Banks have treated our housing market like a Ponzi scheme, and it's about to bust

What was it that killed 03? 1% or so from memory

 

Not in Perth. 2003 to 2007, massive boom! I think Sydney stalled in 2003?

So, if low interest rates cause booms and interest rate increases cause corrections, why did the interest rate increase cause a correction in Sydney and a boom in Perth?

From 2013 to 2017, why did low interest rates cause a correction in Perth and a boom in Sydney?

Maybe its not about interest rates at all?

http://reiwa.com.au/uploadedfiles/public/content/the_wa_market/house-prices-2013-web.pdf

 

For Perth definitely a commodity based story. High commodity prices boost new investment spending so increase jobs/incomes and feed into property prices and vice versa.

For Sydney melbourne helped by massive foreign capital influx aka Chinese easy money. Led to massive construction spending boom and jobs.

 

Definitely! I was being sarcastic because some posters keep claiming it's all about interest rates, which of course it's not.

 

Thanks guys, I think the rate increases so far are more annoying than anything else but they do send a signal for what is to come to newbies and first home buyers and hopefully convince them to stay away for a bit longer.

I believe property is expensive and in general it doesn't make sense to invest in the capital cities anymore. Why would I buy a property yielding 3% or 4% which minus expenses will make 2% or 3% and put my capital at risk when I can get the same return from a bank deposit and have zero tenant and maintenance issues and zero risk of capital loss?

There is no opportunity cost when the market is already expensive.
There is only the risk to be burdened with high debt forever because we might not see a property boom like this again for many years.

This risk is high IMO and it is something investors need to seriously consider.

 

It is interesting that none is talking about it.

 

You think it's a good sign or doom is on the way? Really confused atm!

 

I think the media are occupied with the Trump story.

Hard to tell what is to come but property prices don't change overnight.
They do go up fast when there is demand but sellers are reluctant to accept lower prices so corrections are slower.

However, there have always been corrections and more so in the less desirable locations.
I'm no expert on Melbourne but I have heard that they are building a LOT OF UNITS. I would not touch a unit in Sydney or Melbourne at the moment.
All the best.

 

Yes, east coast.

I had a look and it was 50bps then two 25bps.

Only one macro factor.

 

Gosh this thread started a long time ago - and I have not seen any evidence of prices crashing. In fact, we're seeing record auction clearances. I don't have the portfolio of many of the experience investors here but from what I can see, if we have growing immigration driving our growing population, any oversupply will only be short term. If that is the case, unless there is some major economic crash (which nobody expects), how could property prices crash? Ultimately to crash, people would need to sell properties for less than they bought them for. Sure prices will stagnate - typical Sydney and Melbourne from what I can see. Yes, slight correction in some suburbs but when prices have risen up to 100% in some areas in the last 4 years, a crash would mean the property would have to become cheaper in 2017 than it was in 2012. Surely people don't seriously believe this will happen do they? I think the Doomsdayers are drinking from a different source than most of us!

 

Banks are a joke their lending policies are all just driven by out of date Basel requirement rules, and ability to use internal risk model on resi but not commercial.

 

We have oversupply upon parts of Melbourne and Brisbane already (and more stock/oversupply looming towards end of 2017).

We have the Chinese money largely drying up (though dribs and drabs will always still find a way through).

We have interest rates edging up slowly (not a biggie for seasoned investors, is a biggie for overextended ones and even sensible newbies with tiny buffers).

We have the labour force suffering with the transition to a part-time economy (though inflation is allegedly 'muted'; many products have been increasing price substantially outside of this, all citing various other reasons of course).

We have a government who is now genuinelu contemplating the removal of the $100 note as well as cash-only spend cap rules (that is a dire sign of the cash economy and the desparation of this Gov to claw back tax revenues at a time when running this country just got a whole lot more expensive).

I dont't mean to paint a gloom scenario with all of the above (smartie folks will find opportunity in each of the above, too!), but on the whole I don't have much confidence of happy times ahead for the next 2-3 years.

Lets see what budget gets passed by this gov in the next few months. I think that'll determine how much spare cash Aussies will have.

 

I agree. I am not optimistic about the Australian economy or the property market over the next at least 3 years. That said, I don't believe fairytales of 50% price drops in Sydney.

 

I'd say we need a combination of drop in bank mortgage lending growth(perhaps banks credit tightening from an apartment market collapse) and a serious recession as well to get a 50% drop, not entirely impossible in bubbles, especially when most people are not expecting it.. After all this is the biggest leveraging of credit we have ever had historically, debts are running at all time highs, markets are running all time highs..

Having said that a 20%+ correction is quite possible if the bubble in Sydney/Melb markets does pop and investors run for the exit en masse.

Watch the growth in bank lending, its still maxed out at the 10% AHPRA is allowing, once that starts to slowdown or go negative we should get some sort of dip.

 

It is problematic an inaccurate to state that Sydney and Melbourne are in bubbles. The analysis of bubbles is always retrospective because we can't know whether a market was in a bubble until it corrects. If it corrects a certain amount, it was a boom. If it corrects a lot, it was a bubble (crash). Formally, for it to have been a bubble, prices would need to drop back to the price when the bubble started forming.

A housing bubble is a period of above-average levels of house price growth that is followed by a drop in prices, back to or lower than the point where the growth started. The drop in house prices begins at the point where the bubble “pops”.

For instance, in a market where prices are $300,000, a rapid and unexpected rise to $600,000, would need to be followed by a return to $300,000 prices or below to constitute a bubble. This concept is called the Wilson Curve, modelled by Domain Group’s Andrew Wilson. This may take some time to occur and the drop is called the “correction phase”.
...
So it’s difficult to know if a bubble exists – until it pops.​

Taking Sydney as an example, you could argue the bubble started forming in 2013. For it to be a bubble, the price would need to correct back to that level or lower. I doubt that will happen but we will see.

Sydney and Melbourne markets are booming. There is not question about that. They will also correct, booming markets always do. But are they bubbles? It's too soon to tell. The whole "bubble" thing was started by some blokes to sell books and web site subscriptions.

The housing bubble explained

 

As long as someone is willing to pay the asking price there is no need for prices to correct but with higher interest rates our willingness to pay the asking price should change.

My concern as a local guy is that an overseas buyer will come along with pockets full of money (and there are plenty of rich people worldwide) and pay more than me and this is what pushes prices up and into bubble territory.

 

Just remember that only certain properties can be purchased by overseas buyers. So as long as you are trying to buy properties they are not eligible for...

Either that, or come to Perth. Properties here are less than half the price of a Sydney equivalent. Can you believe that in 2007, the median house price in Perth was higher than Sydney's? That was 10 years ago and some people who bought in 2007 are still in negative equity. Unbelievable!

 

You never know five years time it could be the other way around..

 

I did look at Perth a few months ago and I decided against a purchase because the yields don't make sense. I'm holding out for better opportunities,
perhaps in the stock market if we have a good correction

 

You are right that yields are very low right now in Perth (generally). Are yields better in Sydney? I haven't looked. I wouldn't hold my breath for a stockmarket correction either. We are not that close to the previous peak. I wouldn't expect a crash before it reaches the previous high. I'm probably wrong.