If Sydney Market Dropped by 50%?

Interesting thread and question.

I'd imagine the correlation between markets will be purported through: 1. Lending markets and 2. Confidence.

If a severe financial crisis erupts in Australia resulting from overleverage/overextension, i suspect correlation will be very strong and other markets will perform poorly with small contractions in prices.

If its just affordability/rate rises cooling the market down without a severe financial market event, then i imagine there to be a knock on effect to confidence and slightly lower growth the expected in other markets, but nothing dramatic.

Note sure about Sydney being within reasonable affordable bounds at the moment - using calculations of debt repayments today vs house prices doesn't make much sense. Affordability when using sensitised interest rates - i suspect we'll see a very different story to Sydney's 'affordability' then.

In this hypothetical, i suspect we'll see drastically different fall offs in value across Sydney too. It won't be a flat 20% decrease across the board. Areas where debt repayments make up a larger proportion of income could be far worse than more comfortable areas.

Cheers,
Redom
 
Nice chart Hobo, Perth 2006 was massive relative to the other capitals.
Providing a major downturn in Sydney didn't seriously damage the whole financial system the other capitals would suffer a little collateral damage but would probably limp along IMO but it would depend on if they had followed Sydney in a major rise first. This hasn't happened yet, BN and Adelaide are only slightly above previous highs

Mother of all booms in Perth from 2001-2006 peak, mining boom, commercial and resi boom, 6 year boom:)
 
HBA

A 50% drop in Sydney is very unlikely.

However, in some markets there is real possibility of a 20%-30% correction. I believe areas like the Mt Druitt suburbs, Some of the Hills District, Zetland, Eastwood/Epping maybe affected. In particular where people are buying new stock at high prices and completing in 2018-2019...should the banks value these much less this will have a domino affect.

Hypothetical Question - If Sydney Market Dropped by 50% say in the next 2 years how do you think it would effect other Australian cities?

Let's say apartments and houses in Sydney lost value on average of 50%. So a $700,000 property dropped to be valued at $350,000 for example.

3 Examples:

  1. Brisbane $300,000 apartment
  2. Newcastle NSW $300,000 apartment
  3. Perth WA $300,000 apartment

what do you think would happen with these 3 properties, would they also drop around 50% or what?
 
as seasoned investors we all know that property goes in cycles,

however I have heard a few people saying that this cycle we wont see a drop at all because the fundamentals are different and just a slow down, (i reserve my judgement on this one)

I pose another hypothetical,

assuming sydney or most of aus dropped by say 10-20% like in 09, would the seasoned investors say "yep saw that coming, and did this and that to counter for it"

or would it be

"oh nuts, I thought there wasnt going to be a drop, because I thought it was different, looks like I got caught out again"
 
HBA

A 50% drop in Sydney is very unlikely.

However, in some markets there is real possibility of a 20%-30% correction. I believe areas like the Mt Druitt suburbs, Some of the Hills District, Zetland, Eastwood/Epping maybe affected. In particular where people are buying new stock at high prices and completing in 2018-2019...should the banks value these much less this will have a domino affect.

Sash, we'd only get a correction in Eastwood/Epping if the Chinese and Koreans stop buying. I dont think that will happen unless government policy stops foreign buyers, and not even that will stop it because there's plenty of Australian residential Chinese here doing the buying. They are everywhere... (no, I'm not racist, I'm Chinese heritage myself. I just can't speak Chinese to save my life...)
 
Sash, we'd only get a correction in Eastwood/Epping if the Chinese and Koreans stop buying. I dont think that will happen unless government policy stops foreign buyers, and not even that will stop it because there's plenty of Australian residential Chinese here doing the buying. They are everywhere... (no, I'm not racist, I'm Chinese heritage myself. I just can't speak Chinese to save my life...)

Hahahaha true true. Same here... The Chinese is buying houses in Epping/Eastwood/Hurstville/Chatswood with CASH.....

They buy to stay for a very long time (even pass in to the next generation)... I don't really see correction can occur in that area....
 
Sash, we'd only get a correction in Eastwood/Epping if the Chinese and Koreans stop buying. I dont think that will happen unless government policy stops foreign buyers, and not even that will stop it because there's plenty of Australian residential Chinese here doing the buying. They are everywhere... (no, I'm not racist, I'm Chinese heritage myself. I just can't speak Chinese to save my life...)

I tend to agree with Gockie. The issue is even at current prices (which appear inflated & unreasonable to us), they are considered "good value" for buyers from Asia as real estate costs even more in their countries.

A Singaporean colleague just put a deposit down on a $750k 1br OTP apartment. Apparently her friends in Singapore are also considering buying in the same building.

I'm unsure where she got finance (whether it was from bank here or in Singapore), but it seems like a big portion of the OTP market is driven by strong demand from overseas buyers.
 
Darn you're right. It's cheap for those who comes from Singapore, Taiwan, HK, and china.... Some of their apartment for 1 bed already cost more than 1.2-1.3 MILL AUD...(Especially AUD dollars is so low now)
 
So funny, I went to Eastwood maybe 3 months ago and there were quite a few spruikers/salespeople on the streets outside the shops selling or marketing OTP properties to passersby. It was all in Chinese for the Chinese shoppers of course. I found that so bizarre.
 
Chinese will stop buying when the prices fall. They won't hold up the market.

TMNT - the response will be 'saw it coming, that's why sold out of B grades, refinanced A grades and have cash ready to move'
 
Over the last couple of years Sydney has outperformed several of the other capitals by around 20%, so don't see there's any reason that the other capitals would HAVE to fall in line with Sydney if it corrected. That said they've been trending in similar growth cycles (see chart below). Some of the influencing factors that cause a correction in Sydney are also likely to impact other markets.

PricesByStateSept2014.jpg

thanks for the chart and all the opinions from everyone. It seems that if Sydney does drop it won't necessarily mean other cities will be impacted, even close cities like Newcastle.

So funny, I went to Eastwood maybe 3 months ago and there were quite a few spruikers/salespeople on the streets outside the shops selling or marketing OTP properties to passersby. It was all in Chinese for the Chinese shoppers of course. I found that so bizarre.

Apparently 25% of Aussies were now born overseas, in 10 years time at this rate it will probably be over 50%. Welcome to Australia of the future.:rolleyes:
 
Still waiting for Ebola to end the world...
http://somersoft.com/forums/showthread.php?t=103033

If the Sydney market dropped by 50% it would affect everything in Australian financial markets, it'd be a disaster.

It would also take a disaster biblical proportions to decrease demand to the point where that's possible.

If property prices start dropping, most people aren't going to sell, they'll simply hold on through it.
 
as seasoned investors we all know that property however I have heard a few people saying that this cycle we wont see a drop at all because the fundamentals are different and just a slow down, (i reserve my judgement on this one)

The most expensive words in the English language: "This time is different." :D

Prices in Ireland dropped by over 50% during the GFC, and Japan has fallen by far more since its peak.

Were Australia to take a hit like that then it'd likely be accompanied by a financial crisis, a run up in government debt, and depressed growth for years afterwards. You'd almost certainly see big falls in house prices in other capitals.
 
Over the last couple of years Sydney has outperformed several of the other capitals by around 20%, so don't see there's any reason that the other capitals would HAVE to fall in line with Sydney if it corrected. That said they've been trending in similar growth cycles (see chart below). Some of the influencing factors that cause a correction in Sydney are also likely to impact other markets.

PricesByStateSept2014.jpg

I don't understand this graph. Can someone explain it to a simpleton?
 
I don't understand this graph. Can someone explain it to a simpleton?

It is rolling annual growth, so for each city shows the price growth rate for the 12 months prior.

So as an example you can see Perth was growing at an annual rate of around 40% near the peak of it's boom in 2006, but is now rolling over to low/negative growth faster than the other cities.

The chart shows that (most of the time) our capital cities growth trends occur at the same time (simpleton terms = they all go up together, they all go down together), but in each cycle it's been a different city with the strongest growth.
 
Lets compare apples with apples and not over-panic.

Even in the deepest darkest days of the GFC, property in the UK and US did not fall anywhere near 50%

Wrong US properties crashed in 2007, with falls of as much as 70%
You need to read some of the posts regarding this.

UK had massive falls during GFC as well not sure how much though?

During GFC - Goldcoast was hammered close to 40% in some pockets.

But Sydney falling 50%, I doubt this very much.
 
I personally doubt Sydney will drop anytime soon. I'm sure there are others here who research and watch the market much more than me who know. But I know the prices have to correct one day. If I was a betting man I would gamble on a big correction in the next 2 years. We will see but as mentioned it would have to be triggered by other factors, some that are starting to happen now....
 
The most expensive words in the English language: "This time is different." :D

Prices in Ireland dropped by over 50% during the GFC, and Japan has fallen by far more since its peak.

Were Australia to take a hit like that then it'd likely be accompanied by a financial crisis, a run up in government debt, and depressed growth for years afterwards. You'd almost certainly see big falls in house prices in other capitals.

I don't think this time it's different at all, many locations around this country have had little or no growth for 7 years while wages have continued to grow. Several capital cities have had recent falls but when you use Ireland as an example we are not comparing apples with apples IMO
 
sometimes it feels like Cobb & Co deliver mail in the wild west......effectively we would have time up our sleeve to sell prior to correction in WA
 
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