This Housing Downturn is Over 2020

Lets see.....what is happening is not normal.....

 

With house prices currently where they’re at, I’d say most who are under 40 and have bought in the past 4 years have probably had to use the majority of their savings for a deposit

house prices have been seen as generally at or close to peak over the last 2 or 3 years

economy is almost in a recession suggesting a lot of jobs are at risk

all pretty plausible scenarios

 

house prices have been seen as generally at or close to peak for the last 25 years,

 

Huge assumption.
But again your selecting a minor group.

Let alone around


30% of the population own home outright.

 

IMO Sydney not being risky now is nonsense (particularly if investors believe low yield means low risk...plenty of assets don't have yield at all and are very safe, i.e. cash in hand). Being pragmatic and observing current conditions, it's as risky as it has been in a very long time (probably the highest in my entire life).

So much is unknown right now, so much can happen.

Uncertainty = risk. In general, times of uncertainty produce behavioural responses to investment demand (i.e. people feel scared, and change investment decisions accordingly).

What I do believe is that Sydney and Melbourne real estate valuations cannot afford serious unemployment in those states. Mortgage levels repayments require incomes to be serviced. These cities are more 'at risk' than others to unemployment changes given debt servicing ratios.

There are scenarios that can be mapped out that involve serious ramp up in unemployment here. The government will step in and insulate much of it in worst case scenarios, so real estate will perform better than businesses (stocks), but it's definitely not immune.

There are also scenarios that can be mapped out where real estate actually performs very well in a medium term setting (short run cant possibly be good). The stimulus responses typically involve more money flowing to real estate. Over time, once this blows over, real estate will likely do very well.

Summarising:

The May 2019 - Feb 2020 boom in Sydney & Melbourne real estate...is over.

The sharpest recovery (ever?) to house prices across Australia will end in coming months. Price will no longer accelerate at the pace they have. IMO very little chance that prices accelerate at 1% per month + in a few months time. More realistically, they won't accelerate at all soon enough and are likely to fall temporarily if the health crisis goes on for long enough.

The responses may kick of another boom in 2021/22 which will bring valuations in line with the rate settings of the day (catchup demand, buoyant economy recovery, rate cuts, credit flows, all are very powerful for Sydney/Melb real estate)

 

So @Redom , if you were eyeing the sale of a couple of props in Sydney right now, would you opt to defer till next year or take a chance?

 

I'm selling my property as we speak.

Hoping to get a deal done soon before even worse economic news comes out.

 

Nah I personally wouldn't really change my behaviour too much, overall property isn't traded within a year. There’s a bit of fomo at the moment, that’ll pass quickly now though.

I'd be surprised if real estate prices aren't higher in few years from now, even with corona. Once it passes (assuming it does reasonably without pure chaos), then asset prices should pick up again. There may theoretically be a point where its a little undervalued too as all the monetary stimulus wouldn't feed through the prices because of the uncertainty element around at the moment.

It's just that this rapid boom that's happened for the past 9 months or so is unlikely to continue in this climate.

 

Redom, your posts are always great. Thanks.

I generally agree. I am not seeing any pull back in Sydney real estate. In fact, I am seeing the money fleeing equity markets looking for a safe haven home in real estate. It could be temporary, but at the moment, markets have factored in interest rate cuts, but not a recession.

I bought a property for a client in Marrickville last night, and the auction room was packed. The only property that didn't have much interest was a newer style unit in Mascot (not a property we were bidding on either).

The way I see it is that the virus is temporary, but the easy money is permanent. And this is a toxic inflationary mix. I can see real estate running hard for a few years, based on these "temporary" policy measures, which themselves will create a bunch of inflationary and problems.

The challenge over the next few years, is going to be that it is impossible to value anything in a zero interest rate environment.

I still disagree on Sydney as a safe market (vs a risky market). Sydney has the least historical amplitude in terms of price swings (Darwin being the most risky). I am not saying that Sydney isn't expensive - it is. But the Sydney market is liquid, it is deep, and it is stable. Good people can disagree, and you make a good argument.

 

Most of what I've said throughout the thread (and OP) isn't 'what I've been seeing', but rather what I think we will see based on future market conditions. What we all have been seeing is rapid demand, 1%+ MoM growth, 80%+ clearances, etc. This is just reporting what is happening.

What I think we will see is a tailback soon. This may not be right at all though, who knows, so much uncertainty in all of this. It's just a random person's opinion, based on nothing other than gut feel. Its not like there's much history to go by when it comes to property value impact from a virus pandemic! Yes property will be a much safer asset than other asset classes and IMO won't fall nearly as much. BUT IMO there's no way these numbers will continue now given pandemic of Covid19. I image the big green double digit numbers on Sydney/Melb indexes may soon start to turn red like most other asset classes in 3-6 months time.

 

I'm sort of considering (but not really) selling my portfolio, buying shares and then do the opposite once the share market recovers.

 

@spludgey

so much cgt though

also by the time from deciding to sell a property to settlement (10-12 weeks if all smooth and no reno work needed), equity markets might have recovered by then

 

@Redom love your posts mate always an informative read.

Do you think the momentum may last a bit longer in the middle and lower price point markets? From what I can see most of the growth has been driven by high end market and the cheaper stuff has only started playing catch up in the last 3 - 6 months or so.

 

Assuming you have the perfect strategic plan for it, you'll need a psychological resolve tougher than 99.9% of our population IMHO in order to execute it.

 

LOL, good one mate

 

It’s the counter party risk that will get you...

 

Momentum ? do you understand this country will be locked down within 4 weeks !!

The market is Now dead in the water
It’s all now about will it stay static or drop

 

Righto...you forgot to add the “In my opinion” I get things are pretty bad and will likely get worse.

However do you think all current on going sales and settlements are going to be cancelled or suspended? What about the people who are transitioning from a rental they have given notice on to purchase.

In my opinion the number of buyers may slow for a while but the property market will have to keep moving.

 

Firstly apologies , when I re read that it comes across as arrogant , it wasn’t intentioned like that

sales will go through time and time again you see this , every time this happens. everyone is afraid to sacrifice the deposit or costs they have incurred ,

Agents will still be spruiking the market but it’ll grind to a halt over the next 2 months if CV Pans out as everyone expected , after that who knows , but it’s certainly not a time to foresee prices to rise any time soon and buy on that basis

 

The counter party in this instance being the bank/lender or the tenant?