Headwinds for the housing markets especially Sydney/Melbourne

These, are exactly what I would like to see money spent on in Australia. We have raw materials, but instead of turning it into intermediate or final products we just ship the dirt out. We have large area of deserted regions in the middle and there aren't massive solar farms seen. We have bright minds, but yet I haven't seen a silicon valley here.

I just don't know how Australia will remain competitive going down the track.

 

We used to make a lot of stuff, but then we got a more global outlook, untied our currency, sold off public assets, and cannot even be self reliant when it comes to energy, vehicles etc....

I think were in a mess frankly, dont worry about down the track....we been going down it for a long way with no compass or reserves !

 

I agree it's better to have lower household debt.

RE employment in. SYDNEY City its a large Employer.

Finance and professional services
Over 20% of the finance sector in Australia calls Sydney home and it is a major part of the City's economy representing around 40% of all employment across the local area

 

From an individual investor's perspective I don't care. The wider economy is not my problem.

IMHO all this fretting around in the onslaught of threads around doom and gloom is a total waste of time.

Things will be fine and take their normal cyclical course . Investors who invested well will be fine. Those who made poor decisions and bought at peaks may not be so fine. Nothing new. Just as expected .

 

That is not quite right.

Only production and capital investment leads to wealth.

Consumption is the objective of economic activity, but it is what you do with the proceeds of wealth.

It is a problem that 60% of our economy is on retail spending, which is the least valuable economic activity.

To my mind, I agree with Leo, that there is no significant correction for Sydney on the cards. This slowdown is artificial given the APRA regulations. Which means that if things get too hairy, they will turn the taps back on and reverse course.

Sydney is also the lease cyclical market in Australia with the lease volatility, and the most amount of diverse economic growth drivers, plus significant population growth. Ditto Melbourne.

 

Depends on how things go with trade war and interest rates though..

IMHO apra regulations are here to stay for quite a while. RBA will probably drop rates first if economy stalls. But that probably won't move property up much if banks don't drop rates.

Sentiment is now generally quite poor but probably not in panic selling mood yet...

 

Have you been in Australia recently?

There is a bit of money being spent on infrastructure at the moment.

To understand the implications of Australia's vast infrastructure program, start here

 

As a rule:

Spending most of a wage buying toys = bad for consumers

Investing for the future = good for consumers

Basically you are asking people to sacrifice their future financial security because hey, it's good for the economy

 

Sydney has fallen more than 5% and in reaching closer to 10% in quite a few of the most recent sales, with some sales even experiencing a 15% drop in prices from peak.

All this while its just a start of #IO2PIRollover and #HEMCreditTightning with potential #6xDTICreditTightning yet to be enforced.

how much according to you is a significant fall in terms of percentage?

Now this is regulatory enforced slowdown no doubt, but APRA is forced to do it in order to avoid the systemic risk posed by #RisingInternationalYield, #HighDTI, #HighIOloans making australia a target for bond vigilantes.

Not sure if they can turn the tap of #Easy&CheapCredit ON even if they want to? without serious systemic risk raising its head.

The days of #EasyCredit is over for some years to come,
the days of #PricierCredit is starting due to #OutOfCycleIRRise forced by #FundingCostIncrease

As @euro73 says its a #DecadeToDeleverage

Of course none of this effect those who have an ability to sustain the #RepaymentRise due to #PricierCredit or #IO2PIRollover, but we are not talking about them.
We are talking about those who can't? and it doesn't take a lot to change the market sentiments which results in trickle down effect, resulting in sellers #FOMO and buyers #HopeToGetEvenBetterPrice.

Behaviourally just like
#NothingDrivesPricesLikeRisingPrice #NothingDropsPricesLikeFallingPrice,
It becomes a self fulfilling hysteria.

 

Amidst all doom and gloom here is some positive news for investors.

The powerful financial regulator has declared the banks have "largely" done the "heavy lifting" in improving their lending standards, signalling it will not require further significant tightening in the mortgage market

More here

 

I agree with this. In Perth there was a mini boom that ended in December 2014. I could not discern any fundamentals driving up prices except that prices were going up and while they were going up every man and his dog wanted a piece of the action. Once prices reversed though, no one wanted anything to do with that market and prices plummeted. I have seen examples of prices falling 30% or more.

 

well, the basic economic equation is that production equals consumption plus investment. There is no production without corresponding consumption or investment. And investment is always done for future consumption. There is no point to invest or produce anything if it is not consumed is it ?

Further ARPA actions are artificial in a sense that if they did nothing we would have the same thing that occurred in US aka subprime collapse, liquidity/credit freeze and very nice and acute financial crisis. So I'd certainly take artificial over natural development course of events. In a way ARPA actions make it easier to relax credit rules in a future as if their actions did prevent full blown financial crisis (aka severe misallocation of credit due to mispricing of risk) then market players won't learn to behave sensibly at least for a generation. I doubt for example US will see similar reckless lending like they had in 2000-2006 for another decade or so with or without regulatory pressure. Losing piles of money is a very good way to teach to price risks correctly.

 

Relevant: One of Perth's most ambitious public transport projects could be derailed before it even begins

Of course it is ABC scaremongering but it shows the impact that the infrastructure boom is having on projects.

 

All of this assumes that cheap credit drove the boom, which I disagree with. However, there is a finite limit to how much debt Australian households can sustain. Once the capacity to take on additional debt nears exhaustion, prices reverse and this causes a correction. Capacity to take on additional debt could be simply because prices got too high, lack of wage growth or regulator intervention of a combination of all of these factors.

So, to your list I would add:

• high prices
• low wage growth

 

Companies preemptively saying that they'll be over budget (for other reasons) and it's not their fault?

 

The article says APRA is happy with the way banks are enforcing #HEMCreditTightning, APRA still want banks to enforce #DTIBasedCreditTightning, plus they will continue with #400bnIO2PIRollover over next 3/4 yrs.

Even without any more restriction the current measures are enough to not just freeze investors max #BuyingPower but rather reduce it significantly.


For eg, As I understand, #DTIBasedCreditTightning will put a hard cap on investors ability to further borrow based on his total debt to income irrespective of how much equity or offset balance one has. Upcoming comprehensive credit reporting will help bank enforce this.

In Short,
Market is yet to fully absorb that what they are witnessing is not just #FreezeInRiseOfBuyingPower but actually #DecreasingBuyingPower along with a hard cap on ones ability to borrow further.

 

Thanks, it will make it more generic and not just specific to Sydney/Melbourne

This post was more about Sydney/melb which already have boomed prices.
An already boomed price requires an #EverIncreasingBuyingPower to sustain its rise.

Now there would always be exceptions like someone buying outright and #EasyOrPricierCredit doesn't effect them.

 

Had property prices risen inline with incomes, rather than going ballistic in the mid-to-late nineties, you'd probably be looking at a Sydney median house price of around $400K.

Some of the $700K difference might be attributable to lower interest rates, more families where both partners work, or even immigration, but it hasn't really achieved much that's socially useful or improved productivity in the economy. We're largely selling existing stock to one another for ever increasing prices.

I also think that the attitude that APRA will unwind restrictions in the event of a slowdown is a clear case of moral hazard. Investors expect to be bailed out.

 

Besides the choc chip ice cream I had this morning, You made my day!!

Not saying you're saying it does but rising values has little to do with income.

 

Companies asking to import cheap labour?