NSW Sydney 2020 "Megaboom"

Well the markets definitely agree with you, as the AUD caught a bid on the news.

 

Where resi real estate is concerned , Underlying purchasing power , overlying purchasing power and every other kind of purchasing power isn’t determined by inflation ... unless it’s wage inflation - and there ain’t any of that happening

 

Inflation is everything in real estate. It's one of the main reasons we do it. And and it is the main reason why we are so confident to apply leverage in real estate.

Why did prices surge in Zimbabwe in the noughties, or Venezuela today? It not an insatiable appetite by foreigners for Zimbabwean goods and services. It is that the value of the money went down, despite what were essentially recessionary conditions.

Monetary shenanigans and currency debasement account for most of what we tell ourselves is "savvy investing".

 

You’re talking about inflation for goods and services that don’t require leverage/ credit. What you’re suggesting is that if the AUD falls the value of AU goes up- but this ignores that credit is required . So I don’t see how the theory works where leveraged assets is concerned

 

A mega boom in Sydney and Melbourne? Dreaming.

 

There is a mini boom in Sydney at the moment . Not sure how widespread , but it’s there .

In-law house on market and 8 contracts given out at first open house .

But , anyone who expects another boom is ... well i’ll Be stunned if it happens.

I helped with dd prior to the launch and when I asked who was buying , it was everyone except investors .

750 for a rental return of 450 was the expectation and there aren’t too many investors who would be happy with that .

Even in Hobart which has gone up , you can still get good returns in good inner suburbs .

Cliff

 

I totally accept everyone's incredulity on this. But booms always surprise - ie no one predicts them, yet they happen all the time.

My call for a solid run from here to mid decade is not really a sign that all is great - it is more a sign of volatility and monetary disorder. I think that real estate will be the cleanest dirty shirt, along with precious metals as people look for physical safe havens.

So while I am bullish, I am not a Pollyanna about the economy. Thinking more of an inflationary melt up.

 

Seachange, do you feel that the ‘required’ rental yield to attract investors should be lower now because of lower interest rates? Used to be 5% gross yield but that was when int rates were higher.

 

True. To add, it is not that property is truly rising in value, it’s that the paper used for buying a property is losing value over time aka currency debasement and hence needed more & more.

 

I agree too. What can one buy for that paper in a given point in time?
If I say a cup of coffee costs $100 some will say it is expensive if their income is relatively low to that price, but if they earn say a few millions they may consider it cheap, again relative to that price.
So the purchasing power of an item/asset at a given point in time is really what matters.
I hold some physical gold and it made gains in the last few years because I am unsure whether there was such a demand for it, sure economic uncertainty may spur the demand, but the lower AUS $ certainly helped.
Inflation, deflation, stagnation, are all interlinked especially in now global world and economies we live in, and so they do matter IMHO.

 

You can't print gold, you can't print land, you can't print rental accomodation .... This is the stuff you need to hold on to.

 

Normally I really appreciate your analysis but I think this is an incredibly naive comment. Compare the quarterly trend results and it's among the worst 5 of the last 40 quarters. GDP per capita for the quarter rose all of 0.01%.

So yeah because of population growth we're still miles from technical recession. Except that was achieved with historically high iron ore prices (dropped 30% since peak now) and we know the construction sector has massive job cuts coming with the projects under construction still high but dwelling approvals down 45% year on year.

So we've got almost zero growth per capita (negative if you take the last year), a massive drop in tax receipts and profits for our exports coming, and a baked in collapse of the construction sector. We've also got a government who've nailed their political futures to a surplus so when those tax receipts drop the choice is either political embarrassment or spending cuts into a contracting private sector (the gdp results reveal our private sector is already in recession). The GDP results showed our economy is seriously sick and the risk of a technical recession over the next 18 months is huge because of the negative impacts we know are coming.

 

Just one little thing no one has spoken about yet - the drive doesn't have to come from people earning an income in Australia - you'd need that only if you wanted a loan. I personally know of a few people who are the progeny of people who have accumulated enormous amount of wealth (either ancestral or earned via dubious means) in their respective countries. Although I don't think they make a majority of the purchasers, but they are defining the value of property by purchasing it at a given price, all cash. And am told its **** easy to route wealth from Asian/other countries into Australia.

 

Wonder if rich people have a bigger impact on property markets.

Its easy to build units and housing at the edges to absorb demand at the lower price ranges.

How do you create new housing in vacluse? You cant. So rich immigrants would push less rich people out. More impact across the board.

 

I mostly agree that there will be a mega-boom sometime in the near future (2-3 years).
Not because of a healthy economy or peoples incomes increasing or anything like that.

Purely because interest rates are at record lows all around the world, there is only a few options left for many countries to spur their respective economies and I believe there will be unheard of amounts of QE (money printing) happening in the near term. This is pretty much what happened during the GFC and have a look at what that did to all the markets, however I think this time around it will be on an even larger scale.

 

Interesting comments - I definitely appreciate hearing things that I don't see!

My comments were in the context of 'are further rate cuts coming'. The markets basically priced them in, all 4 major economists have two more done by Feb. With the print itself, i'm not so certain.

Also most of everything said above was known before the GDP print came out. The information in the GDP print didn't really showcase much of the above. IMO it's more of a read of 'how bad is it actually?'.

The print itself wasn't too bleak though, which was a real potential, given some of the private sector data that had come out earlier (inventories, capex, consumption, retail, etc). The dollar rose sharply as soon as the print was released, because markets would've assumed the odds of further rate cuts had somewhat fallen from this alone.

Since the print data set is measured, there's already been a very sharp response from policymakers, directly targeting some of the 'weaker' demand factors.

There's been 2 rate cuts, the housing market has gone from its worst performance in 30 years to near boom level demand, and a pro-business government won a miracle election (providing more political stability than there's been in a decade). Oh, and there's ~$1000 put into millions of households across Australia doing their tax returns, and APRA are giving ~$100k extra leverage to average borrowers now too.

The impacts of all of these will begin to be felt from the next quarter onwards.

GDP print was low in NSW because consumption and business investment have stopped growing. This makes sense, given housing performance and the tail end of the biggest downturn in 30 years. From here though, construction trough should kick in, its an industry that is highly sensitive to rates & housing demand. But yes, given the lags, it will have falls to come, job losses are expected.

Consumption should perform better too - I think people respond to falling house prices by tightening the belt. House prices are galloping away again in NSW, rates have been cut and there's been a net disposable income rise. Consumption should respond soon enough too.

Overall, IMO, its not going to be as difficult as some suggest and odds of a technical recession is very very low.

 

No

Cliff

 

Good summary that outlines why a mega boom is very very unlikely:
This housing boom will be different

 

Doable for sure!

 

Return of housing speculation would be 'unhelpful', warns APRA chief

The powerful banking regulator has warned that a resurgence in property speculation in response to interest rate cuts would be "unhelpful," urging banks not to lower credit standards in a bid to revive soggy loan growth.

In a sign regulators are closely watching the housing market, Australian Prudential Regulation Authority (APRA) chairman Wayne Byres on Friday said financial stability risks from very cheap debt and high-cost housing were still present.

Do you think APRA will act on Megaboom? If so, what will they do?

Would this lead to the dead cat bounce the majority of commentators are talking about?