What caused the market stagnation from ~2003 (and any earlier ones) aftr the big boom

[abdoug]

Hi, saw a similar question in another thread and would love some historical insight from some of the more experienced fellas.

My simplified theory is these cycles always happen when people are able to "hoard" houses en masse, effectively creating an artificial(?) supply choke and raising prices, raising value and improving borrowing power, especially when fueled by lower interest rates. Combine this with the NIMB and lawmakers decision to artificially inflate the value of land by releasing land in strategic intervals and you have the long stagnation period rather than the drop after every boom.

When you consider there's little incentive to sell unless interest rates rise (with extremely high transaction costs and the ol' capital gains, it makes a lot of sense to me that stagnation is the only result of a boom in Sydney... rather than an excessive (>10%) value drop.

 

[Zos]

I agree with your opinion also. I don't see a major price drop (bubble bursting) I also think a couple years it might stagnate and then pick up again.

I looked at the historical Melbourne median house prices and the trend has always been up and up. Even with the slight stagnation in some years it has always come back strong.

So from 1966 I can't really see any sign of a property bubble bursting. I have read a few times on here that it has happened in the past, I just can't see it in the table below.

Qtr ended June Median Price Annual Growth Clearance Rate
1966 $9,400
1967 $9,400 0.00%
1968 $10,500 11.70%
1969 $11,400 8.57%
1970 $11,800 3.51%
1971 $12,100 2.54%
1972 $14,500 19.83%
1973 $19,800 36.55%
1974 $25,800 30.30%
1975 $27,800 7.75%
1976 $35,600 28.06%
1977 $38,600 8.43%
1978 $41,300 6.99%
1979 $45,000 8.96%
1980 $44,800 -0.44%
1981 $55,600 24.11% 61%
1982 $57,600 3.60% 69%
1983 $59,400 3.13% 51%
1984 $69,300 16.67% 54%
1985 $80,200 15.73% 74%
1986 $85,500 6.61% 70%
1987 $97,000 13.45% 59%
1988 $114,000 17.53% 61%
1989 $130,000 14.04% 78%
1990 $147,000 13.08% 62%
1991 $142,000 -3.40% 48%
1992 $136,000 -4.23% 56%
1993 $155,500 14.34% 57%
1994 $146,550 -5.76% 56%
1995 $148,000 0.99% 68%
1996 $146,000 -1.35% 50%
1997 $160,263 9.77% 61%
1998 $190,000 18.56% 76%
1999 $208,500 9.74% 68%
2000 $241,250 15.71% 61%
2001 $270,000 11.92% 81%
2002 $315,000 16.67% 75%
2003 $345,000 9.52% 74%
2004 $365,000 5.80% 53%
2005 $358,000 -1.92% 64%
2006 $363,000 1.40% 74%
2007 $385,000 6.06% 86%
2008 $445,000 15.58% 67%
2009 $425,000 -4.49% 84%
2010 $520,000 22.35% 76%
2011 $555,000 6.73% 59%
2012 $528,000 -4.86% 60%
2013 $541,500 2.56% 70%
2014 $630,000 16.34% 72%
Source: REIV

 

[abdoug]

Very interesting Zos, it makes sense that it wouldn't "pop" since you don't have "external" non standard influences (like false credit reporting and the creation of "fake money" a la GFC).

Does anybody remember the catalyst(s) that caused the drop in 2003 after a recent boom? Was it simply the changing interest rate?

 

[Propertunity]

Does anybody remember the catalyst(s) that caused the drop in 2003 after a recent boom? Was it simply the changing interest rate?

Dunno about the causes per se, but the peak at 2003 was at the end of a 13 year growth phase beginning in 1990 - which was unprecedented.

 

[dajackal]

Does anybody remember the catalyst(s) that caused the drop in 2003 after a recent boom? Was it simply the changing interest rate?

A couple of additional factors listed here:http://petewargent.blogspot.com.au/2015/05/macro-prudential-and-sydney-property.html

 

[Cassandra]

Interesting data, more than worth poring over. Thanks for posting Zos.

 

[Deltaberry]

Hi, saw a similar question in another thread and would love some historical insight from some of the more experienced fellas.

My simplified theory is these cycles always happen when people are able to "hoard" houses en masse, effectively creating an artificial(?) supply choke and raising prices, raising value and improving borrowing power, especially when fueled by lower interest rates. Combine this with the NIMB and lawmakers decision to artificially inflate the value of land by releasing land in strategic intervals and you have the long stagnation period rather than the drop after every boom.

When you consider there's little incentive to sell unless interest rates rise (with extremely high transaction costs and the ol' capital gains, it makes a lot of sense to me that stagnation is the only result of a boom in Sydney... rather than an excessive (>10%) value drop.

If an average house is $900k, to buy 10000 (hardly a suburb?) is $9bn.

One would probably have to be richer than the 10 wealthiest Australians combined to "hoarde houses en masse to create an artificial supply choke"

 

[james0360]

May be the House Price to Income Ratio will affect the prices in future. http://www.businessspectator.com.au/article/2015/5/26/property/property-boom-borrowed-time

 

[abdoug]

If an average house is $900k, to buy 10000 (hardly a suburb?) is $9bn.

One would probably have to be richer than the 10 wealthiest Australians combined to "hoarde houses en masse to create an artificial supply choke"

To define hoarding houses: Purchasing multiple houses with no intention of selling but every intention of further purchases

To define en masse: multiple people doing this.

As I said, theres little incentive to sell houses unless interest rates rise. Theres plenty of disincentive to sell though, thats for sure. It only takes 1000 baby boomers who decide to have 5 investment properties to lock out 5000 properties from the market.

 

[topcropper]

Dunno about the causes per se, but the peak at 2003 was at the end of a 13 year growth phase beginning in 1990 - which was unprecedented.

House prices from 1990 to about 1997 were flat. Just about everywhere. So it didn't start in 1990.


See ya's.

 

[MTR]

Hi, saw a similar question in another thread and would love some historical insight from some of the more experienced fellas.

My simplified theory is these cycles always happen when people are able to "hoard" houses en masse, effectively creating an artificial(?) supply choke and raising prices, raising value and improving borrowing power, especially when fueled by lower interest rates. Combine this with the NIMB and lawmakers decision to artificially inflate the value of land by releasing land in strategic intervals and you have the long stagnation period rather than the drop after every boom.

When you consider there's little incentive to sell unless intnerest rates rise (with extremely high transaction costs and the ol' capital gains, it makes a lot of sense to me that stagnation is the only result of a boom in Sydney... rather than an excessive (>10%) value drop.

Cycles are all about supply vs demand

Why can we go from boom to bust -??
Interest rate increases
Economy down turn
Demand is exhausted, no longer making sense ie yield/return, affordability


Also Australian property, are not equal 2003 Syd stagnation, yet Perth market was booming due to mining . Darwin experienced boom during this period and 2007 Melb boom

MTR

 

[see_change]

To define hoarding houses: Purchasing multiple houses with no intention of selling but every intention of further purchases

To define en masse: multiple people doing this.

As I said, theres little incentive to sell houses unless interest rates rise. Theres plenty of disincentive to sell though, thats for sure. It only takes 1000 baby boomers who decide to have 5 investment properties to lock out 5000 properties from the market.

Ah , so that's one of those irregular verbs

I'm investing
You're Hoarding
She / He's Greedy

( apologies , I know that's not grammatically correct as I'm changing the Noun rather than the verb .... )


Cliff

 

[skater]

LOL! I'm one of those house hoarders. I do it specifically to lock out the FHBs.

 

[Propertunity]

House prices from 1990 to about 1997 were flat. Just about everywhere. So it didn't start in 1990.

I beg to disagree

Year Sydney Unit Median Price
1990 $135,715
1991 $139,285
1992 $140,280
1993 $142,760
1994 $156,075
1995 $173,625
1996 $186,250
1997 $214,250
1998 $228,375
1999 $243,375
2000 $256,250
2001 $291,250
2002 $329,500
2003 $360,000

 

[abdoug]

Ah , so that's one of those irregular verbs

I'm investing
You're Hoarding
She / He's Greedy

( apologies , I know that's not grammatically correct as I'm changing the Noun rather than the verb .... )


Cliff

I am very happy that I had two forum heavyweights chime in

@see_change: I do not mean to insinuate you're greedy. The intention to make a profit is similar to a business, there is no emotion in business decision making, only return on investments. It has nothing to do with greed. I only intended to make a case for supply/demand (and holy **** there is a lot of demand with Sydney becoming a lot more of a global city).

Cycles are all about supply vs demand

Why can we go from boom to bust -??
Interest rate increases
Economy down turn
Demand is exhausted, no longer making sense ie yield/return, affordability


Also Australian property, are not equal 2003 Syd stagnation, yet Perth market was booming due to mining . Darwin experienced boom during this period and 2007 Melb boom

MTR

Thank you MTR, I always enjoy reading your posts.

LOL! I'm one of those house hoarders. I do it specifically to lock out the FHBs.

Hi Skater, I did not mean to imply you are greedy (see my response to see_change). You guys are very clever investors, and I have seen great results with friends and family (and personally) who have invested in Syd property over the last 30 years.

 

[see_change]

Maybe you shouldn't have used the word hoarder .

It conjoures up images of people on ACA , hiding in a house , dysfunctional , behind stacks of hoarded posessions .

Skater , maybe ,

but me , no way as long as you don't go into the garage , or my recording studio ....

Cliff

 

[MIW]

As I said, theres little incentive to sell houses unless interest rates rise. Theres plenty of disincentive to sell though, thats for sure. It only takes 1000 baby boomers who decide to have 5 investment properties to lock out 5000 properties from the market.

Very unlikely scenario, do you know the % of baby boomers or in general just people, who own 5 or more investments? Not that many in Australia, and I would think they would not be in just one place!
Even if incentive for baby boomers to sell was there, who would sell out all at once, imagine taxes involved?
The example above sees very weird????

 

[skater]

I am very happy that I had two forum heavyweights chime in

I'm curious to know who the two forum heavyweights are. So far in this thread the following people have answered:

Skater (obviously, that's me)
See_change
Zos
Propertunity
Dajakal
Cassandra
Deltaberry
James0360
Topcropper
MTR
MIW

Is a heavyweight someone with a lot of posts, or someone who's been here a long time, or someone with a high net worth, or someone who invests in 'quality' assets, or someone with a lot of properties?

Maybe you shouldn't have used the word hoarder .

It conjoures up images of people on ACA , hiding in a house , dysfunctional , behind stacks of hoarded posessions .

Skater , maybe ,

but me , no way as long as you don't go into the garage , or my recording studio ....

Yep! That's me! You know me so well!

 

[see_change]

I'm curious to know who the two forum heavyweights are. So far in this thread the following people have answered

Is a heavyweight someone with a lot of posts, or someone who's been here a long time, or someone with a high net worth, or someone who invests in 'quality' assets, or someone with a lot of properties

Could it also be a reference to a posters BMI though that's not recorded in our profile ....

Cliff

 

[MIW]

I'm curious to know who the two forum heavyweights are. So far in this thread the following people have answered:

Skater (obviously, that's me)
See_change
Zos
Propertunity
Dajakal
Cassandra
Deltaberry
James0360
Topcropper
MTR
MIW

Is a heavyweight someone with a lot of posts, or someone who's been here a long time, or someone with a high net worth, or someone who invests in 'quality' assets, or someone with a lot of properties?



Yep! That's me! You know me so well!

Hi Skater,

You are funny, I am not a heavyweight by any means....