Australian house prices fall average $150K at auction

The strongest signs yet of the popping of the largest housing bubble in Australian history are gaining traction. The Australian reported yesterday (ABS data):

HOME prices have crashed across the country, with the number of properties sold at auction falling dramatically in the first three months of the year.

The Australian Property Monitors group says Sydney and Perth showed the sharpest falls, with average prices dropping by more than $150,000.

The top end of the market has been labelled as "dead".

The falls are based on 1st quarter 2009 vs. the 1st quarter 2008 and are based on auction values.

Average price changes by city (1st Qtr 2009)

Sydney – $616,237 (from $786,682),
Down 22%
(1742 homes sold vs. 2230)

Melbourne - $476,677 (from $513,304),
Down 8%
(2251 homes sold vs. 3211)

Brisbane - $439,000 (from $596,000),
Down 26%
(195 homes sold vs. 350)

Adelaide - $372,000 (from $452,000),
Down 18%
(123 homes sold vs. 598)

Perth - $372,000 (from almost $572,000),
Down 49%
(34 homes sold at auction over last 3 months)

The above figures are based on auctions. As the following numbers show, liquidity has fallen out of the auction market. The above data may not represent what many houses are selling for at the lower end of the market as they tend to be sold through private treaty.

Hello asset deflation!

Expectations have changed. Sellers are becoming more desperate. Buyers are drying up. This is asset deflation at its best. When the market is booming, buyers are in control and there is very small spreads (the difference between the buyers price and the sellers price). Indeed, buyers outbid each other which pushes the housing prices higher and higher each year. We have now hit reverse. The spreads have widened by $100,000s. People in Sydney may think their house is worth $800,000 – but the nearest buyer is around $600,000. Your house is only worth what the nearest buyer is willing to pay!

The lower end

The lower end of the housing market has also been very receptive to the extension of the first home owner grant in the last 12 months. Statistics show that first home buyers have been using the grant to lift their mortgage (DEBT) in many cases by more than the grant itself to secure the properties they really want. In a large amount of cases, over 90 to 95 percent of a purchase has been tied to a mortgage.

Chart 1: In February 2009, first home buyers accounted for 27 percent of all loans, with the average loan up 23 percent from a year ago.source: ABC News

Government Incompentance

Essentially the Government (Federal and States) and the banks have orchestrated a perfect storm. A sub-prime for young Australians. Young Australians who are at the start of their working life, have very little savings and tend to spend heavily on credit. It is also the generation more likely to be laid off in the current economic environment.

Wake up! About a month ago the Federal Labor Government shouted out across the chamber in Question Time preaching the success of the extension of the first home owners grant. The Prime Minister was first, followed by the Housing Minister, and the Treasurer. One by one they put on the record how proud they were at getting young Australians into the great Australian Dream. What they failed to mention was that added and abetted young Australians to acquire a life long debt burden. There are two tiers to the manipulation. A) let the RBA artificially lower interest rates (this is how the US got sub-prime remember?) B) Making the carrot bigger (First home grant). Governments worldwide are doing the same. In the end the market will win once again. Government's can't fight the market.

In addition, the May budget is almost here, and my bet is the first home owner grant will stay in place (possibly extended..) – just to try to keep the bubble going that little bit longer…

The Federal and State Governments will come to regret their words and actions. They have added more fuel onto Australia's largest housing bubble. Now the grants and the indebted mortgages will sink into the (asset) deflation black hole. There are lessons to be learnt here... Didn't anyone pay attention to the housing problems in the US, UK, European housing markets?

Australian media cover up?

Today and yesterday the media was more interested in a 27-year old entrepreneur from Melbourne who took on BrisConnections and gained a nice $4.5 million in only 5 months. However, there is next to nothing on this housing price/auction data in any of the major newspapers. It hasn't even made the top headlines in the evening news. What the hell is going on here? Auction prices have fallen 22% in Sydney in 12 months – and we've heard almost nothing… Is this selective censorship?

Regardless of the games of the Govt and media, the tide has well and truly turned on Australian property. Monetary policy and carrots have not and will not work this time.

~ Scott