Sydney Property Bubble

[greengiraffe]

Jul 14 2015 at 1:51 PM Updated Jul 14 2015 at 2:32 PM
Six signs of a Sydney housing slowdown

by Matthew Cranston
In real estate, timing is everything. Judging when it's the best time to sell or buy depends on a multitude of markets indicators.

In Sydney, where the housing market has the highest growth in the country the pace appears to be slowing.

But how can you tell? These are the six indicators of a slowing housing market.

CLEARANCE RATES

There is currently about three months worth of Sydney housing supply on the market.
There is currently about three months worth of Sydney housing supply on the market.
The Reserve Bank of Australia said last year that clearance rates were highly correlated to house prices.

Sydney recorded its lowest clearance rate of the year at 80 per cent on the weekend, according to Domain's latest auction data, which is the first sign of a slowing market.

"Over the last six weeks we have seen five drops and the trend is clearly down," Domain's senior economist Andrew Wilson said.

"Not only is the clearance rate falling, it's starting to converge with the rates we had the same time last year. If we see the trend continue we may see the clearance rate fall below where they were a year ago and that would be a very interesting reflection of where we are in the market," Mr Wilson said.

RESERVES

Another key indicator, but far less empirically reliable, is the gap between the price a house successfully sold at auction and its reserve.

There is no measure for that except anecdotal evidence but once the percentage difference comes back down then the confidence of vendors starts to fade.

LISTINGS AND SPEED OF SALE

Vendors confidence forms another key indicator of a slowing market. Generally, that is judged by the volume of listings. The number of old and new listings in Sydney is down 12.8 per cent from this time last year, according to CoreLogic RP Data Property Market Indicator.

However, new listings alone or those which have not been advertised for sale over the past six months climbed to 7690 this week – up more than 25 per cent on the same time this year.

CoreLogic RP Data's Cameron Kusher said these figures showed stock coming to market was being sold quickly so there was a lower amount in overall listings. And because older stock is being sold so quickly it is encouraging more vendors to bring a greater number of new listings to the market.

"You would usually see listings ease at this time of year but we haven't," Mr Kusher said.

"There is so much urgency in the market. People want to buy properties and even at this slower time of year people are bringing their properties to market."

He said that because houses were being sold after a record low time on market there was now only about three months supply in Sydney.

While the level of supply and the speed at which they are sold are clearly major components in price determination, the types of demand such as investors, non investors or first home buyers are just as crucial.

TYPE OF BUYER

In Monday's official housing lending figures, investors showed themselves to be the key borrowers for homes purchases. They accounted for 62 per cent of the market, up from 57 per cent a year ago. While those figures come from the Australian Bureau of Statistics there are other statistics that show different trend.

Australia's biggest wholesale mortgage broker AFG reports a large decline in investor property loans over the month of May giving the clearest signal yet that Sydney's housing market is starting to cool.

The mortgage broker said investment loans accounted for 36.9 per cent of the national pool of mortgages down from a peak of 43.1 per cent in April.

Investors have a deeper pool of funds to rely on when they bid for homes compared with non-investors. Their demand can often fuel how high prices go and when they start to exit the market the prices can soften.

INTEREST RATES

The cost of money is also a clear driver of both demand and price. While some pundits have predicted interest rates will stay low for another 18 months or even hit zero in Australia, others feel the cost of borrowing is heading the other way and will start to dampen house prices.

Charter Keck Cramer's strategic research principal Toby Adams says rates will soon start to affect the market.

"Interest rates have been at record lows and have stimulated a lot of investment. Although I don't want to speculate on interest rates I would expect a ratcheting up of a few basis points which will take some of the heat out of the market."

EMPLOYMENT

The last indicator – and certainly not the least important – is employment. Jobs give people the ability to afford loans to buy homes.

NSW had the largest increase in employment, in seasonally adjusted terms, in June with an extra 11,300 people employed.

However, the official unemployment rate for NSW has been jumping up and down for the past two years. The rate ticked up to 5.8 per cent in June from 5.7 per cent in May as more people looked for work.

As Sydney's house prices have jumped in the past two years, unemployment has increased as well from 5.2 per cent in 2012 and 5.4 per cent in 2013.

[greengiraffe]

Jul 21 2015 at 12:00 AM Updated 41 mins ago
Golden Horse's $1 billion Erskineville stampede

Golden Horse is betting on a strong Sydney housing market. AFR
by Mercedes Ruehl

Chinese developer Golden Horse is planning to turn a former industrial estate in Sydney into a sprawling $1 billion megasite, with up to 1630 apartments.

After optioning the site about nine months ago from Goodman Group, Golden Horse's Australian arm GH Australia has finally lodged a stage one development application, putting the cost of works at $637 million.

Details of the transaction and Golden Horse's plans for the site, known as the Ashmore Estate, have been shrouded in secrecy until now. The Australian Financial Review revealed in 2014 that the acquisition was valued at $380 million. However, it is understood the off-market deal, brokered by Michael Crombie of Colliers International, is not finalised yet.

Located in Erskineville, the site forms part of the Ashmore precinct, which is one of Sydney's biggest urban development projects. The City of Sydney Council says Ashmore will become a new residential neighbourhood with 6000 residents. Development, which includes new streets and public areas, will be staged over the next 10 years.

AFR Graphic
AFR Graphic
Documents lodged with the council show Golden Horse has proposed nine blocks ranging in height for the seven-hectare site. The plans include a supermarket, specialty retail, a childcare centre and a new public domain with a 7400-square-metre open space. If granted bonus gross floor area it has proposed 1630 units but that number could come down to 1477 new dwellings.

Most of the blocks will have 100-240 apartments each. The residential will comprise between 104,853sqm-111,490sqm, while the commercial will be 9147sqm. Golden Horse has engaged Architectus as architect and urban planner for the project.

GH Australia's general manager Roger Luo said in February he was confident in investing in Australia long term.

"Our company's substantial financial commitment reflects our confidence in the long-term growth potential of the Australian residential property market," he said.

The Golden Horse group has been operating in China for 25 years and specialises in residential, tourism, sporting and recreational property. It has projects in Beijing, Shanghai and other large cities in China. Its landmark project is the Dragon Lake Resort in China's Guangzhou, which has two 27-hole golf courses, a luxury hotel and other commercial facilities.

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http://www.theguardian.com/australia-new...eport-says

Sydney house prices jump 22% in one year to reach $1m median, report says
Latest figures show boom exceeding that of early 2000s but amid the good news for home owners, charities are warning of a worsening affordability crisis
Aerial view of Sydney Harbour (front R) looking south along the Pacific coast towards Botany Bay (rear L), 23 October 2006. Australia’s most populous city now has over 4.2 million residents dependant on dams which are at 40 per cent capacity before the start of summer and the El Nino phenomenon. AFP PHOTO/Torsten BLACKWOOD (Photo credit should read TORSTEN BLACKWOOD/AFP/Getty Images)
Aerial view of Sydney. The median house price now exceeds $1m. Photograph: Torsten Blackwood/AFP/Getty Images
Bridie Jabour
@bkjabour
Thursday 23 July 2015 00.01 AEST Last modified on Thursday 23 July 2015 00.03 AEST
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Sydney median house prices have hit $1m for the first time, according to the latest Domain Group House Price report.

The report revealed median house prices in Sydney are $1,000,616, rising 22.9% in just 12 months.

The report touted it as Sydney delivering the “unthinkable” and having “emerged as a significant player in the international property market” but there are concerns about the pressure being put on a worsening housing affordability crisis.

The CEO of St Vincent de Paul society, John Falzon, said the $1m mark was a clear signal of housing market that rewards some while excluding many.

“For those who are on the remote fringes of the housing market struggling to find affordable rental accommodation, especially if they are low income struggling household, let alone the chances of someone finding accommodation to purchase, this signals an experience of further exclusion and really points to the desperate need for government to do what markets cannot,” he said.

Falzon called on the federal government to “have the courage” to review some of the tax mechanisms that drive up prices in the housing market such as negative gearing and capital gains tax exemptions.


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“The government also needs to make a radical investment in social housing across the nation to make sure people are not threatened with likelihood of homelessness,” he said.

“The federal government needs to take leadership in this area and not walk away from housing and homelessness as issues of national import. We need a national plant to make sure that no one in Australia is denied a very fundamental and simple right, to a place to call home.”

Domain senior economist Andrew Wilson said it was a boom that was exceeding 2001 and 2002 when house prices increased by 22.8% in a year. The fastest rate of growth in the early 2000’s was 6.7% over the June quarter of 2002. Sydney house prices increased by 8.4% in the last quarter.

Wilson said it was a range of factors that had driven the prices, including the high rate of investors.

“The main catalyst has been low mortgage rates, the lowest since the mid 1960s. It’s a perfect storm of local supply and demand factors generating the price growth. A strong local economy, coupled with high levels of migration and a chronic undersupply of housing and record levels of investor activity have also been a significant contributor,” he said.

“Confidence and momentum will continue to sustain the Sydney market through the remainder of 2015, although growth rates are unlikely to match the record-breaking June quarter performance.”


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Mission Australia’s CEO, Catherine Yeomans, said surging house prices were sending people into crisis accommodation for months instead of weeks and pushing them to the fringes of society.

“By any measure that price is quite extraordinary, skyrocketing house prices have impacts all the way down the line,” she said.

“What we know where is people are struggling to find accommodation close to family support networks and more importantly lose to employment opportunities. They are further and further pushed out to areas where there is no public transport or might be commuting for hours.

“It ss getting harder and harder and is pushing people further afield.”

Mission Australia has been calling for a housing summit for months to be chaired by the federal government, preferably the treasurer, Joe Hockey. Yeomans said it was not just the very poor who were adversely affected by high house prices.

“We think it’s an issue for all of a society. People are looking at house prices and have a good job, sustainable employment, can access a home loan, but what’s the size of prices doing for their ability to purchase?” she said.

Yeomans said there was not one simplistic solution but the federal government need to take a leadership role on the issue and involve all three levels of government.

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Bridie Jabour
Bridie Jabour Read more
The Domain report also found increases in houses prices in Melbourne, Brisbane, Adelaide and Canberra while prices in Perth fell.

Melbourne had the next largest increase after Sydney, of 10.6% in the past year to a median of $668,030. Brisbane increased by 1.9% to $490,855. Adelaide increased by 3.3% to $479,285, Canberra increased by 5.4% to $616,313 and Darwin increased by 1.8% to $654,270.

Perth media house prices fell by 1.4% to $605,089.

The increase in house prices comes after a Domain report found earlier in the month that a surge in investors was pushing up the prices of rents in almost all of Australian capital cities.

Concerns about a rental affordability crisis have grown as the housing market shows no sign of abating.

[greengiraffe]

ul 26 2015 at 3:22 PM Updated Jul 26 2015 at 3:58 PM
Boom hits Blacktown as developer sells $56m of units in hours

Imesha de Silva has bought a one-bedroom unit off the plan in Blacktown for $465,000. Supplied
by Mercedes Ruehl

Privately owned company Sphere Developments sold more than $56 million worth of stock at its new Blacktown apartment project in a matter of hours at the weekend, on the busiest July auction day on record.

First-home buyer Imesha De Silva, 24, was one of the winners at the Altitude Tower's launch, buying a one-bedroom unit on level 10 for about $465,000.

By 2pm more than 90 per cent of the apartments had been sold, with the top-selling apartment a three-bedroom unit selling for $775,000.

Ms De Silva said while her decision was about price, being close to work and family was also important.

More than 90 per cent of the apartments in Altitude Tower in Blacktown, in Sydney's west, sold in just hours at the weekend.
More than 90 per cent of the apartments in Altitude Tower in Blacktown, in Sydney's west, sold in just hours at the weekend. Supplied
"This is going to be a first for Blacktown, so I thought it would be an ideal choice," she said. "I've chosen an apartment overlooking a planned new park, so I really considered the potential for it as an investment property to rent or sell on in the future."

Colliers International director David Chittenden said 2000 inquiries were made during the project's four-week marketing campaign, as first-home buyers and investors emerged as the two strongest markets.

The majority of the 106 apartments at Altitude Towers fell within the first-home-buyer grant bracket of up to $750,000.

It comes as Sydney's average house price soared past $1 million for the first time last week. Growth over the June quarter pushed Sydney home prices up 8.4 per cent to an average of $1,000,616.

"People know that to buy something under $650,000 you have to go out a little bit further and there's very little for that price available in Sydney," Mr Chittenden said.

More than 800 homes were scheduled to be auctioned in Sydney at the weekend, the highest number for July.

Preliminary figures from RP Data put the city's clearance rate at 82 per cent, compared with almost 80 per cent last week and 75 per cent in the same week in 2014.

While clearance rates had edged lower during July, the busy spring selling season was around the corner, Domain Group senior economist Dr Andrew Wilson said.

"August is the entree to the spring market," Mr Wilson said. "The market rose strongly in August last year and that starts next weekend. I think next month will tell the story on whether the market has reached its peak or a turning point."

BUILDING RECORD

There was rapid-fire bidding from the 50 people who attended the auction for a one-bedroom Mosman home at 504/88 Vista Street, which sold for $770,000 – $70,000 above reserve.

Selling agents Brad Rogan and Alex Brun, of Belle Property Mosman, said the sale set a building record for one-bedroom apartments by almost $100,000.

The preliminary auction clearance rate for Melbourne was 76.5 per cent across 638 auction results. That was one of the lowest Melbourne clearance rates of the year, Mr Wilson said. However, there was still plenty of confidence in the market as spring drew closer.

One of the best results for the city was a six-bedroom home in Balwyn North, which sold to a local Chinese family for $3.6 million. The reserve for the 8 Ferdinand Avenue house was $3.3 million. Selling agent Simon Lord, of Jellis Craig Hawthorn, said Melbourne's market was still "very strong", with land along the school belt especially sought after.

Overall auction conditions are still stronger than 2014. The national clearance rate was 77 per cent, compared with about 68 per cent in July 2014.

Mr Wilson said he did not expect a slowdown in investor activity despite two of the biggest banks in the country, Commonwealth Bank of Australia and ANZ Bank, raising interest rates for investors.

"I don't think it will discourage investors. If anything it might even add to rents down the track, if the rise is passed on to tenants."

[greengiraffe]

Jul 29 2015 at 7:20 PM Updated Jul 29 2015 at 9:13 PM

Nobel prize winner says Sydney has a "pretty good bubble"

"You have a pretty good bubble in Sydney and Melbourne," says Professor Vernon Smith, pointing to Sydney's 40 per cent increase in prices in the past three years. Glenn Hunt

by Robert Harley
Professor Vernon Smith is an expert on bubbles. He has studied them in the laboratory, winning the Nobel Prize for Economics in 2002 for his experimental work, and he has studied them in the field, particularly the latest US housing bubble.

"It is amazing how people get carried away in the bubble," he says. "Then all of a sudden it's over and they are petrified."

On Thursday evening Professor Smith will address a Macquarie Graduate School of Management dinner on global property prices and the Australian property market.

"You have a pretty good bubble in Sydney and Melbourne," he says pointing to Sydney's 40 per cent increase in prices in the past three years. "It is hard to believe it is very sustainable."

But will it burst as badly as the US bubble? That is a tougher question. Much of the answer lies in the nature of the debt.

"In the US in the Great Recession, similar to the Depression it was what I like to call a balance sheet recession with property values falling against fixed long term debt," he says

Property values dropped, whilst mortgage debt remained unchanged. Household balance sheets were smashed. On Professor Smith's numbers, housing equity – values less debt – dropped by 58 per cent between 2006 and 2009.

"Total equity in all US homes peaked in 2006 at something over $US13 trillion, then hit $5.5 trillion," he says. "So it was back to levels of 11-12 years earlier. That was the extent of the damage."

Professor Smith said the banks were "symmetrically affected". "Thankfully we don't have them very often."

The last time was in the Depression, when housing equity declined by 33 per cent and took 13 years to recover.

"We came out of Depression with right lessons … but the rules got eroded and we got the idea that we could help people with modest means into homes and help their wealth," he said

"It worked from 2002 to 2007 and then it was all given back with a whole lot more. The people hurt the most were the ones we were trying to help."

So how does that apply to Sydney and Melbourne house prices?.

Debt is the key. Flexible mortgages, unlike those in the US, would help ameliorate the danger, Professor Smith says.

CoreLogic's Australian managing director, Graham Mirabito​, who joined Professor Smith on Wednesday, noted other differences.

Many of the loans remain on the bank's balance sheets, reducing the velocity of lending; overall gearing is surprisingly low with mortgages on only 5.3 million of the nation's 9.5 million homes; and the banks, at the behest of the regulators, are moving to reduce the growth in investor lending.

Professor Smith also acknowledged the tight supply. One harbinger of a property crash is weak rents. "And you have rents coming up; in the US bubble, rents were not rising," he says.

MGSM dean, Alex Frino​, said Professor Smith's address would be timely … "given that we are almost certainly in the middle of a housing bubble in Sydney".

[greengiraffe]

Jul 29 2015 at 3:34 PM Updated Jul 29 2015 at 6:32 PM

Inner Sydney apartment supply highest in 15 years, but will slow, says BIS

New apartments offered in Sydney has picked up in the years but growth will slow as development sites dries up.

by Michael Bleby

Inner Sydney's elevated new apartment supply levels will not be sustained as the number of sites available for development dries up, consultancy BIS Shrapnel says.

New apartment supply in the inner-Sydney apartment market jumped by almost a third to 3355 in the year to June – the highest in 15 years – from the previous 12-month period. Sites remain around Green Square for further development but within a cycle or two, even those will be used up, said BIS Shrapnel senior manager, Angie Zigomanis.

"It's becoming increasingly constrained," Mr Zigomanis said. "The big licks of obsolete land that can be redeveloped – all the easier sites have been disappearing – does mean we're increasingly being left with the more difficult sites."

The new supply numbers reflect the greater number of projects reaching sufficient pre–commitment levels from off-plan sales to obtain finance and begin construction.

The predictions point to longer-term capital growth for apartments in the inner-city area that includes Pyrmont, Quay, East Sydney, Surry Hills, City Centre, City South, North Sydney and South Dowling. The constraints were already apparent. During the last boom in 2000, the same area produced 4500 new apartments and that level was unlikely to be repeated, Mr Zigomanis said.

An area such as Pyrmont had since then been fully developed and had "nothing left", he said.

RENTS AND PRICES TO BENEFIT

"As sites become more and more difficult, it will end up being a positive for rents and prices," he said.

Even though BIS forecast a national surplus of dwellings by 2018, NSW itself would still have a deficit of 40,000 as it tried to undo a decade of under-investment in housing.

Despite the elevated new supply numbers, inner Sydney was playing a smaller part in the housing-supply picture as the apartment boom spread across the metropolitan area. The inner-city areas accounted for about 16 per cent of the 16,000 apartments in train across greater Sydney, but that was well down from 2000 when the area made up over half of the 8500 built across greater Sydney, Mr Zigomanis said.

Yields were also slowing on inner-Sydney apartments, but investor appetite for them would continue, he said.

"Yields are lower, but interest rates are lower," Mr Zigomanis said. "The gap between what someone receives as rental income versus what they're paying into a mortgage is still relatively narrow compared with other periods. That's what's attracting investors."

[greengiraffe]

OPINION Jul 31 2015 at 12:04 PM Updated Jul 31 2015 at 6:25 PM
Sydney house prices jump at 23pc pace in 2015

by Christopher Joye
Walking into a TV studio on Wednesday, a producer says AMP has announced it's jacked up interest rates on existing investment property loans by a stunning 0.47 percentage points and, more remarkably, stopped accepting all new applications. Blindsided, I ask him to double-check the wires. But so it proved: an Australian bank had stopped lending to one-third of the property market. As far as the $129 billion a year investment housing finance sector was concerned, AMP was getting out of the banking business (until further notice).

During the global financial crisis banks certainly rationed credit by tightening deposit requirements and serviceability tests. Yet I have never heard of a large Australian institution terminating lending entirely to a major borrower cohort. And the 47 basis point increase in the interest rates on AMPs back book of about $4 billion of investment loans, which is equivalent to two Reserve Bank of Australia rate hikes, would have come as a nasty shock to its customers. Acting on the council of economists who have drunk the "low rates for long" cool-aid, they would never have expected repayment costs to suddenly surge in this way.

One explanation for AMP's action is that the Australian Prudential Regulation Authority (APRA) had delivered on threats to lift capital charges on loans originated by banks that are not complying with its December guidance that growth in investment loan portfolios remains at or below 10 per cent annually. While that hurdle is a high 4.3 times household earnings, banks and housing market participants had until recently been ignoring APRA (and the RBA's) belated jawboning. Care of Martin Place's unnecessary February and May rate cuts, which forced down loan costs to levels cheaper than "any current borrower has ever seen" – Glenn Stevens' words, the value of investment loans outstanding has continued expanding at a 10 per cent annualised rate over the six months to May.

AMP claims APRA did not, however, adjust capital charges. The stop lending order and double rate hike were only a "response to regulatory guidelines to limit growth in investor property lending". If that's correct, the extra 47 basis points in interest AMP now earns on the $2.92 billion of investment loans on its balance sheet is worth $14 million in unexpected annual profits. AMP also has about $1.1 billion of securitised investment loans and the owners of these assets will capture $5 million in additional annual cash flows.


On an annualised basis, Aussie home values have jumped 14 per cent over the past seven months. Reuters

Of course, AMP's extraordinary out-of-cycle margin expansion was prompted by ANZ, CBA and NAB's decision days earlier to unilaterally increase rates on existing investment loans. In the case of ANZ and CBA, costs climbed by 0.27 percentage points. NAB went further, slugging interest-only and line-of-credit loans with a 0.29 percentage point increase. No longer taking less and giving more, NAB's decision is more punitive in both cost and coverage. Over the 12 months to May, interest-only loans represented a higher 43 per cent share of all approvals than investment property loans, which accounted for 37 per cent.

Observe here how the big four are materially improving margins on both their back books and incoming flows. Significantly, only the latter is relevant to satisfying APRA's investor growth target. And it's likely the banks will offer superior incentives to owner-occupiers, which make up 63 per cent of new flows, to offset the slower asset growth that is realised across their investment property portfolios.

The moves are undoubtedly motivated by the desire to mitigate the lower returns the major banks will earn as a consequence of APRA insisting they boost core equity capital buffers by a minimum of 200 basis points. In the absence of any loan repricing, this surcharge would cost the majors about 2 percentage points in annual return on equity.

As Moody's commented during the week, the aggressive loan repricing is a "credit positive" in so far as banks are bolstering returns and de-risking lending activities at a time when all but the senseless concur housing conditions in Sydney and Melbourne look like a bona fide bubble.


House prices have reaccelerated in 2015 given the tail-wind of twin RBA rate cuts. RP Data

BOOM ACCELERATES

All bank security holders benefit: depositors and bond-holders get safer leverage and world-class first-loss equity capital ratios while the return on equity leakage suffered by shareholders is minimised. This episode is thus a striking demonstration of the market power possessed by what are four of the 20 largest banks in the world. The majors are true "oligopolists" or price-setters, and will not likely become price-takers until the competitive playing field is levelled.

Housing market dynamics, which we have forecast with accuracy in these pages since 2013, nevertheless remain a concern. In the typically slow winter months the non-seasonally adjusted auction clearance rates have clung to boomtime-like 75 per cent-plus levels. Notwithstanding claims from the RBA and others that the market is slowing – a common yet mistaken refrain since 2014 – house prices have re-accelerated in 2015, given the tailwind of twin RBA rate cuts. And a rapidly depreciating Aussie dollar, coupled with ongoing financial instability in China, will only serve to further amplify the strong foreign bid for our bricks and mortar.

According to the RBA's preferred index provider, RP Data, Australian home values have jumped 8 per cent in the first seven months of 2015. This has been propelled by the 12.6 per cent and 11.6 per cent capital gains registered in Sydney and Melbourne respectively, between January and July. On an annualised basis, Aussie home values have jumped 14 per cent over the past seven months, which is a substantial step up in growth over late-2014 levels. In Sydney and Melbourne, home values have been appreciating at a staggering 23 per cent and 19 per cent annualised pace this year. And some editorial spruikers say this is nothing to lose sleep over!

One of the most impressive new housing analyses is a fundamentals-based valuation model produced by Craig Shepherd, an economist with the $10 billion fund manager JCP. His research follows my withering critique of RBA claims that housing is now "30 per cent undervalued" – after allegedly being fully valued 12 months ago – because of the slump in long-term interest rates that has been driven by central banks spending more than $10 trillion buying government bonds. "If we unrealistically suppose the RBA cash rate stays at 2 per cent forever, the Australia-wide median house price is currently fairly valued," Shepherd says. "While this is hardly a bubble, the Sydney and Melbourne markets are still over-priced by 23 per cent and 24 per cent respectively, even given the heroic assumption rates never rise."

His model controls for mortgage rates, rental yields, maintenance, depreciation, building costs, inflation and fixtures and fittings, among other variables, and then discounts back expected cash flows to arrive at a valuation today. The bad news is that "with negative short-term 'real' interest rates in Australia [our cash rate is below our core inflation rate], and the Fed funds rate expected to rise over the next five years to about 3 per cent, it seems improbable the RBA can keep rates this low forever.

"If we assume the RBA's cash rate normalises to a still historically modest 3.5 per cent, which is also below its long-term spread to the Fed rate, the median Australian house price is over-priced by 31 per cent today," Shepherd concludes. "If the cash rate rises in this way, Sydney and Melbourne homes are also presently overvalued by about 47 per cent. By any historic measure that would certainly be considered an asset price bubble."

In this context, I would encourage you to reflect on Dornbusch's Law, which advises that "crises take aq much longer time to come than you think, and then happen much faster than you thought".

The author is a director and shareholder in Smarter Money Investments, which manages fixed-income investment portfolios.

[greengiraffe]

Aug 2 2015 at 1:49 PM Updated Aug 2 2015 at 7:17 PM Apartment buyers spend $101m in Penrith in five hours

Investors favour Sydney's west as 191 Penrith Thornton apartments sold out on Saturday.


by Su-Lin Tan
Property buyers snapped up $101 million worth of apartments in western Sydney in five hours on Saturday, and auction clearances remain strong before Tuesday's Reserve Bank meeting.

At Penrith in western Sydney, the Thornton Central project sold 191 apartments by mid-afternoon on Saturday after a similar 151-unit sellout in April.

"We had strong interest from first-home buyers as expected, because the pricing is below the stamp duty threshold and attracts the first-home buyers grant," First Point Projects' executive director Mark Hovey said.

While auction clearance rates in Sydney dipped just below 80 per cent, the national clearance rate was 75.7 per cent, higher than 68.9 per cent the same time last year.

The Reserve Bank of Australia was expected to keep the 2 per cent cash rate on hold, despite property prices in the major cities surging 2.8 per cent in July, because of the falling Chinese stock market and as concerns eased over the Greek debt default.

The market saw a 12 per cent chance of a rate cut and 26 of 28 economists surveyed by Bloomberg said the RBA would keep rates on hold.

"The RBA should hold its policy rate steady, with a bias towards raising it soon in order to address the continued overheating in the housing market," said Australian National University RBA shadow board member James Morley.

"However, they will want to see some indication of inflationary pressures before starting the raising cycle. The current low level of the Australian dollar gives scope for holding steady or starting the raising cycle."

SYDNEY FIRST TIMERS GO WEST

Retail and community developer, First Points Projects and property group, St Hilliers First Point were developing the Thornton project, which was expected to be completed by mid-2016.

Thornton apartments cost $395,000 for a one-bedroom and $712,000 for a three-bedroom unit. In inner-city Sydney, the median price for units was close to $700,000 and house prices had soared past $1 million.

First home-buyer, Nicolas Fameli, 22, said the two-bedroom apartment for $534,000 he bought to live in was "good value".

As affordability falls in inner city Sydney – the Housing Industry Association reported a fall in its Affordability Index for the June quarter – property buyers were heading out west and north-west where major developments were in progress following the commencement of the North West Rail Link and the go-ahead on Badgerys Creek Airport.

"The population catchment of this region is expected to top $1 million by 2031. Emerging employment hubs in Western Sydney, such as Badgerys Creek Airport, are making regional cities like Penrith more attractive," said St Hilliers' executive chairman Tim Casey.

Supporting the trend in Sydney's north-west was the auction of the five-bedroom, 17 McIntyre Place in Castle Hill for $2.38 million over the weekend, one of McGrath's most expensive sales.

"We have been missing the train line for a hundred years," agent David Choy said.

"The property is very attractive because it is right in the middle of two new train stations and close to Castle Towers which is undergoing major refurbishments."

Sydney's clearance rate for the week was 78.8 per cent, below the 80 per cent mark for the fourth week in a row, but still higher than the same time last year, Corelogic RP Data reported.

While auctions were down to 816 from 906 last week, the Blacktown sub-region in Sydney's west showed the strongest performance. Melbourne's clearance rate was equally strong at 76.8 per cent, rising from a recent low of 75.7 per cent.

All capital cities recorded the same trend except for Tasmania which had lower clearances than last year and Perth's clearance which was falling closer to last year's rate of 41 per cent.

[BlueKelah]

Price of Sydney homes selling at auction drops 9 per cent

The price of Sydney homes selling at auction plummeted 9.1 per cent over July, new figures from Domain Group indicate.

The price drops came as auction clearance rates trended down over the past month, with the previous two Saturdays the weakest of the year.

Domain Group senior economist Dr Andrew Wilson said the market was clearly on the turn and anticipation of banks cracking down on investors could be one reason for the drop.

"More than 60 per cent of the Sydney market are investors and we have seen a record number of properties auctioned in July, and that's going to continue," Dr Wilson said.

"And 800 homes are going under the hammer this Saturday - that's unheard of [in August].

"Are vendors rushing to the market?"

Dr Wilson said news of Sydney's million-dollar median house price may have made Sydney homeowners over-ambitious with their reserve prices. "Clearance rates are now 10 per cent lower than what they were in May," he added.

With 500 of the 644 results reported by Saturday evening, Domain Group put the clearance rate at 79.5 per cent. This was slightly weaker than the previous week's 79.7 per cent.

Dr Wilson said the median auction price for houses and apartments had dropped from $1,100,000 to $1 million over July but was still 16.3 per cent higher than a year ago....continued...

[greengiraffe]

Its a welcome correction

Price of Sydney homes selling at auction drops 9 per cent

The price of Sydney homes selling at auction plummeted 9.1 per cent over July, new figures from Domain Group indicate.

The price drops came as auction clearance rates trended down over the past month, with the previous two Saturdays the weakest of the year.

Domain Group senior economist Dr Andrew Wilson said the market was clearly on the turn and anticipation of banks cracking down on investors could be one reason for the drop.

"More than 60 per cent of the Sydney market are investors and we have seen a record number of properties auctioned in July, and that's going to continue," Dr Wilson said.

"And 800 homes are going under the hammer this Saturday - that's unheard of [in August].

"Are vendors rushing to the market?"

Dr Wilson said news of Sydney's million-dollar median house price may have made Sydney homeowners over-ambitious with their reserve prices. "Clearance rates are now 10 per cent lower than what they were in May," he added.

With 500 of the 644 results reported by Saturday evening, Domain Group put the clearance rate at 79.5 per cent. This was slightly weaker than the previous week's 79.7 per cent.

Dr Wilson said the median auction price for houses and apartments had dropped from $1,100,000 to $1 million over July but was still 16.3 per cent higher than a year ago....continued...