Sydney drops 4.7% over last six months - what do you think is happening?

Gockie, I completely agree that the home buyer's grant has never actually helped first home buyer's. But that reasoning has never stopped previous governments from implementing!

Clearly it has served its purpose of keeping the housing market buoyant at times when it was about to fall. Recent example being the complete farce that was the FIRB - which turned a blind eye to foreign ownership of residential homes.

Anywho, if the government wants to arrest a fall in housing prices, it can. Don't know if it will though.

 

I actually think this correction in Sydney's property prices can be considered completely healthy. Some parts are still going up or are flat, and other parts going down... you can't keep going up double digits YoY forever...

 

True, but what is a "normal" correction? 10%? 15%? 20%? more?
It's difficult to define what is normal now that Sydney has been rising so fast for so long. "Normal" may not be an acceptable price for government if it results in job losses or shocks to other parts of the economy.

 

Id like to see it come down 15% .i think 15% lower than what it is now reflects a fair(er) value . May or may not happen...

 

Westmead just dropped 16.56% in last six months... $166,500 gone!

 

I was referring to the valuation process as I was under the impression that they used to perform internal desktop valuations and now rely fully on external valuer reports.

But yes maybe I am mistaken with my information then.

See thread: NSW - Sydney downwards

 

Several banks still use desktops, if the LVR fits the parameters. Others even use no valuation at all...

But even desktops are provided via subscription, from external providers

 

They're dominated by bandwagon investors. People that bought years too late as a direct result of rate cuts. Late 2014/e15 they read the papers or heard whispers on the train, and now think free money! The "growth" is somewhat attributed to these people with no idea being able to afford more (only thanks to rates). They bid up to this new borrowing limit in blind desperation competing with each-other in fear of missing out. It's pretty funny and baffling. To be so reckless and emotional with such large sums of borrowed money.

Dual wages won't get you a better house when you're competing against other buyers with dual income. You both pay more for the same house you would've if there were as many dual income families around today as 20 years ago! Fact is everyone has twice the money, the same house becomes twice as expensive. Same concept applies to using super for property (a laughable idea) and of course rates. If everyone can afford more then house prices grow and you don't get a better house. If you want to take advantages of macro factors allowing people to afford more, then you really need to get in right at the start. The mindless heard that create a hot market in direct response to rate cuts are the steam. Once they've all finished frantically buying there's no steam left. Unless they cut rates further for example. All the people who don't understand rates also go up, will be able to borrow even more again, creating more growth.

The suburb I'm in (it's probably the last place to buy an IP.. 50km out of Melbourne, total 800 dwellings) was a reasonable price and over 90% of the people here don't have mortgages. So once rates go up I'll have no speculators with full mortgages around me ready to put a dint in my median.

 

If Sydney property had tracked wages over the last twenty years then the median house price would be somewhere around $400K, which isn't far off my fair price estimate of $360K from last year.

OK, mortgage rates have fallen from around 10% to 5% in that time, but factoring the cost of a repayment mortgage in would give a figure of about $650K.

So what's responsible for the difference between the figures? If there's something structural, such as a genuine housing shortage, greater female participation in the workforce, etc. then prices will probably find a floor.

If there isn't, and the difference is entirely down to speculative buying, things could get nasty.

The best case prediction seems to be that the market will pull back a little from the peak, and then we'll have a flat period. The worst case is full on Doom and Gloom. So there's no real need to rush in. Why not wait?

 

Agreed. A large portion of price growth is simply income multiple expansion. Price growth has outpaced wage growth which means it cannot be sustainable forever. At one point the rubber band cannot be stretched anymore and relink to wage growth.

 

Population growth has a lot to do with as well. It's no coincidence that Melbourne and Sydney have had the highest price prices.

 

The price growth is not so much due to dual income. There are other, more prominent reasons.

One of the most important reasons behind price increase in Sydney is that it is (and will be) one of the safest asset investments for foreign (predominantly asian) buyers who flooded the property market with their money and therefore demand exceeded the supply.

The other reason is simply interest rate drops. If you paid interest rates at 10% on a property that was worth 500k, now that interest rates have dropped down to 5% you are likely to still afford a house with a million dollar price tag.

Dual income earners are nothing new. They have been around for decades and of course it contributes towards affordability but you have to understand that the price of living has also significantly increased. Therefore dual income is not necessarily the reason behind much of the increases we have seen in the property market.

 

Just part of what happens with cycles, last bust cycle in Sydney was I think 2006/7? so lasted 7 years and every market was hit including BLUE CHIP, nothing is bullet proof when the markets turn.

So many factors influencing all property markets Oz wide at the moment, one major aspect is finance harder to source and it wont get any easier, this is a massive game changer.

 

Just the view of a foreigner, but despite the current level of prices, Sydney is still cheap compared to European capitals and very cheap compared to large sought after Asian cities. And that does not even include the premium for quality of life. So just a matter of what you compare to, I think there is still some growth left in this cycle as well as longer term, just a more sustainable growth rate

 

True. My friends overseas thought a million dollar for a house is a steal... And cars so cheap. They would pay around $130k for a Toyota corolla... More than 200k for a Mercedes.

 

Various meats are cheap and dairy products are going for a steal here in Australia...

 

MTR, would you be able to start a thread chronicling your experience during previous Sydney downturns?

 

A 2 bedroom apartment in financial capital of third world country India would set you back 500k atleast

 

@Tenex mentioned interest rates falling as being one driver for house prices. However, the change in affordability doesn't necessarily decrease in a linear fashion. For a thirty year repayment mortgage:

• $500K at 10% = $4420 / month
• $1M at 5% = $5420 / month

The repayments for an $800K mortgage at 5% mortgage would be about the same as $500K at 10%.

The other issue is that higher prices mean a bigger deposit, and that's proportional to the total price. Unless the banks loosen lending standards, which has happened.

I'm not convinced that Sydney is a bargain compared to overseas markets. Domain ran a comparison last year , and the top end of Sydney is beaten by Monaco, London, Hong Kong and New York. Shanghai and Singapore are roughly on a par. Bear in mind this is on a price per square metre basis at the top end of town.

What I think is happening is that something like a Good Class Bungalow, which is rare and expensive in Singapore (circa $30 million), is an above average house in Sydney, and might cost a tenth of the price. That's probably where the comparisons break down.

 

Thats right..sydney prices or more .