Wednesday, 4 April 2012

Shillwatch (or Identifying Bullshit Artists)

Two of my favourite sites exposing the bullshit Ponzi scheme that is the Australian economy (aka The World's Biggest Real Estate Bubble) are The Depression and Prosper Australia.  Both sites in my useful links and well worth a perusal (unless you are a real estate investor and live near that North African river: Denial).

A recent gem from Prosper:
Don’t Buy Now! campaign saves buyers $58,000 in one year 
Consider a typical Melbourne first home buyer couple with a 20% deposit ($120,000) ready to buy a home at the median $585,000 a year ago. Instead, they waited.

Their savings:
Melbourne median house prices have fallen 6.1% (ABS) – $35,000
The difference between Melbourne median rents $17,680 (TUV) and interest at 7.46% (WBC) on a $465,000 mortgage (ignoring stamp duty, principal repayments, rates, insurance, depreciation and repairs) – $17,009
Interest earned on $120,000 savings at 5.5% (ignoring tax) – $6,600
TOTAL: $58,609

“There is a further long-term benefit not included above: the smaller required mortgage would leave an extra $250 per month interest in a buyer’s pocket, or $41,000 over a 25 year loan. This money would be available at the buyers’ discretion for living expenses or to accelerate principal repayments.

“This is not a cue to immediately buy a house,” Collyer warned.

“Prosper expects house prices to fall much further. We repeat our forecast made February 23 of house price falls of at least 15 per cent and possibly 20 per cent this calendar year.

And, the subject of this post, shills, are exposed beautifully in the links from The Depression appropriately titled Vested Interests

These two articles are a must read:
A toxic mess: vested interests and the real estate industry, and
Urban myths of real estate

North Queensland

I occasionally visit North Queensland and The Cairns Post is an icon of piss poor journalism regarding Real Estate and is a hive of shills pandering to vested interests. One of the last times I was up there in October, I posted The Implant .

The reason is the market is in freefall and you can smell the desperation on the sea breeze. With 22% of the region's mortgages now in negative equity.

RP Data says 6.4% of homes were valued at less than their purchase price in the December 2011 quarter, rising from 4.9% in the September quarter.
Far north Queensland had the highest proportion of mortgages in negative equity, at 22%, followed by the Gold Coast, with 19%.

The Sunshine Coast was in the third spot at 15%.

The area with the lowest amount of negative equity was Loddon, Victoria, with 1.9%, followed by Canberra with 2%.

Brisbane fared the worst among capital cities, with 9.2% of property deemed to be "underwater" in financial terms, followed by Perth at 7.4%

Sydney had 3.6% of properties in negative equity, pipping Melbourne with a 3.5% rate. In Hobart, 6.2% of properties were in negative equity, compared with 5.5% for Adelaide.

I posted this graph not long ago on where Australia sits as we follow the USA (4 years behind, typical!). The post was Australia Now Driving On The Negative Equity Super Highway, Route 1 To Financial Perdition
if you review that post we are now climbing the staircase.

I've updated the graph, big change for just 40 days...

So how are the Vested Interests trying to get more victims via the media shills? Take this article...

Have a closer look at the graph. The horizontal scale (x axis) is skewed, its doesn't reflect reality. It appears that its had a shallow run up, a small dip and is now flat lining.

I've put the data into XL and regraphed into a more appropriate perspective (WTF is an average median anyway? Anyone that wasn't asleep in senior Stats knows that data is represented either as mean (average) or a median (middle value of range))

Now for the truly ridiculous. Tasmanian Real Estate Trouble outed an agent once in a post a year ago, in an oxy moronic title of Good Value . Its well worth a review (if you are exposed to this train wreck - review on an empty stomach).

Cairns is like most regional cities, but I can't quite confirm that because I've never been. My brother lived there for a while and invited me to visit at least seven times, but it seemed a long way to travel to sweat, not everyone thinks the same apparently because Cait Bester, of the Cairns Post, reliably informs us that investors will flock to the city and grind up against as much house as they can in the coming months.

Again, a real estate agent has their finely tuned antennae picking up all the right signals and those signals say it's money making time. Why? Because Benny August is fanning some cash - six fifties to be exact...

In Benny's world, commanding legitimacy appears to be yanking out $300 large from the nearest ATM and fanning it for the camera. Now ponder some of the highly respected people who would fan cash for a photo - gangsta rappers, Jersey Shore cast members and yeah, real estate agents. That irritating metallic noise you can hear, that's the bottom of the desperation barrel scraping. As I showed above, real estate agents tend to pull the investor card when attempting to scare up a bit of business. The implication - if you locals don't get in now, all those investors will push up the prices and rent these houses back to you at inflated levels. An even more cynical interpretation - if someone doesn't buy a house now, I'm not gonna make the lease on this X3 next month.

Benny's reasoning for a coming investor plague was quite simple...

"With the share market the way it has been over the last few years, we are now seeing the older and younger generation start accessing their super or taking control of it. They are opting to put their hard-earned funds into something more solid – the good old bricks and mortar."
An Investor plague? Well obviously a few cognitively challenged souls believed this horse dung and have piled in because in the last 12 months following this sage advice, FNQs negative equity stats have climbed (Cait gets a mention in my October post The Implant ).

Not to be beaten, as the aromatic tang of the FNQ RE industry shitting itself permeates the trade winds, there is a most bizarre new direction in the northern rag as The Post (Cait again) and Benny team up again.

Lucky? Lucky you Ben. Lucky you Cait.

2010 'lucky' winners

Now what about those people who borrowed 95% of a Trinity beach property a year ago?

The ones that forked out $10,500 in Mortgage Insurance; $20,000 in Stamp Duty; $13,000 in Deposit (accounting for the $7,000 FHOG or oz-sub-prime grant). That $50,500 is GONE! And as an added bonus, after 1 year you owe $372,500 on a house worth $365,500.

You win. If you followed the 'advice' in the Post and your $43,500 is gone and you owe $5500 more than your house is worth and you pay $12,000 more per year than if you rented. But its just a bronze folks.

2008 'lucky' winners

If you bought in 2008 you get the gold medal. $11,000 in Mortgage Insurance; $21,000 in Stamp Duty; $7,000 in Deposit (accounting for the $14,000 FHOG boost or super oz-sub-prime grant). That $39,000 is GONE! And as an added bonus, after 41 months you owe $375,500 on a house worth $365,500.

You really win. If you have faithfully followed the 'advice' in the Post and your $39,000 is gone; you owe $10,500 more than your house is worth and you pay $15,500 more per year than if you rented. Now THAT is lucky!

The difference between your negative equity mortgage payments and rent is just $576 a fortnight. Imagine having the 'luck' to shred $576 a fortnight AFTER burning $39,000 and if you sold your house right now you'll have to find $10,500 to avoid bankruptcy.

Once the car is sold (and the furniture) do you have $10,500? On the upside, you can buy a bicycle and tent at Big W and get change for $400. No sub-prime in Australia, no sireeee.

Ben, you indeed are...

...having the shills at The Post willingly lure more victims into the trap. More victims of the bullshit artistry.

Investor plague? Give us a fucking break.


  1. Home buyers with large mortgages live 90 days from bankruptcy. This makes them compliant employees, geographically paralysed and dead miserable.

    This begs the question: Then when should I buy?

    When the economic settings look like this:

    Don't Buy Now!

  2. Thanks David. The US housing bottom is years away. 9million homes in unsold plus.

    Keep up the fight.