Sydney price growth to drop or prices to drop?

All this talk in the media last few days has me confused.

Some articles say 'Sydney prices to drop' over the next 2 years until 2020 and then pick up again..

Other articles say 'Sydney price growth to drop'.. Which means prices will slowly rise but not fall..

Can anyone confirm what the consensus is with Sydney next 2 years? Prices drop or growth drop?

I have been in the market for an investment property in Sydney and don't know if I should wait and see or just buy something in the next 4-6 weeks..


-Frank

 

It should read as "Sydney should drop 2 years ago"

 

Let me just check my crystal ball

There are journalists/economists that predict a 'crash' every year, still hasn't happened. If they really were able to predict the future they wouldn't be sharing it, they would be billionaires!

 

Good point.

I suppose if they keep predicting it, they will eventually be right


-Frank

 

Won't be long.

 

I'm kind of glad to see these articles beginning to pop up, enough of these might just prevent the crash half of them are predicting.
This Sydney price growth can't be sustainable, the sooner the brakes are applied the better.

 

APRA has already taken care of that, its all good.

 

Not really reasonable journalism. Unless you have the numbers to back it up, it's just some fool's opinion. Comparing Australia to another country is just being simple minded and taking the short cut as it does not consider the other possible variables that makes Australia unique.

 

This is opinion only and not advice, but I think APRA have hit the brakes too hard here.

Most of the levers they have pulled in the last 6 months still have another 6 months + to play out their full effect and they keep pulling more levers.

One of these will be the piece of straw that breaks the camel's back.

I doubt we'll see a "crash" of any sort though if for no other reason than the pollies personally have too much invested in real estate and so will prevent this from happening. There will definitely be a slow down to Sydney and other markets such as Perth which are already struggling to rebound will continue to go sideways or marginally backwards for another 12 months.

 

They are not called the Prudential Regulator for nothing. Compared to the FIRB, at least they are doing their job, and since previous measures didn't seem to work, they have no choice but to keep pulling levers they have until they see a response.

RBA is probably itching to drop rates again to help with the poor economy in most states, but they can't do that until the bubbly property markets on the east coast are brought under control.

I reckon APRA will need to see at least a 10% pullback in Syd/Melb prices before they are satisfied that things have stabilised enough. Investors will be lucky if they just stay where they are now. We are just playing catch-up really, New Zealand already has had their investor LVR slashed to 60%. Now that's really hitting the brakes hard.

 

If they'd hit the brakes hard Sydney would have come to a screaming stop a year ago along with the NSW ECONOMY , which it didn't .

Personally I think they'Ve come close to the perfect soft landing , but we need to check back on in a couple of years time .

Only thing I think they could have done is bring in specific Sydney / Melb measures , but that purely for personal reasons ...

Cliff

 

The thing is, ecnomists and others like to make forecasts. But it's not like forecasting the weather. Usually, in fact almost always, these predictions are actually projections. To illustrate the difference, say you want to throw a ball. A prediction will tell you where, if you throw that ball, that ball will land based on things like your arm strength and other evidence. A projection takes a ball that's already flying through the air and calculates where it's going to land based on its trajectory.

But housing markets don't have a trajectory. And when you hear "house prices to drop 7%" or "house prices to rise 2%" or what have you, these guesses are almost always assuming it does.

Now, often, these guesses are supplemented by evidence like market fundamentals, population trends, rates and so on, and that's good. But they often ignore market psychology, such as whether inexperienced recent investors might panic sell. This lack of insight makes those sorts of guesses meaningless, because there are two major driving forces of housing demand: demand as a house to live in, based on fundamentals like income, physical housing supply, population, tenancy need and so on, and demand as an investment asset. The latter is sentiment based, and while the former acts as both a floor and a ceiling on the market, the latter can stretch pretty damn far beyond the constraints of fundamentals (i.e. prices can keep rising even though fundamentals suggest they should be going in the opposite direction).

Investment based demand is driven by sentiment. If a lot of people are excited and buy in, prices will rise. In a bubble market, you get a lot of very inexperienced buyers doing this, which is why we've seen price jumps of 20% in some cases. When bubbles burst, it's because those inexperienced 'panic buyers' turn into panic sellers.

If you want to predict the direction of the market, honestly, you can't rely on predictions. I say this as an Irish guy who watched one crash happen (and didn't believe it would happen, which is another thing to keep in mind. There's a strong bias that leads people to not want to believe an actual crash could happen, so estimates of a drop are often extremely conservative. e.g. experts who've seen sharp rises like 10-20% growth rarely want to predict a reversal of that magnitude, despite it being easily as likely to happen. This can be called the "soft landing" phenomenon, but unfortunately no bubble market to date, whether it be in housing, stocks etc, has ever just quietly unravelled).

All you can do is gut feel it. Are the bears outweighing the bulls? That's a problem. Have fundamentals turned bad? That's a problem, because there will be a point where buyers won't be able to pay more, or won't be willing to pay more, or just have too many identical assets to choose from so they won't pay a premium. Can buyers and investors get finance? If not, big red flag, because who will bid up prices? These things slow momentum, and that can sometimes cause those panic sellers I mentioned to, well, panic.

Even if that does happen, a crash will probably be contained to oversupplied assets. That was even mostly true in Ireland, with fringe city estates losing most or all of their value, while quality assets corrected a bit but recovered very fast. It's also very individual. If you own assets people are desperate to sell (e.g. a lot of apartments) and you're competing with other investors and developers and most owners around you are heavily mortgaged, your crash risk is sky high. If you own great assets in very popular suburbs and most of your "competition" is people on good incomes who own their homes outright then there's not much chance of a big wave of panic.

So pay attention to what you own, whether you can afford P&I and rising rates, and what your competition is.

 

Highlighter

Just disappointed I only have one like to give .

Nice summation of how the market works .

Cliff

 

I have one other thing to add. I think there is an obvious turn in the market this time as can be seen by the big increase in number of winter listings this time round as the herd lines up to cash out.

Its just like the stock markets when they peak. There is usually a period of low volume trading, followed by a sudden increase in volume and market either runs up further or corrects down.

IIRC past year there were a lack of listings as everyone was watching and waiting to sell, hoping for a higher price and restricting sell listings, compounding price rises. Now suddenly everyone is calling the Sydney peak and rushing to sell.

Let's see what corelogic says next week.

 

No need to wait for the next week, CoreLogic provides the index on daily basis:
Back Series | CoreLogic

It seems the index has been recovered and almost reached the peak. 1113 today, its peak was 1117 on 12/04.

 

I don't agree they've hit the brakes too hard. The thing is, APRA has to think of the rest of the economy. If young families are priced out of the market, that's a huge issue because it causes other areas of the economy like retail to suffer, as they don't spend. This then causes knock on effects for other industries, jobs etc. Loose lending also causes problems of its own. It enables too many inexperienced investors to enter the market, people who then are so highly leveraged they can't weather the slightest rate rise or even the mildest correction. APRA wants to weed those people out of the market, hopefully slowly, because recent price growth has simply been unsustainable.

What APRA's doing is far, far more preferable than the panic driven crash that would eventually result from more and more people crowding the investment market. Think of it as weeding a garden. Making the banks safer, preventing too many lower income earners or near retirees or people buying only because they expect to make easy, lazy money, jumping on a bandwagon... this will make it much, much easier for good investors, who put in years of very hard work, growing strong. That's what the aim is: sustainable investment. But that can't happen without pushing out a few people, it just can't. I'm talking the types whose only plan is collecting and rolling IO loans for the crappiest assets and relying on capital growth to just fall in their laps, getting so far in over their heads they risk dragging others down with them.

We don't want inexperienced investors, the type who aren't interested in learning and don't want to do any real work, continually raising the risk profile of the entire market, because if those panic buyers do start to panic sell there will be lot of tough economic consequences (good ones too, but still, a lot of people who've done all the right things could still be affected). I'd rather see APRA take action now.

 

I think there is another major variable at play this time around and that is demographics. Older people are cashing out on their PPOR's and downsizing and I believe this trend will pick up even more in the next few years adding more pressure on prices.

 

What is so unique about OZ that real-estate down cycle doesn't apply to it?

 

+10

 

Do you think politicians in other countries where crashes have happened wanted it to happen?. We don't live in void here, we live in highly globalised world with connected economies some of which are funding our boom here,

Booms are busts, both are function of Credit's availability & cost,
where is it heading?
The sentiments which feeds the irrational exuberance during boom is also responsible for busts.