Great info on previous downturns

Not sure if anyone has seen this article presenting previous downturns in Melbourne and Sydney and comparing to prices in the past several months. Well worth a look..
Here's how the latest downturn in Sydney and Melbourne property prices compares to those seen in the past

 

Interesting Article
This part got my interest , as neither has happened yet , but the possibility of it happening is quite high.

"Although each was driven by different factors, be it higher interest rates or global factors, it suggests the recent downturn is not all that unusual."

At some point over the next couple of years there is a strong possibility of interest rates going up.
It is also looking quite possible that the US will be a bit more aggressive in raising interest rates, which historically has not been kind to Australia.
Since about 40% of our household debt is funded from overseas money markets, that component might also be increasing.

Then you have very weak consumer spending in Australia, which had caused wage growth to come to a stop.

 

Good point, on the other hand we also have high immigration and low unemployment

 

High immigration can be turned off like a tap and employment numbers can change pretty quickly if you go into a recession.
Some say the easiest way to kickstart wage growth is to really cut back on immigration for a couple of years.
Then you have the banks clamping right down on housing loans.If there are tight restrictions on foreign investors and wage growth becomes non-existant , where does that leave the property market.
People need to save large amounts of money to enter the property market, so they cut right back on consumer spending.
Which in turn means business struggle to make good profits, and workers dont get pay rises.
And around and around we go.
At some point it makes you very vunerable to a recession,especially if other things start to go wrong that are outside of your control.The longer it is left the higher the risk becomes.

 

This article relies on data until Feb 2018 and below is how the chart should look like after including March and April data. Some Sydney suburbs are actually down by good 15-20%.

 

There is really only one thing to understand when markets correct..... the downturn cycle generally lasts much longer than a boom cycle.

Moral of the story, don't make the mistake of buying, be patient and wait for the next cycle, otherwise you will be servicing debt no fun when yields are at around 3%... ouch and living in hope.

MTR

 

That's the bad thing about high property prices, it will in the long run stifle economic growth and competitiveness as it is an asset that requires investment but does not increase productivity gains. All that liquidity and capital investment pouring into real estate sector would be better used to increase productivity in other sectors.

 

I hear a lot of people suggesting it could take a decade to get interest rates back to a normal setting. Interest rates have yet to start going up and house prices are falling under the weight of a substantial household debt burden. It will be interesting to see what happens when Interest rates start going up. We could see house prices dormant or falling for 10 to 15 years.

 

News just in from the AFR:

Sydney leads auction market down again, Melbourne stable

Weekend auction figures pointed to a clearance rate of just 50 per cent in Sydney, indicating further price corrections for a market where house prices have already fallen over 5 per cent over the past 12 months.

 

They are falling because banks have stopped new lending. No signs of a burden on existing lending.

 

Liberals have made it clear that they are in favour of population growth, because they realise how important it is to GDP. Interesting times ahead..

 

Yeah , but isnt it just fudging the books.
The states and local councils are left to provide for all the extra infrastructure required .

 

The number of homes that are sold prior to auction seem to be also increasing.
Makes you wonder what will happen if there is a surge in properties that investors have to sell as they get pushed of I/O and onto P/I loans.
There will probably be no shortage of buyers, at the right price, as prices start to drop, in line to what the banks are prepared to lend to owner/occupiers.

 

Current stats as of today:

Sydney -4.51%
Melbourne -1.38%

 

In Ireland it took about a year or two near the start of the downturn for immigration to dive down to almost zero. Before that it was all high immigration this, too much immigration, immigration is causing problems etc. When it dived to zero it probably helped the recovery a little, as employment started to pick up soon after. People just don't want to emigrate when there aren't any jobs.

 

Ireland and Australia and different creatures
Australia is 4 times the size Financially and just over population.
Also has diverse economy with large resources and export opps.

Republic of Ireland/Gross domestic product

294.1 billion USD (2016) @4.8 Million People


Australia/Gross domestic product

1.205 trillion USD (2016) @$24,9 Million People


All depends on the APRAs and RBAs of the Nation to determine the timing of this phase of the cycle.

Im not sure and most experts i dont think are either>

 

NO such thing as too big to fail ... I always believed that a correction is proportional to the overshoot of fundamentals during peak times caused by short-term supply demand issues.

Supply will ALWAYS catch-up, the beauty of timing the market is where real money is - whether the average Joe can get this right is another matter.

 

Mainly property overshot in Sydney and lesser extent Melbourne


The following either flat or declined.

Perth
Adelaide
Brisbane
Darwin

 

So are you agreeing that there will be corrections in Sydney and Melbourne just like the other capital cities after their booms?

 

You can not disagree its already happening.
Has been in decline for 5 months .

But is up to the Finance sector and government regulator as well as extrernal factors to determin the fate of this correction.

Example APRA adjust HEM calcuation
or 7.25% repayment rate

This will affect market.
China clamps on withdrawl of funds from country capped at $50k If they lift the cap more funds will flow.

So i feel this time there are alot of forces mainly domestic at the moment(regulatory)