VIC The Market has certainly changed direction - Melbourne

We'll have to agree to disagree.

In logical, efficient markets then perhaps. But real estate imo doesn't always act that way because of the significant emotions involved. There are so many factors why an area can be more expensive than another area, even if its the same distance to the CBD or why a 1.5m home can be affected in 1 area yet in another area similar distance to the CBD prices remain unchanged. Too many factors involved in so many markets/demographics to say there is really only 1 market per state. I wouldn't go down that thought process for even a second.

 

yeah markets are made up of people..

@mues, have you had a chance to meet people?

Logical and efficient they aint.

 

As opposed to all the markets made up my animals and machines......

All markets function with emotion. Dot com bubble anyone? All markets lack logic. If their was logic in markets we wouldn’t have booms and busts to the extend we have. Land. Stocks, lithium, tulips.......
Don’t confuse how efficient it is to transact in a market and the logic of the person buying.

When people in Melbourne try and buy a house over the last 5 years the basic path is.

1. Pick North, South, east or west.
2. Pick Desired suburb.
3. Keep moving further away from the cbd and desired suburb until you find something you can afford.
OR
Spend every penny you have and stress over the loan.

If prices drop in Fitzroy do you think it won’t effect Brunswick, Coburg, Preston, Thornbury?

I really don’t understand why people think houses in the same city are unimpacted by each other. Sure some suburbs which are more desirable will go up 10% and some 5%. But someone find me a situation where a suburb in Melbourne went up and others went down without correlation. New builds in the West only exist for those priced out of other areas.

Take apartments and houses. Oversupply of apartments might cause them to flatline while houses might still go up. Apartments are B grade stock in relation to houses - people who buy them are generally those who couldn’t afford the house they want. But if houses drop 10% apartments will drop more - if A grade houses are falling why would I buy a B grade apartment?

 

More people may be able to pay the buy in price for an apartment in the area compared to a house, so apartment values may rise (strong demand) while homes in the same area may fall (lower demand). That's just 1 explanation of many.

 

So what you are saying is that there is demand for 200k property not 400k property. Thus the lower priced apartments are bringing the price of houses down.

That’s my point. Looks like a connected market to me.

 

market is made of people,
people don't react they over react,
which makes markets irrational and driven by extreme sentiments,
that's the reason we have booms and busts,

Every house is unique in some way and by that logic its a market in its own,
There is always good and not so good stock but all of them are driven by liquidity, up and down (albeit in different proportions), currently this liquidity is getting squeezed.

If individuals funding is squeezed, majority of buyers will be left with #DecreasedBP, FOMO of buyers in this case becomes meaningless as they don't have any option left.
Sellers on the other hand have a choice to sell at what's being offered or wait, Not all sellers will have luxury to wait, few would get desperate or compelled to sell 'out fear' or 'inability to sustain repayment', prices starts to crack, once this happens some buyers who were forced out due to #DecreasedBP now start to wait 'out of choice' hoping to get an even cheaper price.

When #BuyingPowerDecrease, price starts falling,
the Buyers #FearOfMissingOut becomes #HopeofBetterPrice
and Sellers #HopeofBetterPrice becomes #FearOfMissingOut.

 

I don't see markets working that way. Have to agree to disagree.

 

Yes.

As a lame analogy but I kind of think of it like weather and temperature.

Temperatures are generally lower in winter and warmer in summer but one can see snow in December (well Tasmania and Victoria perhaps) and over 30 degrees in August.

Nah..there are just so many agendas to have this generalisation. FHB, Upsisers, downsizers, canny investors, not so canny investors, foreign investors of all ilk.

 

But if A grade houses drop from $2.8m to $2.5m for example, B grade apartments in the same suburb might still hold up if the ratio to the house is big enough and has strong rental yield as back up support.

 

Imo, some really simplistic views of how markets work are being put forward. I am willing to bet anyone (or very few people) holding these views hasn't built a large real estate portfolio.

 

Markets are simple imo. The only reason to tell people they are complex is if you are selling them something - normally in the form of “advice” or “strategy”.

 

Okie dokie. I guess you've built a multi million dollar real estate portfolio across Australia so you understand investment markets well.

 

The difficulty with people is that most have an optimism bias and that along with emotional triggers drive their buying decisions. Even people who have taught themselves to mitigate these biases to a certain extent to run efficient businesses will find themselves making dumb buying decisions from time to time. Generous credit plus optimism bias is what has been driving most markets. The only way to mitigate against it is to understand risk and research with this in mind.

 

I say thank you to @mues for showing us that the herd mentality still exists. I was beginning to think everyone on this forum was a contrarian of one sort or another.
Here we have first-hand proof that the decisions investors make don't purely come from financial and lending opportunities.
I'm thinking a three bedder in Mosman or Neutral Bay is your style? What's the equivalent in Melbourne?

 

So you don’t like my opinion so you have both resorted to personal insults

 

Ohh and If you want details. I have not purchased a property inside this current boom period (unless you count some family transfer of ownership). Only before. During the boom I’ve been buying stocks to diversify outside real estate. My portfolio is also much smaller than most here. But i focused paying down debt last 4-5 years along with alternative assets to real estate. If fact I don’t think the way I did it would be popular here. Far too conservative. It’s also because I’m more of a real estate bear of the last few years. Which once again is less popular.

Basically, I think 90% of people here will take on more risk than me. I think it’s becuse I’m in a risky career, so I would rather be in control of my own destiny and too much debt would impact my decision making. I would also like to have real estate be only half my net worth.

I’ll probably buy something in the next 2 years. But it won’t be in a blue chip suburb.

My thing that irritates me is that in my experience people seem to think they have a lot more insight into the market than they do. Comments like “markets within markets” is the stuff that comes out of people who tend to be snake oil salesman. This isn’t exclusive to real estate. There is a lot of hedge funds and managed funds whose smart money is less effective than throwing darts at a board to pick stocks. I honestly think this boom was so strong that you could have thrown a dart at a map of Sydney 5 years ago, purchased the closest house to that and you would call yourself a genius.

That’s my main point. But we have dragged this thread out enough so probably time to move on.

 

Both markets are linked.

If a house is booming, then no way a unit near by is plummeting. All things bring equal.

What leo is saying is that they are linked but theyre unique and don't behave identically.

I use the hot water and cold water example.
Put hot water and cold water in a swimming pool. Eventually there will be a happy medium but in the early stages one corner will be warmer than the other

 

I think you are wrong - in melbourne there is def markets within markets - it is not snake oil. Different buyers and demographics buy diff types of properties in melbourne.

buyers in the doncaster, balwyn, box hill markets are different from say someone who purchased something in Pt Cook, Tarneit, Werribee. The apartment market itself is a big market with many types of products (student apartments, low rise, high rise, large luxury type, art deco, pigeon hole apartments, penthouse types). To say a AFL player is going to look at student apartments vs buying a penthouse in port melbourne are different. Are you saying that Balwyn High School/GWSC is in the same market as say reservoir high come on seriously. that's like driving a toyota and claiming you are driving a ferrari. there are 2 separate and distinct different markets. You pick a suburb - reservoir - (there are millon dollar houses in oakhill estate, crappy houses close the merrilands area, properties near latrobe and northland and the properties near preston close to the market ) - not sure how you can dump all properties into the same boat. Also a rezoned property in the ACZ or high growth zone is diff from a General residential Zone - in terms of development potential.

Not sure why you feel irritated abt this - maybe you're just not educated enough or have yet to do any real groundwork as oppose to just reading and making assumptions

playing hedge funds stocks are different to property - there are far more factors in property than looking at a ASX200 indexes going up and down based on a few factors (that's more like gambling with some level of intellectual analysis).

i agree with you - many bought in the boom esp sydney - anyone could have made money. in mlebourne - this however happened in stages - i don't recall pt cook booming in 2016/2017 only at the end of 2017/2018 - did it finally go up while before that doncaster and balwyn were all moving. Now even tecoma, doveton, has boomed. while others didn't before.

 

Just because it irritates you, doesn't mean it isn't so. Markets within markets, absolutely, without a shadow of a doubt exists. Its basically (meaning you) a lay person looking at a piece of art and only seeing the obvious colors. Their eyes are not fine tuned to appreciate the different shades and subtilties that can be found all over the place.

 

At the risk of putting myself in the firing line here, I think it's a bit of both. If the gap is far enough there isn't going to be much crossover. However where the gap is close enough, there will be substitution.

I know 3 people who moved from Point Cook to Templestowe / Lower Templestowe in the last 2-3 years. All of these people aspired to move to the East but couldn't stretch to Doncaster or Doncaster East (for school zones) so settled in neighbouring suburbs (which were cheaper, yet comparable) so you could say that these markets are close enough to be related (I also know people who have had to settle for a townhouse instead of a house in Doncaster due to affordability, so there is definitely transference between product types also).

On the other hand I don't know anyone who has gone cross shopping Balwyn with Doncaster in the last few years as the gap has been just too large. If this gap got a lot closer though I could see people stretching for Balwyn. Reservoir vs Balywn - probably not a chance

The metaphor that @TMNT used is a pretty good one up to a point, but you're not ever going to get a homogeneous temperature throughout the whole pool.