44% jump in property listings points to price falls in 2011: Expert

Is this a case of investors exiting the property market, or owner-occupiers downsizing or what? Clearly if its the latter, each sale will create demand for another property. Louis, any insight here as to the mix and how it varies between location?

I can imagine the oversupply on the Gold Coast is investors exiting, but elsewhere, not so sure.

An explanation:
1. Negative gearing introduced in the 80s brought on an ever-increasing wave of Mum and Dad investors looking to minimise their tax and somehow feeling good about themselves that they were "providing a roof for renters". However, each investment property purchased had the effect of taking a home off the market that would have otherwise been available for kids leaving home to buy, and forced to rent.

2. Introduction and increases of first home owners grants in recent decade fuelled the price increases, as well as the rise of the mega-housing developers dictating the new McMansion lifestyle.

3. Cheap credit and relaxed lending conditions saw prices rise even further this last 5 years (bigger and riskier loans enabled first home buyers to bid higher - but still lost out in auctions as investor speculators could always pay more).

4. Changes in government policy made it easier for cashed-up overseas investors to enter the market, driving prices even higher.

The current state: credit is tight and getting more expensive, capital gains will be negative in next 1-2 years and then at least flat for the following 5 years so investors are selling up to go elsewhere. They can't increase rents as middle-class is already stretched on their mortgage (retail sales show this), interest rates will rise further increasing the pain on investors as bank interest greatly overshadows rental yield forcing them to sell, as it will force mortgage-stressed first home buyers to sell, baby boomer (investors) wanting to retire in next 1-7 years are trying to cash out now before price drop kills their nest egg. All this is true in all capital cities - not just sunshine coast. Expect 40% price drop like those in-the-know have been saying for over a year. See bubblepedia.net.au

The significant segment many Australians miss is internationals and dependents i.e. new & existing international students, graduates on bridging visas and immigrants who both rent and buy. These numbers have been and continue to fall off a cliff with immigration caps, less new starters for study, and existing students, due to high AUD plus tougher visa regime, or grads on bridging visas leaving being unable to find employment. This could be a pool of 100k++

PT1. IT’S ABOUT TIME THEY WHERE GOING DOWN AND THE FURTHER THE BETTER

House Prices? Why is it, when you read articles about the market that after having growth (maybe never seen before). That they think it should go on forever, doubling, doubling, and doubling. Great if you’re an investor! They talk like it’s a terrible thing a housing slowdown, or even worse a reversal. I mean, when interest rates are low and people have borrowed to the maximum that their income will allow. It can’t go on can it. As well as income of the masses now maxed out, we have interest rate hikes to control inflation. WE’LL WHERE WAS INTEREST RATE HIKES WHEN HOUSING WAS OUT OF CONTROL (or is that inflation we don’t need to worry about).

So it depends from what end you’re looking at it, did everyone forget interest rates was once 17/18%. I asked a valuer once that came to value a house, we where renting that was up for sale. Where he thought the market would be if it went to those levels again? Any Guesses on his reply?

Just because interest rates are low, doesn’t mean you should borrow more and sell your life, your families life and your earnings to the banks for the next 25 - 30 years. Low interest should mean more money for the family (more disposable income). That means more spent in shops and businesses (AN ECONOMY/JOBS). Not just a mining economy.

Instead everyone gets drawn into the low interest offered, as an opportunity to borrow more, to outbid the next man to buy that property for MORE money. Every extra $1000 given is $1000 less for YOUR family and the Economy? Straight to the banks. Hey the government loves it, more taxes (house prices double = double the stamp duty) the real estate agent loves it (especially if on a % of sale, as house prices have doubled so has their income) the seller loves it (but the next house they purchase went up as well?).

HOW ABOUT NOT BUYING THAT HOUSE? Just like now the market sales are down, watch the prices fall. Don't start buying as soon as you can afford a mortgage or up they go again. Let them keep falling and the money you save is yours to enjoy, not the banks (fat cats on $10,000,000+ a year). Sellers can only sell a home for what you will pay for it.

Can't we haggle over property? (Yes it is difficult if everyone else is running to the bank to borrow more money).

Does anyone else get this one? If you where buying a car and it was worth $10,000 would you pay $20,000 to fight the man off next to you. Just because interest rates are so low that you can? Or would you let him have it at that price, and look for another.

What I don't understand is why everyone complains about interest rate hikes (I do) but that’s what they sign up to (flexible rates) But the more you offer a seller for their property the more the rate hikes are going to hurt. Flexi rates are a form of legal loan sharking. How come you can get a fixed rate of finance for most credit? But when it comes to the most expensive purchase you ever make over the longest period and your HOME is on the line. You can't get a fixed rate for the life of the loan.

What I mean is you can do your budget and decide you can afford your loan or not. But when interest rates can vary up to 18% does the bank manager check to see if you can afford it at the higher rate. No is the answer, because he wants your business (your money). But they will sign you up and later can move the goal posts. To the point of taking away you’re most important possession (The family Home). Do you see the loan shark comparison, only it’s legal to sign you up Knowing you may not be able to pay in the future when they move the rates up. How can it be legal to sit across a desk and sign up people to loans they potentially can't afford? These are the financial experts that want your money not your friends.

PT2. NOTE if they checked what you could truly afford at the potential higher rate and loaned on that amount. Buyers would not be able to offer ridiculous amounts of money that they potentially cannot afford. So house prices cannot go berserk and double over a few years. IF CAN'T BORROW, WHAT YOU CAN'T AFFORD, YOU CAN'T SPEND WHAT YOU CAN'T AFFORD.


Well I am one of those who can't afford to buy and in my opinion some have had it too good for to long. Its time house prices dropped back 40 -50% so we can all afford a house.

I am 46 years old, I lost my home once before. Sorry but I am hoping for interest rates go up and prices to come down. I still live in hope that somehow one day I might be able to get somewhere for my family. House prices doubling in a few years just aint normal and its created mostly by the people buying them. In there frenzy, panic buying and the industry loves it. Sad as it is them that payed too much for there homes may have to face a realty check. For some people the further they come down the better.

There’s no doubt about it. Interest rates too low allows people to borrow too much. To be able to pay more and more to buy that property even when its not worth it. Its only worth it because you pay it.

How come is it, we so easily after the government takes it cut in taxes from our earnings. We so quickly will sign the rest over to the banks for such a huge amount of time? Now as well as ultra low interest rates we are allowed 30 years plus pay. Greeeat we can borrow even more. To eventually pay more

@Hercc130, really great summary of some of the problems we have been facing for the last decade or more. Got to say that you're a little harsh on the loan sharks! Only dishonest loan sharks change the terms of the loan after it's been agreed. Sure, their interest rates are high but they do lend to the riskier end of the spectrum. What really sets the loan sharks apart from the banks is that the loan shark actually *has* the money to lend you. They have it clear - probably cash notes that they pull from their till. The banks, however, have been given a legal privilege to increase the money supply by creating the money they lend you by simply making an adjustment to your electronic balances. They often take possession of an asset - like a house or car - to reduce the risk of the loan to themselves. So, in the case of buying a house, who owns the house? Well, if you purchase the home in the usually fashion - with a loan, then you don't own the home until you have made your final payment. Do be aware that the bank can call in the loan at any time - probably causing your bankruptcy if you can't refinance. Of course, the bank is ok in the event of your bankruptcy because they own the house and will sell if for cash! It's interesting to contemplate the fact that the bank DIDN'T HAVE THE MONEY IN THE FIRST PLACE. It doesn't seem right to me that the bank can print up legal money to help you buy a house, but end the event that you can't pay, it simply calls in the loan and sells it to some other sucker for cash. This financial and economic system has ethic problems at it's core. It may seems to provide prosperity for a time (even a long time), but I can't help but feel that it's immorality and injustices will inevitably bring it down. Perhaps the system can be fixed but I feel that the damage is already done. Credit created by the banks, being legal tender (or at least convertible to legal tender) has pumped up the amount of money in circulation. Since when this new credit is created in the form of loans, it is spent on real estate, it is real estate that has seen the greatest increase in prices. Of course, that new money then flushes through the economy once it is paid to property developers, government employees (via stamp duties collected) and the like. This causes a general increase in the price level of other goods that people buy such as food, petrol, clothing etc. However, the RBA - our central bank - curiously does not see the largest movements in price in it's Consumer Price Index (CPI), as this index does not include house prices or share prices. Consequently, the RBA is able to meet it's objectives (including keeping the CPI movements within a 2-3% band) for a time while having the interest rate set fair below what would be necessary to keep CPI in this band. In fact, if you look at the overall increase in the money supply, this can be as much as 15-20%. Now, that sounds much closer to the year-on-year increase in house prices that we have had over the last decade or more (of course, it does fluctuate). However, it's my contention that this system we have created that pumps credit into the economy cannot last. Wages have not kept up with other prices - particularly real estate prices. This system is headed for a big squeeze as people become unable to take on larger and larger loans (because their income does not allow it). The prosperity we have enjoyed with be revealed to be an illusion. Unfortunately, I don't see how prices can happily correct to their long term average. Correct they will but not happily. Like I said, the damage is already done. I would love their to be an answer. If you understand the problem and have solution, please let me know.

@HorseHasBoltedSecretsOut, negative gearing was reintroduced in 1987 by Paul Keating after trailing some small changes to the legislation. Was it _originally_ introduced the 80s? Google isn't much help :(.

I must mention that I don't think negative gearing is the root cause of the problems we see. The take-up of negative gearing as well as the changes to capital gains taxation sure has been a huge catalyst though. Thing is that, as far as I can tell, negative gearing (or positive gearing) is not inherently immoral. It makes sense that one should not have to pay taxes on one's gross income but should be allowed to deduct expenses incurred in acquiring that income. Perhaps there is something wrong with the specifics of the deductions allowed - I'm thinking particularly of depreciation. With the ever increasing amount of money sunk into houses - including depreciable items like taps, door knobs etc - there has been no appreciable depreciation ;). I would like to hear more from property investors who know more about these deductions.

Hi Steven Shaw,

Very interesting to read what you wrote.

My reference to banks being like loan sharks was mainly pointed at the idea of flexible interest rates. As far as I know there is nowhere to get a fixed rate for 25/30 years. But that is what should be available.

When you make a deal that involves any finances you work out if you can afford it. A car, lets say for 5 years. You know what you payments are going to be for 5 years and unless something unfortunate happens. Its not a problem to finance it because you did your budget?

Back to flexi rates, and as I said the home is the most expensive item most people purchase. How can you safely budget on that one. When rates can vary so greatly up to 17% maybe more, and now because everybody went so berserk paying more and more for that house. Borrowing so much that 1/4% increases are crippling (Better hope they don't go up too much).

Its the Idea of flexi rates what is so wrong. FIXED RATES are whats required for the life of the loan its the only fair way. Most people are not financial experts and that way when they are told a monthly repayment ammount. Its very easy to see if you can afford it or not. Not to forget talking about financial experts, them at the bank are and they want your money and probably on bonuses to get as much of it as they can.

It is just fundamentally wrong, if not immoral setting people up with this kind of finance. Then adjusting rates when ever the feeling takes the RBA or the Banks when the consequences to the average man and his family can be devastating i.e loss of the family home and out on the street, all with the backing of the government.

I am not sure of the history but how did we ever agree to the flexi rates in the begining. maybe it was always the same?

Too me its just another method to fleece the average man/person of their hard earned cash

Lets remember as well its usually the people at the bottom, that suffer the most from the decisions and mistakes wealthy at the top.

Hope I don't sound too negative, but as I said it depends from which end of it your looking at from.