Delusional Economics-Regional QLD

Delusional Economics 20/12/10 12:42 PM
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Delusional Economics
An Economic Realist Practitioners Blog with an Australian Slant.
SUNDAY, DECEMBER 19, 2010 CONTACT

economicdelusion[at]gm
Regional Queensland choking on years of oversupply
REQUIRED READING
It seems the news about the collapse of the Queensland property market is coming in
thick and fast. On Thursday we had the news from the Gold Coast that a $850 million
dollar complex had fallen into receivership due to trouble with settlement of over 80%
of the units.
Today we note another startling piece of evidence that Queensland's real estate market
is in huge trouble. The latest PRD Nationwide property report on units in Townsville is
out, and although the real estate agents are putting on a brave face, it has "blood bath"
written all over it.
Sales slumped in the Townsville new unit market during the September-10
quarter. 19 unconditional sales have been reported for the third quarter of
2010, down 40 per cent from 32 sales recorded during the June-10 quarter.
It has all happened before

Buyers have remained cautious and are comparing all product available in
to happen again. Get the e
the market. A lack of affordable entry level units is constraining the why.
volume of new unit sales and provides an opportunity for developers to
plan for the supply of basic ‘walk up’ suburban units and compact 1 and 2
STUFF TO WORRY AB
bedroom CBD units in order to meet the needs of the market.
Overseas investors pleas
It is widely believed that values are at the bottom of the cycle and that Ireland madness !!
any further price movement will be in a positive direction. Let the gouging begin !!
How is your loan going ?
That last statement seems at odds with the rest of the document.
Chinas Bubble and Austr
The level of demand in the September-10 quarter suggests 54.8 months QUESTIONS
supply of new unit stock across the Townsville market at current levels of Who would you short?
demand, up from 31.7 months recorded in the June-10 quarter. How are you hedging ?
Townsville City had 74.0 months of stock, up from the June-10 quarter
level of 33.9 months, while Townsville Outer had just 16.5 months supply, BLOG ARCHIVE
down further from 25.5 months supply in the June-10 quarter. Magnetic ▼ 2010 (480)
http://delusionaleconomics.blogspot.com/ Page 1 of 12
Island increased to 114 months of supply based on the weaker sales result ▼ December (31)
this quarter. Regional Queensla
of oversupply...
Overall, the total supply of units has increased from 338 in the June-10 Anecdotes of debt
quarter, to 347 in the September-10 quarter. The weighted average sale in retail.
price reduced from $559,375 in the June-10 quarter to $444,737 in the "Return to normal"
September-10 quarter, reflecting a higher proportion of affordable unit revisit
sales during the quarter. Something that see

ignored by other
Most sales occurred in the $300,000 to $399,999 price bracket, accounting The GC moves to t
for 42 per cent of all sales for the quarter. Reflecting a shift in market Goodbye and Good
composition, product intended for permanent accommodation accounted blogger
for 90 per cent of sales, versus 10 per cent for short term accommodation The flog just can't
or mixed use. The circus so far.
Is Victoria going fo
74 months supply !!. That is 6 years !!, on Magnetic Island it is 11 years; and it is
supposedly the bottom of the cycle. We doubt it. It's not the price,
global...
Remembering that the September Quarter was before the latest interest rate rises. Just More on Queenslan
troubles.
look at the graph.
Meanwhile.. back
Glenn warns on mo
Oh what a surprise
again.
Weekend Mailbag
The ABS to the res
Looking for a clear
mortgage issuan
Now it's the banks
Deep T - Is Securit
of the Devil?...
Maybe we don't have the "local knowledge", but to us this looks like a financial disaster They're still not lis
waiting to happen, yet they are still building even more units. It doesn't look like the Self fulfilling proph
Gold Coast will be the only place with apartment complexes going into receivership. credit ma...
Rents to the Moon
myth.
Disclaimer: The content on this blog is the opinion of the author only and should not be taken as Readers' Letter: It
investment advice. All site content, including advertisements, shall not be construed as a too.
recommendation, no matter how much it seems to make sense, to buy or sell any security or financial Another bad week
instrument, or to participate in any particular trading or investment strategy. The author has no position Premature loathing
in any company or advertiser reference unless explicitly specified. Any action that you take as a result of Why did the RBA n
information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who
More "Keen" Territ
claims to have a qualification before making any investment decisions.
Deep T - The Rorts
Delusions, w...
Posted by Economic Delusion at 12:32 PM 7 comments
More "surprising" n
Did you buy gold ?
Banks telling staff
Anecdotes of debt issuance contagion in retail. property
As we have been talking about lately, as the level of debt issuance falls in a debt ► November (55)
driven economy then slowly but surely the effects flow from the market driven by that ► October (53)
debt to the wider economy. As we noted this week, the Gold Coast is the frontier of ► September (40)
this contagion, but it is also starting to show up in other places.
► August (37)
Although this is only anecdotal at this stage, and should not be trusted as evidence ► July (72)
until we see some real statistics, it seems that this contagion is moving into retail. We ► June (61)
have received quite a few e-mails in recent days all saying the same thing. Here is an ► May (121)
example from Sydney from Anne.
► April (10)
.. I live in outer western Sydney and we don't buy the "green shoots of
recovery" theory. We don't buy the "Australia missed the GFC" either; we
FRIENDS WHO READ U
think that it just hasn't happened here yet. In our part of western Sydney,
houses are still overpriced by a long way, the last lot of interest rate hikes Follow
with Google Friend Connect
have hit hard and there is a lot of dependence on credit.
Followers (42) More »
My reason for writing is that we went Christmas shopping today at a large
Westfield complex near us. Usually, this close to Christmas, by 10.30am the
car park would either be closed completely or you would have to spend
ages in fruitless driving around and around looking for a car space. We
drove into the car park today about 11am, and got a car parking space on
Level 3 straight away. The shopping center itself was busy, but not frantic.
I suffer from anxiety and one of the triggers is being in a large
crowd...generally speaking [my partner] does all our Christmas shopping as Already a member? Sign in
I cannot cope with the crowds - today the crowd was barely a blip on the
radar.
BLOGS WE READ
At 11.30ish Gloria Jeans' was basically empty, there was a long queue at Mish's Global Econom
Target, but not an outrageous one and even though we went to a large Analysis
number of disparate stores, we didn't have to wait for service once. Big W Asininity from Paul Kr
Money Supply and Ron
was busy, but not frantic. [My partner] got through the service queue in
1 hour ago
less than 10 minutes.
Houses and Holes
Up against it
After visiting Westfield, we crossed town to another shopping centre with
6 hours ago
several "big" Christmas item stores: Bunnings, Harvey Norman and Spotlight.
In the underground car park which can take 520 cars, barely a fifth of the The Unconventional
car parking spots were taken. Spotlight was, again, busy but not frantic. I China Bubble: More in
and analysis
had to wait about 5 minutes for service at the check out, when normally at
16 hours ago
this time of year I'd expect to have to wait in excess of 10 minutes. I don't
know what the case was with Harvey Norman and Bunnings as we didn't billy blog
Saturday Quiz – Decem
venture over there, but going by the number of empty spots in the car
answers and discussio
park, they were doing a standard Saturday's trade. Were it not 7 days from 1 day ago
Christmas I wouldn't think anything of it.
Tasmanian Real Esta
Now again this is anecdotal, but we are witnessing much the same in Brisbane, there The Future?
2 days ago
are still people at all shopping centres but it is much like any normal shopping day.
"Busy but not frantic". Observations of an e
environmentalist
Health economics –un
Our reader above mentioned Harvey Norman, and we note Gerry is in a panic about this
treatment and econom
Christmas. illness... and goodbye
4 days ago
LVRG Blog
Major store bosses claim Australia is experiencing a retail recession, with LVRG Blog
Housing: Behold the su
the quietest and slowest Christmas shopping period in 20 years.
1 week ago
Rising utility bills, mortgage rates and rents have decimated families'
disposable incomes, forcing many retailers to start Boxing Day sales one
month in advance in a bid to entice shoppers, reported The Daily
Telegraph.
House Market Cra
Free Report Shows
Harvey Norman boss Gerry Harvey said there would be "blood on the Need to Take Evasiv
streets" in the retail sector because business is so bad, the worst since the Now
www.MoneyMorning.com.a
recession of the early 1990s.
"It's a crisis, the worst in 20 years," he said.

Brisbane 1-Day Co
Up to 90% Off the B
"There is a recession in retail right now. Boxing Day sales have had to come do! Restaurants, Sp
early because retailers need to sell something to pay their staff." and More.
www.LivingSocial.com
Now we would like to jump on that recession bandwagon, but until we see the actual
numbers from sales we will hold back. This is because we also note that some of those
bosses who are crying poor are forming an alliance to attempt to cut-out the internet;
as that is what they are blaming for the bulk of their poor sales.
Australian retailers and shopping centre owners have formed an alliance to

try to persuade the government to abolish the $1000 GST-free threshold.
They plan to spend millions on an advertising campaign to try to have
imported goods subject to tax and import duty.
That campaign wouldn't be very successful if the Christmas trade was being reported as
a "bumper" year now would it.
But wipe away those crocodile tears Gerry, the Australian National Retailers Association
claims there is a torrent of pent up shoppers about to hit the stores.
Unprecedented numbers of last-minute Christmas shoppers are about to hit

the stores over the next six days in a consumer frenzy that will make or
break Queensland's struggling retail sector.
Queensland retailers have been ravaged by a 12-month shopping recession

since a diabolical December last year.
The shopping centres may have been full every weekend for the past
month, but shoppers have been keeping their hands well and truly in their
pockets with sales in many sectors down 10-15 per cent compared to last
year.
Now retail organisations think that, after a year of paying off debt,
consumers are about to open up their wallets.
Trends in shopping suggest more and more consumers are leaving their gift
buying until the last minute. In Brisbane, a quarter of consumers surveyed

by the Australian National Retailers Association (ANRA) said they would
leave their gift buying until the last two to six days before the big day,
compared to a national trend of 15 per cent of shoppers.
We aren't so sure, it seems to us that the Australian consumer simply can't and/or isn't
willing to take any more debt. We'll say it once, we'll say it again. Sustained falls in the
rate of debt issuance in a debt driven economy lead to recession. There isn't enough
evidence yet to show that the contagion has hit retail yet, but the anecdotal evidence
is definitely mounting.
Disclaimer: The content on this blog is the opinion of the author only and should not be taken as
investment advice. All site content, including advertisements, shall not be construed as a
recommendation, no matter how much it seems to make sense, to buy or sell any security or financial
instrument, or to participate in any particular trading or investment strategy. The author has no position
in any company or advertiser reference unless explicitly specified. Any action that you take as a result of
Posted by Economic Delusion at 10:57 AM 0 comments
SATURDAY, DECEMBER 18, 2010
"Return to normal" coming and a BDI revisit
Not many e-mails this week that contain topics that we haven't already discussed, but
still a big thanks to everyone sending us e-mails with comments and topics that they
would like discussed.
Given that it is Christmas next weekend the mailbag won't be back until the new year.
In the meantime a couple of interesting things we have noticed in the last couple of
days.
Firstly we noted this article on Friday that is simply an extension of the flog in action.
Investors and first home buyers are expected to drive up house prices by
around 5 per cent next year, property analysts say.
While residential property prices remained relatively flat in the last

quarter of 2010, a tight rental market and return to ‘‘normal’’ trends in
first home ownership are likely to lead to firm growth late next year, they
say.
CommSec economist Savanth Sebastian said increasing rental demand and

rising wages would help fuel steady growth in house prices.
We will ignore the total lack of logic here; because we aren't going to repeat ourselves
again. We simply ask our readers to look at our post on mortgage issuance in Australia
to understand exactly what is actually happening to the market.
However we do have to ask if that was a call of a "return to normal" by Mr CommSec ? If

that is the case then we believe that puts us currently somewhere between "Denial"
and "Bull Trap"
Secondly, we haven't spoken about the BDI for a while. Last time we did we asked if it
was having a dead cat bounce. We still aren't convinced that it is a useful measure, but
given that once again it seems to have dropped considerably it is worth noting.
Have a good weekend.
FRIDAY, DECEMBER 17, 2010
Something that seems to have been ignored by others.
On Wednesday we noted this
NAB chief Cameron Clyne said that the treasury and the RBA don't know
what they are on about, and that the banks should move their cash rates
independently of the RBA so everyone understood that they were no longer
linked. Once they had done that everyone would understand it, and then
the banks would then be free to do whatever they wanted.
This was also mentioned in a number of other places including here
AUSTRALIA'S banks should shift interest rates independently of the Reserve

Bank, Cameron Clyne says.
The National Australia Bank chief has flagged his desire for the banks to
break step with the RBA in a move that would reduce the power of central
bankers to control economic growth.
Australia's banks had fuelled a perception that the Reserve rate was a
proxy for credit costs by shifting mortgage rates in lockstep with the
central bank, Mr Clyne said.
Speaking at the Senate banking inquiry, he said the Reserve Bank and
Treasury's analyses of funding costs - which heavily influence prices for
mortgages and other loans - were wrong.
"They don't have all the data that we can see," said Mr Clyne - the first
chief of a major bank to appear at the inquiry.
....
"The banks have made a problem for themselves here by continually moving
in line with the Reserve Bank," Mr Clyne said.
"If the banks continue to move in line with the RBA, up or down, then we
are continuing to compound the view that our funding is related to those
movements in cash rates.
"There is some merit in each bank individually looking at their own

circumstances and making interest rate moves independent of the RBA."
To many this may simply seem like an extension of the usual banking rhetoric. But in
our opinion this is probably the most remarkable statement to come out of the whole
banking enquiry.
To understand why you need to go back to one of our previous posts where we made
the following statement.
... we believe that the economy is a public asset. The population have a
right to be properly educated about how their financial system actually
works, so they themselves can make better decisions about the shape of
their own economic future. That is one of the major reasons we started
this blog in the first place. We were sick and tired of vested interest
hogwash being reported as fact, and we felt there was a need to highlight
the other side of the story
The issue we have with Mr Clyne's statement is that it is a step too far in a on-going
attempt to move the economy from an asset owned by the public to an asset owned by
private institutions.
What Mr Clyne is not telling you when he says "he no longer wants to listen to the RBA"
about credit creation, is that his business has been granted a very special right by the
sovereign government of Australia, and by extension the citizens, that very few other
companies have; the right to loan money into existence.
This is something we hope to discuss next week, but it is without a doubt one of the
most fundamental concepts around sovereign control of the economy. Something that
in our view is overlooked by nearly everyone.
Posted by Economic Delusion at 5:50 PM 4 comments
The GC moves to the next level
We have said previously, as credit issuance falls the market collapses, this in turns
takes down businesses , which takes down the economy and then the banks.
As we showed last week credit issuance in Queensland has been trending downwards
since the GFC. Now that the short-lived government supported debt bubble caused by
the first home buyers grant boost has dissipated the trend continues.
So today it is with little surprise that we note that the Gold Coast is moving to the next
level.
ONE of Australia's largest apartment tower projects, the $850 million

Oracle Broadbeach complex on the Gold Coast, is in receivership. The 505-
apartment complex at Broadbeach was being developed by Niecon
subsidiary South Sky Investments.
South Sky Investment director Michael Nikiforides placed the company into
receivership.
It is the second Niecon-related business to fail.
This month the Nirvana by the Sea residential Gold Coast project was also
handed over to its financier.
It is understood that the completed Oracle project collapsed because of

problems with settlements of up to 400 apartments within the towers that
had been pre-sold before the global financial crisis.
After the crisis hit, many were unable to come up with the cash.
The apartments had been in the process of settling since October, sources
said.
This is no "two-bit" apartment complex; this is a massive twin tower complex that takes
up an entire block at Broadbeach. We actually spoke about this complex previously
where we noted the large hit the banks are taking and also that there are a number of
other large developments in the same area in the same predicament. These were all
funded in the boom times on a promise of payment by money that is no longer
available. Everyone wants out as the Gold Coast market collapses, this isn't going to
help.
Once again we repeat. It has only just begun, without further government intervention
the Queensland economy is in deep trouble. We have little doubt that a recession is
coming.
THURSDAY, DECEMBER 16, 2010
Goodbye and Good luck to a fellow blogger
We noted today that a fellow blogger has signed off to pursue other endeavours. We
just thought we would say a final goodbye and a big thanks to Cameron as he was a big
influence and a great help to this blog in the early days.
Hopefully he will start a new blog in the future covering medical economics or
something similar, once he has completed his medical studies.
Good luck in the future Cameron, we will miss you unique economic perspective.
The flog just can't help themselves
We note today that even in the face of overwhelming evidence to the counter, the
Australian mainstream flog just can't help but repeat the same dribble that is being
proved wrong right in front of their eyes.
The frightening state of negative equity is looming large in some regional

centres and in areas that have had strong construction growth. Analysts
warn that Victoria is particularly vulnerable to an overhang of supply, just
as it was in the early 1990s, and Queensland's lifestyle centres, such as
Cairns and the Gold Coast, will continue to experience real declines in
housing prices next year.
RP Data-Rismark's recent market survey warned that rising interest rates,
declining clearance rates and a rising stock of unsold houses "hint at

tougher times ahead" after very little growth in recent months.
RP Data's auction clearance figures highlight a generalised sagging in the

market this year.
Auction clearance rates around Australia have gradually fallen from about
70 per cent earlier this year to just 52 per cent this month.
Bring on the Iraqi ministers for information.
None of the 18 economists surveyed by The Australian say the nation will
experience a generalised US-style fall in house prices, but a number say
prices will remain flat and they warn of pockets that could record sharp
declines.
Repeat after me "There are no tanks in the city !!!", "There are no tanks in the city !!!"
Macquarie Group's Brian Redican says this could extend across Victoria.
Prices in Melbourne rose by 19 per cent in the year to September,
according to Bureau of Statistics figures.
"In those areas where housing construction activity has risen sharply (so
that there is no undersupply of housing), there is certainly a risk that high
interest rates will result in a noticeable decline in house prices," Redican
says.
" In this respect, Victoria is most vulnerable."
St George Bank's Justin Smirk dismisses the prospect of generalised falls in

house prices, but he identifies western Sydney, western Melbourne and the
tourist region of northern Queensland as places that "could face falling
house prices as rising interest rates squeeze affordability" because they
would not benefit from higher export income.
Across the nation, he expected prices to be "volatile but broadly flat in

nominal terms".
The same flog that have repeatedly told us this could never happen, are now telling us
it is happening. But in the face of evidence that their 3 pillar premise of undersupply,
population growth and underlying demand is bogus rubbish, out comes the crazy
theories of why it is happening. But when you have a crumbling belief system it is
important to ignore any evidence and simply repeat your message.
Overall, economists say continued immigration and strong employment

growth would maintain housing demand and keep pushing prices higher.
A key factor underpinning growth is the lack of supply, which in most

places reflects red tape and other planning bureaucracy.
Our advice to the Australian is to find some new non-vested interest economists that
aren't afraid to adjust their models to fit reality. Our advice to our readers is to read
the entire article to get an overall view of what is ACTUALLY happening in the market.
But while you do keep this thought in your mind. "It has only just begun".
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Delusional Economics 20/12/10 12:42 PM

Share Report Abuse Next Blog»

SUNDAY, DECEMBER 19, 2010 CONTACT

It has all happened before

sales during the quarter. Something that see

"It's a crisis, the worst in 20 years," he said.

Australian retailers and shopping centre owners have formed an alliance to

Unprecedented numbers of last-minute Christmas shoppers are about to hit

Queensland retailers have been ravaged by a 12-month shopping recession

buying until the last minute. In Brisbane, a quarter of consumers surveyed

Posted by Economic Delusion at 10:57 AM 0 comments

SATURDAY, DECEMBER 18, 2010

"Return to normal" coming and a BDI revisit

While residential property prices remained relatively flat in the last

CommSec economist Savanth Sebastian said increasing rental demand and

However we do have to ask if that was a call of a "return to normal" by Mr CommSec ? If

Have a good weekend.

Posted by Economic Delusion at 9:35 AM 0 comments

FRIDAY, DECEMBER 17, 2010

Something that seems to have been ignored by others.

On Wednesday we noted this

This was also mentioned in a number of other places including here

AUSTRALIA'S banks should shift interest rates independently of the Reserve

"There is some merit in each bank individually looking at their own

Posted by Economic Delusion at 5:50 PM 4 comments

The GC moves to the next level

ONE of Australia's largest apartment tower projects, the $850 million

It is the second Niecon-related business to fail.

It is understood that the completed Oracle project collapsed because of

Posted by Economic Delusion at 7:39 AM 1 comments

THURSDAY, DECEMBER 16, 2010

Goodbye and Good luck to a fellow blogger

Posted by Economic Delusion at 11:05 AM 0 comments

The flog just can't help themselves

The frightening state of negative equity is looming large in some regional

RP Data-Rismark's recent market survey warned that rising interest rates,

declining clearance rates and a rising stock of unsold houses "hint at

RP Data's auction clearance figures highlight a generalised sagging in the

Bring on the Iraqi ministers for information.

" In this respect, Victoria is most vulnerable."

St George Bank's Justin Smirk dismisses the prospect of generalised falls in

Across the nation, he expected prices to be "volatile but broadly flat in

Overall, economists say continued immigration and strong employment

A key factor underpinning growth is the lack of supply, which in most

Posted by Economic Delusion at 10:15 AM 2 comments

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