When Crazy Becomes the new High

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



When Crazy Becomes “The New Normal”
By Steve McKnight


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).

 

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

 

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

 

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

 

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.

 

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

Perth and Darwin are notable exceptions.

If enough people spruik doom and gloom it may yet happen

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

 

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.

 

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.

 

https://www.linkedin.com/pulse/aus-china-property-non-bank-lending-siv-news-summary-david-chin

 

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..

 

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.

 

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...

 

I can imagine many would pay cash
Have no mortgage

 

Foreign investors?

 

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!

 

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.

 

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

 

What roles and industries are these people in may I ask? Just out of personal interest

 

What roles and industries are these people in may I ask? Just out of personal interest

 

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