Sydney auction clearance rate drops below 60% - will prices follow?

cannedhams on 08/11/2015 - 21:52

http://www.afr.com/real-estate/residential/nsw/sydney-auctio…

Interesting development after Macbank said that house prices are going to decline next year by around 7% or so. Buyers are holding fire but vendors havent dropped their prices as of yet.

The IMF released a report last month that was very detailed and concluded that property in Australia was substantially overvalued. Its quite detailed with excellent graphs and is well worth a read.

http://www.imf.org/external/pubs/ft/scr/2015/cr15275.pdf

How do people feel property will go in 2015? Up down or sideways?

Financial

Comments

  • [Deactivated] on 08/11/2015 - 21:56

    I've been waiting for the plummet for a while TBH but then again I don't own a house so I'm probably biased.

    • cannedhams on 08/11/2015 - 21:59
      +2

      I dont think that house prices will decline precipitously, but I do think that they're in line for a fall.

      Don't worry about being biased, I think everyone is when it comes to this. Housing bulls and bears is right up there with Apple vs Android and Israelis vs Palestinians in terms of its ability to start internet flame wars.

  • kev98 on 08/11/2015 - 22:03
    +4

    sideways / minor drops & raises depending on area is my prediction - no way to know though

    I've given up reading news stories, it's always the same. Monday they are banging on about some economists saying we are in huge bubble and will have a correction, then, Tuesday they are saying some other economist says they are actually priced fairly and prices will continue to grow. And this cycle repeats a few times during the week..

    • DeafMutePretender on 09/11/2015 - 00:28
      +4

      And I thought weather forecasters were bad!

      • moar bargains on 09/11/2015 - 12:20
        +1

        "Economists were created to make weather forecasters look good."
        -Rupert Murdoch

  • noyesmaybeok on 08/11/2015 - 22:43
    +1

    Time will tell.

    Seems pretty obvious for me, prices are ridiculously above wage levels, there's only one way they can possibly go…

    Most of the areas that seem overpriced have pathetic rental returns which says quite a lot about the "underlying value" of the property.

    http://www.rba.gov.au/publications/bulletin/2012/dec/images/…

    Just 20 years ago you needed 3x your income to buy a house in most cities. Now it's 6-7x.

    The thing is there is no real value. It's patch of dirt. The only thing that gives it any value is how much others will pay for that patch of dirt. The pissing contest has got out of control and people are paying insane money "because that's what you do" for houses. Unfortunately we're a nation of "one-uppers" so really when the mining slowdown really hits and people simply can't pay more is probably the only point when it'll finally become realistic.

    • cannedhams on 09/11/2015 - 06:31
      +1

      Yeah, a lot of people don't realise that when it unwinds it tends to all unwind at once.

      We've had an unprecedented 25 year purple patch. A whole generation of people have never experienced 10% unemployment levels. Apart from the gfc there's been no reason for house prices to take a breath in all that time.

      Of course when unemployment hits, forced sales will start to happen. Migration will drop as there aren't the jobs to sustain it. The government will need to encourage further construction to relieve unemployment which will mean there is a greater supply of houses. Labour costs of building will drop as the construction industry will no longer be competing with mining for skilled trades. Banks will be reluctant to lend as much in times of economic uncertainty. Chinese investors will be wary of buying in particularly when so many of them have lost a packet on Aussie property already what with the falling dollar.

      All of this puts pressure on prices. I'm not even sure people will be able to afford current rents, let alone the price of buying.

    • SlickMick on 09/11/2015 - 16:02
      +1

      But the quality patches of dirt are increasingly valuable. Every generation, and every boat, brings a new bunch of people who need a place to live. It also seems that each generation wants a bigger house in a better location too.
      There are so many stories of "it seemed expensive at the time, but look at what it's worth now. If only we'd bought", and yet we think something's changed now??

      • noyesmaybeok on 09/11/2015 - 16:59

        Our population isn't going through the rafters.

        Yes, the pissing contest :)

        http://www.wealthfoundations.com.au/blog/wp-content/uploads/…
        http://2.bp.blogspot.com/-_WpKw6hxvY8/U0AmqkL8F6I/AAAAAAAAZV…

        Check out these two charts for example. Not exactly sustainable. Negative gearing, first home owners, huge lending amounts and so forth - now it's hyper inflated because $50k income on a $150k house isn't normal, you should be paying $500k, "that's what it's worth" (it isn't). It's only "worth" $500k because other people are going into insane debt levels to compete. 10 years ago if you told someone, "mate, you should spend 10x your income on a house" they'd tell you you're insane. Now, many peoples mentality is "that's normal". The day that stops happening is the day prices tumble. Not to mention the side effects, what happens if prices drop even 20%? You're stuck in your job for years, paying a huge % of your salary, you can't just sell out without copping a big loss…

        If land is so valuable, why are smaller countries with great economies like Germany, with tons more population, having 'normal' increases? Why hasn't their market blown out of the water? The whole "look at it now" isn't true in a lot of places. For every share that skyrocketed & continued to do so, there's plenty more that crashed back down to a realistic level.

        The only thing that has changed is people are willing to go years into debt beyond their means, at simply an insane rate. Check out http://www.macrobusiness.com.au/wp-content/uploads/2013/02/S…
        Who is responsible for this. Banks? Govt? People's greed? Probably all of the above. To me it's pretty clear debt levels have gone insane and are even viewed as "normal", which is the main sole reason prices have gone up. Debt simply cannot go any higher (what, 45 year loans so you can pay 15x your income for a house?) therefore the prices really can't either.

        Though really you can analyse it all day, Paul the Octopus did better at predicting than analysts who poured over figures, so really who knows what'll happen (50/50 guess): http://www.ibtimes.com/octopus-made-better-world-cup-predict…

        • Sweetnsour on 09/11/2015 - 20:54

          In Japan, debts get passed onto to next generation. It usually requires 3-4 generations to pay it off.

        • noyesmaybeok on 09/11/2015 - 21:19

          http://www.marketoracle.co.uk/images/2008/japan-house-prices…

          I know nothing about Japan property. Osaka is a big city, "Existing detached house prices … (US$172,074)". Doesn't seem like you'd need 100 years to pay that off?

          Edit: Japan are stereotyped for long hours. Maybe that's a factor? Countries where "yeah, I'll work forever just to pay the bills" is being pushed, and accepted, prices have rocketed. Countries where the attitude to work is a lot more lax, prices haven't really gone anywhere because they're not willing to spend so much time and income paying off a house. There hasn't been as much one-upping there.

        • cannedhams on 10/11/2015 - 10:54

          @rochow: My wife is Japanese. Property is insanely cheap over there compared to here. She lives in a city the size of Brisbane, and for 200k you can buy a five year old house within three train stations of the city.

          Im honestly tempted to give Australia the shove and live over there.

        • SlickMick on 11/11/2015 - 21:51

          @paizuri:
          Yeah they have better designed cities. Here, not many people get to live near a inner-suburb train station. So if you want one, you'll have to be willing to pay more than the next guy.

        • SlickMick on 11/11/2015 - 21:59
          +1

          We have $150K homes too, but nobody wants a bedsitter. We have $250K houses, but nobody wants a small home out in the suburbs.
          The only reason homes are $500K is because we want 4 bedrooms with a lockup garage.

          Same as we spend how much on phones and internet and pay tv and whatever. We're spenders, and spending like that requires debt.

        • noyesmaybeok on 11/11/2015 - 22:39
          +1

          @SlickMick: Which capital city can I buy a $250k house anywhere near the city? Or even a unit? (+ a unit that doesn't have $15k a year body corp, hence the cheap price).

          $250-300k if you live in a 'questionable' neighbourhood way out where you spend 10 hrs a week travelling to and from work, sure can start getting something more real, at the expense of a poor lifestyle (leave work 7:30am, come home 6:30pm).

          Has to be somewhere near jobs, there's outback towns with < $100k houses but good luck getting any work (not to mention nothing to do, petrol costs, daily goods cost more & little competition).

          It's the land cost, not the house. When some dirt is $400k even putting a caravan on it still makes it a huge expense.

        • cannedhams on 11/11/2015 - 23:19

          @SlickMick: not much choice involved. A lot of councils stipulate 600 m2 as the minimum size of detached houses. I reckon a lot of people would be prepared to buy smaller, look at how popular some villa developments are.

        • SlickMick on 13/11/2015 - 23:31

          @rochow:
          That's exactly my point. We want a lot, there isn't enough for everybody, so it goes to the highest bidder.

        • SlickMick on 13/11/2015 - 23:33

          @paizuri:
          Then that will be the future. If people want smaller, developers will build smaller. Smaller costs less, hopefully no more whinging.

  • DarkOz on 09/11/2015 - 08:13
    +1

    The price won't go up for a while but it doesn't mean it will drop. Even when it drops it won't drop by much anyway. It will drop if the unemployment level and/or interest rate creeps up and that's when the bubble truly bursts…

    • Sweetnsour on 09/11/2015 - 20:55
      +1

      Totally agree. As long as there are jobs, house prices will maintain a certain level. USA has property price plummets because umeployment grew dramatically

      • DarkOz on 10/11/2015 - 08:04

        The irony is the RBA is doing just the opposite and they even acknowledged it to stop people from overcommitting. Lowering the interest rate or keeping it low to boost the economy and keep the unemployment rate steady. What the RBA is doing is sacrificing properties in Sydney and Melbourne for the whole of Australia.

        • noyesmaybeok on 10/11/2015 - 08:08

          Even in 06 at high school we learnt the monetary policy was totally ineffective. Why the heck they still try and use it who knows.

          More than fair to say if interest rates went to 8-9%, which is within the realms of a "normal level", many loans would be toast.

        • DarkOz on 10/11/2015 - 08:14
          +2

          @rochow:

          Yeah but the RBA won't let that happen. Look at America for the pass few years. It's stuck at 0% and they are even talking about negative interest rates. Lolz…yes. You might get paid to get a loan!

          The RBA won't raise the interest rate swiftly when it does goes back up to the normal range. It will be done in very tiny steps to soften the blow.

        • noyesmaybeok on 10/11/2015 - 08:19

          @DarkOz: They've blown it (with a lot of help from the banks & govt).

          Anyone < 25 who isn't earning $100k+ (double average wage) is screwed because house prices have rocketed. If they try and correct it, people who own homes are going to end up with huge mortgages they can't even sell to get rid of.

          Damned if they do, damned if they don't.

        • DarkOz on 10/11/2015 - 08:47
          +1

          @rochow:

          The Government and the banks. They are full of crocodile tears. Why would the Government release lands cheaply to help ordinary Australians? I read that they are selling blocks of former farming land only worth $10k for $1m to developers. And the banks…they make record profit every freaking year. Where does that record profit come from? Us!

        • noyesmaybeok on 10/11/2015 - 09:25

          @DarkOz: Commercialism is huge too. Regardless of what corporations do, it's ultimately the people who think, "yes, 10000x my income is a great price for this house, they're super scarce!"

          Obviously it works, although I avoid traps like that things like supermarkets 2 for 1 etc sucker me :)

          We're running out of land, clearly. China have 1 billion with tons of empty room but our 20 million is at breaking point, crazy if you haven't bought in!

  • Flet on 09/11/2015 - 09:34

    It is if there is a global downturn, another GFC, then prices could fall.

    Fred Harrison has been very accurate at predicting recessions since the 1980s, based on his research identifying an 18 year real estate cycle. This cycle has become synchronized in many countries because of globalisation.

    This article, which is an excerpt from a recent book, quotes Harrison. The 18 year cycle predicts a midcycle recession in 2018/19, when house prices flatline, and a serious crash in 2026.

    http://www.progress.org/economic-depressions-what-causes-the…

    If this is correct there will be a boom in the mid 20s when it will be very unwise to take on a lot of debt.

    • kev98 on 09/11/2015 - 14:25
      +1

      Lol I love how some of these people make these wild predictions, only thing is they always seem to move the goal post. You can read news articles from the 90s talking about how overpriced property is yet here we are now. Economists make money by making predictions, and I think there will always be incentive for a headline grabbing prediction. The reality is nobody knows what will happen, nobody predicted 20% rise in last year, so how will anyone predict 11 years into the future.

      • Flet on 10/11/2015 - 09:26

        Except Harrison did make accurate predictions many years in advance, both in books and magazine articles. For example the book published in 2005 "Boom Bust 2010". Here are a couple of links:

        http://www.amazon.co.uk/Boom-Bust-Prices-Banking-Depression/…

        http://moneyweek.com/bust-will-follow-boom-but-when/

        The premise is that the land market drives the business cycle. Since economics was first taught in American universities in the 1890s land has been lumped in with "capital". That is a complete departure from the economics of Adam Smith, and suited the very wealthy businessmen who funded and controlled the universities such as Chicago and Columbia. Economics has been junk ever since.

  • Peck on 09/11/2015 - 10:59

    A bigger supply of apartments is in the pipeline and so their price is sure to drop due to supply outstripping demand. Just look at the unit developments that are going on! However developers are a stubborn bunch, and so they are likely to sit on them for a while. I expect they wont start hurting for a year or 2.

    • cannedhams on 09/11/2015 - 14:31
      +1

      The thing is for a lot of the bigger apartment towers, they are still profitable even in a falling market. Rule of thumb is, the taller the apartment building the more profitable it is - economy of scale and all that.

      A lot of these guys are pretty cashed up - Harry Triguboff has 4.5 billion sitting in his bank account, he can afford to wait.

  • SlickMick on 09/11/2015 - 16:05

    Do those who reckon prices will fall also expect rents to also?
    I've seen what people are willing to pay for rent, so I'm cashing up so if prices do fall, I'll be buying.

    • Sweetnsour on 09/11/2015 - 21:00

      Depends how much supply there is, in the western sydney there is plenty of supply for renters. Rents will drop if the apartments still come online. New apartments are renting at yields less than 3%.

  • myfuturej on 09/11/2015 - 22:45
    -1

    I hope it falls down some day, gosh with these prices, it will take us 4 years just to get 10% deposit in a crappy neighborhood.

    • Sweetnsour on 10/11/2015 - 09:29
      +1

      Perhaps some will just have to be content with long term renting to live in areas they want. Sydney is becoming a new york or london where many rent rather than own in popular areas.

  • DeafMutePretender on 09/11/2015 - 22:53

    Burn it all (the house prices) down I say.

    As a house buyer, cheap house prices are great.
    As a house owner, cheap houses don't affect me, I only need to live in 1 house.

Login or Join to leave a comment
Login Join