Where are we in the current Sydney property cycle?

Hi guys,

Well, it seems that there is a high probability that property in Sydney is set to grow in value again this year, with predictions from some commentators that we will be seeing capital gains of anywhere between 5% to 20% (IMHO we will see at least 10%+ growth).

However, I have heard a number of people echo the thought that we are now in a similar market to the late 2002 property market, which peaked around 2003 and left many people waiting six years before prices were substantially higher than what they paid for.

So my question is, do you think we only have one more year of good growth to go before the Sydney (maybe Melbourne?) property market either stagnates or declines? Or do you think we still have a number of years to go (maybe 2-4 years) before the cycle reaches its peak?

I will be buying my first IP in either the Inner West or Eastern Suburbs this year (hopefully within the next couple of months), however have been waiting for more quality stock to come onto the market as the Dec/Jan period has been woeful with regards to the volume of quality stock that has been listed.

Cheers,
Lisa
 
Trogdor said:
Dont know as not from Sydney / dont follow that market but your PhD topic is very interesting!!

How far through are you?

lol... Thanks :D

I am nearing my third, and final year of my PhD, with the completion date marked for April 2011. Currently, mid way through interviews, which will be followed by the write up. Plan to do this while building up my property portfolio - so it's great to be an insider to the phenomenon I'm studying.

It's funny, I joined the SS forum late last year, to recruit for my research - and got hooked. There are so many inspiring people on here, with great life stories, and the wealth of knowledge on here is amazing. So, I'm rather glad I found this place. :)
 
My opinion of the market is quite optimistic.

While we had about 10% growth in Median last year, I feel this is just the starting point of some very solid years ahead.

I see a window of opportunity of 3-4 months left for investors to get value, especially in the mid to high markets.

Volume levels are relatively low and demand is pushing higher and higher.

I see the driving forces of demand as;

- immigration
- low/slow housing construction
- strong pressure on the rental market
- recovering economy
- low interest rates
- optimism

These to me are the driving factors behind what we call the 'right time of the cycle' for the Sydney market.

Are these ALL the pieces to the jigsaw puzzle?

No, a major part of the recipe has to be the supply of credit and at the moment it is still tight.

Hopefully we see some non-bank lenders play a bigger part in the picture and some of the credit policies start to loosen again, a bit of competition and this should open up the financial taps a little more than what they currently are.

The other part of the jigsaw puzzle is media and this is already happening with many articles on the Sydney market of recent.

In fact, fairfax did some research and 85% of investors involved in the study were confident of growth in the property market this year.

MFAA and Bankwest did a similar research with the general public and NSW lead the nation with optimism for the property market with around 50% of the general public confident that the property market will grow this year.
Brisbane had the least sentiment at around 40%.

What we are seeing is the Sydney market moving from the bottom up with alot of the money from the FHB stimulation having a ripple effect as the money moves from people trading in for a better property.

Still plenty of opportunity to buy at discount or even at market value as Sydney has a bit of catching up to do in growth. If history repeats can we estimate 70-80% over the next 5 years? Hope so

Stuart
 
stumunro said:
My opinion of the market is quite optimistic.

While we had about 10% growth in Median last year, I feel this is just the starting point of some very solid years ahead.

I see a window of opportunity of 3-4 months left for investors to get value, especially in the mid to high markets.

Volume levels are relatively low and demand is pushing higher and higher.

I see the driving forces of demand as;

- immigration
- low/slow housing construction
- strong pressure on the rental market
- recovering economy
- low interest rates
- optimism

These to me are the driving factors behind what we call the 'right time of the cycle' for the Sydney market.

Are these ALL the pieces to the jigsaw puzzle?

No, a major part of the recipe has to be the supply of credit and at the moment it is still tight.

Hopefully we see some non-bank lenders play a bigger part in the picture and some of the credit policies start to loosen again, a bit of competition and this should open up the financial taps a little more than what they currently are.

The other part of the jigsaw puzzle is media and this is already happening with many articles on the Sydney market of recent.

In fact, fairfax did some research and 85% of investors involved in the study were confident of growth in the property market this year.

MFAA and Bankwest did a similar research with the general public and NSW lead the nation with optimism for the property market with around 50% of the general public confident that the property market will grow this year.
Brisbane had the least sentiment at around 40%.

What we are seeing is the Sydney market moving from the bottom up with alot of the money from the FHB stimulation having a ripple effect as the money moves from people trading in for a better property.

Still plenty of opportunity to buy at discount or even at market value as Sydney has a bit of catching up to do in growth. If history repeats can we estimate 70-80% over the next 5 years? Hope so

Stuart

Hi Stuart,

Great post. A 70-80% rise in value would be fantastic. :D It's interesting that you have mentioned this figure. Here's some more data:

- After the stock market crash of 1987, property prices grew by double long term average (20% each year); between December 1987 and December 1989

- After the smaller dot-com bubble in 2000, property prices grew by double the long term average (20% each year); between September 2000 and September 2002.

- In 2008 we experienced one of the biggest stock market corrections in history, and only a 10-15% property price rise in 2009. If the pattern of growth is meant to repeat itself, could we be in for a 20-30% price rise over the next year?

Food for thought!
 
- After the stock market crash of 1987, property prices grew by double long term average (20% each year); between December 1987 (15.5% interest) and December 1989 (15.5% interest)

- After the smaller dot-com bubble in 2000, property prices grew by double the long term average (20% each year); between September 2000 (8.5% interest) and September 2002 6.55% interest.

- In 2008 we experienced one of the biggest stock market corrections in history, and only a 10-15% property price rise in 2009. If the pattern of growth is meant to repeat itself, could we be in for a 20-30% price rise over the next year? (in January 2008 the interest rate was 8.7% and in January 2010 was 6.65% )

Lisa

I've included the standard interest rates in the 3 periods you've mentioned.

In the first period I'm suspecting that property prices grew because of pent up demand and people looked for a safe heaven for their money

In the 2nd period you can see that prices were increasing as interest rates were falling keeping them affordable. We also had a lot of dodgy lending in that period so some people who couldn't afford a loan managed to get 1.

In the current period we also have similar interest rates to 2000/2002
but only because of the GFC.
We also have a much higher starting base (prices were already high), tighter lending criteria, we can still remember that people who overborrowed got burned in 2006-8, the speculators with the NO doc loans have almost dissapeared etc etc

In our favour are 2 major factors, pent up demand and housing shortage so growth we'll have but IMO it's unlikely that we'll see continued double digit growth every year.
If we did, I'd be getting my IP's ready to sell before the crash comes...:D
 
Sydney market

Hiya

Passed my solicitor on the road yesterday; he mentioned he has suddenly seen a sharp increase in his volume of business in the last 4 weeks; he reckons from next month onwards, it will be frantic....

Anecdotal evidence, go figure.

cheers
 
I think it also depends on what part of Sydney.....

Outer suburbs and units have had large increases from FHOG and may not see massive growth

Inner suburbs and houses may see higher growth as previous poster noted this market has had poor growth between 2003 - 2008 (approx) and has the knock on effect of people selling their houses/units and updgrading

Obviously, all suburbs differ on various factors but above quick snapshot. So to answer your question I think there is good value in both inner west and eastern suburbs although I would say they have had considerable growth in the last 6 months (and there IS a definite lack of quality stock):confused:
 
Great post. A 70-80% rise in value would be fantastic. :D It's interesting that you have mentioned this figure. Here's some more data:

- After the stock market crash of 1987, property prices grew by double long term average (20% each year); between December 1987 and December 1989

- After the smaller dot-com bubble in 2000, property prices grew by double the long term average (20% each year); between September 2000 and September 2002.

- In 2008 we experienced one of the biggest stock market corrections in history, and only a 10-15% property price rise in 2009. If the pattern of growth is meant to repeat itself, could we be in for a 20-30% price rise over the next year?

Food for thought!

Why have you ignored the rather dead period between 1990 - 1997?
 
Hi Stuart,

Great post. A 70-80% rise in value would be fantastic. :D It's interesting that you have mentioned this figure. Here's some more data:

- After the stock market crash of 1987, property prices grew by double long term average (20% each year); between December 1987 and December 1989

- After the smaller dot-com bubble in 2000, property prices grew by double the long term average (20% each year); between September 2000 and September 2002.

- In 2008 we experienced one of the biggest stock market corrections in history, and only a 10-15% property price rise in 2009. If the pattern of growth is meant to repeat itself, could we be in for a 20-30% price rise over the next year?

Food for thought!
Something not right there Lisa,that may have well happened in NSW
but between 1990-1998 property went backwards in a big way in some parts of inner Brisbane,i know this for a fact several we bought in 1998
that the vendors were less that 50% of the price they paided in 1990
but increased umemployment,tighter finance,falling commodity prices,
rising interest rates played a big part in that timeframe,it's never black and white,real estate is always markets within markets,numbers always look good on paper,but the facts always standout..willair..
Just ask yourself the simple question,if property prices go up 70-80% over the next few years as they may well do,what will the interest rates be in that timframe??
5
 
I am nearing my third, and final year of my PhD, with the completion date marked for April 2011. Currently, mid way through interviews, which will be followed by the write up. Plan to do this while building up my property portfolio - so it's great to be an insider to the phenomenon I'm studying.
Hi Lisa,

I hope you're not presenting a positive outlook Residential Property Paper to Prof Keen are you? Don't think he'd mark that too favourably... ;) Good to see not all UWS students have adopted the end of the resi property world mantra that he has been spruiking. There's hope for independent thought yet!

As for the Sydney property cycle, I'm also in the "just waking up" camp. I think we're in recovery mode and are set to enter boom mode probably towards the end of this year. All we need is for Europe to sort itself out and take away the last real risk of GFC phase II and the stage will be set for a major global economic upswing. We're very well positioned to benefit from this and the Sydney property market is in the starting gates poised to jump. Once the global economy clears the way for those gates to be opened, then hold onto your hats as we'll be in for a wild ride.

As others have mentioned, its the more expensive properties that will probably do well this year as the upgraders and investors re-enter the market. Fear held this segment back, but the removal of that fear means they'll be back in force. And of course, the upgraders are now benefiting from the FHB grant support lifting the prices of the cheaper properties. Trade in and move on up the ladder. This will then cause the next rung of properties to outperform and so on. Maybe it should be coined the trading up price ripple. ;)

Cheers,
Michael
 
BV said:
I've included the standard interest rates in the 3 periods you've mentioned.

Thanks BV. :) Gives an interesting new angle to the figures.

alexlee said:
Why have you ignored the rather dead period between 1990 - 1997?

I was highlighting what happens to the property market after major stock market crashes (1987, 2000, 2008?).

ritchie77 said:
I think it also depends on what part of Sydney

Agree. IMO keep to areas with a good mix of owner occupiers and investors.

willair said:
Something not right there Lisa,that may have well happened in NSW but between 1990-1998 property went backwards in a big way

Sounds about right. Part of the natural property cycle...prices declined after the peaks were reached in 1987-89?

willair said:
real estate is always markets within markets,numbers always look good on paper,but the facts always standout

Agree! ;) That's why I see a small window of opportunity to get into the Sydney market, capture the high growth that will occur over the next year (maybe two), then look to move onto another area within Oz that is just beggining it's growth phase.
 
I hope you're not presenting a positive outlook Residential Property Paper to Prof Keen are you? Don't think he'd mark that too favourably... Good to see not all UWS students have adopted the end of the resi property world mantra that he has been spruiking.

lol...no, I've never met him. Although he is now being quoted in papers as from UNSW...so I think he's jumped ship! ;)

There's hope for independent thought yet!

Ha-ha! Yes, hopefully I'm an independent thinker!! Although, the focus of the PhD is not so much about the economics of property markets, rather it is about understanding the personal stories of investors. So, what's driving them to undertake this investment journey (financial freedom is probably the 1# driver) and what does this mean for society with regards to our changing concept of work, career and lifestyle; and also what are the experiences of these people as they journey from the point of first thinking about investing, to where they are now in their lives. After reading a lot of posts on this forum, I think I'd love to interview almost every person on here! lol :D

As a bit of self promotion, to the best of my knowledge, this research will be the first academic study in the world to take an indepth look at this alternative work-life choice.
 
I have a similar out look to you on the property and economic cycle although I did not regard the tech wreck as a share market crash even though there was a subsequent property boom.

However, the boom started in around 1997 in Sydney and Melbourne and Brisbane did not start till mid 2000.

Brisbane had many variables at play in the mid 1990's and we had a large oversupply of land and properties. It was also a time of high interstate migration from Victoria caused by job losses in the public sector. However, despite this the supply was still higher than demand.

However, once GST was introduced the construction activity dropped dramatically and it was not long before prices started to rise again after a 10 year slumber.
 
I will be buying my first IP in either the Inner West or Eastern Suburbs this year (hopefully within the next couple of months), however have been waiting for more quality stock to come onto the market as the Dec/Jan period has been woeful with regards to the volume of quality stock that has been listed.

Cheers,
Lisa

I'd say that's another pointer to how this market will perform....getting ever more tightly held...especially the quality stock.

Does the market ever reach it's (ultimate) peak....?
Only troughs then higher again IMO...

I presume you are talking about the next high before the next trough (short term)....how long are you investing for...?

You could write a thesis on this forum alone....good luck with it!:)
 
Thorpey said:
I presume you are talking about the next high before the next trough (short term)

Yep, I mean the next peak (all time high), followed by the next trough (low), which after some time will then go on to break this all time high.

Thorpey said:
how long are you investing for...?

My strategy is to purchase a good quality unit in the inner west or eastern suburbs, and take advantage of the capital growth that will occur over the next year or two. I realise I am forsaking cash flow for capital gains, however, to help improve yield I will be looking to buy a unit that requires some cosmetic renovation. Once I have sufficient equity in this property, I plan to buy a 2nd IP in another location (not Sydney), which is just beginning its up cycle. I plan to buy something cheaper, as close to positively geared as possible, and wait for this cycle to do its thing. If it's slow to take off, that's OK, because it will not be costing me a lot to hold. Meanwhile, if the Sydney property is still heading up, I will use the additional equity to purchase IP3. Once I have finished my PhD (getting by on scholarship money alone at the moment), I will be back in the workforce, with two to three properties under my belt, and looking for the fourth.

Thorpey said:
You could write a thesis on this forum alone....good luck with it!

Thanks Thorpey! :) I think so too. In fact, I plan to ask some SS forumites if they would be interested in sharing their stories with me as part of this research. ;)

Cheers,
Lisa
 
Sounds like a plan, Lisa!

Just wondering though - how will you be able to get finance when on a PhD scholarship (if it's the usual $20k pa?) I almost accepted my PhD APA offer until I realised that being in the workforce would make it a lot easier for me to start my property investing journey.

Your subject matter sounds pretty interesting! What year of your PHD are you in?

Cheers :)
 
I too believe we are about to have some sort of 'boom' (not with standing GFC2)

but what I would like to know is how people 'believe' it

is there some sort of measure

eg medium house price to wages ?

number of properties for sale ?

number of sold properties ?

is it a good time to buy when yields are X % to buy price ?


Originally Posted by stumunro
My opinion of the market is quite optimistic.



Mine too , but mine is because others have given me confidence to think this maybe the case .

But what would make others start to think it was a good time to buy ?

is it something that can be measured or is it antidotal evidence that people use , like if others are buying then its a good time to buy as well , if prices have been stable for awhile then they 'should' go up soon ?

Is there something to look for before prices rise

I have often seen immigration as a cause , does the immigration number have to be above a certain figure ?

I have seen shortage of property : How is that measured ?

I have seen strong econome as a reason, does that mean unemployment is below a certain figure .

Is there a measure or is it just 'feel' a vibe something in the air , what is it people use to decide when its a good time to buy ?

stuart
 
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