Sydney's housing bubble deflates as loans revisit GFC declines

Sydney's housing bubble deflates as loans revisit GFC declines

Australia's east-coast property bubble is showing signs of deflating at a faster clip as home-lending data recorded the longest losing streak in almost a decade.

Housing finance fell 1.4 per cent in April, the fifth straight monthly drop and the longest stretch of declines since September 2008, when Lehman Brothers collapsed and a month before the Reserve Bank of Australia slashed its key interest rate by a percentage point.

 

Here is the link - in case anyone doesn’t realise that Peter’s huge heading is actually a link!
Sydney's housing bubble deflates as loans revisit GFC declines

 

So basically,......we have to convince people to invest in a falling market,....... which is at its peak,....ridiculously expensive,........compared to just about everywhere IN THE WORLD,......with bugger all rental returns,.....and assuming future capital gains?, ...or were bolloxed!

Any ideas? How about south african farmers?


Good luck girls!

 

What happens if you tell the property elite that prices double every 7 years? Does that trick still work?

 

Back then interest rates were about 8% , so it was a great way to try and stimulate the economy.
Unfortunately it serves no real advantage to drop rates below the current level.
At some point in history it was always going to happen as house prices rise faster than wages.
Over the last 30 years we have gone from houses that were affordable on one income and then 2 incomes only .
There was always going to be a point in time when 2 median incomes were insufficient and on we go.
Is it a coincidence that Australia's most expensive cities ,also have the highest percentage of renters

 

The fall in Sydney only started in 2017.......it will take till at least 2020 till it stabilizes.

Anyone who is buyin' in Sydney now...would need to have their head checked unless it is a screaming bargain.....Melbourne is also coming off but it heading towards more of a flat line as it is more affordable..at least in the cheaper suburbs. The more expensive suburbs are following Sydney's lead.

No more crazy Sydney spruikers any more.....

 

Hi guys,

I have written about this before on these blogs, but happy to chip in with my perspectives about Sydney. Happy to be corrected if wrong, though I suspect only time will tell.

This is not the big correction some are suggesting Sure we are in a correction, but it will be gentle and will be 12-18 months max. I am thinking units to decline by 5-7%, and houses by 7-9% max and most of the declines haven't shown up in the data yet due to the usual lags: we are half way through the correction already, and it will be finished by this time next year.

Only 30% of the property market is for investors - so we are not talking about a market that is vulnerable to shocks in the same way that a proper investment market is, such as stocks. Real estate is part investment, part commodity. Everyone is either a renter or a buyer, so it is a very stable asset.

The 2009-2012 correction wasn't that long ago, and property simply doesn't crash as frequently as some are suggesting. The correction will be mild, and rents will increase in this period to even out yields.

Population is growing, and this particular correction will be relatively short lived. There will be larger corrections, but they will not happen this decade.

Time will tell, and I could certainly be wrong. Happy to discuss. Over to you...

 

Although I agree that we wouldn't see 50% crash, but 10-15% correction is possible and that may be a killer for many near new investors. Some of your arguments are not strong...

1) time frame (12-18m max). If a decline is caused by removal of available funds because of IO->PI conversions + forced sales (who can't afford P&I and extend IO), the impact will be at least 4-5 years (we passed only 20-25%). Adding difficulties for foreign investors and serviceability & expense assessment issues, plus possible rates rise in 2019/2020, rising expenses, and slow wage growth, we may have a near flat market for many years after correction...

2) "Only 30% of the property market is for investors - so we are not talking about a market that is vulnerable to shocks in the same way that a proper investment market is, such as stocks. Real estate is part investment, part commodity."

Look at OIL. A minor (in %) excess in supply over demand caused the oil price to move from $1xx to $40-50. A following minor reduction in OIL production recovered the price to $65-$70 range. There are multiple scenarios / models when a minor shift in supply & demand balance can change the price significantly.

3) it's incorrect to compare today correction to any other historical corrections... simply because the causes of those corrections were completely different.

4) "Population is growing". Without wage rise, with growth of expenses and with limits like rent-to-income ratio that growth mostly leads to downsizing (large house>small house, small house->unit, unit -> room, inner ring->outer, Sydney->Brisbane, etc). I.e. it only reduces the "number of sq.m per person" ratio. Rent can't rise without limits, and many families already approached that limit.

So, I'm not so optimistic... but I agree that time will tell.

 

I think this Sydney correction will be mild, simply because I feel we have a lot of migrants (particularly from Asia and the subcontinent) that are still very interested to buy here. And FHBs haven't had too much of a look in in the past few years.

I saw after the last boom (peaked 2004) many of the cheaper areas of Sydney dropped by 25% from peaks. Eg. 400k became 300k. I don't think we'll see that sort of a % drop in suburb home prices this time though, though it's possible in a new outlying estates. Colleague spent 800k for a new house on small ~350k land in Jordan Springs.... (I reckon they didn't buy smart... Chinese couple and the husband just blindly said yes to whatever the wife said....) but at the time (late 2015?) he still could have bought in one of Sydney's pretty good established suburbs for that much money.... he works in the city. It's far out and you have to take a bus into Penrith to catch a train.
If the property maket drops it's entirely plausible it could drop to 600kish.

FWIW many of the better suburbs of Sydney held their values - they didn't drop in value but also didn't grow for a while - 2004-2008 was flat in many areas. Then property prices started rising again 2009.

 

The property market in Sydney survived the GFC.

That's proof enough for me that we will get out of this correction relatively unscathed and again - this pullback is by all intents and purposes, more 'artificial' than one dictated by market forces.

 

It survived because interest rate went down massively.

 

Aren't many parts of Sydney already down by 10%?
we still have OTP settlement headwind just around the corner,
I think its just getting warmed up.

Did we have the headwind of 500bn IO to PI conversion, as it is now, back in 2009/12?
Did we have lending as tight and getting tighter, as it is now, back in in 2009/12?

what's the basis for this?
#. Apra's strategy to force remove IO froth is a four year strategy and going to last till 2021/2,
#. Tighter lending criteria may be here for longer then we think, its not going to wind down in a hurry.
#. Raising IR is a blunt tool and not very effective instrument for targeted attacks at the source of froth in the system. #TighterLending' along with #Forced-IO2PI, at the other hand is a very Targeted approach, it does not blindly punish home owners for the froth created by leveraged investors.
I think RBA is quite happy with this strategy to deleverage the systematic risk and is not in a hurry to replace/change any time soon.

 

no one can predict the future with any level of certainty.

anyone predicting down turn will last a few months or a few years or how far the market fall is just rolling the dice and if their number comes up they win

there is no science to finance and leverage, it the combination of emotion, greed, fear and madness of men and that cant be measured

best way to prepare for any boom or bust cycle no matter how long it takes is you have strong foundation, that way you can outlast any craziness in the market

 

of course no one can predict what's going to happen, but one has to be aware of the changes to the most important lever for house prices and that is one's #BuyingPower

'how much leverage is allowed' is determined by loan providers(enforced by Apra), currently that is getting adjusted downwards, with leverage not increasing aka #DecreasedBuyingPower, what do you think will maintain the house price in Sydney/Melbourne let alone rise?

#WishingAndHoping is not a strategy, its a #Decade2Deleverage

Again nothing is set in stone, if ground fact changes one has to #Readjust and #Recalibre

 

Who cares about what Sydney does at this stage . Anyone who is dumb enough to invest here now , well ....

Reality is that Sydney booms then stops , nothing new . This is the fifth time I've seen it happen .

Interesting that while financing is decreasing , it hasn't stopped Hobart from booming , and when I looked at my stats for somewhere in Brisbane yesterday the stars could be aligning . Decreased vacancies , decreased stock levels and prices ticking up . Not talking about big swings , but all trending the right way which hasn't been the case since APHRA stepped in.

All to do with the relative size of the markets . Hobart and Brisbane don't need the same amount of money to move compared to Sydney .

Outside our PPOR ( soon to have Granny Flat ) and Weekender ( soon to be part time rented ) we're out of NSW .

Cliff

 

Tasmania's the only state with an increase (of half a percent) of unemployment from April to May. Most other states have seen a decrease in unemployment (and a correlated increase in part-time jobs). How sustainable is Hobart and the greater Tasmanian area, boom I wonder?
Unemployment drops to 5.4pc despite 21,000 full-time jobs being lost

 

What do guys on the forum think about this?

Sold
17/10 Abraham Street, Rooty Hill, NSW 2766 - Property Details

Available for rent
17/10 Abraham Street Rooty Hill NSW 2766 - Townhouse for Rent #424011938 - realestate.com.au

What could be the rational behind his thinking? Or what would be a situation when you would want to do this?

 

I understand and sympathise with the desire people have for this not to be a major correction, but there's really nothing to suggest it won't be (or necessarily that it will, but we need to accept both possibilities are at least equally likely at this point, and perhaps more towards the downside, as lending restrictions are a serious issue, and investors are leaving the market. The fact one seems unpalatable doesn't mean it isn't going to happen).

In many parts of Sydney, prices are already down well over your suggested figures. Remember, too, we've seen price rises into the double-digits for several years, which is very unusual. There is absolutely no good reason to think a retrace isn't likely. If we are halfway through the correction now, we're going to be looking at a median of at least 10% down for Sydney alone, which risks causing a serious turn in market sentiment. A median of 10% down would put many parts of Sydney, for recent buyers, into negative equity. In some areas this would be more pronounced (e.g. Baulkham Hills for units is down 19% already, and it's almost 14% down for inner city houses; take the average up to a 10% range and we could well be looking at 30-40% down in some areas which is going to start to have a serious effect on recent buyers).

For the past five years or so, the number of buyers in the market have exceeded a ratio of 50% investors. That is very unusually high, with a previous historical average of around 5-25%, over the last 100 years. So the number of investors buying into the market has at least doubled since around 2012, which is pretty damn remarkable. That sort of swell in investors was seen in every EU bubble, as well as in the US (which is back down to under 10%, after reaching similar heights).

When we look at these investors for the last 5 years or so, not only have numbers been unusually high (many of these investors have been inexperienced at best, and people who never would have entered the market in usual conditions), but they've bought at already inflated principals (in Sydney anyway). They've also disproportionately bought into fringe suburbs and apartments. As these numbers are now dropping off, that's a problem, as the number of investors in the market doesn't necessarily matter as much as the rate of increase. With investor numbers dropping, there are fewer people willing to (or able to borrow enough to) buy a growing pool of assets in a falling market, which in many areas is already oversupplied. Fewer investors means less overall demand.

Why won't first home buyers or other buyers swoop in? They might. But keep in mind rents are unusually low, and when people see prices dropping at a rapid rate, they often sit on the sidelines because not buying can seem like saving money. If the correction continues, this will be a growing problem. There's also the problem of more assets being for sale in areas buyers already now don't want to buy into e.g. fringe suburbs, apartments. So we might see some areas of the market experience more contained effects as was absolutely the case in Dublin (fringe suburbs out near the airport and other new estates around Dublin in contrast crashed very hard).

Property doesn't crash frequently by any means, but we've seen a very unusually strong period of very unusually strong growth in Sydney. The risk of a crash is very high indeed, and though I'm not saying it's happening, I think it's very wise to be prepared and certainly a good idea to accept this might be it. If it isn't, great, but be very wary about telling yourself it can't or won't or isn't happening, because the rate of the drop so far has been anything but gentle, and the market seems to be lacking momentum with no real indication of where more might come from, and lending is tight. Things might improve, but if they continue as they are, it could be a mess.

 

If Sydney was in a bubble in 2008, it was tiny. There wasn't a huge correction because the bubble was just getting started here.

 

The other star is qld and brisbane population growth.