The Housing Bubble

A report from the Sydney Morning Herald in Australia. “Cracks are showing in the Sydney property market, with prices now falling for the first time over a 12-month period since the boom began. The harbour city recorded a 0.5 per cent drop in housing prices in the year to February, CoreLogic data shows. This figure includes apartments and houses. The median property value now stands at $880,743, after the first 12-month decline since 2012. Over the three months to February, Sydney prices dropped 2.4 per cent. This was the weakest result in the country.”

“Sydney property prices are now 3.7 per cent below their peak in July 2017, representing a drop in their median price of about $35,000. At the Property Council of Australia’s NSW Residential Outlook, HSBC chief economist Paul Bloxham expected prices to slow across Sydney. However, he broadly expected Australia to benefit from an ‘economic recovery’ that was underway globally. This underpins the case for the Reserve Bank to increase interest rates in the future, he said.”

From Bloomberg. “Australian home prices fell for a fifth consecutive month in February, in a further sign the property boom is over. Prices in Sydney, the epicenter of the boom, are down 0.5 percent from a year earlier — the first annual decline since 2012. ‘Considering the tighter credit environment, the eventual prospect of higher interest rates and ongoing housing affordability constraints, we expect housing market conditions will remain sedate relative to previous years,’ CoreLogic’s head of research Tim Lawless said.”

From Domain News. “One ’silver lining’ of investors retreating from Sydney’s property market is that developers will be forced to lift their standards, industry experts say. While the withdrawal of investors could spark a slowdown of the ‘much-needed’ supply of apartments, it’s also likely to prompt developers to rethink the homes they’re building. ‘No question, investors are retracing,’ said Frasers Property Australia chief executive Rod Fehring.”

“However there is a ’silver lining,’ according to Stockland CEO Mark Steinert, who thinks the retreat of local and foreign investors will prompt developers to deliver better properties. Mr Steinert said restrictions on the outflow of money from China and tighter lending restrictions in Australia could see the supply shift away from apartments aimed at investors. ‘It’s going to challenge everybody for a little bit of time because you can’t just go and do a launch and sell out on day one and orientate towards the investor, you have to think carefully as to who is going to occupy that space,’ he said.”

“‘The market is starting to ask itself questions about how long easy money will be in place, interest rates have been extraordinarily low for some time,’ HSBC chief economist Paul Bloxham said. ‘Sydney is obviously showing some signs of prices falling at the moment – I don’t think that’s going to persist. I think we’re going to see low single digit rates of house price growth going forward – it is hard to get house prices to fall in any sort of decent way without the unemployment rate rising.’”

The Australian Financial Review. “Developers are offering commission payments of $30,000 and trebling apartment sizes in a bid to attract new buyers as investor demand slides and prices begin to fall, analysis of deals reveals. Luxury fixtures interest on deposits, part payment of stamp duty and cash rebates are also being offered ‘free’ to encourage buyers squeezed by tougher lending conditions and lower expectations of price growth, it reveals.”

“Financial advisers and mortgage brokers are being offered a share of $30,000 commission plus GST by developers and builders, with half paid on exchange of a property and the balance on settlement. Mortgage brokers claim slowing demand means it is increasingly a buyers’ market and recommend buyers ask questions about any incentive payments and request rebates. Developers are also offering to do deals that amalgamate multiple apartments, or offering entire floors.”

“For example, OSK Property’s $2.8 billion Melbourne Square project in Southbank, and CBus Property developments in nearby Spring Street are offering top-end off-the-plan buyers the option of amalgamations. Falling prices, four-year low credit growth, high debt, stagnant wages and fears about over-supply in key markets are combining to slow housing growth, according to analysis by investment bank UBS.”

“‘The drop in credit growth – to an annual rate of about 4.9 per cent – suggests macroprudential policy is starting to have a more material negative impact on housing with negative wealth effects to constrain consumption,’ according to its analysis.”

“The rush of supply in apartments in Sydney in the past five years has caught up with demand, giving rise to a cap on price rises, according to BIS Oxford Economics. While there has been an under-supply of dwellings including apartments before the boom of 2012 to 2017, there were 47,200 apartment construction starts in 2016-17, doubling from 23,100 in 2012-13, against underlying demand of about 42,500.”

From Radio Australia. “Australian housing values have slipped for the fifth straight month, as the crackdown on interest-only lending continues to dampen housing demand. That was the key finding of national property report by CoreLogic, which found housing values — on a national basis — fell 0.8 per cent since September 2016. ‘This was fuelled by tighter credit policies, particularly focused on investment and interest-only lending, which reduced demand from that part of the market,’ said CoreLogic’s head of research Tim Lawless.”

‘The report found, over the past month, values fell across every capital city except Hobart and Adelaide. Sydney values have fallen 3.7 per cent since its peak of July 2016, Mr Lawless said. ‘It’s not like the Sydney market is crashing — it’s more a controlled or managed slowdown, largely due to a reduction of investment in the marketplace.’”

From Nine News. “A new report has identified Australia’s worst property spots, listing 24 negative growth traps for investors to avoid. Two Western Australian suburbs have made the report, which was based on Core Logic data from the 12 months leading up to November 2017. Burswood is named WA’s worst housing market performer with a 37.2 percent decline. Crawley also made the national list because of its unit market which plunged 46.2 percent in value with over supply to blame, according to the report.”

“The slump comes as housing affordability is still a major concern for Australians. Research released by the Salvation Army has revealed almost half the country, 9.9 million, believe owning their own home is unattainable.”