Buying in Melbourne now, it is really that silly?

National house values.

With more relevance, the current downturn in Melbourne is "middle of the road" and doesn't seem "scary".
See screen capture:

 

Weren't you planning on buying a place in Melbourne recently?

 

Have been looking at property markets inner city Melb for last 12 months, just waiting I don't believe now is the time to buy as we may see further falls. In saying this I think Melb still remains the safest market for long term investors …. and I could be wrong.

 

Tariffs on a major and cheapest manufacturer like China means that those goods are effectively more expensive in the consuming country. Demand usually takes a hit. So less demand = less import of goods , so even if some Asian country takes up the orders, there will be less orders overall.

Locally American manufacturers of those goods would become more profitable and more would become manufactured in USA. Again less orders for Asia.

It also takes quite a while for supply chains for goods to be re-established with additional time/investment needed for factory expansion etc. So it would also take a while before we see any significant rise in demand for our goods from those countries and that demand will likely not be enough to cover the gap left when orders fall from China.

Our next quarter GDP reading will be more telling as there was a surge in orders before most of the tariffs started kicking in after June making for a very good quarter. And that was only part of the 50billion. Now we are talking 200 billion. Oct to Dec quarter which will be reported next year will be pretty bad I reckon.

 

Yeah agree with most of your points and also agree that china-us trade war, if prolonged, could be an awkward time for Australia due to our economic relationship with China and cultural partnership with America.

That being said, I don't the trade war will make a huge impact on property prices when comparing it with direct market influences like APRA regulations and banks increasing rates due to higher funding costs/ tightening lending.

There's been a pinch for 12+ months now and from recent decades Melbourne / Sydney downturns last <36 months

 

The last Sydney downturn in 2004 saw median prices down/flat around 500k pretty much till 2009 and small rise to 600k before boom started around later part of 2013/early 2014.

 

I think one should start looking and targeting. If there is a drop, it will take a few years to reach the bottom. Start to look for your ideal properties, in the ideal locations, within the ideal suburbs. Grasp it if it is available. Many will say not to catch a falling knife and timing is everything, but if it is a PPOR and you are in for the long term, it might be something worth pursuing. But maybe not immediately in the next 12-24 months though.

 

Did you see the price correction in St Kilda? Ripple effect on boom but will also have ripple effect on dooms.

 

I,ve just read the article as well and towards the end they are questioning whether Sydney's/Melbourne downturn would affect other markets?
Some property experts usually talk about each area having its own cycle and that there are cycle's within cycles, however I too am asking this question because there is a lot of money tied up in NSW and Victoria. That being said in 2004 when Sydney was flat, Perth had its mining boom and Adelaide seems steady in certain areas.
Can anyone comment on what impact a Sydney/Melbourne substantial contraction have in other cities and are these sort of contractions felt in certain price points more than others,

 

I think the independent development of Syd/Melb vs. other markets had happened before as seen in the article. At one stage, Perth's median was closing in to Syd. The drivers of Syd/Melb price rises had been discussed so no need to further elaborate. Perth is different because it is a resources-driven market. And it happened before when Syd/Melb were having a downturn/flat period and the resources industry was booming, people move Perth and when it was down, they move East.

I think Brisbane is more affected by the downturn of Syd/Melb although Brissy has it own resources towns - Gladstone for one? Anyway, Australia as a whole is rather dependent on primary industries, apart from a lifestyle choice for our Asian neigbhours to migrate and a destination to get a "good enough" education. If these premises fell through, then a nationwide decline would be looming.

 

Will the weakening Aud boost mining in Perth and thus the local economy?

 

My take,
I think the primary reason for the current price fall in Sydney/Melb is
reduction in buying power due to tighter lending criteria by close to 30%,
this reduction will worsens for those who have more total debts due to DTI caps (not sure how much of it enforced yet).

I don't think the full impact of this reduction is fully baked in to the cake yet,

This reduction in buying power will first effect top/mid markets of every state which will have a trickle down effect on lower segments. Now the extent of the fall will vary on how extended individual segments of markets are.

Price falls which are primarily due to

• reduced buying power has a Top2Bottom trickle down effect
• Rising interest rates has Bottom2Top trickle down effect.

In next 2/3 years,

• We have close to 360bn IO2PI expiry increasing potential forced sales
• Excess unit supply hitting markets with many OTC buyers not able to take delivery due to reduced bank valuations on top of already reduced buying power, increasing potential forced sales and further discounts from developers as well.

Real drama will play out in next year and a year after that and it will effect every state but the frothy ones the most.

Unless RBA opens up the IO lending tap and banks again turn a blind eye to borrowers real expenses which I think is highly likely due to systemic risk it poses,
but never say never.

 

typo: "
Unless RBA opens up the IO lending tap and banks again turn a blind eye to borrowers real expenses which I think is highly unlikely due to systemic risk it poses,
but never say never
"

 

Not happening. Current house prices are already at very dangerous levels IMO. An economy can't survive on people swapping houses with each other for higher and higher prices and living off 2 minute noodles to pay for it. Consumer spending is already reducing in many areas due to high housing costs. It's not sustainable or desireable (unless you're the owner/seller of said houses) for it to continue much longer

 

Came across this article from March: Rise in Sydney's house prices in 2018 still likely: SQM Research

“Melbourne has a greater chance of a more severe downturn than Sydney, if a large correction happens. "In absolute dollars, Melbourne is cheaper than Sydney, but compared to incomes Melbourne is more expensive and more susceptible to a downturn," - Louis Christopher

 

Louis Christopher on Twitter

 

Clearance rates trending down with lower volume

 

I am of the opinion that the Australian Stock Market is going to boom. Since the property prices had rallied a lot in the last 10 years, many institutional and retail investors will book profits and sit on cash. They would need an alternative asset class to invest.

 

Don’t think that’s true. Lots of people saw the Melb boom last 5 years, I certainly did.

2012 bought $2m, probably $4-5m now. 2013 buy $3.3m, I turned down an offer of $8.5m last year. Probably $10m now. Another $750k in 2013, sold $1.35m in 2015. Also a $800k in 2014, probably $1.2m now.

And I don’t see the bottom in sight, or more importantly, any turn around in next 4 years. Obviously data ebbs and flows so my views may change. But based on current economic data this is not 2012/13s