The Beginning of the Housing Crash?

If it’s Monday morning then it must be time another “real estate is booming, get in before it’s too late” story from News Ltd and The Age.

But wait, what’s this we read, “Where to now for first-time buyers?” and “Auction clearance rate slips to 80%.”

That’s not the usual shrill headlines about the housing boom we were expecting. Maybe the local press has put all their best journalists on the ‘balloon boy’ story. If you’re just dying to know the latest news on the epic boy and balloon story, click here and here and I’ll hang around for you until you’ve finished…

Finished? Good, because there’s some cracking advice in the News Ltd story:

“With low-end prices at $300,000-plus, the cut-back of a few thousand dollars in a bonus grant should not stop anyone from making their purchase. Another growing option is for first-home buyers to share their purchase with family and friends. It takes away that ‘total commitment’ leap for many first-time buyers by sharing the load.”

I don’t know about you, but I find it hard enough to get friends to buy a round of drinks let alone chip in a few thousand to help buy a house.

I can imagine it now. Mates the length and breadth of the country all getting together to buy houses for each other…

“Hey, Terry, fancy lending us $20,000 so I can buy a house for meself?”

“Yeah, sure mate, who do I make the cheque out to?”

“Er, me… Thanks. See ya later!”

Armed with that fabulous advice we can head on over to The Age. The reporters they had left over who weren’t covering balloon boy were watching the weekend auctions instead.

Have they just witnessed the beginning of the housing crash? Or is it just that all the property buyers were at the races instead?

“One auction, of a renovated three-bedroom house at 3 Carylon Street, Ormond, was passed in on a vendor bid of $950,000, below a reserve of $990,000. Another, of a two-bedroom weatherboard at 11 Kipling Street, St Kilda, was passed in at $760,000 and received a later offer of $780,000 that still fell far short of the $810,000 reserve.”

Maybe the interest rate rises are already starting to bite.

Don’t forget, we’ve already had two interest rate rises. The RBA induced one a couple of weeks ago, and the one when the banks “went it alone” a couple of months back.

And if we look at the SFE Target Rate Tracker, the market has built in a 100% chance of a 0.25% interest rate rise for November, and a greater than 50% chance of a 0.50% interest rate rise. As you can see from the chart below:

But don’t worry, it’s not all bad news:

“[A] rundown single-fronted home at 930 Drummond Street, Carlton North that attracted four bidders before it sold for $1,070,000.”

That would be a “renovator’s delight” we assume.

But anyway, we’re wondering where all the Chinese buyers were this weekend. After all, if we’re to believe what the spruikers are telling us, this is the new reason property prices can’t fall.

You know, it wasn’t so long ago that immigrants were railed against for stealing our jobs and our women. Now they’re stealing our houses too!

That’s the story according to expert demographer Scott Patterson. Oops! My mistake, he’s not an expert demographer at all, he’s a director of real estate firm Jellis Craig.

He recently told News Ltd:

“This calendar year 34 per cent of our sales went to mainly Chinese buyers compared to 15 per cent last year. We’re up 125 per cent overall.”

We’re not sure what he means by “went to mainly Chinese buyers.” Were the 34% of people most Chinese, but not 100% Chinese? It’s a bit confusing, but we’ll assume he means 1 in 3 homes went to Chinese buyers.

Got that? 1 in 3 homes sold by Jellis Craig is going to buyers from mainland China.

1 in 3. 34%. 34 out of every 100 houses sold is being bought by a native of China.

Is it true? Well, without going through the books of Jellis Craig to find out for certain we can’t be sure.

But they better make the most of it. Because in the last nine months the Chinese Yuan has hit the skids versus the Aussie dollar:

The Yuan, which is pegged to the US Dollar has obviously fallen off the same cliff as the US Dollar. All those Chinese buyers that were paying 4.5 million yuan for a million dollar house at the beginning of this year will now have to fork out 6.2 million Yuan.

So on that score the property bulls are right. Priced in Yuan, Australian property values have risen by 38% this year.

But when we hear comments by the real estate industry about foreigners buying all the houses, it sets off our BS indicator. To us it just sounds like another lame act of desperation by the housing industry to try and prop up prices.

I mean, they’re running out of ammunition. The first home buyers surge has come and gone. The housing shortage has been proven as a lie. The population growth theory has produced not a single jot of evidence to back it up…

In fact, we did read a comment in the Financial Times recently that stated Morgan Stanley had shown there was actually an inverse relationship between population growth and house prices during the last twenty years.

Again, we don’t know whether that’s right either. And we haven’t seen the Morgan Stanley research – although we have put a few feelers out to try and grab hold of it.

So now the spruikers are running out of ideas, they’re trying to pin the blame on the Chinese.

Well, good luck to them. We’ll see how it plays out. Maybe the Chinese have read the spin and have been to a few property spruiking seminars.

Perhaps they too now believe Australian property prices will rise forever.

Other Stuff on the Markets

The S&P/ASX200 closed at 4,836.40, down by 23 points, while overnight on Wall Street the Dow Jones Industrial Average dropped by 67 points to 9,995.91. In Europe the FTSE100 finished at 5,190.24, down by 0.63% and the CAC40 was down 1.45%.

The price of gold in Australian dollars is trading at $1,149.88, while in US Dollars it is trading at $1,053.20. And the price of silver in Aussie dollars is $19.05 and in US Dollars it is $17.45.

The Aussie dollar gained a little versus the US dollar, trading at USD$0.9144, and improved against the Japanese Yen JPY83.24.

Crude oil closed overnight at USD$78.53

For the biggest movers on the market yesterday click here…

The Beginning of the Housing Crash?, 8.5 out of 10 based on 20 ratings

Tagged as: Chinese buyers, Chinese Yuan, interest rate rise, Jellis Craig, Morgan Stanley, property buyer, rba, real estate, SFE Target Rate Tracker