NSW Sydney prices fall 7.4 pc, biggest drop since 1990: CoreLogic

Discussion in 'Where to Buy' started by Pete Arendt, 1st Nov, 2018.

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  1. Pete Arendt

    Pete Arendt Well-Known Member

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    Sydney prices fall 7.4 pc, biggest drop since 1990: CoreLogic - AFR, 1st November 2018.

    We have yet to start the deleveraging process, but Sydney is experiencing the biggest drop since 1990.

    It will be interesting to see what happens as households start to de-leverage. You certainly don't want to be buying in Sydney.


     
  2. Speede

    Speede Well-Known Member

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    A wannabe Mexican
    A million threads
     
  3. Illusivedreams

    Illusivedreams Well-Known Member

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    What does this have to do with Sydney?
    Screenshot_20181101-185735.png
     
  4. Propertunity

    Propertunity Well-Known Member

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    I bought a house for $645K in Dulwich Hill in 2008. 9 years later in 2017 it was re-valued at just a tick over $1.5M. Now in 2018 its price has fallen "off a cliff" in some media and "is experiencing the biggest drop since 1990" in others......and for some reason, now that I'm sitting on equity of over $800K I need to "start de-leveraging????" Really? Gimme a break! :rolleyes:
     
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  5. Silverson

    Silverson Well-Known Member

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    That's the issue with the media.
    At least they're not biased and it goes both ways, when prices come down every article assumes ones bought at the very peak and when prices are rising every article assumes every one bought at the very bottom.
     
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  6. Perthguy

    Perthguy Well-Known Member

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    I'm am way more leveraged than usual with my LVR creeping towards 50%! :eek:

    Maybe I should start deleveraging too. Naa... :D
     
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  7. Whitecat

    Whitecat Well-Known Member

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    And someone else bought one in 1963.
    Its more of an issue for those who bought mid and late in the most recent boom. Who may be forced to sell cheap
     
  8. sash

    sash Well-Known Member

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    Point is you bought 10 years ago.

    People who bought from 2015 would have paid 900k plus. The issue is Dulwich Hill will come back down to say 1.2-1.25m this cycle. So people who bought in 2016 onwards will most probably go backwards.
     
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  9. TMNT

    TMNT Well-Known Member

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    If you follow the herd especially at the tail end of the heard, expect to get burnt
     
  10. sash

    sash Well-Known Member

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    Yep...spit on....its like following a croc's tail....expect at some point it is going to hit you with its tail and drag you in the water....;)

    Lot of silly people who keep justifying that Sydney will do ok..and it will pick up. Its the cycle stupid....it ain't going anywhere for another 8 years or so. Add to that the limitations on credit....and that paints the picture.

    However, it is not doom and gloom everywhere...Adelaide has done steady 2-4% rise ...and Brissie now shows some potential..... issue it a lot of investors concentrated their buying in one market..
     
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  11. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    If TotalDebt2Income cap of 6/7x is enforced, as mentioned in the RBA minutes which you posted few post ago, assuming one has hit that ceiling, Won't it restrict one's ability to get new loans irrespective of LVR of their assets
     
    Last edited: 2nd Nov, 2018
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  12. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    There are plenty of cases those who bought in 2006/7 in Perth and have still not recovered,

    For those who have invested a decade ago,
    if we keep 'Right place right time theory out', Does it make Perth investors dumb and Sydney investors smart?
    What makes one investment smart and other dumb?
     
  13. Redom

    Redom Mortgage Broker Business Plus Member

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    Yes that is true re rough debt to income caps on borrowing capacity - they are technical affordability limitations on housing.

    But there's obvious reasons why market pricing moves well beyond this simplistic measure of technical upper limits, not just in Australia but in housing markets all around the world.
    • ~80-90% of borrowers don't go anywhere near their caps when seeking finance applications (source: RBA Oct 18 FSB). This therefore means REDUCTIONS in the upper limits don't actually impact a very large segment of borrowers. Its a theoretical change for many, not a practical one.
    • The average LVR is well <80% in Australia, so the Debt to Income ratio can be inversely multiplied by that, your getting to price to income ratios of around 8.75 already by this. While this is a technical upper limit, it doesn't mean the fundamentals of housing supply and demand allow pricing to be driven to these upper limits. Its why Brisbane/Adelaide has a much lower DTI than Sydney.
    • In Sydney specifically, the average LVR on housing is at around 60%. Assuming a borrower decides to go to take a 6 DTI, you have a 10 PRICE TO INCOME ratio already. This is in line with current valuations.
    • This also excludes the obvious fact that 25-30% of homes in Sydney itself are not mortgaged itself.
    Simply, Aussies are typically quite wealthy, Sydney is very wealthy.

    This also explains HOW house prices reach 10-12 PRICE TO INCOME ratios in the first place. It would be impossible for this to happen without some of the above factors being the fundamentals of finance. Simply change the 'new lending' LVR to 90% and you have a major major issue (which isn't apparent based on Aussie household finances).

    Screenshot 2018-10-30 13.41.10.png

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    Last edited: 2nd Nov, 2018
  14. Tofubiscuit

    Tofubiscuit Well-Known Member

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    Good points Redom.

    During property down cycles, I notice less A or A+ stock being placed on the market. So the "B grade" and below stocks that gets exchanged further exacerbate the average price index.

    There are a lot of old money people with plenty of mortgage free properties on their hands in Sydney.
     
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  15. Perthguy

    Perthguy Well-Known Member

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    My dti is between 3 and 4 :cool:
     
  16. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    My question was more for Portfolio investors (small minority) with high debt to income irrespective of lvr (given that new serviceability calcs are putting a cap on rental incomes) and if D2I 6/7x cap is effecting their ability to get new loans.

    What the difference between 2014 and now, from Serviceability point of view,
    in terms of percentage of income from Investment property (eg rental/depreciation/NG) being taken in to consideration for new loans?
     
    Last edited: 2nd Nov, 2018
  17. Perthguy

    Perthguy Well-Known Member

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    I was in the market in Perth in 2007 and looking to invest but prices were ridiculous and numbers did not stack up. Not even close. That was my first IP purchase and I managed to evaluate the market. I didn't invest in Perth in 2007 because it didn't make sense to. I have been told many times that you can only pick the top of the market in retrospect. Perhaps that's true but an investor can definitely evaluate whether a particular purchase makes financial sense.

    It was obvious to anyone who was paying attention that the market was cooked. I wouldn't say I'm smart and the investors who bought were dumb. I would say more investment savvy and less investment savvy.

    What you are essentially asking is if there is any skill to property investing. I would argue there is. Many argue it is all dumb luck.

    I will ask you, if an investor has a 100% success rate at buying profitable properties over a decade and over a number of states are they simply lucky?

    Would you have bought an IP is Sydney in 2017? Why not?
     
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  18. Rex

    Rex Well-Known Member

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    Yep, it's a big ceiling that you can't get around, no matter how good your broker is. Unless this cap is lifted it's impossible for a lot of households to refinance loans or upgrade PPOR unless they deleverage / sell off any other properties they have.
    All of this Sydney wealth has been driven by the explosion in prices though right?. As prices fall or stagnate in Sydney for several years, homeowners will no longer be receiving magical equity from nowhere and LVRs will go the other way.

    But even without this, while most buyers might not borrow to their maximum capacity, there is a cohort (investors and first home buyers especially) who do. Take them out of the market and precipitous price falls are inevitable.
     
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  19. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    The fundamental valuations which didn't apply to Perth in 2006/7 didn't apply to Sydney in late 2015,
    Few seasoned property gurus here, argued against Sydney investment at that time, they were wrong as price kept going up till late 2017.

    Booms have an ability cloud ones critical thinking to overrate skills and and underrate luck. Its only during downturn the true Skills are spotted as those select few continue to make money.

    I don't belong to camp of all or nothing,
    As part of my learning I am trying to decipher what is what and why?
     
  20. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    What valuations criteria made it obvious?