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  • Official figures have been released showing the extent of the Australian property market

  • slide.

  • $133 billion was wiped off the value of property prices in the December quarter 2018.

  • Figures from the Australian Bureau of Statistics show that Sydney had a quarterly fall of 3.7%;

  • Melbourne 2.4%; Brisbane 1.1%; Darwin 0.6%; and Canberra 0.2%.

  • Only Adelaide and Hobart showed any signs of an increase with 0.1% and 0.7% respectively.

  • Regarding the price declines, Angie Zigomanis, senior manager at BIS Oxford Economics, said:

  • Investors were a key driver of price growth through their upturns and the fall in investor

  • demand is now underpinning the decline in prices.

  • The weakness in prices and likely concerns about further falls will continue to play

  • on purchaser sentiment through 2019, with further price falls in Sydney and Melbourne

  • expected.”

  • Mr Zigomanis did some research intorealhouse prices, that is, he took into account

  • inflation.

  • Based on these figures, you can see that the current downfall in Sydney home prices since

  • June 2017 (shown by the dotted navy blue line) has fallen 16% in only six quarters.

  • This decline has occurred at about twice as fast as the historical average.

  • The worst downfall in history (as shown by the yellowy colour) occurred in the first

  • half of the 1980s where property prices fell almost 34%!

  • But that occurred over a period of 23 quarters.

  • At the current rate of decline, is Sydney on track to have its worst property decline

  • in history?

  • Time will tell.

  • Melbourne, on the other hand, is facing its steepest property decline of all time.

  • Although it's only down 14% since its peak in December 2017, it's done so at a staggering

  • pace!

  • 14% over only four quarters.

  • Melbourne's worst decline (shown in teal) occurred between 1976 and 1983 where the property

  • market fell by about 25%.

  • Looking at the graph, it was a very bumpy ride.

  • With regards to this data, Mr Zigomanis said:

  • So far, the period of decline in these two markets has been much shorter than the

  • longest downturn duration and around half of their respective average downturn lengths

  • in both the house and unit markets.

  • Therefore it is foreseeable that the current downturn in the Sydney and Melbourne markets

  • may have at least another year to run before reaching the cyclical trough.”

  • With regards to the difference between house and unit prices, Mr Zigomanis said:

  • The disparity in the rates of decline between houses (-14%) and units (-6%) has been predominantly

  • as a result of the sharper acceleration in house-price growth in the lead-up to the downturn,

  • with houses rising by 52% in the five years to December 2017, compared with a 14% rise

  • in unit prices.”

  • Referencing the other capital cities, he said:

  • The ongoing oversupply in Western Australia, combined with its weak economic and population

  • environment, will continue to drag on prices in both the unit and separate housing markets

  • in the year ahead.

  • However, given the already extended nature of Perth's downturn, the rate of decline in

  • prices is expected to begin to ease.

  • It's been a mixed bag across the other markets, although with the 1.1% decline in the Brisbane

  • index in the quarter also concerning given that prices have been flat for most of the

  • year, there is a danger that prices could fall further.

  • The modest growth in the index in Hobart in the December 2018 quarter and fall in Canberra

  • suggests that the rise in these markets is now running its course, with price growth

  • to potentially flatten out over 2019.”

  • Due to the falling property market, many economists have argued that the Reserve Bank needs to

  • cut interest rates even further in order to spur on the economy.

  • NAB, JP Morgan, Westpac, UBS and AMP are all calling for the RBA to cut interest rates.

  • The ASX futures market has priced in a full 25 basis point cut by September 2019.

  • JP Morgan seems to think that there will be two cuts by August this year, becauseinterest

  • movements are like cockroachesthere's always likely to be more than one”.

  • All this is indicative of a global slowdown.

  • Interest rates are already low across the developed world.

  • The US is currently at 2.5%, Canada at 1.75%, Australia 1.5%, Britain at 0.75%, and poor

  • old Japan at -0.10%.

  • But according to economists, Australia still has a little bit of wiggle room.

  • If the RBA does cut interest rates, how far will it need to cut them to meet its targets?

  • Average Australians are running out of cash thanks to rising debt levels and stagnant

  • wage growth.

  • Small businesses are closing down everywhere you look.

  • Speaking of rate cuts, Su-Lin Ong, Chief Economist at RBC, said:

  • Rate cuts are unlikely to be particularly effective and may well not be the right policy

  • response.

  • Households are already pretty indebted; will they want any more debt and, more importantly,

  • do you want them to [borrow more]?

  • Even if households are willing to load up on more debt, what will they get from an RBA

  • rate cut?

  • The odds are the banks won't pass on the full amount and the tightening in lending standards

  • will remain.

  • It's about the supply of credit not the price of credit.”

  • A bank analyst at UBS, Jonathan Mott, stated:

  • We believe it is more likely the major banks pass through around 30 basis points

  • of the RBA's potential 50 basis points in rate cuts to mortgagors.”

  • He said that it's often mistakenly thought that mortgage rates are highly correlated

  • with the RBA's cash rate.

  • He stated:

  • While this works in theory during higher interest rate environments, in periods of

  • very low interest rates or when credit spreads move wider, there may be a breakdown in this

  • relationship.”

  • Furthermore, banking regulators require borrowers to pass a loan serviceability test where they

  • can handle interest rates rising toat least 7%”.

  • He stated:

  • As a result, any further reductions in the RBA cash rate and reductions to bank mortgage

  • borrowing rates will not lead to an increase in borrowing capacity given rates are already

  • below the floor rate.”

  • The Australian housing downturn is having real effects on local businesses.

  • A number of building companies in South Australia are facing collapse, and another is facing

  • court action.

  • Adelaide construction company, Tudor Homes, has gone into liquidation, and JML Home Constructions,

  • which runs the Onkaparinga GJ Gardner franchise, has already closed its doors.

  • Here's a picture of one of their unfinished homes in the suburb of Campbelltown.

  • Cubic Homes, based in Kilburn, have applied to close their doors, and will be heard later

  • this month.

  • Tudor Homes has been a defendant in litigation for some time.

  • The company's liquidators said the firm was insolvent with outstanding creditors.

  • A number of customers have been impacted by the collapse.

  • ODM Group, OAS Group, and Platinum Fine Homes have also fallen victim to the property downturn.

  • It is believed that OAS Group have left 40 houses unfinished, but they said that property

  • owners should be covered by building indemnity insurance.

  • So there you go.

  • That's what's happening in Australia thanks to the deflating property bubble.

  • What do you think?

  • Will the RBA continue to reduce interest rates in the vain attempt to keep people borrowing?

  • Will the government intervene and do something unexpected?

  • Or are we all just doomed and the Australian economy will crash and burn along with its

  • property market?

  • Let me know your thoughts below.

Official figures have been released showing the extent of the Australian property market

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Australian Property Values Fell $133 Billion Last Quarter

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    m925304 posted on 2019/05/16
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