How do you think Sydney boom started post 2012

I feel mainland buyers with cash was the catalyst for sydney boom post 2012.

This cash provided the initial boost to house price, Bank resets the valuation of entire neighbourhood using new price.
Based on this new valuations for their existing portfolio Many investors lapped at the opportunity to refinance/equity release of their portfolio, Investors further leveraged this new cash increasing the price ever-more.
All this while banks were still happy to support new ever-more extended valuation of the same old asset.
One success story lead to another, boom kept stretching, bank kept lending on the ever-stretched valuations.
So easy credit let to further leverage, which lead to ever more valuation of the same asset, and this went on and on finally sucked in the FOMO crowd, The sob story crowd is always the final piece to the puzzle of human irrational behaviour.


Finally the Cartel boss 'RBA' was threatened by DEA 'rating agencies', which activated its Scicarios 'APRA', who is now on a mission to clean the Juarez city (Sydney) from its cowboy Narcos (IO loan holders)


Sorry guys too much Narco binging.

 

Not sure how to edit the thread title,

It should be
How do you think Sydney boom started post 2012

 

just curious - is Sydney similar to Melbourne in terms of pockets like

I know Lakemba is Lebanese, chatswood/eastwood is Asian (mainland, chinese, Korean)

in Melbourne mainland chinese money is purely in certain suburbs

You got to Pt Cook/Werribee - it's indian/Sri Lankan/Pakistan/Bangladesh etc
go to Balwyn/Doncaster/box hill - Mainland Chinese, SE Asians
But if you got to St Albans or Springvale, it is like a different world there (you feel like you are ho chi minh city -totally diff world)

Mainland chinese I fee only target suburbs that they are interested in (not every single suburb) I've been to lots of auctions across various suburbs inmelbourne (some have mainland chinese some none in sight)

 

Lowest cash rate in history and very lax lending environment. Not sure why we are still on emergency rates when according tot he ABS jobs are blooming. Not complaining though; with such low rates, i've been deleveraging like there is no tomorrow.

PS: foreign buyers are a small part of the equation. They sure have bid some suburbs up but they are only part of the problem. FHOG, no stamp duty, IO loans, all contribute to the problem.

 

If that was the case then why didn't Perth boom during the lowest cash rate in history and very lax lending environment? We know easy credit adds fuel to the fire but I think @TheSackedWiggle is looking for what started the fire.

 

I think cashed up mine workers returning home after the mining boom played a big part. They saw how cheap prices were (relatively) and started buying. Buying activity pushed prices up and once everyone saw prices start to move they all jumped in. The more prices moved the more people jumped in and the higher prices rose.

 

Factors of boom

1. salaries increasing significantly compared to 15-20 years ago - on the back of unprecedented resources boom in Australia
2. easier credit (bank lending and unprecedented low interest rates)
3. the increasing number of dual-income households
4. inheritance / bank of mum and dad (although this has always been there)
5. monopoly money (by that I mean foreign earned cash which are 'earned' under different earning/income environments - eg low tax, foreign wealth etc). Although only a small percentage of properties overall is purchased by foreigners, it takes just one or two to overpay before others in nearby streets to start expecting similar prices and when buyers meet these expectations (as a result of the above factors) the upswing starts to take hold.

 

@Perthguy , good point. I never followed the Perth market to be honest but I think it didn't boom mainly because Perth's economy was in pretty bad shape and people were relocating from the state back to the majors.

 

Exactly my view as well. During the mining boom workers flocked to Perth. Prices in some areas boomed. Post mining boom they left and returned to Sydney and Melbourne. Perth prices declined and Sydney and Melbourne boomed. I think these events are related.

 

I don't think there were many miners coming into Sydney at all... I think it was started by the Chinese mainland buyers and people migrating in general. Around my area (Epping/Eastwood), I think we were the first areas to feel the boom. Chinese like the area because the Chinese community is already here, there's very good transport, uni nearby and very highly regarded public high and primary schools. Then since lots of people got priced out of Eastwood/Epping, the boom rippled. The Hills (with the new train line) became popular, on 2012 it was easy to buy but 1 year later everybody was jumping on the bandwagon. Everything Inner West kept going up, all the surrounds of Eastwood went up (Macquarie/Ryde/North Ryde/West Ryde/Denistone). Western Sydney boomed because it was still "affordable" and so that's where lots of migrants tended to go.

Central Coast and Illawarra also went up. Longer commutes but if you are priced out of Sydney and want to buy a house on land....

To me, imo the last part to boom was the Northern Beaches because it's very detached from everywhere else in Sydney (relatively speaking), and expensive. It's a rather "insular penisula" and not great for commuting. But it too boomed.

Anyway, my thoughts only.

 

I think like all bubbles it just happened on the back of a normal boom. From about 2008-2011 population growth was outpacing supply by a lot (the reverse is now true), income growth was very, very high (again the reverse is true), low supply caused a spike in rental yields - all the stars aligned, so to speak. A bubble is basically just a situation where demand keeps rising after fundamentals turn, causing prices to decouple from their usual drivers. The higher prices went, the more speculators (who would never otherwise invest) entered the market.

 

As an investor through 3 booms, it seems everyone likes to have these simple theories that prices follow simple stats, when they don't.

Finance was cheap long before 2012.
Pop growth the same, and it hasn't slowed and does not reflect prices
(see below graph).
Infrastructure spending was there too.
Dual incomes same. Actually Unemployment seems to rise with booms.
Asian investors have always been here.
Supply was always there, just halted when demand slowed.
M3 Money supply doesn't explain anything either.
GDP...nope
Balance of trade... nope







I don't claim to have the exact answer, but I do know that most mentioned above is not a predictor of RE prices.
There's hardly any predictor of an RE boom other than eventual reversion to a long term mean growth/inflation rate.

 

I think the market finally worked through the excess from the last boom by then. People didnt buy during the downturn, so there was latent demand. Then when the excess supply was absorbed, FOMO kicked in.

 

I think it was interest rates, and the constant doom and gloom talk about the economy in the media that suggested interest rates would keep dropping (and they did).

I do recall that lending standards in 2012 were relatively relaxed post GFC all things considered, with banks and non bank lenders eager to drum up business.

Add to that Sydney being flat for a few years and it was a perfect storm.

(Cheap) finance fuelled the boom and (expensive and difficult to obtain) finance will put out the fire.

For probably the 2nd time in my investing life, I'm nervous.

 

The boom happened in two stages. Cash rate was reduced by 425bpts between September 2008 and April 2009. Fell from 7.25% to 3%. This created a huge surge in borrowing power, but banks were being very conservative post GFC because securitisation markets were basically closed. You may recall that lenders reduced LVR's and jacked rates up multiple multiple times out of cycle from the RBA due to the significant increase in the cost of funds - driven by the extremely tight securitisation markets. St the same time, consumers were being equally conservative,as global events were everywhere in the media during that time , and lots of high paying white collar workers were fearful of job losses.... So while prices did start to head north off the back of the ultra cheap money, sentiment at the time was very fearful and negative because the rest of the world was dealing with a real $h*t sandwich. This was the first stage of the boom... but it was relatively short lived because quite soon after, the cash rate started climbing again. It rose 150 bpts between Oct 2009 and May 2010, which I believe, along with a still very worried public, caused the first stage of the boom to be contained. Stayed there for @ 13 months...during which time sentiment improved dramatically as time passed and people came to realise the sky wasnt falling in after all.

Then came the RBA's second round of significant cash rate cuts, commencing with 25bpts in Nov 2011, another 25 bpts in December, and then another 125bpts throughout 2012. Cash rate reached 3% again and Stage 2 of the boom kicked off hard This time though, sentiment was much more upbeat, so the surge in borrowing really took off. Between May and August of 2013 there were further cuts to 2.5%. The GFC was now a distant memory, securitisation markets were open again and banks had oodles of cheap , high LVR money available to lend. "actuals" were still being used on servicing calcs. Share Market was a mess. Add it all together and you have kaboom.

Throughout 2015 the cash rate fell another 50bpts to 2%, and two more cuts in 2016 brought it to 1.5% ... providing the final kick along

In the meantime, during 2015 and 2016 APRA Round 1 had attempted to intervene and slow down I/O lending, but their 10% speed limit was only successful in reducing momentum, not stopping it. It wasd always going to take 2-3 years for that to wash through the system to see how effective it was... APRA obviously decided it wasnt effective enough in curtailing speculators, so with APRA round 2 they are imposing a severe quota and that will put that portion of the market ( I/O borrowers/speculators ) on the sideline in many cases...

The killer low P&I deals on offer, and the July 1 stamp duty changes will provide another kick along - but only in the sub 800 P&I PPOR space.Just watch the regionals take off. Bathurst and Orange are already starting. Mudgee too.

In the end- its pretty clear that ultra cheap credit at high LVR's after sentiment had returned was the biggest driver. Take that away, and you take an awful lot of the fuel off the fire.

 

^^^^^ This Like A++

But then many think the growth is going to just continue in places like Syd, they do not seem to be able too understand affordability, price point and how finance & finance cost is the key.

The stamp duty will do something, we will see how much breath it has or how long the legs are, I bet short. By end of year we should know.

 

Some of the above but also the horrible state Labor government we had got the boot. The Liberals came in, got the place organised, investing in infrastructure for the first time in a decade and the good times started to roll again.

 

105% home loans were on the way out long before the last boom.
Around 2009 if i recall.

The 80's boom happened while interest rates were rising, both stocks and RE.
And you would not get finance without 20% deposit and there wasn't much in the way of grants.
People were buying land for 100k and selling for 150k before even settling.
Factory units were the big thing and would be sold off the plan, if you could find one for sale.
Interest rates for biz hit 24%!!!

So cheap finance doesn't explain a boom from what I've seen.

Most of the big projects out west, south west and the hills were ready to go many years before the boom.
What stopped them was no demand. All the while people were shouting land shortage and no supply.
What revived them was prices rising.

I can't see a correlation between number of properties sold and a boom or recession in RE prices.
Keen to see anything though.

 

Probably not one thing by itself, it has to be combined with other factors, but was a pretty obvious driver in Syd recently from what I can see.