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

If you didn't buy in Sydney in 2017, was that pure luck?

Have you found people who made money in a down market and ask them how they did it?

 

Proverbs 13:4
The sluggard craves and gets nothing, but the desires of the diligent are fully satisfied.

Good old diligence using one's own talents in each circumstance is needed for repeatable success.

 

This is certainly part of the story explaining the average LVR falls in Sydney. Yes it will begin to rise again as values taper off.

In general, the price to income ratios is an affordability limitation, assuming a closed property market. Debt to income ratios are a big driver of price to income, but so to is the LVR position of new lending. This is around ~70% LVR. I.e. new loans are not being originated at 90% LVRs in Sydney (for FHB yes, but not for the overall market). The LVR position is partly tied to how wealthy individuals are in a city/country, savings rates, sources of capital, etc.

Imagine a world where there was a 60% LVR cap on lending (in some countries this happened). If thats the case, the debt to income ratio/0.60% drives the upper affordability limitation. This would allow Price to Income ratios of around 10-12.

In short, price to income ratios of around 10 are possible, even in a world where debt to income ratios are capped at around 6-7. Because debt to income ratios have tapered back to 6-7, it DOES not mean that affordability limitations in the market are this.

It does raise an interesting point of what markets will look in the longer term...is there scope for price to income ratios to delineate completely from debt to income? I personally don't see any real change in debt to income ratios over an extended period of time (I don't think regulators will want this getting too far out of hand). I don't think there's too much scope unless there's an influx of capital thats made available (e.g. super, outside money, etc). If thats the case, I think there's limited scope for price to income ratios to stretch too much further above 10-12 (perhaps small upward trajectory as savings build) so price rises may be closer tied to income growth over time.

 

The + 20% button on the calculator being pressed 5 years in a row

 

I didn't buy in 2017 for the same reason I didn't buy in late 2015 in Sydney. I am at the core a value guy but my fundamental value analysis based on RentalYield/P2I/total debt was proven wrong year after year,

I want to learn what valuations do successful investors use to enter market?

Ps:
I bought PPOR in Canberra in mid 2015 simply because repayment was less then rentals even at 90 lvr.)

I have couple of investment properties overseas (bought them in 2002/3/4 on almost 100 lvrs, a yr after I got out of uni and started work, they have now given 7X returns and dramatically lowered my LVR to less then 10).

I believe I was just at the right place at right time in credit cycle.
Now those properties have gone no where in last 5 years. But are highly positively geared for my low debt, and apart from mgmt hassle I will just leave it there.

Am I asking it now to you and to all others who have made money in downturns and are kind enough to share their story of how they did it, It would be great help to me and to many others I believe.

 

I'm not so sure about that. Let's say you did buy in late 2015. What are prices like now? Would you be in negative equity? If so, then was it a mistake not to buy? Personally, I am not sure it was wrong not to buy. Say you bought in late 2015 and rode the price wave up to mid 2017. You would have some decent equity and be feeling pretty smug. But the price has come off since then and prices are back to 2015 prices in some areas. Now you think maybe I should not have bought at that time.

There are always ways to make money but late boom it's difficult and during a price correction it's more difficult. In that case you are looking for the right time for you and your skill level. May 2021 is the right time to be seriously watching if you want to buy into Sydney. In the meantime there is a lot to learn

Incidentally, I will be watching Sydney from 2021 also. Not sure yet if I will buy. I have to see how some things pan out in Perth first.

 

Yes definitely. Blind Freddie could see that when the Perth median house price (as nice as Perth is) exceeded that of Sydney, during the mining boom, that Perth was overdone. Also it is too reliant on mining for my liking. Perth is no Sydney!

It was smart to invest in Sydney after a preceding long flat period. Prices alays seem to revert to trend.
It was dumb to invest in Perth when its median price was greater than Sydney's. It was dumb to believe that the mining boom would last another decade, according to the hype.

 

Was it smart to buy in 2017 in Sydney?
what about 2016?

 

yep even if the bottom is in by 2021 in Sydney, there may be a long period of stagnation,
may be 2025?

 

I'm sensing there will possibly be across the board stagnation for the same factors with credit etc a affecting other states A mining pickup might get bne Wa Dar away again though .

 

If you are a buy and hold type of guy, from 2015 onward it been too late and I felt at the time too.

It seems timing the property cycle isn't all that hard as the window of opportunity is very wide. Perth such the market to get in now as there's many suburbs have already bottomed.
When will it go up? no one knows, But i can bet it will be sooner than Sydney and Melbourne with a larger upside too. Just don't try to get in when everyone else is. bad things happen when people do that. look at bit coins, shares and Sydney and Mel properties, just timescales are different.

 

The article in Fridays AFR about NAB seemed to suggest new loans were going to slow down even further, not sure if it was new news but
NAB will also be cutting back the maximum amount they will loan from 8x income down to 7x and suggested first home buyers may also not be able to get finance for properties less than 50sq m , although I thought that had been around for years.

 

7x? Through a few home loan calculators on 2x$100,000 income, it spits out $1.2m for most banks and lenders which suggests 6x.

Strangely NAB spits out $1.5m.

 

I am seeing heaps of bargains in Perth with long term upside and adequate yields. Would love to pick something up in the next year or two, but am almost maxed out under current lending standards. Would be plenty of others in this situation I think.

 

Lots of discounting in Sydney also...people who bought after 2016 are likely to breakeven or go backwards...in most instances.

Home values are back to 2015 levels in parts of Sydney - realestate.com.au

 

Sydney Melb Sydney Melb Sydney Melb Sydney Melb..

Other states are their too..

Build a great team to build a great portfolio or reply on media articles..

Every state offers opportunity. All comes down to end goal and current portfolio analysis ...

Quality broker/accountant/agents/pm's/ba together can make the magic happen!!.

 

I know this has never happened before OR it is different this time ...

We bought our first IP in Mansfield (Brisbane) in 1992 for $125,000.

Eight years later, in 2000, it was still valued at $125,000. Our accountant told us we bought a lemon and we should sell it. It had been rented the whole 8 years to same tenant. We didn’t feel it was a lemon; so didn’t sell it.

Over the 26 years we have owned it, there has been many global and/or financial disasters (interest rates to 17+%, GFC, removal of NG, ...).

We still believe it is a good property. We still own it. Value $620,000, rent $465. The only thing different for us is that we have a different/better accountant .

As with all disasters, this one will blow over. If it gets too windy, just batten down the hatches (re-inforce them if you have to).

 

guys, do you think the Sydney and Melbourne will drag down Brisbane with it ?

 

A Slightly different way to look at it with my utmost respect to your view,

Our house hold debt was close to 50% of gdp in 1991, now its close to 185%
price to income ratio was close to 3, now its close to 7

We are way more leveraged now then back in 1991,
This was due to huge worldwide credit boom post 911 which was further fuelled in Australia post GFC without meaningful deleverage in bigger cities.

aka from 1991 to 2018
price rose from 125k to 620k thats 5x
based on P2I@3, salary in 1991 was 40k
based on P21@7, salary in 2018 is 90k

lets extrapolate future based on past
for past performance to repeat,
prices in 2018 at 620k should be close to 3.1m
assuming we somehow manage to maintain current P2I@7,
our income which is 90k in 2018 needs to reach 440+k in 2044
Imagine this on back of major job & salary disruptions we are about to start experiencing within next two decade due to mass Automation.

Imagine similar valuation analysis based on income for frothy cities like Sydney.

So either Price has to deleverage meaningfully or Salary has to rise way more than just inflation. Something gotta give,

Valuations at entry point matter along with time in market.

 

Lets ask ourself few question to assess

• Are you able to borrow as much as before on the back new credit tightening measures including micro level expense scrutiny etc?
• Are you able to extract existing equity as easy and as much as before?
• On back of RC, Try a fresh valuation of your existing property, you would be surprised at what banks think its worth now. There would be exceptions but increasingly bank valuations are getting stricter.
• If valuations turn up lower, buyer has to come up with extra deposits, what do you think this will do?
• Is DTI cap applicable to your city? if so do you think its going to restrict existing investors appetite?
• Is IO2PI rollover applicable to your city? if so do you think its going to increase forced selling?
  
• Is there OTP settlement issue on the horizon?
  
• Is there access supply? Are rents rising?

What do you think?

I think it may be impact just not with the same extent of Syd/Melb, and there may be lag.