Where is Sydney in the property cycle?

[Land]

I thought I might start a thread to see where others think Sydney is in the property cycle and thoughts on when a genuine upturn might begin and how long it might last for before we hit another boom.

Of course, this is all just speculation, but before the interest rate rise we just had, I was of the opinion that the upturn would start very slowly through the later half of 2007 and probably continue through 2008, 2009, to the end of 2010 where 2011 might bring in boom conditions for perhaps 2 or so years.

However, after the last interest rate rise and the predicted rise in December (or is that just scaremongering?), it's likely to depress the market and keep it flat until at least mid 2008, so upturn years might be 2009 to 2011 with a boom occuring perhaps in 2012/13ish which would put it 10 years after the last peak in 2003.

These are just some rough speculation, but I'd be very interested to see what other learned opinions forumites might have on this issue for Sydney.

Cheers

Aaron

 

[Highlygeared]

Personally I think we are pretty much where we were in 1993-94 - flat sideways movement with minor increases across the board. Having said that fundamentals just dont suggest we're at the bottom. Still, I took the risk and bought a property out west a month ago. Time will tell whether i made a mistake, albeit a short term one. People have short memories - and i think in a climate of rising interest rates and possibility of a global recession, even affluent people can get burnt, bringing down the perceived heated market in blue/bluer chip suburbs - East, Inner West, North shore of Sydney. Think 1989. It is a 2 speed market but everyone will suffer as a reslt of a credit squeeze, high rates of interest, unemployment. In short, the advice is, if you have to buy, buy extremely selectively. If something is fair market value in this market, think twice before you jump in. I could be wrong though but look at the way the stockmarket is correcting...and there may be more to come.

 

[Land]

93-94

Correct me if I'm wrong, but in Sydney wasn't the first half of the 90's basically flat, with the entire second half of the 90's in a steady upswing, with a peak from 2001-2003?

If that was the case and you think we are at about 93-94 right now, you are suggesting we might have another year or two of flat, then 5 years of steady growth (2009-2013), then approx 2-3 years of boom (2013-2015)?

Any other opinions on these timeframes?

 

[Highlygeared]

Well I say this because I dont know if we're at the start of the upswing - I just cant see even with supply problems and rising rents how people could sustain a quick spike in prices like we started to see from 97-2000, before it went ballistic in 2001-2003.

The conservative me says we're in 93-94, the aggressive side of me says we're in 97. However, Im not ruling out the possibility of a gradual fall in house prices across some/most suburbs over the next 2 years if intrst rates start increasing quickly. The clincher will be unemployment - if these numbers take a turn, we could end up i a mini recession. I do think a lot of people/investors are overleveraged.

My investments are all ahead of what I paid for them, even one purchased in 2003, 2004, but there are other less skilled investors who have zero/potentially negative equity. What would happen if they coudlt service the mortgage/repayments because of job losses etc. My investment lifespan started in 97 so I ve only lived thru 1 boom during my investing life.

As I saidi bought a property last month so I do hope we are at the bottom of the market, at least out west and at the start of a modest recovery in the blue chip suburbs. But if you think about it, has there been large carnage since 2003 when the boom ended? No, we havent seen it - 10-20% falls from inflated prices/valuations is not a crash in my opinion, 10% of fair market value is (care of some nasty economic factors). I dont know if I've seen that since 2003 - at least across the board. Thats why Im a little pessimistic. I hope Im wrong though because I dont have too much in the tank left for growing my portfolio (already have a sizeable one) and Id hate to miss out on some bargains because I grew too quickly too soon.

 

[Land]

Agree

Yeah, I have to agree, I don't think we're too close to a quick spike just yet, so I reckon your 93-94 prediction is about right.

Well done on your recent investments already moving ahead - are they in Sydney? Would you care to share which suburbs - very impressed that you've been able to achieve this in the current climate. Also, congrats on your most recent purchase, great time for buying I think. I am keen to get the next one but can't move until early next year. I'm not too upset about the latest interest rate rise (and potential for one in December) because it is keeping the market supressed while I get a chance to obtain more property.

I think we're basically at the bottom now, I don't think prices will drop any lower, but rather I think we will continue to move sideways for at least another year.

Any thoughts from other forumites?

 

[Highlygeared]

theyre in sydney - a small handful of apartments, couple of semis and now a freestanding house - out west. Very much investment grade stock - nothign to brag about, nothing really blue chip about them..which is regretful.

if i had a good freestanding home in the east or lower northshore that i couldve purchased a few yrs ago, id have a lot more equity. with a young family now, we're having trouble finding a home we can afford in the area in which we want to live. im happy to rent, see more value doing that but try convincing my wife.

i guess my portfolio is larger than the 'average' investor but that doesnt really give me any comfort as it falls short of my personal goal in terms of overall yield and growth rate. however in this climate, i should just be happy to hold on to them. the recent purchase was in the north west of sydney.

honestly happy to provide details once im done buying a couple more (if i can)

 

[Land]

Congrats

Congrats Highgeared (I like that username!)

Like you say, it's just good to be able to hang onto them. I've only got one so far, bought in 2004 and gone abolsutely nowhere so having to do it the hard way and save deposit for second one hopefully early next year. My finance and I are renting as well and I'm planning to do this for the next 10 years or so, because of the opportunity cost involved in the money required to service the debt on a PPOR. I see it as the ultimate luxury which people generally don't see, because it is appreciating. For me though, I can afford about 4 IP for the same amount of money as one PPOR, so it makes much more sense just to purchase IPs!

Hoping the market will start to move a little because it's hard work having to save deposits rather than being able to use equity!

 

[Glebe]

im happy to rent, see more value doing that but try convincing my wife.

Haha, I hear ya mate

We own an IP in Balmain and rent elsewhere. Wife wants to move in, but the interest becoming non-deductible doesn't financial sense. We've agreed to a 2 year horizon...

 

[Highlygeared]

Question for Land

Land

did u say you were a council town planner? if so,which council..ifyou care to reveal?

 

[BV]

Aaron,

If you asked me 6 months ago I would have said that the Sydney market is in recovery mode.

However, after the recent problems in the US and the latest interest rate rise
the future for the property market overall looks uncertain.
Additionaly, we have the turmoil in the stock markets.

I don't know if or how the share market falls will have any impact on the property market.
I am guessing that if people who are overleveraged in shares need cash
for their margin calls they will either dump the shares or sell properties to survive.
If they decide to sell properties, we could see more above median properties on the market
and not just in Sydney, probably SE QLD will also be affected.

But then it's just a guess...
Cheers

 

[Land]

Difficult to predict

Yes, it's very difficult to predict what's going on at the moment. Quite curious to see what happens with the stock market over the next couple of months. Given the stock and property market seem to be vaguely counter-cyclical, if there is a sustained drop in shares, it may herald renewed interest in property from investors, which combined with rising rents (i.e. increasing yields) could see a nice recovery in Sydney. It would be lovely to have this co-incide with an interest rate drop as well sometime in the future, but whilst the economy is going gang-busters that doesn't appear likely in the near future.

The only problem is the credit squeeze and whether or not this will make it more difficult for investors to finance IPs. I don't think there will be too much of a squeeze though, probably just higher interest rates to compensate for the loss. There is still ultimately a lot of cash out there which the finance markets need to put to work, so finance should be available. Slightly higher interst rates might be compensated by a return to decent growth figures in Sydney.

My two cents worth.....

 

[trugoy]

There is no such thing as "the Sydney Market". Sydney right now is so fragmented that it does not make sense to talk about one market.

You will have one suburb where nearly all stock is being auctioned and clearance rates are near 2002-2003 levels, and then 2 suburbs over there is not ONE property being auctioned because prices are so depressed.

Some parts of sydney are absolutely BOOMING right now, prices north of 2003 already, and some parts are no go zones right now.

 

[ermen]

yeah i can see

some suburbs are absoultely going gangbusters right now....

 

[grossreal]

hi all
I missed the part about the council planner and for me boards are about what you know not what you do but thats me.
for me sydney is very fragmented but thats because it spreading in all directions.
has it started the climb at this stage for me no not yet
so are moving but until the bank start to release what they are holding I don't see any flood yet.
the americans will cause problems for the rams of this world and will move rates but you neeed to look a bit deeper then that and look at under lying trends or market movements and thats why you can't say sydney you need to say ashfield for instance.or mascot or god forbid waitara.
you then need to look at that areas movements and when you get to this level you won't ask where is sydney in a cycle.
areas with in sydney will start and some have already to moveand I think 2008 will see a very large shift and that shift is because we just don't have the supply we for me are heading for a very big rock and the americans are not helping to move it.
cost move on supply and demand and if the demand is there but there is no supply the the price move up.
if rate move up because of the american the the price move higher,
on top of that add sydney is the third most expensive city in the world per last year alot of investors from around the world want to invest here and you have a cooking pot that john does not want to jump into with an election as well.
so were are we in the cycle at the moment for me it simple.
we are in the driving seat
the nitro is set to full throttle
the highway is clear.
the trouble is we just don't have ignition.
a little spark is all thats needed.
and that will come in the form of the following
high rents (very hot at the moment)
high interest(and its about to move again)
an election ( he hasn't said when that will be)
a market correction and a few players fall out of the market ( rams aussie or a couple of other originators)
any little flame is all thats need to start moving prices and they have to go up
currently in parts of sydney you are looking at a 5% return on resi and thats not normal for sydney its norm is around 3.5% and climbing.
fun times ahead
this is just my layman view of the market and ha I might be wrong

 

[Shadow]

sydney is the third most expensive city in the world per last year

Hi GR,

Just wondering why you say this... Sydney is not even in the top 20...

http://money.cnn.com/2007/06/15/pf/most_expensive_cities/index.htm

Cheers,Shadow.