‘We sold the house!’ she told the group as she walked in.
The house had been on the market for ages. But, it was a bitter sweet victory.
‘Why the long face?’ someone asked.
‘We sold it for far less money than we were expecting.’
‘That’s what’s happening to everyone that’s selling now.’ We heard someone in the group say.
This is one of two stories on property we heard this week.
The second was from another acquaintance who put in an offer for a house. They included a clause in their offer though, it was subject to finance.
As it turned out, they missed out on the house.
The owner accepted another bid, one that was lower, but not conditional on getting finance.
You don’t need to look too far to see that the property market in Australia has changed in the last year.
The frenzy is over, and things are changing quickly.
It’s gone from hearing that properties are selling at record prices and well above the reserve price to now seeing ‘distressed properties’.
In fact, we are even seeing less auctions. According to Corelogic, in the three months to January 2019, 75% of properties sold by private treaty…and for less than the listing price.
Prices are falling, as sentiment turns negative on property
As Business Insider reports, the number of listed properties is increasing, mainly because properties are taking longer to sell.
‘According to CoreLogic, new property listings — defined as those properties that have not been put up for sale in the past six months — slumped to 24,930 over the past four weeks, down a hefty 18.8% from the levels seen just 12 months ago.
‘However, despite the steep reduction in new listings in Australia’s largest and most expensive cities, total properties on the market continues to swell, lifting to 118,969 across the capitals over the past four weeks, up 9.1% from the same period a year ago.
‘That indicates that while the supply of listings is now starting to fall, properties are still hitting the market faster than what they are selling.’
We are also seeing a slowdown in finance.
‘Australian home lending slowed to the weakest since President Ronald Reagan and Prime Minister Margaret Thatcher dominated the global arena in the 1980s.
‘Loans to buy houses advanced just 0.2 percent in January from the prior month, according to monthly financial aggregates released by the Reserve Bank in Sydney Thursday. That was the lowest level since July 1984, when Australia was initiating a deregulation campaign to kickstart a moribund economy.
‘Sydney and Melbourne’s property markets are tumbling as stratospheric prices, tighter lending standards and new supply combine to spook buyers.’
Tightening credit means less buyers can access the property market, especially since salaries have barely increased while property prices have skyrocketed.
Increasing supply and reducing demand doesn’t spell good news for property prices…
With investors retreating, the market has been propped up by owner occupiers, and in particular, first home buyers have been pushing demand up.
First home buyers have been getting incentives to buy as house prices fell.
But now that sector is also starting to dwindle, as you can see in the figure below from Australian Bureau of Statistics.
Some punters are saying that low prices are good news for first home buyers. That may be.
But remember, property prices increased way more than salaries did in the last few years. Even with the fall in property prices, in our view, property is still not looking cheap.
The recent housing boom in Australia hasn’t been the result of higher salaries…but instead it’s been propped up by large amounts of debt.
Now household consumption is falling.
The household savings rate keeps dropping, while household debt has increased to record highs.
Of course, a slowing property market could take a toll on the economy. Employment, construction, retail…you name it.
First home buyers may be watching from the sidelines, waiting for prices to fall more. The truth is that with property prices falling, there is no big rush to get in.
But, they could also be getting benched, because they are having a harder time accessing finance.
In our experience, tightening credit and falling prices — as we saw in Spain during the property bubble too — aren’t good news for first home buyers. They may be looking at ‘cheaper’ prices, but they are probably looking at more credit requirements too, with no assets to place as collateral.
Editor, Markets & Money