Property market to slump by 5%

The daily telegraph has posted on the front page (just under the headline about the Blues losing to QLD.......How did they lose?!?!) that home prices will fall up to 5% between 2017 and 2020.
This model was completed by research group BIS Oxford Exonomics.
The article basically states that we will not see a US style of housing crash and it is expected to see the housing price rise again after 2020.
Many of you on PC have made massive gains in recent years so a 5% price drop is nothing.
Does this line up with your expectations of the housing market in the next few years?

If this proposed model is accurate I would expect the market to still be quite active. I know other factors like the interest rates and APRA changes will also affect the market activity, but I can't imagine the majority of properties staying on the market for months and months without selling.
Thoughts?

 

....but we're already having a stock market correction and there's generally a flight to safety.

Where's everyone going to put their $$, Bonds? Banks? Bed? Bottom of the harbour schemes?

 

Does that not mean buying opportunities in that period?

 

This is the old Bis Shrapnel? Did they change their name because of how much we have lampooned their predictions over the years?

 

We did a write up here: Property price falls for Sydney, Melbourne, Brisbane by 2020: report

 

Even if they are correct, How is 'up to 5%' a slump.....

Time to dump all my cash in LICs.

 

@Gousey, totally incorrect thread subject line.

The report predicts a 4% reduction for SYDNEY property in total for the next 2.5 to 3 years. That works out as a $10,000 to $15,000 reduction per year on a $1,000,0000 property.

That's not a slump, that is a flat line.

As well, the report predicts a 5% increase for MELBOURNE property in total for the next 2.5 to 3 years.

That's not a slump, that is a flat line.

Finally, the reports predicts a 7% increase for BRISBANE property in total for the next 2.5 to 3 years.

That's not a slump, that is ********.

 

If one is out looking for a disaster in NSW, replay Channel 9's documentary that started around 8pm last night .

 

It's rigged.

 

But it was a f-rigg-in good game.

 

Agree. I don't recall SOO at such speed and force in recent years. Steroids?

 

Yeah, the pace and the intensity (from both sides) was just unbelievable.

... and the pressure on JT with that last conversion just adds to his legend status. Dodgey shoulder, in pain, crowd booing him, ...

And to think when he first went to Sydney, no club would take him on; so he offered to pay for free.

That guy is a living legend and is so inspirational.

 

That conversion though is easy for JT. He's a master in goal kicking.

 

There is no such thing as 'the property market'. Attention grabbing headlines bode well for the average punter reading the articles that are designed to incite fear and greed.

The best advice I ever received in my early days of investing was to 'block out the noise'. That begins with ignoring anything you read in the Daily Trashagraph!

 

The reason these sorts of forecasts aren't helpful or accurate, pretty much ever, is that they tend to take the current broad market trend and make a guess assuming that trend will continue. It never does.

Housing markets don't follow neat and tidy trends (and there are multiple markets within markets), they shift with investor psychology and with market fundamentals. Even if your market fundamentals are unfavourable, investor sentiment can cause unexpected rises and falls. That coyote can keep running right off a cliff as long as those new, inexperienced investors who bought at the peak don't look down.

That's why sentiment is the only pin that ever matters. Regardless of any calls of a soft landing, and boy did I hear an awful lot of those in Ireland (and believed them), if the tide of sentiment turns then larger falls are possible. These forecasts never take panic into account because they assume rationality. Unfortunately, a market than can rise 20% in a single year can also fall at a similar rate, because the sort of people who panic buy also tend to panic sell.

So forget these broad market predictions. Look at your situation and your portfolio, relative to the competition you face from similar assets to yours. Are your suburb and surrounding suburbs flooded with supply? Look at market fundamentals and look at how you think sentiment is doing. Are the bears outnumbering the bulls? Are new buyers entering the market or can't they get credit/afford in?

Demand from new investors is just as relevant as the supply of assets, because that supply is currently half the damn market. If people can't afford to invest, and young buyers can't afford in, who's going to buy? And what about people who might sell if they lose their access to IO credit or see a stall, even a small one of 5%? Would new, inexperienced buyers really hold through 3 years of stagnation? Looking at Perth and Darwin, no. Hell no.

But every suburb is individual and bubbles don't burst in a uniform way. If you own quality assets, in tightly held, family oriented areas, those places will probably continue to attract strong demand because half of the market is still regular buyers and if the proportion of investors does fall, that group will be most buyers.

All you can do is ignore the soothsayers and gut fell the market yourself. You're the one who's best placed to know your competition, know if you're holding the right assets, and know if you're placed well for any potential rough patch. Be ready for a sharp fall, because historic markets tell us it absolutely does happen, but don't panic or expect it. Just know it's a possibility. Be ready. Be alert, not alarmed, that sort of thing. Don't let these sorts of predictions either panic you, or lull you into a false sense of security. The deciding factor in a bubble market is not the wise investor, it's the tide of noobs who bought at the peak expecting past and current growth trends would predict future growth (a similar mistake to the one BIS OE is making now).

 

The problem is that many of those with massive gains reinvested those gains with leverage (classic financial pyramid).

Example:
Mr X invested 20K to buy a 100K property (P1) with 80K loan. The property price increased to 150K over 5 years (50%). Looks like 50K profit (70K - 20K), or 250% over 5 years, or 50% per year, right? (considering stamp duty = 0 and other expenses = rental income). Then Mr X refinanced to release equity, the P1 loan was increased from 80K to 120K, the bank put 40K into his offset account. Mr X decided to buy another 200K property (P2) (160K loan + 40K deposit).

So, for that moment all his loans = 120K + 160K = 280K.
Equity: 150K + 200K = 350K.

Now the prices drop by 5% over next 3 years, 200K property price would be 190K. 150K property would be now 142K. Mr X decides to sell all his properties.

190K + 142K = 332K. Difference is 332K - 280K = 52K. Minus initial 20K, the profit is 32K instead of 50K = 35% drop. In overall, it is 160% over 8 years, or 20% per year.

Now compare 50% to 20%.

If property prices drop by 14% over next 3 years, the properties are 300K, minus 280 Loans = 20K = Initial Investment = 0% profit over 8 years.

In real life, considering other costs, like agent's margin, stamp duty, CGT, etc., even 8-10% drop makes the business unprofitable for the old investors. For the new investors, with even 1%-2% increase per year, the investment is unprofitable. Flat market or falling market is financial loss for them.

 

Here is my view on the markets I watch:
1. Sydney - you will see a correction by 2019 it will be very visible. Some areas could pull back significantly in particular the West where I believe it overshot this cycle. Rates are now almost 5%....I think they will hit just under 6% for I/O only buyers....that will get interesting....P/I is going to be expensive...so a the devil or the deep blue sea convo...
2. Melbourne - you will see a correction in inner suburbs. Any sub 500k suburbs will continue to do well...so outer suburbs will keep going due to immigration/emigration. Inner Melbourne could pull back significantly.
3. Brisbane/Geelong/Hobart - will be the strongest markets in the next 3-4 years...could see 30-60% growth depending on where you buy
4. Adelaide - steady growth should be healthy but not stellar should see 20-30% growth over the next 3-4 years
5. Perth - will recover and even see some growth in the next 3-4 years. I will bottom by this year

 

If you keep posting growth numbers like this, you will have to change your handle to @big max II .

BTW, I totally agree with your whole post.

 

Common @sash stop it mate. Be sensible. Please see the above graph. We all know every market in Brisbane will only see about 7% growth in the next 3 years.


btw no offence to anyone but the graph above is ....um...... ok. I better stop there.

 

@Leo2413, I am trying to learn from you. You are totally confusing me.

One minute you tell me you don't use graph; next minute you are posting graphs.

How can a Newbie like me learn from the Master if you confuse me?

Maybe, I should look at LICs and their graphs ...