Sydney / Melbourne Property Prices. Are we heading for another Ireland?

• 

  [Deactivated] on 17/11/2018 - 18:03

  -7

  Depends on your suburb, In Melbourne Eastern suburbs or inner suburbs not that affected in price drop. But outter west is going to experience some harsher drop. But I reckon with the global economy right now, it'll only be stagnant or growth.
  The Trade-War between the US and China Is going to end soon, and luckily the credit crunch that might explode didn't happen I guess thanks to the investigation on finance misconduct. Australia Economy is still booming (Depends on your area, East Melb [yes] West Melb [Not so Much])

  • 

    [Deactivated] on 18/11/2018 - 09:28

    +4

    That’s not true. Look at the data. The top suburbs in have already experienced a 20% price drop in the last year. Toorak used to avg >5m, now down to 4m, Kooyong the same, and let’s not even mention Albert Park’s huge fall from grace.

    • 

      ozzieblue on 18/11/2018 - 22:05

      Yes, the more expensive suburbs have had bigger corrections. My example above was a suburb 10km from the cbd. What is interesting is that the older residents differ in affluence from the younger residents who are all professionals with dual incomes.

• 

  [Deactivated] on 17/11/2018 - 18:12

  I wonder what safety margin the banks have. They're unlikely to be able to cover a drop in the market of 40%. Their liabilities would outstrip the assets. Their funding costs would also skyrocket and bonds would be junk.

  • 

    arescarti42 on 17/11/2018 - 20:31

    +6

    Their safety margin is called the Australian tax payer.

  • 

    dcep on 18/11/2018 - 01:17

    big4s are guaranteed by gov/tax payers money

• 

  [Deactivated] on 17/11/2018 - 18:49

  Are we heading for another Ireland?

  What happened in Ireland?

  • 

    [Deactivated] on 17/11/2018 - 19:09

    +10

    Potato famine.

    • 

      altomic on 17/11/2018 - 20:30

      +2

      dude, too soon

  • 

    dasher86 on 17/11/2018 - 19:09

    -1

    Potato famine?

  • 

    kahn on 17/11/2018 - 19:13

    +1

    Tomato famine?

  • 

    arescarti42 on 17/11/2018 - 20:37

    +1

    An economic boom coupled with lax lending resulted in a property bubble, which subsequently burst - prices fell 50-70% from the peak.

    • 

      [Deactivated] on 17/11/2018 - 20:40

      +3

      All because of a potato. I'm confused.

    • 

      dcep on 18/11/2018 - 01:18

      +5

      10 years later , prices back to even higher than the last peak

  • 

    [Deactivated] on 17/11/2018 - 21:38

    +5

    Worst case scenario. Riverdance.

• 

  Markmathews on 17/11/2018 - 20:06

  +1

  I think a 20% depreciation over 2 years will be the best possible outcome.
  Australia is due for a recession and, like in the 90's, skyrocketing interest rates will go hand in hand.

  • 

    dcep on 18/11/2018 - 01:19

    heheheh everyone will be jumping off the building at 18% interest rates

    • 

      ozbjunkie on 18/11/2018 - 16:56

      Except savers

      • 

        singingwolf on 19/11/2018 - 07:40

        +1

        Except those that went through the last recession and have lived their lives with that in the back of their mind. It has made us less risk averse (and therefor had not gained as much from the boom) but at least when it all turns to custard, will have something at the end of it.

• 

  arescarti42 on 17/11/2018 - 20:29

  IMO they will probably continue to fall at around the current pace next year. The current falls are being caused by banks withdrawing credit in response to the royal commission. Now that their illegal lending has been exposed, I think it's probably unlikely they will go back to lending to people who can't afford to pay it back (until the heat dies down at least).

  They might start rising again for a while if the reserve bank drops interest rates, which I think they might if the economy starts to slow as a result of falling house prices, or if the government comes up with some way to stimulate the market (cash grants, buyers boosts, no stamp duty etc).

  There's a fair chance that they start to fall much more rapidly if Australia gets hit with some kind of external shock (like during the GFC) or black swan credit event like when Lehman suddenly went bankrupt - then we're cooked.

  Bottom line is prices are totally detached from reality and any kind of fundamentals in places like Sydney and Melbourne, and will need to come back down to earth at some point.

  • 

    lgacb08 on 17/11/2018 - 22:33

    +1

    don't think RBA will look at reducing interest rate any further, in reality they're trying real hard not to raise interest to follow the global economy, the only reason they've not done it in the last 12-18 months is because it will accelerate the housing bubble burst.

    • 

      dcep on 18/11/2018 - 01:21

      they could let the economy die for decades like japan

  • 

    RockyRaccoon on 18/11/2018 - 06:20

    +1

    The RBA is run by ex bankers, the ones not smart enough to be in private industry. They left rates too low for too long. The problem now is there is very little room for them to move. Dropping it to boost spending will mean an almost zero rate. And will the banks be able to follow? Much of their funds have come from OS where the costs of those funds have in the past been cheap.

    When our official rate drops, so does the currency, meaning the cost of OS money increases, just like all imported stuff. The banks then have to either raise rates, or at best keep them the same.

    Plus anyone committing to buying property when rates are very low, should realise, that this means the value of their purchase will go down when rates move up in the future. So any boost could be hampered by the fear that its only a short term gain, plus the knowledge that the economy is in trouble.

    So the voting choices miss the option, of a crisis of confidence, where rates don’t move or move a little, just the credit dries up, look at the 60’s with the same credit crunch. The RBA tries to lower rates, pumps money into the economy, then the credit ratings bureau’s downgrade our AAA ratings and rates independent of the RBA move up in the real world.

    Of course we all remember that only last year many had said property never goes down. A little life experience would have told those people that never is never.

  • 

    ozzieblue on 18/11/2018 - 22:10

    +1

    My personal opinion is that the Hayne royal Commission has been overstated. A couple of months ago credit growth in mortgages was still at 7%. I think October was the first month we saw negative growth. A lot of lending is being issued by shadow banking who have just replaced the banks. Looks at Pepper Money etc whose business growth has been phenomenal.

    • 

      ihbh on 22/11/2018 - 21:53

      The negative for the property market is APRA cracking down on loan serviceability.

• 

  ihbh on 18/11/2018 - 06:58

  +3

  40% drop very unlikely unless there is external shock - cost of borrowing rises sharply such as with a liquidity crisis during the GFC or sharp rise in unemployment with economic slowdown. Otherwise property owners will just sit on their holdings and the market will correct and go sideways, probably for for 10+ years.

• 

  BigBirdy on 18/11/2018 - 08:48

  +1

  History is your best guide to the future … expect house price to income ratio, and interest rates to ultimately return to (roughly) their long-term averages. How will the market get to those long-term averages? Our high rate of debt means interest rate adjustment will have to be very gradual, so a slow uptrend over a number of years. House prices I’d expect to follow the pattern of the late 1980s; a couple of years of falls, followed by about a decade of flat prices. Assuming we start to get some real wage rises, the market will slowly move back towards those long-term averages. How painful this is (to those heavily indebted to property) will depend on what wages do, so govt may have to work on a wages strategy

• 

  Mythreesons on 18/11/2018 - 09:26

  We have been hearing about house prices dropping in Brisbane but it's not showing in my area (20 minutes from Brisbane), the average house in my area have gone up by about $60000 in the last few weeks and are getting snapped up.

  • 

    dcep on 18/11/2018 - 17:08

    +1

    apartment , yes

    house , no
    (except shit areas - logan, acacia ridge, slacks creek, kingston …)

  • 

    HeWhoKnows on 18/11/2018 - 22:29

    +1

    Brisbane did not have the big moves up that Sydney and Melbourne did
    Hence playing catchup

• 

  affable on 18/11/2018 - 09:37

  Low interest rates rob returns for the "wealthy" (successful, retiree etc) and give it to the "investors" (gamblers) who borrow to speculate on bad investments (return less than borrowing costs ie "negative gearing") for possible capital gains. Its fine while there is a greater fool to buy the inflated prices, however sooner or later it ends in tears. For Australia its later, so there will be many tears. Full recourse loans do make our situation different, however it is no contraceptive.

  • 

    HeWhoKnows on 18/11/2018 - 22:31

    For those thet bought early in the cycle they are well ahead
    For those that bought last year its anchors away

• 

  ghoulie1 on 18/11/2018 - 11:21

  There will be a massive amount of loans going from interest only to principal plus interest over the next three years. With the new lending laws meaning that many who should never have got such a large loan in the first place being unable to refinance, foreclosures are going to be massive. Also a large number of Chinese investors are walking away from their house deposits as they see the inevitable price drops looming.

  • 

    ozzieblue on 18/11/2018 - 22:12

    +1

    I could not believe that 40% of owner occupiers are on principle only.
    That's sounds like people cannot afford it.

    • 

      HeWhoKnows on 18/11/2018 - 22:26

      Dont you mean "Interest Only"
      I think banks would like to collect their interest payments rather than just the principal

  • 

    HeWhoKnows on 18/11/2018 - 22:28

    The Chinese are not phased with price movements.
    They just want to launder massive amounts of money outside of China.
    And they have no problem with obtaining finance if they require it.

    • 

      ozzieblue on 20/11/2018 - 06:57

      +1

      I don't think this is correct though in some cases this may be true. People are just looking for a better life. Our education policy has become an immigration policy and allowed loads of migrants in. This has allowed people with PR to buy property and move their money from other countries into a safer haven like Australia. Most of the people coming in by studying are wealthy so have excess money to move into Australia.

• 

  dp1 on 18/11/2018 - 22:03

  One facet of the current credit tightening imposed by APRA is that borrowing capacity is assessed at a floor rate of 7% based on principal and interest (pre 2015/16 it was actual rate plus 2%, based on interest only forever). RBA dropping rates is not enough and credit will remain restricted unless APRA is directed to change this parameter. Without ongoing credit expansion prices have hit a ceiling for now.

  • 

    ihbh on 19/11/2018 - 08:07

    prices have hit a ceiling for now

    Correct … until wages catch up in 10+ years or so.

• 

  HeWhoKnows on 18/11/2018 - 22:23

  What happens to interest rates and property prices depends on a whole lot of ifs buts and maybes:

  Whether the RBA increases OR decreases interest rates
  Whether the FED continues with its interest rate upward trajectory and whether the ECB follows suite
  Whether the banks and APRA further tighten or relax lending standards
  Whether foreign buyers start buying again OR possibly selling out
  Whether rents increase, decrease or remain static
  Whether the Labor Party successfully implements its Negative Gearing and capital Gains tax reforms
  Whther the economy falls into a recession or bounces back up again
  Whether the govt goes ahead with making mortgage payments tax deductible
  Whether developers will find enough buyers for all the apartments being completed over the next 1 to 2 years

  Whilst the general feeling on prices is DOWN at present it would NOT take much to give the property market a boost again!

  • 

    ozzieblue on 20/11/2018 - 06:49

    I understand what you are saying and you might be right. But I would say that under both under positive and negative scenarios house prices will fall. The key factor for me is the current level of housing prices. If they were not excessively high I would say they would have some space to move upwards.

    A positive economic outcome will lead to increases of rates which will mean less investment in property as funding becomes more expensive.

    The negative scenario doesn't need any elaboration on how property prices will be impacted.

  • 

    singingwolf on 20/11/2018 - 20:17

    The value of the dollar also has some input into interest rates…

• 

  Flet on 20/11/2018 - 09:14

  Remember we have a monopolised press. Rupert probably prefers an LNP-Murdoch government than an ALP-Murdoch government. If a population is fearful election of the incumbent government is more likely. It would not be difficult for the press to pick the pundits who will predict a gloom and doom scenario and it becomes a self-fulfilling prophesy as confidence is lost. Expect more of the same til the next election.

• 

  ozzieblue on 21/11/2018 - 17:31

  +2

  I think we have come out of the eye of a perfect storm.
  1) Interest rates have dropped since 2007 making home finance cheaper each year -> adding to what buyers can pay
  2) Foreign buyers have flooded Australia in search of property -> adding competition for houses
  3) We have had high immigration per year (200k), mostly wealthy immigrants which have benefited from their own asset increases (adding rich marginal buyers) -> adding competition for houses
  4) Worldwide QE money has been searching for a home driving down yields -> making assets higher
  5) We have a government supporting investors over owner occupiers
  6) Banks have been lax on credit

  BUT

  1) Rates cannot move down a lot further
  2) Debt has risen to very high levels limiting further credit funding
  3) Rates in the US are normalising and should happen in Australia
  4) Migration will drop as infrastructure pressures mount and voters force change
  5) A change in government will change the tax laws
  6) Banks will tighten credit
  7) Foreign buyers have left the market
  8) Investors have left the market - especially as it is dropping

  • 

    HeWhoKnows on 22/11/2018 - 18:13

    -1

    Nothing is for certain.
    Any or all of these factors can change at any time.
    Your statements should really be posed as questions since nobody can predict the future.

    For exampe:
    there is already speculation that the RBA might drop rates again,
    that the US might go into recession next year forcing the Fed to drop rates again
    that banks might loosen credit to generate more business
    that foreign buyers might return at any time as the doors are still wide open
    that investors are waiting on the sidelines ready to pounce at any time
    that Labor might not have control of both houses and hence find problems getting any legislation through the Senate

    Im not saying you are right or wrong.
    Just that there are many more questions than answers
    That what investing is all about

    • 

      ihbh on 22/11/2018 - 21:51

      Re RBA dropping rates - there isn't much scope
      US go into recession - that's nuts, a small Fed increase doesn't cause such a swing
      Banks loosen credit - not if wholesale market costs keep increasing
      Foreign buyers - not if their own economies weaken and they are scared of by falling prices
      Investors ready to pounce - not if APRA continues to crack down on loan serviceability

  • 

    ihbh on 22/11/2018 - 21:47

    You missed: house prices have gotten out of whack with wages, so will correct or go sideways/combo for many many years until wages catch up.

• 

  ozzieblue on 24/11/2018 - 18:27

  +1

  yes true, but the majority of money can only come from 2 sources, (a) credit expansion (b) sales of assets (value of existing property).

  Lets do an example:

  Assume people can pay a fixed amount. Assume they loan 1,000,000 for 30 years. Assume the rate of interest is 4% and assume their household income is 100k. Payments are 4.7k per month. (I am rounding to make it easier.)

  Wages Growth:

  A generous 5% increase in a 100k annual salary will only be 5000k per annum which is say $300 after tax per month. This increases your max amount you can pay by 300 per month. This translates in a 50k increase in borrowing power per million - ie moving payments up to 5k per month.

  Credit Expansion:

  Interest rates give you about 80k per 1% move down in this example.

  So in 2018, (RBA rates are at 1.5%) 4% mortgage rate on 1,000,000 is $4700 per month (assume 2.5% margin for banks).
  But in 2007 before the crash (RBA rates were at 7.25%), 9.25% mortgage rate on 580,000 is $4700 per month (assume 2% margin for banks).

  And that is about where out 72% increase in house prices came from ((1m - 580k)/580k)%.