Sydney / NSW leads in job growth

Another routine employment report invokes a thought that it would only take time before Sydney bounces back as Australia's most attractive market for housing. In essence, out of 44,000 additional jobs gained nationwide in August, NSW contributed 43,200, and not discounting the regional factor Sydney obviously must have had a role.

Australia added more than twice as many jobs than expected in August

 

Interestingly that article is forecasting wage growth, no doubt many will champion slow wage growth as the reason for more jobs being created

 

Sydney has a median price that is a little bit more than 10 x median income.
Lenders are basically capping borrowing capacity at 6-7 x income.
Median prices are therefore 50% above max borrowing power for median income earners.

100,000 new jobs can come online tomorrow in Sydney, but unless they are all paying at least 50% more than the median income , the impact on resi prices will be negligible.

While these policies are in place, it will be years before Sydney median price can rise again. By years I mean 8-10 years. The only way it can happen sooner than that is massive wage growth ( and by massive I mean 50% wage growth ) in a very short time (5 years or less) or a reversal ( or significant softening) of APRA's policies towards assessment rates and HEM's.

But if we saw either of those things occur, I suspect we would also see the RBA aggressively lift rates, cancelling out any real improvement to borrowing capacity.

No matter which way you look at things - all roads lead back to the need for debt reduction /deleveraging combined with wage and rental inflation , before Sydney's median can start moving forward. And when the gap is 50% between the median price v debt to income ratio, as noted above- thats going to take YEARS.

Even if 100% of borrowers switched to P&I today, only 21% of debt is repaid after 10 years. That would still leave a situation where the median price was 29% higher than the median debt in 10 years. But we know that not everyone will switch to P&I today - so the gap wont be 29% from that mechanism alone in 10 years , it will be much higher.

That means we need other mechanism to close the 50% gap between median prices and 6-7 x median income If we see 15% price reductions in Sydney that will reduce the gap , and if we see 30% compounded wage inflation over the next 10 years that will just about close the gap.

But even then, that only closes the gap. Once we get back to a median price that is 6-7 x median income, there is still no room for growth. That just creates a neutral situation.

This is why I believe its going to be at least 8-10 years until the mathematical possibility for growth starts to reappear.

 

Even 10 years is ambitious IMO. I can't see the peak getting to the same level it was in the foreseeable future

 

I agree with @Cimbom. At 3% to 4% wage growth, which is optimistic right now, it'd take around twenty years for incomes to catch up with house prices in Sydney.

(And that's taking household income as being twice the median, whereas it's about 1.5 times according to the official stats.)

I suspect that @euro73 is right in thinking that any downturn will be engineered as a small slump in house prices, whilst repayments (via P&I loans) and inflation help erode the debt. (But I wrote a post about that, so I'm biased. )

That would explain why the RBA are relaxed about the falling property market, and Macrobusiness's "defend the bubble" conspiracy theory is just that.

 

One should never say never, because APRA might reverse some policy settings one day- but as long as we operate under sensitised P&I assessment rates it's basically a mathematical impossibility that we can see pre APRA growth cycles return to Sydney ( or Melbourne to be fair - it's median is also well above 6-7 x income )

It's why I coined the phrase #decadetodeleverage a few years back. In my view, servicing calculators will now effectively drive future property outcomes, and it follows that those who can reduce debt while increasing or at least retaining income streams will ultimately prosper more than those who do not. This is why cash cows purchased for the purposes of debt reduction are the smart play.

 

Property values, especially in Australia, are heavily driven by group psychology as well. If the FOMO is not there to drive up prices to crazy levels then it won't happen IMO.

 

Fear is a double edge sword,
Buyers FOMO can easily become sellers FOMO

 

The posts in this thread make a lot of sense to me. @Graeme and @euro73

 

Imo It's a normal tightening of credit policy . Will ease up in time. Wont stay this tight forever . Property will soar again. Ppl will be shocked again at how prices can rise further . Its all normal.

 

Of course. But what timeframe? Could say the me about Ireland and usa.. Could be a decent drop then a long recovery

 

No crystal ball but I like to do my buying when the deals are good then hold. Can never know exactly when the market will recover.

I was talking about it again this morning with a friend and tbh I still.dont see any major crash anywhere. Certainly not in high demand markets. Not saying it cant happen ( and id love for anther 30% drop in certain markets so i could get it) but still waiting to see this massive nationwide correction ppl are obsessed with.

 

According to sash some markets are already down 20%? As AUD continues to go down in the next half year from the trade war effects and combined with rising interest rates and bond yields, it would be reasonable to expect banks to continue to have to raise rates and for that to translate into even lower property prices as more investors are unable to hold or refinance and forced to sell.

So far GDP numbers for australia have been stable for quarter ending june, but these are mostly pre-trade war numbers(just like how the numbers were good for perth before the mining boom went kaput). China's manufacturing PMI numbers have been steadily downtrend past months, and with the 200billion trade tariff thing looking to happen soon, it does seem global emerging markets may see an increasing slump similar to that during end of 2011.

IMHO this evolving slump in our economy is happening in 2nd half of 2018, combined with rising rates and IO rollover, could push prices down 30% or more. However expect this to happen over next half to 1 year and only if global economy goes into a slump.. property market is unlike stocks, doesnt crash 30% in days/weeks, IF it does go down, its gonna take a while. And then we still have the RBA that still has that 1.5% to drop ;D

 

I've seen a few market correct from their absolute peek of about 10-15%. Some 20% but that's in oversupply areas and not widespread. I think if we don't see any major type correction over the next 12-18 months then its unlikely to happen imo.

Though I'm hoping for some great deals to come on the market in high demand areas .

 

So long as economy holds up a crash scenario is pretty unlikely, after all, stock market is still very close to its recent peaks and GDP/Jobs are still humming along(albeit at a slowing pace). It does seem like QLD is experiencing a rise in unemployment numbers again so maybe Brisbane may eventually stall/go backwards as well in coming months.

The APRA changes/banking commission were meant to slow down investor lending and tighten regulations and not to crash markets. Credit has not "frozen up" suddenly like during crisis times, so FHB and investors can still obtain loans which will lend some support to prices. and though loan growth has gone negative slightly in recent months for investors but for OO its been flat. This just means prices will adjust accordingly going down slightly as the months go by.

i think you gonna get great deals pretty soon as a lot of big factors which kept prices high and booming in Syd/Melb have pretty much been removed. And if you are buying in Brisbane, it seems prices are coming down as well.

 

I know market s down less than 1%
You can't just look at the worst performers in maker.

Unit market in Bondi will behave differently to units in Liverpool.

$659,000 house in Lurnea will behave differently to Castle Hill or Kellyville or Ponds.

Different market forces at play

 

Spot on. Most ppl will never get it.