LEIGH SALES, PRESENTER: The ubiquitous BBQ conversation about property prices might be a bit different this summer.
For years now, it has been about rising house prices in Sydney and Melbourne and how hard it is to buy a house or find an affordable rental.
Some are predicting we are at the start of what could be the deepest and longest property downturn in Australia’s history.
The Reserve Bank says it is unchartered territory and over the next three nights, we are going to take a look
at what it means from the people who may finally be able to afford to buy, to those terrified that they are in over their heads for getting in at the peak of the market.
Tonight, reporter Geoff Thompson and producer Alex McDonald look at how we got here and where we are headed.
DAMIEN COOLEY, AUCTIONEER: You just need to be willing to ride that market, ride that storm, and ask yourself the question: Is my money better off somewhere else or am I happy to hold this asset and this investment?
GEOFF THOMPSON, REPORTER: Is it a challenging market, even for you?
DAMIEN COOLEY: The market is challenging for me. An auctioneer is only as good as the product they are
Those of you who may be intending on bidding, we have an exceptional property, a terrific home. I think this home ticks really all of the boxes. Would you be happy to commence the bidding here today? The home is here to be bought. You let me know the number you are happy to start the auction at here, folks.
GEOFF THOMPSON: Top Sydney auctioneer Damien Cooley is getting used to the sound of silence.
DAMIEN COOLEY: Week one we were telling you, you would need to be circa $1.5 million if you’d like to be competitive here at the auction.
GEOFF THOMPSON: Even in a suburb like Stanmore close to Sydney’s CBD, seller’s expectations are falling fast.
DAMIEN COOLEY: During the campaign we reduced that quote to one million, 450,000 —
DAMIEN COOLEY: It’s 2508 from where we need to be. I appreciate your offer, sir —
GEOFF THOMPSON: Three years ago, when the market was booming, the owner paid more than $1.3 million for this place, but caution now reigns supreme in Sydney’s auction scene.
DAMIEN COOLEY: Ladies and gentlemen, we will set the property aside in our vendor’s favour at $1.450 million. We will go straight into negotiation with those registered parties who are here today. I can’t thank you for your spirited bidding, but I can thank you for your attendance. A round of applause for the
GEOFF THOMPSON: In recent years, Damien Cooley was routinely whipping bidders into a frenzy.
DAMIEN COOLEY: Is there any better offer?
GEOFF THOMPSON: Often lifting prices above the reserve.
DAMIEN COOLEY: Third time before it goes? Sir?
Back in the boom when we were getting five or six registered bidders at an auction it was easy to look good and it was easy to extract bids. Buyers had a fear of missing out and they were almost jumping over the top of each other to place bids at high increments. Now that market has changed.
GEORGE THARENOU, CHIEF ECONOMIST: What you are starting to see are the new stories that are quite negative around housing markets, particularly in Sydney and Melbourne – are starting to change people’s behaviour. So you are getting a broadening of the down turn.
GEOFF THOMPSON: When the market peaked last year, more than 70 per cent of properties in Sydney were selling at auction. It is now less than half.
GEORGE THARENOU: We call the top of the market last year and it wasn’t for any single factor. It was the fact that the market was facing so many head winds all at the same time, which was quite unprecedented.
GEOFF THOMPSON: Vicki Calthorpe is downsizing and desperate to sell her house in Sydney’s Randwick.
How do you feel having to sell into this
VICKI CALTHORPE, HOME OWNER: Yes, it is a bit scary.
GEOFF THOMPSON: Vicky’s house failed to sell at auction. She and her agent are working on Plan B.
VICKI CALTHORPE: I mean, how many groups have we had through? Over 50.
AGENT: Oh yeah, easily.
GEOFF THOMPSON: Since the auction Vicki’s had an offer, but is holding out for more.
Have you had to discount already?
VICKI CALTHORPE: Yes. We have lowered our expectation. We have lowered our price. I don’t know how far or how much further we would be prepared to go.
GEORGE THARENOU: Initially, it was generally higher-priced homes in Sydney and Melbourne for investors, but that downturn has now spread and this is the concern that I have, is that the likelihood of Australia facing the longest housing downturn in history has increased.
And it seems quit plausible to me that house prices will continue to fall into next year into 2020.
TIM LAWLESS, HEAD OF RESEARCH, CORELOGIC: Absolutely. The chances of an economic downturn being fuelled by a housing market downturn are heightened at the moment because of the wealth effect, reversible of the wealth effect and fear of transactions in the market.
GEOFF THOMPSON: Australia’s recent property boom was overwhelmingly led by Sydney and Melbourne. Over the past decade, Sydney real estates surged ahead of every other capital city, apart from Melbourne.
TIM LAWLESS: When you look at the value of housing across Australia, nearly 60 per cent of Australia’s housing value is in two cities – Sydney and Melbourne.
GEOFF THOMPSON: The boom has left many households in these cities with record levels of debt.
TIM LAWLESS: When you look at Australia’s wealth, we see about 55 per cent of household wealth in Australia is in the housing asset class.
About 70 per cent of Australia household debt is in the housing asset class as well.
Australian household debt — it’s tracking at about 190 per cent of disposable income. It has never been that high.
GEORGE THARENOU: We have just had this multidecade period where lower and lower rates went into higher and higher debt and higher and higher house prices.
JO MASTERS, ECONOMIST: Those factors aren’t likely to be repeated and that suggests to me that the multidecade boom has come to an end.
NEWSREEL: Everywhere today young couples are being lured by signs which promise them the house of their dreams and a house that so easily could become home.
GEOFF THOMPSON: Polling suggest, three-quarters of Australians still view home ownership as part of the Australian way of life.
NEWSREEL: The basic price of the house is $5,500.
GEOFF THOMPSON: Properties long been at the centre of political debate. Way back in 1942 Robert Menzies declared one of our best instincts was the desire to have a little piece of earth with a house and a garden, which is ours.
The sentiment lives on today.
SCOTT MORRISON, PRIME MINISTER: There are three important economic goals that Australians aspire to – to have a job, to support and care for your family, to achieve independence in your retirement and to own your own home.
JOHN SYMOND, AUSSIE HOME LOANS FOUNDER: I lived and breathed watching my dad build these blocks of units, start selling them off and it was sort of like a real true game of monopoly and I loved it.
GEOFF THOMPSON: Aussie John Symond became a multimillionaire riding the boom, taking on the banks by offering cheaper loans. The 71-year-old bought his first apartment when he was just 18.
JOHN SYMOND: That started me into it and I thought, this is fantastic. Over the years, yes, I bought properties and held a lot and sold a lot. But I think it will always form part of the Australian psyche and I think it is really proved to be a very good thing for Australians, rather than go off and blow it on holidays and new cars and all the other stuff, to build your nest egg for later years in life.
GEOFF THOMPSON: Or smashed avocado on toast?
JOHN SYMOND: Or smashed avocado on toast. I don’t mind that.
GEOFF THOMPSON: Like many migrant families, Australia’s property obsession was embraced by the Gupta’s when they moved to Melbourne from Dubai in 1990.
BILL GUPTA, PROPERTY INVESTOR: Everyone wants to come to Sydney and Melbourne from overseas. Everyone wants to live in these established cities where the jobs are available. Everyone wants to buy the property here because the value grows in Melbourne and Sydney, as compared to the other states.
GEOFF THOMPSON: The Guptas now own more than 30 properties between them.
GORO GUPTA, PROPERTY INVESTOR: I call it generational wealth. When you are building something with generational wealth, you build it together. So, Yes, I might have a few properties, dad might have a few properties, mum has got a few properties and even grandma has a couple up her sleeves, right.
For us, it is a never ending thing. Buying as much of the monopoly board as one sees fit.
BILL GUPTA: My view is that every 10 years the property doubles while other investments, there is always risk.
TIM LAWLESS: When you look at, say, the performance of different asset classes, housing since 2009 has actually underperformed the equities market. If you add in returns, say dividends from equities and the yield for housing, it is quite clear that if you owned, say, shares or a diversified portfolio in the share market you would have seen stronger growth in your overall asset portfolio, relative to housing.
GEOFF THOMPSON: Property investors are now on the front line of the downturn.
DAVID JACKSON, PROPERTY INVESTOR: Major effect has been the borrowing capacity that we have had and the valuations that have dropped, not substantially, but have dropped a fair bit, which has made the major lenders a little bit hesitant to lend against the current values.
GEOFF THOMPSON: Throughout the boom, investor David Jackson was successfully building a
property portfolio. Then, suddenly, an apartment he bought off the plan in central Sydney’s Woolloomooloo was valued at less than he paid.
DAVID JACKSON: In this particular circumstance the valuation came in less than the purchase price, which was news to me after investing in properties for 10 years. Because we are in a small business, bank lending has restricted the amount of debt that we can borrow. So, it has restricted our employment, the number of employees that we can hire.
GEOFF THOMPSON: Increasingly, David’s had to turn to more expensive second-tier lenders.
It is harder work being an investor now than it used to be?
DAVID JACKSON: I think you could say yes.
GEOFF THOMPSON: An increasing number of Australians will never have the means to buy their own home, let alone amass a property portfolio. The recent boom in Australia’s two biggest cities has created a yawning gap between what people earn and what it costs to buy.
In the mid-1990s, median house prices were about four times our median income. It is nine times that in Sydney today.
JOHN SYMOND: If you said the me 20 years ago, people in 2018, young people are taking mortgages for nearly $1 million to buy a house, I would have said, well, what are you smoking?
We just don’t know what the next 10 or 20 years is going to bring. I will tell you one thing, it will be very, very different.
GEOFF THOMPSON: The great Australian dream has become a fantasy for many. Prices have fallen sharply in the past year by 9.5 per cent in Sydney and almost 6 per cent in Melbourne. Just as homes are getting cheaper, access to money is tougher than it has been in decades.
GEORGE THARENOU: The mechanism and the main driver of the correction this time is a credit tiding. It is a reduction in borrowing capacity. The problem is I can see what reverses that quickly. It would take a major reversal of policy decisions by the government and the regulators to try to attempt to reflate the housing market and, at the moment, that is not the case.
DAMIEN COOLEY: I am in your hands to look for that opening offer. I can’t start it without your help, though.
LEIGH SALES: And tomorrow night we will bring you the next instalment in our housing series, looking at the impact of rules making it harder to get a loan.
SPEAKER: There were unsuitable loans. There was false documentation.
SPEAKER 2: People did step outside their responsible lending guidelines.
JOHN SYMOND: The royal commission has scared a lot of people.
It is definitely harder than it has been in the past.
SPEAKER 3: You have the trappings of wealth, but not the real wealth and the knowledge a mortgage will never be paid off.
SPEAKER 4: Sooner or later interest rates will go up. We are concern that bigger problems will emerge.
GEORGE THARENOU: Housing this time and could be different.
LEIGH SALES: You can go to the ABC News website to check the effect of the property slump on your post code or access it via our Facebook page.