Units under priced not overpriced.

[marcodepaul]

There’s a line of argument running at the moment that maintains that Sydney units are underpriced not overpriced especially in the South West of Sydney (particularly Liverpool). Developers can’t make a living any more and are turning to renos instead- margins are low or non-existent.

Yes prices are historically high compared to wages. But building costs are at historic highs as well. In the various debates about the coming crash, little attention has been given to this factor. How can people possibly predict a property slump of 10%-50% when builder's margins are now at their limit?
Given upward pressure on rents, limited housing stock, record immigration, rising building costs, there is only one direction housing prices can go.

Thoughts?

 

[Sunder]

I agree that Liverpool unit prices are well underpriced. However, in a market, there can be a thing called "overshoot", and this does not mean an underpriced asset cannot fall even further - look at Macquarie bank, falling into the twenties, then 2 days later, almost hitting $40 per share again.

A few things you need to remember about Liverpool though

1. It's already fallen on average 16% in the last 3 years, but from peak, I've seen some apartments fall close to 35% in value from peak.

2. As a mainly blue collar worker area, it's the canary in the coalmine.

When people say 10-50%, they mean off peak, not from now.

I personally think that we've hit the bottom, in that region even accounting for a mild recession. However, I still think there's a lot of areas with large falls coming, as referenced by the skyrocketing 90 day arrears rate.