Economic fragility and Melbourne property

Hi all,

There have a been quite a number of doomsayer type news stories of late, warning about the impending property crash etc etc. My mother's financial advisor even told her to tell me to sell up so as to limit exposure to potential downfalls.

Are things really going to be that bad? Here is my take:

- Melbourne is pretty much at its peak
- household debt is now at record levels (danger, Will Robinson, danger)
- Wage growth is quite low.
- Some investors are speculating purely on capital gains without regard for rental yield.

Even considering the above, there needs to be some catalyst that starts it off and I just can't see it happening. Rates going through the roof overnight? nope. All of the investors heading for the door at once... probably not. Huge defaults on loans... probably not.

Should I really consider selling?

 

I think it just depends which suburbs u have bought in but u can't really say Melbourne has peaked. Obviously no point buying in at higher end suburbs like glen waverey Caulfield Armadale etc

I watch a lot of suburbs high end to mid end. The higher end suburbs have peaked where else suburbs that have not really move seem to play catchup to suburbs that have not moved or boomed. For e.g reservoir and Heidelberg west when you could have bought some ips for 500kish for some properties in 2016 now has gone 700kish in 2017.The same was said for Maidstone in 2015 where else now similar sized properties are now 800kish in 2016. What was 300kish 2014 in H&L is now 500kish in 2017 in point cook jumping from 400kish to 500 in 1 year alone.

There are still suburbs which haven't really made that leap like the 25-40% which i think has not really peaked . Immigration is at a all time high and some of the auction I see in 2017 seems to be getting records broken. There is a lot of rezoning across Melb in commercial and residential esp in west like sunshine St. Albans. I think those who have gone in buying 1 mil dollars paying 10% deposit are most at risk to interest rate movements or pressures from being negatively yield. If u want to sell out to make a gain why not ?u could Obviously reinvest the gains into other asset classes or other ips elsewhere

 

@melbournian Yes, I think the immigration factor will continue to push things along and also the changes to stamp duty may add fuel to the fire in FHB markets. I don't usually buy into the doomsayer stuff because on any given week there are a handful of people saying that the sky is falling. Even still, I may consider selling, paying down some debt and reinvesting.

 

Where would you reinvest? I sold up in Melbourne to reinvest in Perth. It's working out so far but I won't know for 4 or 5 years if I made the right move. Not the end of the world if was wrong though.

 

Hmmmm...better ask your mothers financial planner where you should invest? Perhaps shares at the top of the cycle?

For the record...read what the Vic govt has done with stamp duty....thta might give your some clues...

 

Excellent point. When WA increased the FHOG to $15k a few years ago, that segment of the market boomed.

 

Financial advisors. If they were that good at building wealth they'd be sitting on a beach drinking mojitos. Probably suggests selling up the property and reinvesting into something where we gets a nice big fat commission cheque.

 

Son bought a new PPOR nearly three years ago in Melbourne. At the time he was warned he was buying at the top of the market. His Property has gone up over $400K going by recent sales.
Marg

 

One of my best mates is a financial advisor, he got top marks when getting his license, smart dude. Can ask him anything you want about shares/funds, but property, doesnt have the knowledge and hasnt been educated. He's not going to advise someone into something he doesnt understand, wouldn't be in the clients interest, so he sticks to shares and etf/managed funds.

 

If he purchased 3 years ago, this was close to the beginning of the Melb property boom so he got the timing right. Don't you love booming markets, any fool can make money, just a matter of pulling the trigger.

 

Frankston's not cooked yet.

 

Population growth and jobs.

Melbourne has been increasing jobs 4% a year and population by ~120,000 people since 2014. It has been approving ~65-70,000 dwellings, which as of this year should be about the completion level.

That means just shy of 2 people per dwelling, and considering the numbers of sinlge bed apartments, that is a stable if not only minor overbuild for the state.

The risk here is stalling population growth. For example of how bad this can be, WA peaked at 88,000 people a year and dropped to ~25-30,000 last year including births. Melbourne's long term average is under 100,000, so if it does go back to that, there risks being 1 dwelling per person being completed. As these dwellings are already under construction, this cannot be stopped. That results in a massive overbuild coming at a time when affordability is maxed out and a majority of buyers are investors, who will abandon their quest to purchase quite fast when they dont see returns.

Melbourne has had jobs growth of over 100,000 since 2014 when Andrews govt came in to power. Those jobs are what underpinned the record population growth, so once that stops, population growth cools back to normal levels. Private construction has maxed out, infrastructure projects are hitting peak staffing this/next year, and manufacturing is getting a kick in the guts from automotive this year. IMO jobs are peaking, and that will be the trigger to turn the market.

 

Melbourne is not ecomically fragile... Neither is Sydney.
Little old Brisbane and the other state caps are.

 

Wash your mouth out.

 

I'm losing faith a bit with Brisbane. Maybe I'm inpatient...I would have expected to see more zing in prices by now. If it doesn't in the next 6 months, I'll suggest buying (even overinflated) Sydney and Melbourne.

 

Patience gunga din..,and you will be a better man than I....

I suspect that Melbourne in the inner city has hit its staps the suburbs more than 30 klms will hit their straps within 2 years..

I reckon Brissie should kick early 2018 to a new level...I suspect this will follow Sydney's down turn...

 

Historically yes, Brisbane has picked up after Sydney hysteria has subsided.
When that will be..who knows...and I'm not sure I want to hang around to find out... Am thinking of selling Brisbane and buying in Mel or sydney..maybe I'm foolish to even consider this..

 

Steady.....steady...son......it will be all apples within 2 years....

 

I think the thing you need to consider is this: don't bother analysing economic fragility.

Just prior to Ireland's crash GDP was growing at 4.5% per year - and I'm talking during the peak. The economy was "a miracle" just a few years prior to the crash. Our banks were "among the safest in the world". There wasn't going to be a crash - no one thought it could or would happen, not economists, not the OECD and IMF who gave frequent warnings, not even the bearish. The naysayers were a "pack of hyenas", dismissed as doomsaying idiots, and at worst we were going to see a "soft landing". The effects of normalcy bias are quite remarkable and looking back I'm not sure why, when we knew prices were rising at 15-20% a year, we didn't imagine they could fall at a similar annual rate (just FYI I absolutely did not think a crash would happen, especially in Dublin).

On economic fragility though, even during the peak (about 18 months long), there was none - or not in the place people usually look. Prices were already down 10% on average and up to 30% in some areas by the time unemployment budged a jot in late 2008. The crash by then was well underway and still no one believed Dublin's bubble (by then widely acknowledged) could unravel. So we basically didn't see a crash coming while we were in it. Recession didn't hit till early 2009 (the year of the biggest price falls) but it hit because house prices had dropped. So we were all assuring ourselves things were fine and the economy was strong, while it was silently imploding. There were "triggers" going off, they just weren't the ones we thought they'd be. And I've read these words before: the bubble didn't so much burst as exhale. The crash happened almost in slow motion, so gradually you could pretend it wasn't there.

The Celtic Tiger basically died of its own hubris (well actually oversupply was the main culprit as it caused developer discounting. A stall in population growth rate was thrown in i.e. in early 2007 the rate of population growth dropped very rapidly, preceding price falls. Wages also stalled in 2005 and began to drop in real terms, with a massive spike in part-time and underemployment - so before unemployment rose down the track, there was a long period where people just weren't earning enough).

USA was the same - the GFC hit in late 2008, almost 3 years after prices peaked. By 2008 some cities were way down. The GFC and all the serious economic consequences - widespread layoffs, banks going bust, defaults - all of these were consequences of the greater cause. So don't wait for that to happen. If it does, the horse has long since bolted. Fundamentals like wage growth, population growth rate, physical supply - those are the canary in the coal mine.

 

Do you currently see oversupply in Melbourne and Sydney? If so, where?
Apartments yes, but should we include them as it's not a product many like to buy.