House price decline from peak... so far

It fly in the face of
"time in market not timing the market"

few of my international properties had an absolute home run (7/8X) from year 2002/3 till 2009/10, then it went no where(plus minus 5%) till now, In real terms its a disaster for someone who had bought at or near peak as rental yield was 1.5% at peak and even now RY is not more then 2.5% after a decade.

I entered when I entered because rents paid the holding cost(mortgage, maintenance etc), In hindsight I was at the right place at the right time and got lucky, technically it was start of mother of all credit boom. though population/employment kept increasing wages didn't catch up to the credit fuelled boom and are still lagging even after a decade of price stagnation.

 

not just investors, OO demand fall is gaining momentum

 

Like anything, when we are measuring the performance of something, the starting point is critically important. It is how data is manipulated.

I admit that performance from the peak is interesting to understand volatility, and total magnitude. But very few people bought at the peak, so it doesn't help us understand the impact of damage caused by the falling house prices.

If we go back further, say 10 or even 15 years, one alternative conclusion that you could reach (as opposed to flying in the face of time in vs timing the market) is that over longer periods of time, the Sydney and Melbourne markets have just been plodding along. And furthermore, what happened between 2013-2017 was not a spike, but rather a long awaited catch up in prices after a long period of stagnation (the Noughties).

What we use as our starting point is very important to what conclusions we draw.

Best,
John

 

Ooof!

And AFR are reporting Sydney Vacancies are up 40% yoy.

Sydney vacancy rates rise 40pc since January 2018, SQM says

 

During times of high volatility, consumer sentiment plays a big role regardless of fundamentals. It helped the peak go that much higher and likewise ...

 

No wonder rents have started to fall,
Makes one wonder about all the talks of Sydney's price driven by strong fundamentals,
what happened to all the potential defenders of price falls like high employment with economy firing on all cylinders, migration, location, high saving rate, etc etc

 

and here I was thinking a large part of it was easy credit driven.

I didn't know the quote "time in market not timing the market" was meant only for Sydney and Melbourne and not for other cities.

 

from UBS:

Investors -28% y/y; but owner-occupiers also -16%; while developers weaken
The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the Royal Commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20% with risk of 30%’, to ‘25% with rising risk of 30%’; meaning housing credit growth will likely slow to 2% y/y by 2020, with risk of flat. We also cut our peak-to-trough forecast of home prices from falling ‘ 10% or more if regulators don’t ease’, to dropping ‘14%, even assuming the RBA cuts’ (with Sydney & Melbourne closer to -20%). This is double the ~7% decline so far. Hence, we reiterate our non-consensus view that GDP growth slows sharply to 2.3% y/y in 2019, unemployment drifts up to 5¼%, & the RBA cuts in Nov-19.

 

Sydney house prices have fallen 14.3% from its peak

 

Sellers struggling to shift capital city properties have been told they need to be more realistic about the prices they’re asking.


Time to get real, property sellers told as discounting bites

Property buyers are now getting discounts on the asking price in many capital city sales.
The gap between buyer and seller expectations is continuing to grow as property vendors around the country are forced to drop prices to get settlements over the line.

Around 75 per cent of properties sold by private treaty in the last quarter of 2018 were settled for less than the original asking price, Core Logic data shows.

The heavy discounting is prevalent in almost all capital cities, where the median discount sits at 6.3 per cent: the worst figure since 2009. While regional markets are still weak, they are performing better at, with a 5.2 per cent discount.

CoreLogic data analyst Cameron Kusher said discounting was likely to continue and that sellers needed to be more realistic when setting prices.

... link Nocookies

 

I read in Bloomberg yesterday that Australian housing credit is flowing at the same rate as the Reagan/Thatcher years....

 

Housing credit suffers worst month since 1984Matthew Cranston
Updated Feb 28, 2019 — 4.32pm, first published at 12.34pm
Credit growth for housing recorded its smallest monthly increase since July 1984, pointing to further house price declines and an imminent fall in residential construction.

The monthly figure showed housing credit rose just 0.2 per cent in January, according to figures published by the Reserve Bank of Australia, while on an annualised basis the growth was 4.4 per cent – the slowest annual rate of growth since 2013 when it reached the lowest growth rate since records were kept.

CoreLogic research analyst Cameron Kusher said that to put these figures in context, such credit growth in January 2019 was worse than any time during the early 1990s recession or during the financial crisis when financing costs jumped.

... more: Housing credit suffers worst month since 1984

 

Now compare that graph to wage growth ... Not a pretty picture

 

Thanks for the charts.

In terms of speed of falls, it is interesting to see that Sydney fell in 18 months what Perth took 50 months to do (and 27 months in Darwin). Illustrates just how sharp the falls in Sydney have been.

 

Looking at that Sydney chart interesting to see we are back to where it dipped 2015. That decline was turned around by drops in interest rates. I’m not knowledgeable enough to know about how it would have effected the rest of the economy but can’t help but feel had rates not been dropped at that time the housing market may actually be in a better position right now. Instead we are back to where we were price wise but with lower interest rates so more potential for the price to go further down.

 

when it comes to Melbourne, Sydney,
We are in uncharted territory as there is no parallel for it in the past,
not just about speed and extent of fall so far, but also about multiple headwinds acting in parallel, hence very apprehensive of using past falls to project behaviour of future.

 

Phillip Lowe was repeatedly asked a few weeks back at a government meeting about the effects of falling house prices, but as he kept on saying, the problems are;
1-Low wage growth
2-Low wage growth
And Low wage growth .
To make it worse ,its not going to pick up any time in the near future.
That 1-2% real wage growth that missing from workers pay packets starts to add up after 5 or so years.
By year 10 that missing money would let you trade in your old car and buy a small near new one year old Hyundai or similar, and thats on an annual basis. for a worker on an average wage.
For others it would allow for more savings , or to pour more into servicing their debts, and for many others it just allows them to go out and spend more money down at the shops, so the flow on effects are very obvious.
The other effect in future years from very low wage growth is the ability for banks to write out bigger and bigger loans to the broader working population.
That whats happening at the moment as the banks have tightened up on applications.

 

The speed at which Sydney has moved has surprised me (both on upside during up years and downside during correction years). I wonder if that's an economy related factor (not sure why or how). I.e. it falls quickly, rises quickly and achieves its equilibrium (more like a stock). Most other cities in Australia have their price adjustment relatively slowly. The pace at which sentiment changes is very noticeable too in Sydney (it goes cold very quickly and hot quickly too). 2016 rate cuts were a good example, went from bad to good pretty much instantly (in a tightening credit environment).