The collapse has begun. S&P downgrades Aussie institutions & the guy over the street can’t sell.

It’s begun. It’s happening.

We’ll first cover some on the ground reporting before moving on to the news. The gentleman over the road who’s had his acreage property advertised for sale now for many months has all but given up. It started as a “for sale by negotiation” listing and according to real estate contacts I have, this either means that there’s no accurate method of valuing the property (due to it being unique for example) or that the vendor and the agent can’t agree on a listing price.

Given the listing history available for similar properties in the area I’m betting it’s the latter and furthermore, I’m betting that the vendor’s expectations were unrealistically high. After months of no action (my wife and I were sole visitors to one of the open homes) the property was put up for auction. There was one registered bidder who made a sensibly conservative opening bid only to be openly insulted by the auctioneer who asked do you actually want to buy all of the property or only half?

That hubris had consequences as the bidder was stone cold thereafter; neither moving nor speaking. The property was passed in and was subsequently listed at a price near double what the bid at auction was. There it has sat, gathering cobwebs.

Now Dave from the @X22Report, a publication I highly recommend, has today released timely news on the S&P downgrade of 23 Australian financial institutions. These include AMP, Bendigo & BOQ with S&P citing the risk of a sharp fall in property prices.

“Mortgage lenders in Australia face a surge in bad debts in the event of a sharp correction in property prices given household debt is already high. In the event of a sudden property market correction all financial institutions operating in Australia are likely to incur significantly greater credit losses than present”. Dave concludes that “the property market right now is showing signs of slowing down”. According to Core Logic, home prices are starting to slip and “it doesn’t look good” given that the financial institutions are going to slip as well.

Hold on to your hats and listen to Dave's highly recommended original source here. See also yesterday's zombie economy post.