Wednesday, March 30, 2011

First Home Buyers Strike Gains More Momentum...

First off I would like to make it clear that David Collyer of Prosper Australia started this strike, I have simply supported the strike by writing my own blog posts on the topic, spread the suggestion on forums and I also kicked off the campaign suggestion on GetUp! which has gone absolutely bananas (as of this evening there are over 1700 individuals supporting the campaign and that number is rising by hundreds daily). So the 'thanks for starting the strike' messages I am receiving in blog comments, emails and such are somewhat misdirected. I would like to extend my thanks to David (& Prosper Australia) for raising the important topic of housing affordability given the ridiculous prices that a First Home Buyer faces at the moment...

Today the strike/campaign reached even further than the brief mention in mainstream media yesterday. It was one of the lead articles on The Age, Sydney Morning Herald and WA Today! It also made headlines on Yahoo! 7 News & The Herald Sun.

This article has fueled hundreds of comments. I even get a mention in the article after Chris Zappone asked for my opinion on the status and speed at which the GetUp! campaign suggestion had grown:
Online support for the pledge began after a blogger from the site Bullion Baron added the suggestion to GetUp's campaign idea list. It has since shot up to the number one spot in two weeks, with 3728 votes as of this morning. The system allows users as many as three votes for the same cause.

“It has been very surprising,” said an Adelaide-based blogger running Bullion Baron, who gave his name only as Joseph. “I think the quick move highlights just how important the housing affordability issue is to young Australians.”
I feel I have missed the boat in replying to some of the comments (don't you hate it how work gets in the way of these things!) with the comments section now closed (almost 500 replies), but thought I would post a few up here:
People have to live somewhere, so don't buy and watch rents skyrocket! This is because there are simply not enough houses to support the population.....particularly in Sydney where almost 25% of the Australian population live! Supply and demand are a wonderful thing........
The Yub | Canberra - March 30, 2011, 11:37AM
I hear the "rents will skyrocket" saying quite regularly, one has to ask the question, how much have they moved over the last 24 months? According to RPData they grew very little over 2009 and slightly more than 4% in 2010... how much have the costs increased for the homeowners/investors over the same period? Without taking into account the increased cost of rates, fees and services that come with owning, interest costs alone have soared by around 40% (where variable interest rates were around 5% in early 2009, they are above 7% now). You have to wonder how the number of properties for sale and rent continue to increase on REFind if there are not enough houses to support the current population!
The only people making this "pledge" will be the ones that already can't afford to buy property and so wouldn't be in the market anyway. Real market effect = Zero.
ursulasays | Sydney - March 30, 2011, 12:03PM
I actually agree with this, I don't think the buyers strike is likely to have a large effect on the market, that said I think the correction has already started and will take place with or without First Home Buyers taking up this cause.
So what happens to all the people who have already purchased a house and are paying off the mortgage? Especially when they can't sell the property to cover any outstanding amount on the mortgage? Great way to hurt people who tried to be responsible at the expense of people who are often too lazy to save and go without to save for a house.
RobbyM | Sydney - March 30, 2011, 12:04PM
As I pointed out on my blog in a post the other day (Who will lose in Australia's house price correction?), the majority of home owners caught up in this price correction will not be worse off because if they are selling to buy another, they will receive less for theirs, they will also pay less for the one they intend on buying. It will hurt some owners who are selling to rent or for other circumstances, this is unfortunate, but what is the alternative? Bubble prices forever? Hopefully those who have bought in the last few years are happy with their choice for the foreseeable future and have no need to move.

I could go on and on replying to the comments, but I feel it would be fruitless. A lot of the comments expressed anger at the idea of a strike and resulted in Gen X/Y being stereotyped as they often are. I don't understand the anger towards the campaign, at the end of the day First Home Buyers, Gen X/Y and anyone else have the right to decide for themselves whether they buy, rent or live out of a box as a hobo.

Along with the anger in some comments came the sense of desperation/fear that some who are over leveraged/exposed to property might be feeling as they witness the correction play out.

The online poll that adjoined the above article (still live for the next few hours) has gathered over 18,000 votes with only 20% of voters that think the campaign is likely to have an effect on the market. Not really surprising that around 70% of voters thought that prices would rise regardless, I wonder if it's a coincidence that approximately 70% of Australians live in their own home while the other 30% rent.

I don't believe a strike is a long term solution.

I don't believe the strike will cause house prices to fall.

I do believe that the strike campaign will draw attention to the issue of affordability, to our housing bubble and probably save a few first home buyers from overextending themselves on buying a home today at the wrong time.

As David said in his interview with Red Symons on ABC today, "this is a call to arms for all the young people locked out of the market". This opportunity is yours to take, either step back and don't buy or step right up and join the madness at your own peril.

David Collyer said that the bursting of the housing bubble was imminent, personally I am of the opinion it is already in progress and has been for almost 12 months. RPData's figures show that the nation wide price peaked early in 2010, the 3 months to January 2011 showed a significant price fall Australia wide.

The bubble would have started deflating in 2008 if it weren't for:
- Relaxing of foreign buyer laws
- Increased stimulus measures (FHBB, FHSA)
- RBA dropping interest rates

Will the government try and ward off price falls again? Quite possibly, although hopefully they will think twice after seeing the results of the last attempt.

Without reflation of the bubble I suspect we will see price falls nation wide in the vicinity of 15-20% off nominal prices from the peak over the next couple of years, likely followed by a period of stagnation bringing the total real fall in prices to around 30%.

It's a pretty grim reality that we face, but similarly to Keating's comments about Australia's recession in the 1990s, I believe:

This is the house price correction we have to have!



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  2. Thanks merman, glad you find my posts informative.