What is the biggest price drop you have ever seen ?

I am not talking about regional or mining towns, but as far as a major capital city as a whole or even a CBD suburb, what is the biggest median price drop you have ever seen ? Houses not units.

The reason I ask is Perth. Where does the Perth decline rank in all of this, historically speaking ? Will it be similar or worse than the Bris floods or the Sydney decline after their previous boom ?

Realistically we could see perth drop 10%, would anyone be brave enough to say we might see a 20% drop ?

 

Perth is suffering from the downturn in mining.

Most WA FIFO flights go from Perth, so a lot of miners lived there. Having said that, during the mining boom it probably got ahead of itself so this is more of a correction.

The drop in values following the Brisbane floods in 1974 and to a lesser extent in 2011 were mostly limited to affected properties. Some suburbs suffered when lending was restricted in certain postcodes.

Historically most booms are followed by many years of stagnating values rather than sharp drops in price. Unless forced to sell, many owners simply ride out the downturn. The large numbers of owner occupiers in Australia tends to help stabilise markets.
Marg

 

Perth may drop further. IMO, it will,but nothing cataclysmic. The high in Iron Ore price was in 2011..a whole 5 years ago now. Since last year Iron Ore and Gold is up. Wheat growers have had a good season and meat exports are booming. The factors affecting Perth are not a recent phenomena. The unemployment rate is stable albeit with increasing 'casualisation' of the workforce. With low interest rates, a high proportion of Owners Occupiers as per other capital cities, a diversified economy with many legacy construction activities ongoing there is no mass hysteria to sell.

 

Yep and more. I have seen a drop of 60% in less than one year in a capital city of 10 million people, but that is overseas, so I reckon it doesn't count.

 

Median is a very innacurate way of measuring that value of properties in a suburb. My very small area of expertise relates to suburbs within the City of Belmont in Perth. Suburbs such as Belmont and Cloverdale had a property bubble form in development sites that peaked around the end of 2014. If you have a look at the drops in median house prices from 2014 to 2015, the Bemont median dropped from $585k to $504k (14%). However, this is misleading because of the type of properties sold.

In 2014, there were a lot of development sites being sold in the $600k to $800k range. This pushed up the median. In 2015, prices of development sites dropped as demand dried up. But at the same time, more 1 bed and 2 bed apartments were being sold in the $350k to $450k price range. This pushed the median down.

Just be careful when looking at medain house prices in an area undergoing significant redevelopment because it takes some careful analysis to understand the real picture.

The biggest price drop I have personally seen in development sites in Cloverdale. Have a look at 2 properties of a similar size, same zoning, 600m apart.

Property 1 is 974 sqm, R20/40 and sold for $785,200 in Feb 2014 for ~$806/sqm.

Sold Price for 205 Fisher Street Cloverdale WA 6105
Property 2 is 911 sqm, R20/40 and sold for $500,000 in Nov 2015 for ~ $548/sqm.

Sold Price for 4 Kennerly Street Cloverdale WA 6105

On a $/sqm rate, that is a 32% decrease.

 

Reminds me of this article, sage advice from a property blog for once.

How you can come out on top even if property prices fall

In 2011-2012 plenty of SE QLD properties sold at or below their previous 2004-2007 sale price, this had little to do with the floods. That's just the way we roll in the pineapple state, boom and bust. Beautiful one day, RE pineapples the next.

But seriously, as per the article above...time the market and you'll never have to worry. You just sit back and watch the show.

 

Ireland and the United states saw a 60% drop in 2008. Many places have still not come back. This was because the way that credit was issued changed. As crazy as it seems, people were able to get financing for homes without having to prove their income or assets. This was all because of banking deregulation and corrupt ratings agencies. Mortgages were bundled together and sold as securities. Once bad loans started to be bundled in with good, the seeds of the financial collapse were sown. Before 2000, home prices increased on a gradual but steady pace over many decades and then suddenly began appreciated in by 25% or more a year. That should have been a warning sign, but people ignored it (including myself) and tried to cash in on their paper equity. By 2008 the party was over and many people have yet to recover from their hang over. There is a movie out now called the Big Short that every property investor should go see.

 

Can you talk a bit about what it was like in the US? I've read articles about NINJA loans and so on. Interested in your personal view. When it turned, was there a single moment when the whole country woke up at once? Or was it more gradual?

 

I'd say its dropped more than 10% already. Figures are just playing catch up.

 

What a cracking movie, Steve Carell in a serious role .

 

Lets not get carried away .... we have full recourse borrowing arrangements in Australia. We have mortgage insurance. And importantly we have a tax system that incentivises property ownership - both Owner Occupied and Investment. We have recently entered a more regulated lending environment and there is likely some further modest regulatory tightening to follow....

No Australian lender has EVER had any RMBS fail. Not even during the GFC where securitisation markets closed for all comers for many many months...

It's perfectly conceivable that we can have a correction, because lets face it - borrowing capacity has been reined in quite a bit, but a sudden and massive collapse is unlikely without a very large increase in unemployment rates.

 

It was more gradual. Most people had no idea about the fatal weakness that became part of the housing market. The biggest reason in my view is that the average home owner doesn't think beyond the cost of their monthly payment. Most Americans for that matter don't plan very well beyond the near term. The point when people woke up was when the one of the biggest investment banks in the world disappeared in a single day.

 

Well, it's the same everywhere. Even here when I tell a lot of people that we are at the beginning of a very big fall in property prices, they look at me and think that I'm crazy.

 

I agree
I am in the camp of short to mid term. Time the market you will do better then just buying and holding

A lot of people do say its not when you buy but how long which has a lot of truth to it
But buyijg at the peak before it collapases i think will set you back minimum 5 years

 

I agree with timing the market to a certain extent. Obviously, it is very difficult to pick the absolute bottom and absolute top but I don't think timing the market is about doing that. It's more about buying when the market is down and selling later in a strong market.

For example, I went to a home open in Perth where there were hundreds of people and 18 offers written up at the first home open. I would suggest that is not an ideal time to buy as it indicates a market that may be nearing a peak.

The property I bought prior to that had a handful of people and no offers. The market was slow at that time.

 

in circa 2003/04 the southbank apartment market went backwards by 20-30% but went up again in 2005/06

 

I'm not looking at you, but I am kinda thinking it.

What do you see precipitating a "very big fall in property prices" in our capital cities? Some correction in some areas seems likely but very big falls?

 

That's true. There was a small price drop, and I was waiting for a huge drop before buying but it never came.

 

History showed that the flooded properties did recover their relative value after 1974, so the price drop after the 2011 flood was considerably lower and much shorter lived.
Marg

 

Perth has already experienced very big falls. In some cases, already 30%