Property prices beginning to drop

$2.5m+ and it needs a makeover

 

Price discovery is going to be super interesting once the first proper auction weekend rolls around in Melbourne. I suspect it will be all over the shop. Some places will be super hot and others will go for a song as no one knows what its all worth here right now.

 

Across the whole city sure, but I expect this effect will be occurring within more localised spaces like suburbs.

 

Housing bears face extinction as forecasts turn bullish

Another great piece by Christopher Joye (most accurate property value forecaster in Aus for 15 years) in AFR today.

"..Housing bears are becoming an extinct species with the likes of CBA and Westpac discarding their dire outlooks for much more bullish perspectives.

The latest bear to drop is Capital Economics, which was anticipating losses of up to 10 per cent, but now predicts only a 3 per cent correction. And next year it believes home values will surge 7 per cent higher..."

and

"Remember all the doom and gloom about the September JobKeeper cliff, which this column argued would be a non-event? So it has proved. Prime Minister Scott Morrison, Treasurer Josh Frydenberg, RBA governor Philip Lowe, APRA boss Wayne Byres and lenders like CBA’s Matt Comyn have risen to the occasion and done outstanding jobs. We could not have asked for more.

And while there is much negativity about population growth in lieu of the absence of net overseas migration, I would “fade” this as well. We’ve encouraged the government to embark on a war for top global talent and capital, positioning Australia as a destination of choice for new migrants and the key Indo-Pacific trading and financial services hub. Morrison and Frydenberg have given every indication they are going to do exactly that.."

Essentially, he is now predicting Syd returning to positive territory from as early as next month, Mel to follow suit very soon and then appreciating property values for a number of years. He argues the fiscal cliff (be those for P&I or the Job keeper/ Job seeker) are immaterial now, that the low interest rates and Frydenberg's rolling back of responsible lending laws, gov going big on attracting global talent and with migration being restarted from next year will see a materially-changed landscape for economy in general and for property values in particular.

 

I wouldn't put too much faith into any forecaster. Sure one is going to be the closest but that's not that far off pointing to astrologers. One will always be "the most right" and in general most just follow a trend. If you go back and examine all of their earlier predictions you are likely to find a lot of misses.

Personally, I find it even more distasteful when these soothsayers attack each other instead of just owning their own successes and failures. Be honest and open about both, its the only way to learn and educate.

None of them predicted Covid, none of them will predict the next big black swan.

 

You are right somewhat and hence you would always take these predictions with a pinch of salt... Also agree that Joye gets grilled amongst perennial-bear-brigade for his bullish-predictions on prop (and now he is giving it to them) but he was the first and the only one to predict (what has since happened) 6 months ago and he put his balls and neck on the line with such a bold statement.

That he took that stance during the height of the gloom and now stays vindicated, especially as Goldman Sachs, Westpac, CBA, Capital et al all supporting that position, is in my books, a significant badge of honour for someone like him.

The consensus position now emerging though is that the odds favouring increasing property values over the next 2-3 years have firmed up very significantly.

 

Bill Gates predicted a respiratory pandemic and is on video saying it a couple of years ago. Maybe he should become a forecaster for property trends

 

These 'forecasters' can really spout whatever headline grabbing prediction they like.
At the end of the day they will be either be correct and come across as a messiah to their followers, or they will (probably) be wrong and the prediction will be long forgotten as though it was never made and nobody will speak of it again.

I'll put my hand up and say I dont know what the future holds.

 

While I haven’t looked at every market in Australia what I am finding is that the sub 500k suburbs that I have been watching have increased in asking price and the amount of stock in this price range has decreased by a fair amount.
Definitely Adelaide metropolitan suburbs have done well and central coast, Newcastle and Blue Mountains have done very well as well. There still seems to be value in the Outer northern suburbs of Brisbane.

 

From the perspective of an investor I would expect the level of negative gearing to ratchet up if property prices jump as predicted by the banks etc. Rents are already at the high end compared to wages and I don't see how much more can be squeezed out of the renters with higher unemployment and efforts to reduce wage rises already evident. Perhaps baked beans and pot noodles will become the staple diet for many - already is for students.

 

On the contrary, I think rents have a lot of room to rise.

 

I've also found rent affordable, and becoming even more so as rents continue to fall (central Sydney).

How much can be squeezed out of tennants is really determined by vacancy rates.

At the end of the day enough people are able to cohabitate, move to a cheaper area, or down grade to less expensive property such that they can avoid being 'squeezed' if they really want to.

 

Maybe for some areas. I am interested to see what happens in inner Melbourne suburbs such as Melbourne (3000 and 3004), Carlton, Docklands, Southbank.
I left my apartment in July - rent was 600 for a two bed apartment. The property has still not been rented (12 weeks later), despite rent initially dropping to 480 (20% drop) and now 450 (25% drop). Its a beautiful well constructed apartment. Unfortunately now, there are another 8 empty apartments in the same building up for rent.

Yes, I expect some of the empty apartments will be leased now that in person inspections can take place. But I think some on this forum forget how big the international student population is in Australia. Many students are leaving and no one is coming in to replace them. Locals renters are loving how dramatically rents are dropping. Domain have reported that they'd never seen such a high vacancy rate for Melbourne.

If we don't open the borders for international students/migration (and I suspect we won't for some time - because any time the idea is floated, its very quickly shot down by the public) then we can expect there will be tens of thousands of empty apartments sitting around in Melbourne. Will they continue to be taxed a vacancy tax? Anyway, I think there will be some distressed owners desperately trying to sell. No one will want to touch these apartments. I think it could have an impact on construction in inner Melbourne for many years to come.

 

The Govt and the unis will be scrambling in the background to make sure they come back ASAP - the economic and job losses are at unfathomable levels right now.

My guess is that if/when a vaccine is announced, sentiment will change (sharply). This is despite the fact it will take months for it to be administered to the wider population.

I'm willing to have a punt...no money on the line though .

The vacancy rate in Sydney right now is about 3.5%. I expect it to be circa 2.5-2.7% by the end of 2021. And around 2% by end of 2022. By the end of 2023, it will be well below 2%. That's when rents will rise pretty steeply. COVID19 probably pushed it back by 6-12 months.

Brisbane is further down the road and if/when COVID is done with, expect demand to well exceed supply ie rent increases.

Not sure about Melbourne - have no IPs there so care factor is zero lol.

 

Brisbane already is...usually multiple applications and tenants struggling to find properties as investors are leaving the market and being replaced by FHB...once interstate migration opens up watch out...

 

This article from the SMH suggests caution when predicting that the housing downturn is over.

https://www.smh.com.au/business/ban...rs-back-into-hibernation-20201001-p5614y.html

 

And he will probably come up with the vaccine
But I'm sure he could forecast the future property trends too

 

Ok so I went to this auction today:

32/18-22 Victoria Street, Burwood NSW 2134 | Domain

It was slow going. Eventually got to $685k and got passed in (I believe is the expression?). Agent said it was very close to the reserve price.

It's basically one of the best high rises in the area. I was expecting high $700's. I have no idea what's going on right now...one week we have strong sales, another we have this. I don't have a feel for what's going on anymore. Very volatile.

 

Especially units.

Interestingly and I'm sure this is an isolated case, I was in Brighton-le-sands this morning and walked past a fairly long queue of people in front of this house. I thought it was an OFI for a property for sale/going to auction but it was actually a rental. Didn't expect it in this market.