Trapped

Smithton is the type of place where formal attire is considered to be shirt with a prominent Ford or HSV logo, so yeah, it's kind of rural and kind of working class and if you're not from there it's likely you've referred to it more than once by the pejorative name of 'miffton.

I'm not here to empty my bladder on Smithton and the wider Circular Head Municipal region, just giving some background and stating some facts. The region has been hit hard over the past year; 200 employees were scalped when McCain's pulled the pin on a processing plant, a forestry agreement has skewered local contractors and this was topped off by the local sawmill, owned by Tasmanian arch super villain, forestry giant Gunns, apparently processing its last shipment of logs in December.

This is hugely significant within a town of around 3500 and a wider Municipality over 7500. The trashing of those jobs and the flow on effect probably still hasn't taken full effect - they're probably still in the window of living on severance payments. Oh yeah and in a farming community, farmers have been doing it tough too. Right now the area is a regular economic paradise - if an economic paradise is Haiti.

As you might imagine, in amongst the spike in Tasmanian real estate listings, Smithton and its surrounds are in scintillating form. Taken from the baseline I established October 1, when identifying empty houses and rentals for sale, by mid November, Smithton and surrounds, had found itself with a 39.3% increase in listings - today that's become a 77.5% increase in listings. A frightening three and a half months.

If you've been following me from that time, you'll recall North-West newspaper, The Advocate, must have picked up the relentless stench of this blog. Within a week, local real estate agents were showing some leg in The Advocate, suggesting it was business as usual. Leading to local agent Deanne Lamprey's slightly infamous 'more severe shortage on the way' comment, to which I've never seen a more contrary response - listings continued to soar.

ABS housing finance statistics hit the street soon after, and as I pointed out, the game was truly up. Some local local agents capitulated and few days later The Advocate gave readers a double page souvenir lift out - to commemorate the first time real estate agents had ever admitted in print their market wasn't shooting out the lights.

Now this highlights package does have a point, because in that last link we were first introduced to Smithton agent, Betty Kay, who was yammering about how to get sales cranking - people should be able to access superannuation to buy houses, which she topped off with one of those clangers that agents can't help but drop when speaking to the media:

"People wouldn't be losing like they did when the share market crash came."

It's worth considering that statement in the context of the Smithton and Circular Head region. A small area that's been sucked into the vortex of easy credit and housing mania which blew its house prices up to heights they shouldn't have seen. Right now there's no escaping the economic doldrums and people in the area may face disaster - listings have exploded, jobs have evaporated and housing is sitting near all time highs.

A house with a few hundred thousand in debt chained to your ankle, no employment to pay it off and huge competition from other vendors - sure that's a recipe for not losing like when the share market tanked. How does anyone extract themselves from this glue pot?

Consider another one of my terribly naff charts...

Firstly, this compares the median dwelling price of Smithton against the median income of the Circular Head municipality. If it were strictly CH v CH, the ratio would be higher, as several towns in CH have higher medians than Smithton, particularly Stanley, but Smithton is the main population centre.

Now imagine you got the neck in the first five years of that chart and have to leave to find employment. At just under three times income, if you take a hit selling, it could be argued you'd wear it ok. Fast forward into 2005, easy credit and a few mainland property investors push this market into bubble territory. Late last year the wheels fall off and now trying to sell after losing employment becomes more onerous - possibly like this...

It's on the market for $465,000 - it last sold for $465,000 back in November 2009 and before I go on, why sell a house so fast? This one's in that denial territory, where if you get what you paid - you tell yourself you didn't lose - ignoring all those closing costs and agent fees. It's fairytale stuff if it pulls down 465k - the Circular Head median wage is currently around $36k and over 35% of the current listings in Smithton and its nearby towns are over 7x income. There's no Houdini chance either, sooner or later the people at the top end have to start the discounting and it won't happen in a vacuum - it pushes everyone else's price down too.

Economic doldrums prove illiquid assets, with their prices pumped by debt, are a curse. Heck, take the 'economic doldrums' away and they're still a curse, having to always cross your fingers that some dipstick will be approved for more than you were, is game of chicken for your financial life.