NSW Sydney 2020 "Megaboom"

Where did you go mate for last few weeks? So many chaps started to predict this as mega boom. It is indeed dead cat bounce..

 

Trying to keep that fanstasy going...just sold one at auction last Sat...in Melb...

 

Millennials are discovering buying a home is easier than expected - realestate.com.au

The affordability problem and associated “bubble” seems a bit exaggerated. This article rings true. Admittedly I’m an hour north of Sydney where you get a lot more for your money but I’ve seen young couples save a house deposit before they finish uni if they are disciplined.

 

Everyone I know that owns PPOR when I ask when they were buying was it easy and affordable and all reply 'NO'. Even though we all faced different challenges at different points in time to enter the property market, it always required some sacrifices, "something for something" (give and take).

 

SQM Research - Property - Residential Vacancy Rates - Sydney

Still a massive amount of rental stock to work through but hopefully it will continue to trend down. Could be seasonal though - too early to call.

 

The current "mini" boom is driven by two factors:

- The government's active spruiking of realestate prices (i.e. APRA loosening the lending standard plus the three rate cuts).

- The release of pent up demand and FOMO from would-be owner occupiers who couldn't buy in 2017.

However, property price rise can only be sustained by a strong and robust economy. Back in 2013 our economy was strong and household debt level was relatively low. It is different this time, and there are a few factors which will put restraints on the boom.

- The Australian household debt level is already very high at 120% to GDP

- The wage growth is stagnant, and it will remain stagnant for a very long time to come.

- The Australian economy has tanked and it will continue to go downhill.

- According to a report from Credit Suisse, Australian household wealth is going backwards 4 times more than any other developed country despite the world economy is still in the tailwind of a growth cycle. This is a sure sign telling us that something is very very wrong with the Australian economy.

Our company

I am of the view that while we will not see the declaration of an official recession in the next 12 months, but in the next two to three years we could see one. In fact, we have been in per capita GDP recession for more than two consecutive months already so technically we are already in a recession. Anyway when the recession becomes official the umemployment will go up and a lot of people who are up to their eyeballs in mortgage debt will be in trouble.

The present condition may move sideways for a couple of more years, but it could be the rally of a terminally ill patient on the night before his death.

 

"this is the highest level of sentiment we’ve ever seen,”
House price optimism at three-year high | Savings.com.au

 

You raise some good points, however when put into context the forecast looks a lot more optimistic.

Household debt is very high indeed, but so is household wealth. If the majority of people sold all their assets they would be left with a nice chunk of change, so for most people this debt is manageable.

Wage growth is stagnant, however there are many incentives such as the tax rebate this year along with permanent tax cuts coming into play over the next few years.

Also, that report from Credit Suisse is very much indeed out of context as its priced in USD (which the AUD has tanked) and most of Aussies wealth is in real estate which has just gone through a 2 year correction out of cycle compared to other countries so it makes it look very dire when in reality most people will be back to their original wealth before the year is over.

Keep in mind, the banks will just come up with new products to fit the market with 40 year mortgages, easing of credit regulations etc... Australia will definitely have its moment one day where there will be a depression however that moment is still ahead of us, one more up cycle to go first in my opinion.

 

Maybe I'm just slow to get this and everyone else thought of this already...

But something I just thought of..

The regulators can't afford a property crash.
When property drops, GDP drops.
Can't afford a recession.

So they prop up house prices and debt with lower interest rates. The goal of lower interest rates is more debt. That's how they get inflation - more debt = more money to spend = bigger economy.

But the more debt, the more impact an interest rate hike would have.
So the more they cut rates, the harder they make it for themselves to ever lift rates without causing a housing crash... which is the thing they can't afford to have.

So every interest rate cut is another reason why they won't lift rates.

So they are forced to choose between housing boom - or housing crash.
And boom is the one they will choose every time.
But the more it booms the less they can afford the crash.
Making it more likely they will choose boom.
Self-reinforcing cycle.

The more it booms the more it booms.

 

Welcome aboard the debt train

What will really boggle your mind is once you understand that there is simply not enough money in the world to pay of the current debts, and the only way to manage them is to create new money (devalue) to keep everything going.

Obviously this cannot last forever and someone will be left holding the bag at the end, but until then enjoy the ride and make the most of it, just don't be too confident thinking the government/RBA has always got your back because they have skin in the game as well.

 

10 pages of discussing the problem, can someone talk about the solutions!

 

One can only wonder what would have happened if ALP came into power.

 

House prices forecast to jump across the nation as regulators let the boom rip

House prices are expected to rise substantially in 2020, led by double-digit annual gains in Sydney and Melbourne, according to a new report from analysts at SQM Research.

SQM is forecasting home price gains of up to 17pc in Melbourne and 16pc in Sydney next year.

The price rises could be even stronger if the Reserve Bank does cut interest rates again, as is currently forecast by most economists and priced in by financial markets.

Don't miss out!

 

I see a lot of arguments about the disparity between median income and median property price.

Well, there are many cities around the world - Singapore, Hong Kong, London, New York, etc where the disparity is even higher. What would stop Sydney go to those levels?

While I say that, I also believe that the median house price will have to stabilise or go down in relation to the median income. That doesn't necessarily mean your investment property will go down in value. The way the median property price is going to stabilise in relation to the median income in the next decade is by the new mega supply of houses on smaller than ever blocks and units which will get smaller than ever before. We will start to see whole families living in 1-bed apartments as we do now in New York or Singapore. So while the median property price to income ratio in any suburb will stabilise because of the new supply of these matchbox units, that wouldn't mean the price of sizeable units or freestanding houses will go down. If anything, they will only go up. There will always be a class of people who want good properties and can afford them.

 

I think you are right the low Aussie dollar makes the household wealth decline looks worse.

But I don't think Australia's large household debt is manageable by most people. I think only those bought prior to 2012 will see large profit if they sell now. And it is a different story for those who bought more recently, they have very large mortgages and the only way they can manage the mortgage is for the interest rate to stay low. RBA knows this and this is why the interest rates will stay low for a very long time (but this also means any blow to the economy and the whole thing will come tumbling down because they fired all the bullets already).

And to be honest I don't see how the tax rebate and the tax cut can help if mortgage is 1 million dollars.

The way I see it, the latest FOMO driven boom is like how when the latex of the balloon is overly stretched, it changes color and lose resistance so it inflates even faster, just before it explodes. The problem, is that so many people, a lot of them are innocent people who just want to have a home to live in, are now jumping on the FOMO wagon and signing their lives away to these massive mortgages, like sheep be transported to a slaughterhouse because they are unaware of what's coming.

 

I actually think that the low AUD is the only thing balancing this out and making the recent real estate mini-boom possible.

In terms of household debt: the debt is denominated in AUD, so when the AUD goes down, the debt is worth less as well (so are incomes of course).

The lower AUD is shrinking the real value of the debt and inflating asset prices at the same time.

Now, as I have said on this blog many times, I am not in favour of central bank induced currency debasement.

My point is that it is only when we take currency into account do the booms mathematically make sense. The lower AUD means that Australian real estate is not over valued by international standards anymore.

 

only for buyers with non aud incomes or assets. Are we back to saying its foreigners driving the market?

 

Nope, I am saying that prices adjust to a lower currency as an economic law.

When Zimbabwe had the fastest growing stock market in the world in the Naughties, it wasn't foreigners buying Zimbabwe stocks - it was that the freshly minted printing press currency needs to find a home. And it goes into leveraged assets first.

 

Mate, you got it in one. That is exactly right. This is why the property bears of 12 months ago were wrong. In a debt based system, real estate is the "sticks holding up the tent" so to speak. The tangible representation of wealth at the end of a web of paper claims. Real estate needs to go up to keep the banking system solvent.

The footnote to your excellent point, is that leaving interest rates artificially low is not cost free. The trade off to perpetually keeping real estate prices high, is that you kill your currency in the process.

So higher property prices come at a cost, and that cost is a weaker currency, and higher consumer prices.

 

I'm in my mid 40's, my cynicism and procrastination over the years has potentially cost me millions. I'm only just beginning my journey into property investing now. I guess I was also a victim of the media-hype surrounding housing bubbles in the early 2000's. This article written in 2004 has very similar (not identical) undertones of what we're seeing now or have just been through..

https://www.theage.com.au/business/going-going-20040521-gdxw5n.html

Take from this what you will and I know there are different economic circumstances at play now but when one of the most beautiful cities in the world is planning to cram another 1 million people into its already land-locked suburbs by 2030 I won't be waiting for a fall in Sydney housing prices.