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When Crazy Becomes the new High

Discussion in 'General Property Chat' started by MTR, 15th Sep, 2016.

  1. MTR

    MTR Well-Known Member Premium Member

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    Reference to Sydney and Melbourne markets.......perhaps I bailed out too early from Sydney market



    When Crazy Becomes “The New Normal”
    By Steve McKnight
    [​IMG]

    Last weekend in Kew, a leafy inner-eastern Melbourne suburb, a house sold for $4.8 million. That’s not particularly remarkable on its own, as the area is well regarded. It’s near great schools and has many classy homes in it.

    What did catch my eye though was:

    1. It wasn’t a McMansion but rather a pull-down job; and
    2. It sold for $1,700,000 over reserve.
    Think about that for a moment… $1.7 MILLION over reserve.

    That’s a crazy amount of money and it is easy to be blasé about it. Yet $1.7 million is about $2.8 million in before-tax salary, and at Melbourne’s current average annual salary of $60,000, it equates to more than 46 years of work – a literal lifetime. Wow.

    This is just one example of how the Aussie real estate market, particularly in Melbourne and Sydney, continues to defy expectations. How high can it go? Will it crash? How will anyone under 30 ever afford a home?

    A simple measure applied the world over is ‘when the average person can’t afford the average house, then a correction is coming.’ Yet many local and international experts have prophesied a dramatic fall in house prices. All have been wrong, so far.

    Supported by generous tax concessions for owning loss-making property, and fuelled by low interest rates, property prices keep going up, and up, and up in most capital cities (Perth being a notable exception).
     
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  2. Agent30yrs.

    Agent30yrs. Well-Known Member

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    I certainly don't disagree with the gist of your post, ie concerns about over-stimulated markets but how much a property does or doesn't sell over reserve has nothing to do with the market and everything to do with the reserve. I've sold properties at close to twice the reserve price, but in that case the reserve price was about half of what it should have been
     
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  3. MTR

    MTR Well-Known Member Premium Member

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    I will speak for Melb and what is driving prices in certain areas is lack of stock.

    Whether this will continues no idea? However, those I speak to on the ground selling and buying in Melb market tell me it is very strong.

    MTR:)
     
  4. Beano

    Beano Well-Known Member

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    Yes that is correct but a fair comparative ratio is the typical buyer.
    A average person on the average wage buys a much cheaper than average property (as it incl renters)
    A average house buyer buys a average property
    I would like to see what the average buyer who buys a $4.8m property earns ...i suspect it could be $2m to $3m
    I suspect also the average PC would earn well more than the average person
     
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  5. MTR

    MTR Well-Known Member Premium Member

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    Got me thinking for a change.... the median house price in Melb has now pushed through $700K, slowly creeping up.
    Average wage 2016 - $74,240 pa according to what I googled.
     
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  6. Stoffo

    Stoffo Well-Known Member

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    How long will it last ?:rolleyes:
    "How long is a piece of string " :confused:
    Nice to be the vendor

    Perth and Darwin are notable exceptions.

    If enough people spruik doom and gloom it may yet happen :oops:

    But, I give Melb 7-8 months, and only see it slowing like in Sydney, no bust on the horizon :cool:
    (next 12 months or more )
     
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  7. MTR

    MTR Well-Known Member Premium Member

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    I think you could be on to something, I am guestimating similar timeframe, however I also don't see a bust for Melb, purely because of immigration levels highest in Oz and service industry is strongest in Melb.

    Perth is in serious struggle town at the moment.

    Syd, well I thought that would have cooled off by now, and it did sort of in West Syd suburbs.

    The low interest rates are helping drive this market, historically we have never ever had these low interest rates.

    I think its even baffled the experts as to why Syd and Melb keep going strong.
     
  8. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    How many people earn 2m?

    My partner and I bought a house just under 2m. We earn professional salaries and our salaries combined are nowhere near a million between us, I can assure you. We could buy that home at that price point because we owned a Sydney PPOR that had already gone up near 100%, this is in the same neighbourhood and everything around us had doubled.

    If you own a home in a good part of Sydney and that was 3m+ (and maybe had some other financal backing too), then going to 4.8m for your next purchase if you sell the 3m home is probably not too much of a stretch. But if you didn't have that home in the first place, it would be rather hard to buy.
     
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  9. larrylarry

    larrylarry Well-Known Member

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  10. C-mac

    C-mac Well-Known Member

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    Methinks whoever bought that Kew house dod not need to qualify servicing for a loan, because there was no loan. I reckon it was bought caah outright.

    Who has 4.8 mill in cash and would prefer a modest house in good-school-catchment-zons Kew, than say a massive mansion somewhere else (you know, what 4.8 mill normally buys..)?

    I'll leave that to the forum to speculate..
     
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  11. Graeme

    Graeme Well-Known Member

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    You're comparing a median (the middle value) to a mean (the average value) there. I think that the median income is around $60K for an individual, and $90K for a household.

    There's some skewing upwards of the Australian figures, because houses and apartments fall into separate categories. Even so, a $540K median for a unit isn't exactly affordable on a $60K or even $74K salary.
     
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  12. 2FAST4U

    2FAST4U Well-Known Member

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    I don't know if it's still relevant but the old rule of thumb would be banks would lend you 5x your gross salary. Sydney's median house price is above $1 million so either there's a lot of established wealth or lots of six figure DINKS around...
     
  13. Beano

    Beano Well-Known Member

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    I can imagine many would pay cash
    Have no mortgage
     
  14. 2FAST4U

    2FAST4U Well-Known Member

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    Foreign investors?
     
  15. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    A lot of it is existing established wealth from.... you guessed it... property.

    Sydney people who have owned property for a few years already... want to upgrade... sure. No problems coming up with the money for a new home in the Sydney market. Finding the home to buy is the trickier part!
     
  16. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    In Sydney I think there were more foreign investors a few months back. Now I think it's heavily locals who have been sick of missing out. They see prices arent dropping (as they may have expected with this boom) so they simply bite the bullet.
     
  17. Scott No Mates

    Scott No Mates Well-Known Member

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    I know several who score over $1m in bonuses.
     
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  18. Natedog

    Natedog Well-Known Member

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    What roles and industries are these people in may I ask? Just out of personal interest :)
     
  19. Natedog

    Natedog Well-Known Member

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    What roles and industries are these people in may I ask? Just out of personal interest :)
     
  20. Beano

    Beano Well-Known Member

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    Do you think there are many PC investors with income over $1m (say 10%) and over $2m (say 5%) over $3m (2%)
     
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