Is this crash going to be worse than previous ones?

I'm not exactly the most educated person in real estate economics so correct me if I am wrong, prior ones I recall in recent post 2000s was around the 2006 (GFC)? and then possibly 2012 based on a ANZ report I had once for a property. Will this be worse? Some factors I considered:

1. Mainland Chinese money tap is shut off.
2. Economy is in serious doldrums. World economy is possibly in serious dolrums.
3. Big Australia no longer in vogue.
4. Interest rates cannot go any lower, on the increase but possibly more?

 

I don't believe 2 or 4 are true.

Economy is generally humming (particularly in NSW & VIC). Also rates can go lower...far lower. Unemployment in 4.X (NSW & VIC), Growth near 3, Inflation near 2. Its actually hard to get better for developed economies. In fact, i'd characterise it almost directly opposite to 'doldrums'. Humming, singing, dancing are better words to describe the current state of the economy. There's risks though that could turn it.

If the economy was in 'doldrums', than we'd see rates drop.

But i do think in % and absolute terms that it will/is worse than previous ones. Mainly because the price run up went really far so a correction is normal (and there hasn't actually been large negative movements in the last 3 decades)

 

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Predictions are useless
The largest and longest study of expert predictions was undertaken by Professor Philip Tetlock in 2003. He studied 82,000 predictions over 25 years by 300 selected experts. Tetlock concludes that expert predictions were only slightly more accurate than random guesses e.g. coin tosses. Interestingly, experts with a greater media profile tended to do worse than their relatively unknown peers – which maybe suggests you should give more weight to my prediction than Shayne Oliver’s above.

 

By end of Dec18,
Sydney house price CL index would have fallen by 12.5% from its peak.
so the fall in Sydney (at least) is already the worst it has ever been in last three decades. Its not just how much but how fast it has been should be the worry.

Just to give bit of perspective,
As per CL index, Sydney house price between 2012 and 2017 gained a total of 82%.
A Fall from peak of 12.5%, equates to losing 27% of that 82% gain.
A Fall from peak of 30%, equates to losing 65% of that 82% gain.


Sydney is still quite out of whack even after the fall so far.


I get what @Redom is saying about economy going hunky dory but wonder what if a good chunk of that full employment as we see it now was fed by the very sector and its periphery which seems to be getting in trouble now?

There is usually a lag in wealth destruction followed by sentiment destruction (not feeling rich effect) and its trickle down consequence in terms of housing/discretionary spending and consequent job loses in related sectors.

I believe RBA is just jawboning with out any real intention to intervene as the targeted attack on speculation which was implemented by its trusted scicario APRA is working as per the script.
But if that is not the case and Syd/Melb property markets are more holier than Perth, has to be defended no matter what the long term cost,
NOW is the time to intervene as the momentum is increasing and if it continues, we would be looking at 25% fall from peak in Sydney by Dec19.

RBA doesn't have much left to cut (1.5% IR)
IR cuts, though may not be very useful in halting the top down price fall, it will end up putting more discretionary spending in OOs pocket.

Our current issue is not due to 'price of credit' rather its due to 'availability of credit', So any thing less then undoing last few years of macro prudential reforms will have limited effectiveness.

 

Giving up 61.8% of the nominal gains from 2012 is the fibonacci retracement - golden ratio. If the economy twaddles on, would be my target for entry.

 

4. Why can't interest rates cant go lower?

 

Thats if you sell now and lock in the loss.

Lets not be so negative, besides i am a "buy and hold" investor, what if the slide stops now? What would be my % loss if the market just stagnated for a few years?

 

It has very high chance to be the worst if its not just a normal correction cycle but a correction in a supercycle where the peak has been reached. In which case a crash could bring prices way past previous lows.

 

I don't think it's even comparable to the previous crash. (by the way it's 2008 to 2009 not 2006)

The previous crash was mainly driven by unregulated credit growth in the US and it was a domino's effect from the economy melt down from the US to spread to Australia, I believe we in fact did very well to sustain the crash thanks to the mining boom.

The 2008 to 2009 crash was unpredictable and have caught the whole world off guard. Hence the dramatic reaction.

This time around is different. The property market decline was more predictable and was manually driven down by tightening credit availability.

Since it was a manual intervention, the government do have the power to lift things up a bit if the market kept on free fall, ie more government grants and benefits to increase property demand for certain groups of people.

Banks do have room to move after the Royal Commission and if they are happy to revise their current serviceability rate, given most banks have now stepped up with their living expenses assessment there have to be somewhere to loosen up to keep credit growth at a healthy level.

Rates does not nessesary goes up, look at UK, decade long of less than 1% interest rate, and not until recently they start to raise their rates due to a healthy inflation finally being achieved.

I can't and will never put a time on when things might change but I always stress that you should look for specific events that maybe a trigger for the market to move into the next cycle. In this case it would be wage growth and affordability. How long it would take only God knows.

 

How much of. The economic prosperity is attributable to artificial population growth?

 

This is what Royal Commission has done!

 

Strongly disagree with you here

 

I think you're on the wrong forum. Crapcopper is where you should be posting

 

Using your numbers,
Just to give a bit of perspective:

On a $1M investment, 80% LVR.

Fall of 12.5% from peak.
27% from 82% growth = 55%
55% * $1M = $550k.
On $200k initial investment.
$550k / $200k = 275% growth in 6 years.
Or 45% growth per year.

Fall of 30% from peak.
65% from 82% growth = 55%
17% * $1M = $170k.
On $200k initial investment.
$170k / $200k = 85% growth in 6 years.
Or 14.2% growth per year.

Now, as stated previously these gains/losses are realised ONLY when property is sold.
When kept, profit will compound with the next cycle.

OR

Stick funds in savings account, make 4% taxed returns.

No, not everyone bought at the lowest point. Most also didn't buy at the highest.
Numbers taken out of context mean little to nothing at all.

The market has softened, in time, there will be great buying opportunities. Catch the next cycle.

As for general market sentiments. I don't see wage rises due to the increase in the gig-economy and unregulated disruptive market competition. However a few recent cases are strengthening the rights of casual/gig-economy workers. With time, this will create new opportunities.

Failed food delivery company Foodora loses unfair dismissal case

New rights for casual workers

There are always loop-holes. Will see how it pans out as the industry becomes more regulated.

 

A bit over half of the GDP growth is due to dumb population growth. If you look at GDP per capita growth it has slumped for the past 15 years - coinciding with the ramping up of immigration.

 

So it hasn't occurred to you to consider GDP per capita (which has slumped)? Over half our GDP growth is just due to dumb population growth.

I'm not sure how rates can go 'far lower' when they are so close to zero.

 

Generally speaking more people is as ‘real’ as GDP growth gets to an overall economy (which drives market crashes or not).

Long term growth theorists note that growth can really come from three sources long term: increasing factors of production (supply), which is where population growth comes in. Tech advancements (productivity) too. The other is participation, getting your resources actually utilitised.

So it’s not ‘artificial’ at all. It’s just a source of growth.

What economists typically class as artificial is probably better termed as nominal not real. Like rate cuts, inflation adjustments, debt binges etc. These are usually cyclical. We used this to a large degree to keep the motors moving post mining boom.

 

GDP per capita growth is less important to general housing market crash analysis. That’s what this thread is about. Not necessarily population growth.

How an economy is ticking along is pretty important to ‘crash’ analysis.

(Also, as mentioned in other threads, our migration policy setting doesn’t hurt GDP per capita with a marginal positive benefit. The young new Australians we bring in are skilled and on aggregate lift all boats).

 

So how come GDP per capita growth has slumped for the past 15 years? Or the graph of GDP per capita vs population growth for OECD countries showing no positive correlation?

The other alternative is to look at modelling and some of these models show a small positive benefit for the reason you mentioned. The trouble is they start out with this assumption and put it into their modelling. It's probably a false assumption as countries with stable populations just better utilise their existing workforce and use automation more and productivity often goes up. Also any effect of immigration on the age structure can only be small and temporary for the simple reason immigrants will age too.

Yes immigration boosts property prices, but it is becoming increasingly unpopular so there is a chance it will be reduced. Also a lot of us don't feel like the economy is 'humming, singing, dancing', hence my comments about GDP per capita.

 

Clarifying my first post - I think I meant 2 & 4. Rates can definitely fall.

I certainly think there's a debate rising about population growth & your not alone in your views @scienceman. More and more Aussies are with you on this, although I still think economic reasoning isn't a very good argument. There's plenty of reasons to be against it though.

Re the economy, I also posted it before the latest quarterly growth data. Another quarter at 0.3% and the economy goes from singing and dancing to 'at risk'. Over the past 18-24 months, it has performed very well. The RBA, regulators are hoping it continues to do so and they pull of a minor miracle (as AFR suggested over the weekend), by deflating housing with strong economic conditions remaining. There are a LOT of risks surrounding falling house prices though.