Real Estate is falling – what happens next?

The housing crash is cascading around the world, and the dire predictions are coming true. Here’s the latest chart from The Economist – check out Ireland on the bottom. That’s a crash, not a “balanced slump”.


Meanwhile Trade Me just surpassed 70,000 property listings, on the back of signing up one of the last few major real estate agents holdouts.

Things to look out for in the next few months are:

Trade Me listings volumes to peak as the remaining real estate companies sign up, and then settle as the market slows

Increasing time to sell and lower average prices (duh), especially at the top end

A drop in the newspaper pages dedicated to housing advertisements and articles, lowering the income for the likes of APN and Fairfax

Real estate agents switching careers as they have less commission to share around the industry

and a fair few had luck stories from speculators that got in at the peak and/or didn’t get out in time

a general downturn in optimism & perhaps the internal economy

That sense of déjà vu is the ghost of 1987 creeping back.

Published by Lance Wiggs


6 replies on “Real Estate is falling – what happens next?”

  1. That ghost is definitely in the room here in Sydney. I saw a street corner with at least a dozen open house signs last week. The big drop won’t happen until employment levels fall though. When forced sellers accept whatever offer is available.


  2. Possibly. Real estate tends to fall in real terms rather than nominal terms. There is always a moment a few months long as people see the market soften and reassess their decision to put houses on the market. Sales prices look like they have dipped because because the not-very-good houses tend to cluster, plus the must-sell people bail out at any price (marriage break-ups and so on, who can’t put off the sale.)

    But I don’t read a ‘crash’ that’s ‘cascading around the world’ from the Economist graph. Sure, it’s crashed in Ireland, but what the graph shows is that real growth continues in many places, came to a sudden stop in many and fell in not very many at all.

    Cycles occur in every market. This looks more like cycle than collapse so far. Not saying it won’t slide further, but the evidence is not there yet and scary stories are easy.

    Then again, I’m trying to sell a house. Ahem.


  3. As the asset bubble deflates we will see a pick up in price falls as more and more loans are called in and assets revalued. Banks are desperately trying to shore up balance sheets and hold off on mark to marketing credit positions.

    This is more serious than 1987 and the following years because of the phenomenal growth in the money supply in the last 14 years and the rise in complex financial products which are a variation on pass the parcel with a box of smarties inside 10 layers of lovely wrapping paper.

    So yes its another cycle but this one is quite profound because the central bankers have learned nothing since the last one. They believe that interest rates can regulate the inflation/growth cycle. As my mother used to say God help us and save us.

    When selling in a falling market the first bid often turns out to be the best :-)


  4. I agree it is more serious than 1987, but for a different reason. Leverage. People are too leveraged, there is too much debt out there. It will be this debt that is the final nail in the coffin for the house bubble.


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