NSW Sydney Price Correction 2019 - post examples

If the RBA cut rates again within the next couple of months I think the correction will be over. The value of property is heavily influenced by the cost of money. When interest rates fall and money becomes cheaper, the value of property tends to increase. Because it is cheaper to "carry" property, investors or home owners will pay more for it. So if property prices start to decline, the easiest way to prop them up is to lower the costs of money, which the RBA has just done.

 

Yes and we will be carrying the debt for generations...

 

Somewhat less true if banks start insisting on P&I from the beginning. From my quick calc, for 25 year P&I, if the interest rate you're paying drops from 5% to 4% you can only finance an 11% larger loan, not 25% as would be with IO.

 

Wowee! Cowabunga!

With so many alleged keen buyers why are sales volumes still down YoY and MoM??

Also wouldn’t you expect clearance rates to be above 50-60%.. or time on market data to be decreasing not increasing in the inner city markets.

What will the next 6 week story bring?

 

33 Cocupara Avenue, Lindfield, NSW 2070

This sold 2 weeks ago for 1.26, ~1400sqm block, about 1.4 km from station.

 

Bargain

 

What happens when credit is basically free? How can you lend responsibly?

 

Good question. Regulators answer to this is: lend an amount to borrowers as if it weren’t free and ensure they can demonstrate affordability when it isn’t.

When it’s cheaper though, more people knock on the doors of lenders wanting as much as they can get.

 

I would agree that used to be true, but since assessment rates were de-linked from the rate borrowers pay, that has stopped being true at all but 3 lenders. Nowadays, 4 years after APRA started re-regulating things , it's the "availability" of money and the "holding cost" of money have clearly proven to be more important than the "cost" of money.

APRA released APG 223 in Dec 2014. Most banks introduced it in mid 2015...some dragged it out to mid 2016., but the majority of borrowers started encountering changed borrowing capacity and IO quotas by mid / late 2015. The cash rate was reduced twice in 2016 .... yet prices still corrected. If the cost of money still drives prices as suggested, why did we continue to see corrections following those rate cuts ? And why did we see the corrections accelerate through 2017 and 2018, while rates were at historical lows?

I believe the answer is ; Because Assessment Rates changed. Because P&I holding costs become a thing for lots of investors where it had never been a thing before, and because living expenses came under extreme scrutiny.

If that isn't convincing enough, we can invert the argument in order to reinforce it, as well. Lets say rates were 1% or 2% higher than today but pre APRA policies such as actuals, endless IO etc and no scrutiny of living expenses were still readily available, allowing people to borrow 12-15x income rather than the 6-7 x income that they are generally limited to today.... would prices have corrected as they have ? we will never know I guess, but I believe most reasonable people would agree that the answer would very likely be no.

That's how it stands right now - today, anyway.... As to what the future holds - If this floating 2.5% assessment rate thing that APRA has proposed, actually happens, I guess it has the potential to provide some additional capacity to some borrowers, and it could even make a significant difference if rates also come off another 50bpts -75bpts...but thats only "if" APRA actually allows it to be used as a true 2.5% floating assessment rate above the rate you are paying. We should keep in mind that what Westpac announced last week - albeit briefly before retracting the next day - appeared to be a very modest, very limited application of a lower 6.5% assessment rate... Mining down a little into what Westpac was proposing; it was going to be available on a discretionary basis only, to O/Occ P&I borrowers only - and to those who failed servicing on the standard 7.25% calc by no more than $50 per $100K borrowed, only. That's a policy thats only going to result in the most modest tinkering at the edges for a very small % of borrowers . ie borrowers who "just" failed servicing at 7.25%... and I mean "just" ....

Now I understand that just because that is what Westpac was proposing , that's not necessarily what other lenders are going to go with.... after all, we haven't seen APRA's recommendations yet from their 1 month consultation period with the lenders, which ended a week or so ago ... I'm just saying that "if" the Westpac policy is generally in the ballpark of what's coming our way from most lenders , it's barely going to move the needle - so it will remain the case that the "availability " of money and the "holding cost" of money will matter far more than the "cost " of money ... and therefore cash flow + debt reduction will remain king

Interesting times ahead over the next few weeks as we await the APRA recommendations, and find out which way this going to play out.

 

That property was literally located on a cliff and has zero backyard/land. You are basically getting around 300sqm of sloping land.

 

These are certainly factors that played a role, a large role too.

But the biggest factor is relatively simple and far more direct: supply increased signficantly and demand fell (due to higher prices and the factors you've commented on re credit). Just because people can or cannot access credit, doesn't mean they want to. In conditions where prices have risen substantially already, yields are low, 25% of all mortgages reverting to P&I, there's an imminent threat of taxation changes & supply of stock is rising substantially, fewer people want to buy. My guess is there are thousands of Sydneysiders (based of a 4.5% unemployment rate and solid jobs growth YoY) who can easily access credit if they wanted too...they just didn't want it in these conditions.

Add a little confidence, sprinkle some media attention and spray some rate cuts in and those waiting in the wings decide they want to buy again. Same natural cycle factors just moving the other way and people responding like people do.

The desire to access credit is the starting point. The ability to get it is secondary to that. Loosening credit taps means more of those that want it can get it.

Now though...the conditions have changed from that subset, mainly because of rate cuts and some natural cyclical factors turning, so prices have stopped falling and are (probably) rising relatively quickly on the ground.

 

Looks that way but if you can somehow eek out a generous yard, it wouldn't be a bad buy at all.

 

A free petrol sniffing location, only after being exhausted.....

 

The immutable limit on demand is lack of wages growth. And both unemployment and underemployment is rising... where exactly will demand come from if these trends continue?

 

Wont change borrowing capacity it seems too me.

 

Nope see APRA recent rebuttal of Westpac.

 

Still no update yet: Major Projects (NSW Department of Planning) | Bayside Council

I guess that's the reason why the price stagnating

 

B

Basically building into a cliff. Good luck digging in footings there and all the cut / fill / retaining / drainage.

 

@Tekoz - the bayside LEP changes are currently held at council level, not state (they’ll tick it off though). There’s a long process to it, bunch of reports, consultations, etc. At least a year off, probably longer.

Some of this got moved to them following backlash from community with the state taking planning rights away (planned precincts). State didn’t like that, pre election, so gave it back to council, and ‘incentivised’ them to get it done (2.5mill).

Can read about progress, steps and planning here.

Planning Our Future | Have Your Say Bayside

 

10 Broadway Circuit, Epping, NSW 2121