks folding - should. A property hit greater than 15% in a small space of time might fold one or two.

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It's bizarre, I was just thinking of posting a question querying what the next couple of years holds for property prices in Australia, and this pops up.

Do people see this as the beginning of the end? Major correction in land prices? Major recession and lack of consumer confidence? Job losses in Australia's public services and the private sector biting? Thoughts?

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I don't know that destruction of wealth would lead to violence. It hasn't in other place where property bubbles have burst or stagnated.

Say someone is in major negative equity - what choice do they have but to keep paying the bank for a bad purchase? How will that lead to desperation and an uncomfortable environment? The desperation that leads to crime is not because a wage earner has no spare cash and are paying down a bad investment, it is when people can't eat, find shelter or service addictions to alcohol, drugs - whatever.

Sure, a decrease in demmand for property will have an effect on jobs and wages - which will inturn decrease the demmand further. But things will settle - just with REAs and tradies being paid a lot less than what they have become used to:) Some will find other jobs, some will become unemployed. Eventually the government might have to step in and buyout dud homes for bargain basement prices to increase the public housing stock.

If property prices dropped 20% tommorrow - a lot of people would be pissed off but I don't think there would be panic in the streets. Perhaps a few punchups as the bears laugh at the bulls:) But no panic. If the ATMs went down - that may cause panic. If a big bank folded, that would also cause panic. Stagant prices for 7-10 years should stop our banks folding - should. A property hit greater than 15% in a small space of time might fold one or two.

Fair enough points.

What I was thinking was that the dung would need to be hitting the rotating blades in large quantities if 400K units in Sydney were to drop to 200K, I'm thinking huge unemployment levels to cause that kind of drop.

I wouldn't under estimate the ugliness of poverty. Everywhere I know of where poverty levels are high, those places are pretty sh*tty places to be in. I'd rather be among prosperity* than poverty. (obscene wealth aside).

I don't foresee prices dropping that far for most of Sydney. The boon-docks might be different.

Dwellings might become better value through price stagnation, in which case that is going to take time. If you're happy to wait that long, then you wait and bet against the masses that still have other ideas (especially where my unit is located in Sydney. Prices still seem to be rising, maybe only keeping pace with CPI, but that doesn't make them any more affordable).

We here are now probably all aware of some regional markets that have already dropped 20%, houses selling for below replacement cost already. So maybe regional towns are the go? Where I've been monitoring in Cairns, prices for average homes are up to 20% off what they were selling for in 2007. Despite this, a couple of odd things that I've noticed in Cairns:

Tradies travelling 500+ kilometres to do jobs to maintain labour rate and won't discount local jobs, not even 10% discount.

Landscapers in Cairns seem to be flat chat, again some travelling 100's of kilometres instead of doing local work. We found most don't even bother to return phone calls or reply emails, even in this so-called "downturn in the local economy".

One more thought, maybe the government has more tricks to prop things up, such as attracting even more foreign money and further increases to immigration. Tricks that will be designed to increase the competition/demand for resources locally to keep the wealthy satisfied and I doubt it will matter which party the populace vote for, it will be the same vomit.

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Do people see this as the beginning of the end? Major correction in land prices? Major recession and lack of consumer confidence? Job losses in Australia's public services and the private sector biting? Thoughts?

The indicators are retail is in trouble, serious trouble. Manufacturing is going backwards. Miners are closing up shop or limiting future development. Tourism must look expensive for foreigners. This will all put greater pressure on governments to shed staff... so it looks like the next leg down but it may not be off a cliff face.

I have a mate that moved to outback WA. He said wages are ridiculous but work isn't that easy to find at the moment.

We're due for another panic. The 1869 panic followed with one about four years later, the 1929 panic followed a few years later, the 1973 oil crisis followed up in '79...

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tux,

Sydney has higher average incomes than anywhere in Oz except for perhaps the ACT. I think places close to the Sydney CBD will always cost more, unless there is a major unemployment jump.

I do see the amount of money spent on IT decreasing in the future though, so that may have an effect on Sydney incomes.

Sean/Medeved,

The federal public service is as tight as it's been on staff and spending since I've been there - 8 years or so. The old guys are saying the late 90s was worse - but this has only started. The night of the long knives happened quickly, from what I understand. What is happening now is going to upset the public sector and staffing levels for 2 years or more. Acting is being stopped all over the place and I don't see it and promotions coming back until there have been sufficient staff cuts.

This could be the start of a major recession and panic, bigger than 70s recession or 90s cutbacks. I was a cop in the 90s so my job was secure but there were staff freezes and workloads increased a lot - but in that industry, so did OT. I don't know anyone in the public sector now who went through the 70s recession. My dad was a public servant in that time, his job was secure but he tells me he would hate to see even that again because all of the builders/labourers etc really suffer. It is likely we see that again, I guess.

I don't think all of the big four (of any) can handle a rapid decrease in propery value though.

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On this, was just thinking that property/land prices (the obvious elephant in the room) is in a much worse position than it was in the 90s, or 70s.

90s the average wage was 45k or so. House prices decreased 15-20% back then - but that was on a 150k average price. The recession shaved less than a years income of the value of someone's house.

Now with average wages/incomes being in the 60k range and average houses costing 350-400k odd k, the situation is much more disproportionate. A similar decrease in prices is twice as big a portion of a persons income.

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Sydney has higher average incomes than anywhere in Oz except for perhaps the ACT. I think places close to the Sydney CBD will always cost more, unless there is a major unemployment jump.

You may be right in regard to Government IT Umm but the word from the Gartner conference is that the "talent" wars are kicking off again. Mind you Gartner are the IT spruikers extraordinaire. But even so there is plenty of work around outside Govt at the moment. Believe me, I've been looking.

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You may be right in regard to Government IT Umm but the word from the Gartner conference is that the "talent" wars are kicking off again. Mind you Gartner are the IT spruikers extraordinaire. But even so there is plenty of work around outside Govt at the moment. Believe me, I've been looking.

Is that work in Canberra outside of Gov IT? Because that could be a domino situation I think. Like if the Gov is still taking all the workers then private will have a shortage but if Gov gets nailed then there is a flood of people into the semi artificial shortage.

This is based on my preconceptions of government work only, not facts or even anecdotal evidence :)

(although I must say a couple of my gov. clients have started ramping up again on semi expensive projects which got shelved for a couple of years, no idea what that means outside of more work for me)

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Is that work in Canberra outside of Gov IT? Because that could be a domino situation I think. Like if the Gov is still taking all the workers then private will have a shortage but if Gov gets nailed then there is a flood of people into the semi artificial shortage.

This is based on my preconceptions of government work only, not facts or even anecdotal evidence :)/>

(although I must say a couple of my gov. clients have started ramping up again on semi expensive projects which got shelved for a couple of years, no idea what that means outside of more work for me)

Government work but contracting rather than permanent. There are a few projects related to the NDIS that I know are recruiting. Even in my own dept there are new projects kicking off. Even today there was an announcement of an anti dumping watchdog. Government policy announcements always get extra money. (28 million for todays announcement alone) Never stand between consultants and a bucket of Government money. :)

Geoscience has been given a boost to find more places to dig. Tax has been given more to get more tax revenue. All of the new money is designed to achieve an increased ROI.

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Government work but contracting rather than permanent. There are a few projects related to the NDIS that I know are recruiting. Even in my own dept there are new projects kicking off. Even today there was an announcement of an anti dumping watchdog. Government policy announcements always get extra money. (28 million for todays announcement alone)

Ahhh so it isn't a domino situation in terms of plural, it is still just the one domino :)

Never stand between consultants and a bucket of Government money. :)/>

I avoid those actively they attract the wrong types.

Tax has been given more to get more tax revenue.

Bugger. I am up for my review on all the money they nicked :)

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Ahhh so it isn't a domino situation in terms of plural, it is still just the one domino :)/>

If that domino falls you might find me on your doorstep pleading for work. :)

I avoid those actively they attract the wrong types.

Very wise. The consultants of which I speak are either sucking up cash telling you how you should be running projects or reviewing how badly projects went after you took their advice.

Bugger. I am up for my review on all the money they nicked :)/>

I'm hoping the money gets spent on the Double Irish With A Dutch Sandwich rather than your working family :)

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