Have we hit the peak of the market

[whatever123]

Hi all

A few months ago, things in the property market looked all rosy. Demand was strong. Rents were likely to increase, values would do their 5% a year without question.

Just in the last few weeks I've really noticed a change in sentiment toward property investment.

With valuations still quite high, this leads me to think we may have neared the peak of this cycle and property has just run out of puff.

What I'm seeing is that in the past a property yielding 6% would have been snapped up. Now investors seem to be doing their sums, factoring in zero growth and thinking "wait a minute, its going to actually cost me to hold this property. Surely that can't be a good investment". And if the investor isn't, the bank is doing it for them by not extending the finance.

Is anyone seeing it any differently?

 

[Propertunity]

A few months ago, things in the property market looked all rosy. Demand was strong. Rents were likely to increase,

Which property market are we talking about? There is no one property market. And there are markets within markets as well.

Just in the last few weeks I've really noticed a change in sentiment toward property investment.

Whereabouts are you talking about? It takes about 1 week and 1 day for markets to digest an IR rise these days. Then it's off and up again.

With valuations still quite high, this leads me to think we may have neared the peak of this cycle and property has just run out of puff.

Look a full property cycle takes 7 - 12 years to go through. If we are talking Sydney for example, then from its peak in 2003, we are only 7 years into a cycle, and it has only been the last 12 months that prices have recovered and just barely (in some cases, and not in others) exceeded their 2003 peak prices. We still have a long way to go IMO. It is not uncommon for markets to "take a breather" before their upward climb again.

I was at a number of Opens in Newcastle this week-end and demand is still very high and supply very limited and prices still rising....and good property only lasting a matter of days (or hours in some cases).

 

[SYDB]

Is anyone seeing it any differently?

No, I think the market has topped out, in the inner west of sydney, where I am looking anyway. I posted my anecdotal evidence of a particular auction I attended yesterday on another forum, here it is:

Went to an auction for this property yesterday:

http://www.domain.com.au/Property/For-Sale...amp;shortlist=1

Auctioneer suggests opening at $650 - silence

$630 - silence

$600 - silence, extended silence, some bemused looks, silence

Vendor bid $610 - passed in, see you later

Now they have it advertised at $639 when they couldn't even get a nibble at $600 - interesting theory......\

Here is another one that has been on the market a few months since missing out at auction:

http://www.domain.com.au/Property/For-Sale...amp;shortlist=1

I am defos seeing a big softening in the inner west of Sydney over the past 6 odd weeks

Compare the above "results" (or lack of) with this sale of $630 at a late March auction.

http://www.realestate.com.au/property-duplex+semi+detached-nsw-croydon-106353559

I viewed both the Ashfield and Croydon properties. Bearing in mind the Croydon property had a stormwater drain down one side and bad railway noise - I would plump for the Ashfield property if offered both at same price. Yet can't even get a peep at 600K yesterday.

I suspect the turning point was Easter. We are very very quickly shifting to a buyers market. No surprise given 6 IR rises in 7, that is now working through the system. Also, prices were already toppy, and at the FHB end alot of the demand was sucked up by the boost, that demand is now gone. Good news for prospective buyers/investors out there! The patient will profit.

 

[wobbycarly]

SYDB, saw similar last weekend. (in our local Geelong area)

3BR, 2bath, split level with views, DLUG. Opened with a $340k vendor bid... *looks around* ... nothing, not a peep!

Now listed $369-$399! Go figure.

And I agree, that before Easter, that would have gone at auction, no problem.

 

[random]

Incidentally , just what exactly is a vendors bid anyway ?

I've only been to one auction in my life , bad way to buy I feel !

At any rate , I think overall things will definitely be leveling out min' from here as time moves on .
Reckon QLD might suffer a decent hit as it somehow seems to have 1000's of properties and 20 and 30 page lists just about everywhere you look. Melbourne could get nasty too, as it's spiked the most lately and is now very over priced imo . I know , they're still lining up but give it time .

Cheers

 

[whatever123]

Which property market are we talking about? There is no one property market. And there are markets within markets as well.

Whereabouts are you talking about? It takes about 1 week and 1 day for markets to digest an IR rise these days. Then it's off and up again.

Look a full property cycle takes 7 - 12 years to go through. If we are talking Sydney for example, then from its peak in 2003, we are only 7 years into a cycle, and it has only been the last 12 months that prices have recovered and just barely (in some cases, and not in others) exceeded their 2003 peak prices. We still have a long way to go IMO. It is not uncommon for markets to "take a breather" before their upward climb again.

I was at a number of Opens in Newcastle this week-end and demand is still very high and supply very limited and prices still rising....and good property only lasting a matter of days (or hours in some cases).

I think all markets are looking toppy. Lets face it, the boom was a result of cheap and readily available credit. If the credit tap turns off or LVRs are reduced, then this will apply to all markets as I can't see the banks trying to predict which areas they'll favour and our banks are nationwide.
There will be some variations obviously. Some areas are going to be in a lot more danger and will probably see bigger falls.

I also thought being able to predict the length of the property cycle was a myth? I certainly havent seen any charts going back 100 years that show predictable 7-12 year cycles. Either way, all trends and cycles are meant to be broken otherwise it would all be a bit too easy.

 

[Propertunity]

I think all markets are looking toppy.

Yeah whatever That's what all novices think when they see prices at all time highs. But in another 10 years we will get another bunch of all time highs and novices saying the same thing. The we get the media commentators going on about housing affordability....round and round it goes.

Lets face it, the boom was a result of cheap and readily available credit.

...and the boom before that, and the one before that....and so on? You can always find a reason for a boom after the fact but the bottom line is that booms (and busts) continue unabated.

If the credit tap turns off or LVRs are reduced, then this will apply to all markets as I can't see the banks trying to predict which areas they'll favour and our banks are nationwide.

Banks (and mortgage insurers) can and do favour areas over another - and have done so for many many years. They also favour one type of resi property over another. e.g. they got a set on units in the Docklands in Melbourne some years ago when there was an oversupply (same thing happened in inner CBD units in Sydney) - they lowered their LVRs. MI's these days set their max LVRs and premiums on postcodes. Look, at the moment prices are continuing to rise and the number of loans being taken out are low by comparison to other times. What do you put that down to?

I also thought being able to predict the length of the property cycle was a myth? I certainly havent seen any charts going back 100 years that show predictable 7-12 year cycles.

You should research harder.

Either way, all trends and cycles are meant to be broken otherwise it would all be a bit too easy.

Yeah right. Look it is called an ecomonmic cycle because it is predictable.

 

[SYDB]

Sorry Propertunity, to clarify:

Do you still think the market has a way to run this cycle?

Have you not seen a cooling in the last month or so, or is your experience different? If not now, when do you think the cycle will turn down, if ever?

Thanks

SYDB

 

[Propertunity]

Sorry Propertunity, to clarify:
Do you still think the market has a way to run this cycle?

It is just my opinion, but yes, I think we have a way to go yet. I have seen many full cycles and I would not be surprised to see 10+% more this year in 2010. Plus some more in 2011, 2012.

Have you not seen a cooling in the last month or so, or is your experience different?

I have noticed an ever so slight drop in numbers of people at Opens. But we're talking 40 people instead of say 50 turning up at a property.
You also need to take in account seasonal factors, like the fact that we are coming into winter which is generally a quieter time. (although it wasn't last year)
But in reality, I am trying to buy a property at the moment in Newcastle which was advertised for $449K in a suburb with a median around $300K and it is getting full priced offers from left, right and centre. It will probably sell for $10-20K over asking price. Another I saw for $349K was swarming with buyers (and the place was poorly presented because a tenant was still moving out). The agent apologised and said that it would look better by next week-end. I replied that it would not be available for sale next week-end as someone would buy it before then. A lady who was listening in to the conversation, said - "Exactly".

If not now, when do you think the cycle will turn down, if ever?

Cycles are not linear or smooth. Month to month trends are non-sense IMO. Property is not shares. Prices go up (a lot), plateau a bit ( go up and down) and then take off again. I am not expecting any significant falls in the property market, in fact quite the opposite.
When the sharemarket is shaky (as it is with Greece, GFCII concerns, etc) people buy gold and property. We are seeing both.

 

[whatever123]

I had a colleague in the US who was bullish on property all the way up and then in denial all the way down. He has now finally admitted that houses were overpriced 3 years ago.

There are some who won't see the peak until long after the bubble has burst. There are others who need to see recorded falls before the light dawns.
Others still, can see the signs at or around the time that it peaks.

The funny thing about GFC's is that they have the uncanny ability to ruin a previously predictable property cycle!

 

[urbanprospector]

I had a colleague in the US who was bullish on property all the way up and then in denial all the way down. He has now finally admitted that houses were overpriced 3 years ago.

There are some who won't see the peak until long after the bubble has burst. There are others who need to see recorded falls before the light dawns.
Others still, can see the signs at or around the time that it peaks.

The funny thing about GFC's is that they have the uncanny ability to ruin a previously predictable property cycle!

very true .. also people with a vested interest ain't going to admit its dropping.

sold my place 2008, identical villa in group of 16 sold this feb 90 less .. that's up in the sale before that was 120k less .. but 90k down still .. i sold a 545 k ....after i sold the zoning went through to for 57 unit development giving ocean views ...scarborough perth .. i to have seen many other sign . the commercial real estate just as much of a concern going by the for lease ,for sale and closing down sales i keep seeing

 

[Propertunity]

very true .. also people with a vested interest ain't going to admit its dropping.

This is why I asked my very first Q of the OP

Which property market are we talking about?

A Q that was not answered BTW.

The response just seemed to be that the OP thought

I think all markets are looking toppy

. This sounds like a poorly researched comment.

I have no doubt that there may be areas of Perth that are falling. Perth is in a different part of the cycle than say Melbourne or Sydney. However, in my neck of the woods we are in a rising market....just as Perth was when Sydney was in a flat to falling market until 12 months or so ago. Sydney has been through all that. So I am not a subscriber to any bubble bursting.

 

[Ruddprime]

with RBA on record as saying they expect nominal housing credit growth in the forseeable future to run at only 7-8%pa, yes the days of easy capital growth are over.

A slow deflation in real terms here we come.

 

[whatever123]

with RBA on record as saying they expect nominal housing credit growth in the forseeable future to run at only 7-8%pa, yes the days of easy capital growth are over.

A slow deflation in real terms here we come.

what has it been previously?

 

[hobo-jo]

Record May auction listings will test anxious agents

A RECORD 2560 auction listings this month will test the resilience of the Sydney residential market.
It is well above the 1700 May auction average of the past five years and the previous record of 2160 in May 2002, according to Australian Property Monitors.
The auctions kick off with 470 listings this weekend and, even with a fifth Saturday this month, estate agents are anxious as buyer enthusiasm has become patchy.

Yet only 300 results were reported from that weekend:
Saturday 8th May 2010
Total properties: 299
Sold:220
Withdrawn:18
Cleared:69 %

Saturday 15th May 2010
Total properties:279
Sold:209
Withdrawn:16
Cleared:71 %

Where are the results from the other auctions? Got to love how the real figures are hidden to keep the masses buying while the smart unload as much as they can.

IMHO the nation wide down turn is starting and no amount of spruiking about "cycles" is going to save specific markets. I think it's ridiculous to expect the status quo to continue (rising property prices) when we have hit the level of debt saturation that we have.

 

[Ruddprime]

what has it been previously?

http://www.rba.gov.au/statistics/tables/xls/d01hist.xls

Column C

 

[atsim]

off the plan units in my area of victoria pk zetland have just increased the price from545k to 585 in the last 2 weeks. Selling like hot cakes and old stock is now only just starting to top 2004 prices. It cant go backwards from here, if it does there will be a stampede of buyers wanting to get in. hence pushing prices up again, IMO

 

[urbanprospector]

This is why I asked my very first Q of the OP A Q that was not answered BTW.

The response just seemed to be that the OP thought . This sounds like a poorly researched comment.

I have no doubt that there may be areas of Perth that are falling. Perth is in a different part of the cycle than say Melbourne or Sydney. However, in my neck of the woods we are in a rising market....just as Perth was when Sydney was in a flat to falling market until 12 months or so ago. Sydney has been through all that. So I am not a subscriber to any bubble bursting.

was in melb all last year east bruns .. my g/f owns there and its rented . property manager even suggested not to up the rent as may find without a tenant , going on the steady increase of for lease signs i saw tells me he is probably right ...after being on the ground there and looking around id say melb very toppy now . i still feel we in for a down turn .

i have posted in other threads my reasoning

 

[Sunder]

I think housing follows the old "A person climbing stairs playing with a Yoyo" adage. That is, the yoyo goes up and down somewhat unpredictably, but in the long term, the trend is always up. How can it not be with rising disposable incomes and increasing population?

While you can't predict the yoyo with reliability, you can rely on the stairs if you have that long a time frame.

My personal feel is that the market will be taking a breather, with FHB areas maybe going backwards. However, the inexorable step up continues, and one day, the yoyo will be back up again.

 

[sash]

As per some of my previous posts I see the market performing at its normal cycle.

Sydney & Mlebourne will cool over the next 6 months.....another 2 interest rates should cool it well and truly.

Right now I see the amateurs getting in....be very wary when buying now.

Talked to a RE agent this weekend in the Western suburbs of Sydney....they are preparing for mortagee sales from later this year. I gave them a card to contact me if any come along...