top properties may fall 50pc

Robert Gottliebsen

Unreal real estate

What is a 'ridiculous price' for a house? Leaving aside local factors, we are seeing a series of major selling and buying forces developing in the Australian housing market.

The biggest force pushing the market down is the much tighter rules for bank credit. Accordingly we have seen lots of buyer interest at lower priced housing sales given the prospect of lower interest rates and, (at the bottom end of the market), the increased home buyer's grant. But vendors and real estate salespeople do not always understand that while the buyers are interested, they do not have as much money in their pocket.

I found Business Spectator's Isabelle Oderberg interview with the CEO of the Real Estate Institute of Victoria Enzo Raimondo fascinating (What goes up must come down, October 24).

That interview was on the eve of Melbourne’s 1,100 house auction sale weekend. Raimondo was hoping for a 60 per cent-plus clearance. The market gave only a 53 per cent clearance so there is now a big overhang. Melbourne prices are already down and they will fall further because, like most other Australian housing markets, the banks have restricted their lending and the non banks are out of the market.

Nevertheless, the good news is that there are buyers out there – albeit at a price. The bad news is that there is a group of sellers who need to get out. And, especially at the expensive end, their numbers will increase.

Among the sellers about to multiply are executives who no longer have job security because of their overinflated salaries and who have been punting the share market and lost. They are now selling investment properties and holiday houses. Soon they will be selling their expensive homes.

Let me illustrate what is to come in the near future with an incident that took place in the last three weeks.

A friend of one of my colleagues is shifting from Sydney to Melbourne and he attended a Melbourne auction for an expensive well-located house. There were no bids at the auction and the agent, knowing the Sydneysider was a genuine buyer, asked him why he did not bid.

The Melbournian-to-be said he thought the asking price was too high. The agent asked him what he would pay for it and the Sydneysider quoted what he thought was a ridiculous price. The agent also thought it was ridiculous and laughed uproariously at him. Two days later the agent was on the phone saying that the vendor would not sell at that “ridiculous” price. The trouble is that the Sydneysider must now sell his harbour suburb house and may be forced to take a “ridiculous” price himself, given that parts of Sydney are falling at some of the fastest rates in the country.

In 1990, expensive houses, including expensive holiday houses, fell 50 per cent. Hopefully that won’t happen this time, but it might.

At the low end of the market there are large numbers of unfortunate people who were told by advisors or friends to mortgage (sometimes second mortgage) their homes and punt investment properties which are now falling in value.

Many of these people now have lower incomes and will be forced sell their investment properties and lick their wounds as they pay off their homes all over again. It’s a horrible experience, but you must be able to hang on during these times.

http://www.businessspectator.com.au/bs.nsf/Article/Real-estate-ridicule-KSUCB?OpenDocument&src=sph