Difference between "Correction" & "Bust"

Doesn't matter which newspaper you grab these days, one thing you'll be sure to find is "Article talking about property "Boom to Bust"...

And Australian media surely does damn good job at that.

Australian house prices have seen significant growth over the last four to five years and to be more specific "Sydney & Melbourne"..

Below is price growth chart state by state -


With significant growth that Melbourne and Sydney have seen over the last few years and tightening of lending policies by banks, what we seeing now is normal pullback in the market..

Now we can either call this pullback part of normal "Correction cycle" or "Bust".

Below is another chart that shows house price index result as at April 30, 2018.

So far Sydney market has seen the biggest drop which on annual basis is only -(3.4)% and when compared with the housing growth chart (figure 1), fair to say it's correction that was waiting to happen..


Got the crystal ball?

No one has crystal ball but some of things to look at to try and predict the property market are -

• Liquidity
• Rents
• Interest Rates
• Job Market
• Consumer Sentiment
• Regulators (APRA/ASIC)
• Aussie dollor

What does everyone else thinks??

Cheers,

 

Everyone else thinks that "this too shall pass". Look booms don't last forever, neither do busts - it's called a cycle for a reason. If you owned property in Sydney for the last 4-5 years you'd have virtually doubled your money. I'm sure a 3.4% fall back or even 5-10-15% isn't going to worry people who are in that position. Even if you purchased recently, but are in for the long term, its not really much to worry about. If you're a flipper or trader in for the short term - maybe it's a different story - but that's a risk you took.

 

lets park 'there are billions of market within Sydney" or "each house is market" aside,
I am not sure if Sydney has fallen only by 3.4%?
there are increasing chatters from RE Agents/sellers about price realignment to adjust the new credit reality,,
I won't be surprised if Sydney houses have already fallen by 8-10% on an average, of course there would be disparities across, But more then how much, how fast Sydney has fallen should be the cause of concern.
Most of the arguments for bullish case(immigrants/place to live/location) are still there so why the fall this fast?

Why this fast?
Lets park cash buyers aside,
Majority of Investor's buying power depends on their ability to borrow which has easily shrink'd by close to 30% due to credit tightening,
The trickle down effect of this will flow from high priced properties to lower end.
This sudden reduction in buying power is the single most important reason for the fall this fast and its not done yet.

Has it reached bottom?
What are the headwinds for next 2/3 years?

• APRA enforced Credit tightening is here to stay for some time to come, all part of de-risking the financial system.
• PI2IO rollover of 400bn by 2020/21
• Access Supply hitting Sydney/Melbourne in next two years i.e. rents will face continued downward pressure for this period.
• Rising International bond yields aka rising mortgage rates
• Potential Debt to Income cap further decreasing the buying power of investors.
• Human factor:
  • Fears shifting from Buyers to Sellers, aka. Buyers FOMO => Sellers FOMO

with the above headwinds, any case for 'Sydney/Melb has reached bottom' or 'Its time to buy again' falls apart.

I think even if syd/melb market bottoms at 20% from peak by 2020/21, there wont be U shaped recovery but rather a prolonged grind of going nowhere for next few years given the global macro headwinds of trade war coming to boil, US treasuries needing major refinance by 2020 etc

Another point to consider is the rapidly changing face of economy in coming decade, its impact on jobs, salary, immigration etc.
Automation, AI disruptions across the boards will start having a very significant impact by 2025/30 with dramatically changing consumers behaviour in the way we work, where we work, how we spend, on what we spend.
Point being... Investors extrapolating past cycles to predict future growth may be in a bit of shocking realisation.

 

The graphs above are old, without recent stats.

 

3% in the real estate market and people screaming crying.

stock market in australia is down depending on your holdings about 5-10% if u are unlucky and no one is jumping of the buildings yet. personally im down almost 7-8% excluding todays recovery.. calm your horses people, just let the market do its thing there isnt much you can do about it anyway,

 

Sorry, cant contain myself.

 

Problem is real estate investors are use to experiencing much less volatility than the stock market investors. Also its a lot harder for RE investors generally to 'see' the volatility unless its somewhat more significant then the usual daily grind. So drop 5-10% and a large proportion go nuts. Thank goodness its not so easy to get out off, making many hold on and keeping the markets less volatile.

But with volatility comes opportunity too. Personally, I am totally fine with the market going both ways. Up is good. Sideways is good. Down is also very good.

 

Pretty good article: Cruel reality behind drop in house prices

 

A correction is when your mate properties price dropped and a bust is when your properties dropped for someone like @Leo2413 it always a correction -

 

lol I like the idea of correction or burst is personal.

If it drops more than your deposit. say if you pay 200k to buy a 1mil house and it is now down to 750k than that is definitely burst.

But if you brought the place for 300k 15 years ago then it a drop from 1m to 750k should just a correction.

 

The charts are outdated. ANZ changed their forecast and YoY price index is -6.11% for Sydney and -3.08% for Melbourne. They both are accelerating so more falls are expected. Rents are falling, listings are growing, rates are rising, vacancy rates are rising, asking prices are also falling (SQM). Those who invested into nonRE markets a year ago got good profits. No reasons to invest into falling markets unless it's a unique opportunity.

Once the market is bottomed/stabilised (in a few years) it will be a good opportunity to invest.

... and those who bought many years ago (inc me) didn't double the money. You make the money when you sell, otherwise it's just expectation.

 

Good thing I hadn't noticed. Yawn.

I'm still waiting for BHP to diversify into Renewables

They make those rare earth thingamee jig thingees

Does that count?

 

not many people notice.. because most stock has got up allot this year,
unless your a day trader..

and regards to bhp, they buying back shares.. depending how u see it.. its 5b that is not going towards renewables.

i hope you noticed tat

 

Sorry? Non comprende
In other words, what does that mean about BHP, are they going broke?

 

are you a bhp shareholder ?

 

Yes but not a trader. I dont follow what they are doing.

 

start of by saying i dont hold bhp shares. (outside super)

they are buying back shares from the market, around $5b worth

meaning the cash they can be using to go in to renewables like you hope, thats cash going back into the market,
having said that they are increasing your value because there is less available shares in the market increasing your size of the pie.

imho its a not the best move. a company the size of bhp should always reinvest the money. especially they are in commodities. seems short term to keep shareholders happy and return "share holder value" is that the best move for the long term share holders "value".

i guess thats up to shareholders to decide.

its not like apple where they can just increase iphone/macbook prices and have gazillions sitting the bank.

 

Thanks, that's what i thought you meant.

 

Share buy back is capital management, it all depend on how good the management are at this sort of play.

The theory goes, if your business trade cheaper than it actually worth and you have money, you buy back outstanding shares on market so that existing shares holder that don't want to sell will have a longer term benefit from this action, so over time this action reduce outstanding shares available so profit is ditch out to smaller group of shareholders.

Say you got 1 million shares outstanding and you ditch out 1m dividend a year then each share holding get 1 dollar of dividend, now for some reason the market mark down the business and management has 100k sitting around so we let the market know we going to buy back 10% of the share outstanding within this price range, if it fall outside that price we don't buy, so many months later you bought back 10% so the outstanding shares is now 900K shares not 1m

then a years later you still ditch out 1m of dividend but this million is now only go to 900K shares instead of 1m shares you you get $1.1 in dividend instead of $1

That the crutch of it but there are many ways to do things and manoeuvres and each has its merit and some do it for other reasons and the shorters and the longer battle on wether it is a good thing and place their trades

If you want to know more or have some specific questions you can PM me I dont have to flood the thread.

Dominos buying back their shares that is another debate and a different play all together

 

Thank you