When will Sydney property market going to crash ?

My point exactly. Just because you work in WA mines does not mean you will have to move to Perth.
Marg

 

Demand is a woolly term. Some think it means "desire to buy". It is misused and unmeasurable.

Volume of money is measurable. The concept cuts through all the garbage and lies.

Cut the volume of cheap credit and prices drop. Increase volume and prices rise.

It really makes things clear.

In Perth the volume of cheap credit has declined. Mining boom over, rising unemployment, fewer people earning high incomes. So the loan applications are down and thus credit volume is down and as a result prices fall.

No need to mention "demand" in there at all.

 

True that demand is a wooly and misused term. And it's true that prices decline at the same time as credit volumes drop. The only thing I disagree with is your assertion that the dropping volume of credit causes the prices to drop. Sure they are linked but it's not simple cause and effect. In between, there are stupid people making stupid decisions. Whether we like it or not, it is these stupid people who control the markets and it is their stupid decisions that determine prices. You can't measure it but that is the reality of the property market.

 

I think demand is a definitive quantitative term. Price sold and days on market are fantastic measures of demand.

 

The other indicator is consumer sentiment which is quantifiable. I don't know how that translates into house price movements though.

 

It's true there are stupid people making stupid decisions but when you really push away all the b.s. and lies around property investing, the hard facts are that prices are 100% determined by the volume of money available.

At an auction and the highest amount anyone has is $500K then that's the highest that property can reach. There are no other outcomes there that will put it above $500K.

Stupid people can do whatever but it means nothing if they don't have that approved bank loan or SMSF or whatever.

There are so many myths and emotive statements around why property will go up or down.

Like people will see there is a mine opening so they say prices go up in the town because "demand".

This hides the reality: prices rose because the volume of money flowing into that town rose. The reasons it rose can be interesting to consider but all too often they become detached from the cold hard truth.

Perth is dropping because the volume of money going there is less than it has been. Ten people would turn up with $600K each and now it's ten people with $500K each.

 

I think demand is misused. It's an aggregate indicator but all too often it means whatever the speaker wants it to mean, rather than some hard mathematical definition.

For example, you hear about "pent-up demand". What is that, exactly? People with the means to buy but can't? People who want a house?

If the Government changed the rules tomorrow that all loans had to be tested against a 7% interest rate, you'd see a whopping cut in the volume of credit out in the market. Prices would drop, like they are in Canada thanks to their new approval tests.

So a change to the finance rules reduces home prices. What does that mean for "demand"? Would we say demand has dropped in that case because a lot more people have been declined home loans under the new rules?

Hard figures are great to use - ratios of price to rent, days on market, etc. But demand... it's gone now. Taken by the spruikers and twisted to uselessness.

 

I think that has been around for a while

In APRA’s letter to all ADIs in December 2014, we expressed an expectation that interest-rate buffers used are at least 2 per cent above the loan rate, with a floor of 7 per cent. This expectation was based on a view is that serviceability needs to be tested at interest-rates on a ‘through the cycle’ basis; that is, assuming interest-rates could at some point in a 30-year loan normalise to more historical average levels. It is easy to forget that as recently as 2011, mortgage interest-rates were above 7 per cent. Using both a buffer (to cover shifts relative to actual rates) and a floor (to provide a minimum benchmark) is good practice.

Pages - A prudential approach to mortgage lending

 

@emza I think your close but you can't understand why credit volumes drop without understanding the psychology of markets. In Perth right now, I know 5 people who are looking to buy in Bayswater or close to there. They have the funds to buy and the desire to buy (demand). However, none are buying. I have spoken to all of them and they all feel prices are still too high. Since prices are still falling, they feel they can wait and pick up a "bargain". Credit volume theory doesn't capture this.

Perhaps the Sydney market will peak when people are no longer prepared to pay increasingly ridiculous prices. Not because of some nebulous "credit dries up".

 

You smashed that nail right on the head imo.

 

At least it will be falling down by 2019 according to this news: Inner-city property prices set to tumble, says leading economist

Not sure about the price of house (new or existing) in Sydney though.

 

Who knows after this speech You don’t address housing affordability by crashing the housing market: Scott Morrison Australian Government will abolish the negative gearing for all investors .

Because when you look at this graph:


Clearly you can see the housing is the biggest stumble block which is slowing down our economy.

Moreover, if it is crashing, the domino effect would be far too great for everyone who owns home and especially us the investors.

 

Short term , housing is the economy ........

BUT , the longer term issue is the amount of money that people have to invest in providing a roof over their head , when if that was cheaper , the money could be used for investing .

My understanding that's the main concern for many of the anti property investing people , and it's a very valid view point .

Given the reliance of the economy on it , it's a very hard thing to change and it's obviously a political football between the Libs and labor .

Cliff

 

Labor talks the talk about housing affordability now they are in opposition. Talk is cheap when you have nothing to lose. Certain members of this forum hold Labor up as the great white hope for housing affordability. Abolish NG and all will be well with the world. However, what did Labor do when they were the government?
- cash handouts
- saving accounts for first home buyers
- first home buyer schemes
- Housing Affordability Fund
- relaxed foreign ownership laws
- allowed SMSFs to invest in residential housing
- no changes to NG
- no changes to CGT

Australia is so reliant on housing that every time prices seem like they are going to falter, the government steps in to create additional demand. This has been going on for decades now and has prevented the market from correcting as it normally would. This may mean the next correction is larger than it otherwise would have been.

 

What's the Government doing to save the Perth market?

 

Nothing. All the strategies they used to kick the market along have run out. Even lowering interest rates to below "emergency" levels did nothing to save Perth. Now Perth is left to crash and burn as it should.

 

So what could be the best bet to safeguard against this collapse ?
investing in hard asset other than property like Gold just like Guest ?

 

Don't ask me. I settled on a property in Perth in July this year

I am planning to keep investing in property. I don't care if the sky is falling in. My strategy is simple:-

- don't overcommit
- by under market value
- find properties where I can add value
- keep a cash buffer

Apart from that it is business as usual for me. Even in Perth

 

Whoa.. you are so brave , you are Perth resident and investing in Perth.
I guess at some stage it will go up eventually to reach Break Event.

All the best for the investing journey ahead mate.

I guess Sydney is different to Perth since the price is keep on higher every week. Last time I read the auction clearance rate it is creeping up higher than the week before.

 

True, I'd add the big 4 to that.
As they want to see ever increasing profit margins, and the government (not either party) as a whole seem to be helping out their mates that helped them
Vicious circle of trough gouging