Sydney housing speculation goes bananas

ScreenHunter_24 Apr. 18 12.02

By Leith van Onselen

RP Data’s daily home values index shows the absurdity of the Sydney housing market, where values have almost gone exponential:

ScreenHunter_2043 Apr. 11 12.28

Today’s Lending Finance data, released by the ABS, provides a solid clue as to what is driving the Sydney housing market, as well as the blow-off in home prices nationally: property investors.

As shown below, the value of investor loans in New South Wales (read Sydney) has skyrocketed, with Melbourne – the second hottest market – also experiencing strong growth:

ScreenHunter_2044 Apr. 11 12.35

According to the ABS, investor finance commitments in New South Wales in February were 55% higher than February 2013. New South Wales investor loans were also up by 41% in rolling annual terms in the year to February 2014, well above the national average increase of 27.5%.

Further, as at February 2014, investors accounted for a record 52.6% of total housing finance commitments (excluding refinancings) in New South Wales, which was well above the experience of the other major capitals. Victoria’s (read Melbourne’s) share of investor mortgages also rose to 44.7%, which was also a record share for that state:

ScreenHunter_2045 Apr. 11 12.42

Sydney is clearly a speculator’s market writ large, with Melbourne a distant second.

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

    • Oi, anyone who questions the sustainability of this bubble boom is un-Australian.

      We must all bury our heads in the sand bask in the glow of our own magnificence…. We will have no doomsayers here!

    • These are houses. Places where people live. Not tech photons on a screen or Dutch tulips.

      The damage will be immense.

      • This is exactly what the RBA wants; more credit going towards the housing sector as part of its rebalancing thesis away from the mining sector.

        The RBA has nailed it.

      • Capitalist,

        1000% correct – extra zeroes going cheap.

        The RBA said quite clearly they were going to do this and they kept serving up horse poop data and platypus tales to keep everyone chewing gum and giving them the benefit of the doubt.

        “Surely, the RBA don’t mean it when they say they don’t care about the exchange rate and are cutting interest rates to drive the debt machine/house prices”

        They have done exactly what they said were trying to do.

        Woo Hoo.

        Private Debt doesn’t matter.

        Have they said one word as to how they can change direction now or even that they want to?

        Nope.

        Just a bit of standard issue tin plating. “look on page 17 paragraph 45, we said property doesn’t always go up”

        Love the graphs!

    • reusachtigeMEMBER

      Ortega, there’s been charts like this for years with people saying “with charts like that” for just as many. Anyway, no change, move along!

  1. Every property that is bought by an investor is one less that is owned as a PPOR.

    Someone should point this out to our Liberal Party leaders as rising prices and investor numbers clearly goes against their Federal objectives…

    The objectives of the Organisation (Federal Liberal Party) shall be to have an Australian nation:- … in which family life is seen as fundamental to the well-being of society, and in which every family is enabled to live in and preferably to own a comfortable home at reasonable cost, and with adequate community amenities.

    http://bit.ly/1gfzvjf

    • Yes abruce3. I only hope the Libs can reengage with their core values soonest.

      Australia is a property-owning democracy. It is designed for freedom, independence and genuine, fearless citizenship.

      We are in a bizarre position where the young cannot buy shelter and so-called investors are chasing minuscule yields. Our politicians are so afraid of being labeled bubble-bursters they refuse to touch the brakes. Mr Market will resolve this – with balance sheet destruction and a legacy of towering debt.

      • When the Australian house market pops our big four banks and their subsidiaries are bankrupt, our country is bankrupt.

        They have gone all in on this one and their is no exit strategy…tick tock the Australian depression clock tick tock…

    • You beat me to it, matte. I also noticed that article but I would have liked to see Leith’s first chart accompanying the article, along with comments allowed.

      No cause for concern… maybe we need prices to be 25 times average wages for there to be a little concern, and maybe when prices get to 50 times average wages there might be slightly more concern. I would like to know at what point would there be enough concern to actually do something to pop the bubble, or would it just mean there is concern, but let’s keep it going on the same trajectory?

  2. Price changes gone near exponential? An increase in the rate of increase that is already completely disengaged from the fundamentals.

    Sales volumes low as all but the foolish stand aside? I was taught to study volume as carefully as price.

    I clearly don’t know when this will turn, but turn it will and, as we have seen in overseas property markets, NOBODY buys in falling markets.

    Don’t Buy Now!

  3. “RP Data’s daily home values index shows the absurdity of the Sydney housing market, where values have almost gone exponential:”

    Holy moly. We need AMPo Shane to get in here and do some work on the Y axis. That’ll calm the BOOM.

    • I agree, 3dik, Sydney is the sleepy backwater of Asia so investors will get burnt, I would bet on it.

  4. Any country with a graph like the first one would be proud IF it had been achieved from productive growth. IF high house prices had been paid for from the fruits of successful endeavour, and IF it was financed by the reallocation of domestic savings – the surplus of past business success. But what do our economies celebrate with that graph? Historically low interest rates and foreign debt. We will reap what we have sown…

  5. Look on the bright side… a vertical ramp like that only brings the inevitable reversal even closer….

    Casino real estate… Pity the idiots who recently bought at the top!

  6. Credit availability is in theory the same across all states.

    WTF is going on in NSW & VIC

    Is that hockey stick really all foreign purchases?

    If so then lifting rates (especially marginally) wont stop that train.

    Hopefully the graph reflects only the higher cost houses being exchanged more than the lower priced.

    I need to see a psychology chart – crazy to live in NSW.

  7. I struggle to understand how investors can absorb the monthly loss between rent and interest on these ‘investments’ the gap must be huge. I know they will get a big chunk back with tax returns but that is no way to live.

    • You’re right Rod it is no way to live. Cashflow is king and I’ve seen more than a few asset rich investors head to their nearest Salvos for some tinned food after handing back the supermarket shopping because the accounts were all empty. It’s appalling.

      • Jimbo, these people you know who I presume have Negative geared IPs do they ever stop to wonder why they are subsidising someone else’s rent while they go hungry.

        I rent the place I am in its up for sale $2k rent pm, $750k price tag. So whats that interest only $4k+pm?

        On a cash flow and quality of life basis why buy it? I would burn over 2k yes I will own it one day and it would keep the missus quiet temporarily but it would need a couple of hundred spent in next several years to keep the old girl standing.

      • Just over 3% gross yield in that case. I think recent data suggested an average gross yield across the board is 3.5%. Pitiful as an investment sans capital gain.

        Paradoxically these people I speak of see the IPs as the solution to all their wealth problems. Sometimes the problem can masquerade as the solution.

  8. Wonderful news! Those of the lower castes can now look forward to the pleasure of serving us, their wise banker masters, a bit longer. We’ll be happy to accept the lives of their newly born young as offerings of gratitude.

  9. They’re piling in because of record low IR. If rates stay low, they’re laughing. It’s basically a massive, massive gamble on IR. Let’s see 3 rate rises & see how comfortable investors are then.

    • Record low IR *AND* ever growing CG.

      That being said – who are you, and what have you done to the real Turnitup?!

      • Ha ha, I’m still me Ino. Unlike many who leave comments, I do not have an axe to grind and can see things rationally. It is wonderful to have the freedom to see both sides of the coin. I’m not really anti, or pro, anything, except bull shizen.

  10. I fear markets will remain irrational longer than many Macrobusiness commenters will stay sane.

    • reusachtigeMEMBER

      EXACTLY!

      How many years has it been now? LOL

      Stop looking for ghosts in the machine and get in there with some oil peeps… 😉

      • No thanks, I’d rather be able to say to my family at that inevitable yet possibly distant future moment that “I wasn’t wrong 10 years in a row, I just predicted the outcome 10 years ago”…

        Call us naive as is so clearly your want, but you’re smart enough to identify that the writers and vast majority of readers here are dedicated to researching, observing and pointing out the structural imbalances, and on that basis, opting out of the biggest gamble in Australian history. The scale of this disaster trumps the timing by far.

        If you can remember your risk matrix principle: likelihood x consequences = DISASTROUS risk profile here. It’s only worth talking about timing, if like you, you have the intestinal fortitude of an adventure sports person and (I’m assuming) a fortune to play with. The rest of us mere mortals on the other hand…

        Not ready to bet the farm that I don’t yet have…

    • But if you spend twice as much by buying in Sydney then you also double your capital gains!

      Don’t you know how the property market works in Australia? 😛

      • Probably more based on what the chart shows.

        You’d be laughing if you bought before 2013…. the chart says it all.

      • You see shitty florid carpets, I see an affordable home for a FHB and his family. Kinda flips everything we read about unaffordable housing in Melbourne on its head doesn’t it? Hmmmmm, interesting.

        Note: Carpet can be replaced.

      • Yes Mav, Turnitup is right. This has been your first comment in years! I disagree with. Otherwise, I do enjoy reading your posts.

      • Looks more like boomer parents than boomer.

        After consulting my map to find out where it is located it does appear a far distance from the CBD.

        $320K is not as much as some but it is hardly a bargain having regard to the condition of the house and the location.

        20 year loan

        $32K deposit
        $288,000 loan
        9% interest rates (yes I know that we all believe that interest rates can never ever go up again but they can and 9% is a reasonable conservative worst case)

        =$2,605 per month.

        That is a lot of money for low income earners.

        Having regard to its age and location it should not cost much more than about $150K tops. $100K for the land and $50K for the museum.

        Then you would have some happy first home owners seriously saving for a newer house or to do some major renovations.

        Not much saving will be going on for a young couple with combined income of $70-90K (assuming they both have reliable employment) after they scratch together $32K and take on a loan of $288K.

        But I suppose what price does one put on living in Melbourne in St Albans – a touch of Europe down under. As to which part of Europe I will let you choose the postcard.

        Of course compared to Sydney it is a give away price.

        That townhouse looked a better bet for the time poor young urban boho who enjoys a nice commute with plenty of reading time.

      • GunnamattaMEMBER

        Thats about the sum of it there Pfh.

        Even at 5% it would be a hefty clip off someone earning say 70K (maybe a mid range teacher)….

        Know an old Turkish Cypriot couple who came to Australia post 1974. He always thought Australia was the greatest nation he had ever clapped eyes on. He worked out at Ford beyond his 65th raised two sons – one did a teaching degree and eventually decided he could do better teaching English back in Izmir than in the Victorian education system (lets say you’re a teacher! Seen the Victorian budget outlook? How reliant is that on real estate stamp duty transfers?), the other did Monash law and came to the not unreasonable conclusion law was bullshit, and he may as well get into real estate law in North Cyprus. The old couple sold their St Albans home mid last year for 460K and they went home to North Cyprus and picked up something like this http://www.unwinestates.com/info.php?id=1241 and pocketed the rest (and it will go a long way in Kyrenia too)

        He keeps telling me and the Mrs that as soon as she has a passport we would have to wonder why we would stay – ‘Wadda kids gonna do there?’

        He has a point- Australia is exporting its manufacturing sector, and has the worlds most expensive university education according to HSBC a week or so ago, and apart from that is currying FTAs which dont support agriculture all that much, and the worlds most expensive houses to backstop productivity – while reshaping the whole economy to live off transfers from mining. Our kids are going to be rent seekers in a shrinking pond, waiting for their economy to grind to a halt, while paying the taxes for a load of boomers (and I think you are right that house is not boomer but older) to retire on.

        Stupidly expensive housing is not the be all and end all – it is a symptom of far greater policy dysfunction. But at the end of the day it alone is enough to make decent people ask why they would stay.

      • GunnamattaMEMBER

        That was South Cyprus old coq, though I realise political geography may not be your strong suite. These guys were Turkish Cypriots – they live in the North. The Greeks live on the other side of the Green line. Apart from the fact they essentially loathe each other they are broadly the same – good food, warm friendly intelligent people, love conversation all that sort of Med stuff…..

      • flyingfoxMEMBER

        @Gunna Given that cyprus isn’t really considered cheap in housing terms, what you get for the money puts anything in Oz to shame. This cannot end well…

      • Ah fair enough. I am in fact half Greek, my dad being born there. Not my strong suite at all.

        Actually my old man was living in Sydney for 10 years before getting fed up 6 or 7 years ago and heading back. Couple years later and he was back here (Melbourne) with his tail well and truly between his legs. The old mother country wasn’t quite as he remembered it.

      • GunnamattaMEMBER

        You wouldnt go looking for work there. But if you had remote work or a reasonable kitty and didnt need to worry about educating kids, Cyprus would be fine. Very good and cheap doctors and medical profs.

        Greece is genuinely rooted. What the IMF and EU have done there beggars belief

      • Given that cyprus isn’t really considered cheap in housing terms, what you get for the money puts anything in Oz to shame. This cannot end well…

        http://www.unwinestates.com/info.php?id=452

        Just observed this one.

        I compared it to what I could get in Binningup, or basic bits of garbage in Dawesville. Both of these in WA would cost vastly more.

        If Australia has a land shortage, what about Cyprus?

      • The old man was offered his old job back (behind a reception desk in a huge hotel on the island of Rhodes) for pretty much exactly half what he received all those years ago. Not sure that job would exist at all right now.

        It’s funny how many people bag Australia but choose to stay. It may not be perfect, and if you’re not working then it’s hell, but if you have a half decent income then there are still some great opportunities.

      • may not be perfect, and if you’re not working then it’s hell, but if you have a half decent income then there are still some great opportunities.

        Why raise that?

        No one is dissenting against that.

        What they are dissenting against is the nature of the economy, who it rewards and for what activity. Also, what long term harm it is doing and what does that bode for children.

        An argument of “well the place may be f*cked, but other places are more f*cked.. so you should be grateful”.

        Any degree of f*cked is worthy of dissent, more so considering how fortuitous we’ve had it in recent times.

      • GunnamattaMEMBER

        ‘but if you have a half decent income then there are still some great opportunities.’

        great opportunity to raise kids in a safe environment when they are <12 or so (but the education loses cost benefit afterward, and the safe environment doesnt mean as much)

        great opportunity to spend an inordinate amount of time paying off an inordinately large mortgage.

        great opportunity to spend the golden years having your dribble wiped (one way or another)

      • “Any degree of f*cked is worthy of dissent, more so considering how fortuitous we’ve had it in recent times.”

        When you consider that we’ve been so fortuitous at the direct expense of Australia’s first people (who’ve been here a lazy 60,000 years longer than us) then perhaps we are finally reaping what our forefathers sowed. How can you expect a country that tolerates the children of our first people living in such appaling conditions to give a fark about housing for the rest?

      • Turnitup,

        Policies that make housing more expensive than it need otherwise be are worthy of dissent.

        Those policies affect the descendants of the indigenous people as much as anyone.

        You are quite right when you say that with sufficient forebearance the state of affairs can be tolerated if one is frugal and plans well. You might even go so far to describe it as a First World problem.

        But that is no reason not to try to do better.

        Tying a large weight around your ankles will make you fit and strong but you will still be the dude who can’t keep up with everyone who did not resort to such extreme methods of improving their character.

      • @Turnitup

        Travelled for afew years and have now lived abroad for over a year now. Keep waiting for the homesickness to kick in.

        Aside from the occasional hankering for a meat pie, no sign of it yet.

        If anyone is considering leaving, I say try it.
        Worst case scenario, you don’t like it and go back.
        (But you’ll probably like it)

      • GunnamattaMEMBER

        @Dave_Comments

        Good on you…

        I lived overseas for a decade, and apart from an intermittent desire for a game of footy and some home items (blundstone boots etc) the homesickness never did kick in. What I found myself missing on occasion was the timelessness of the Australian landscape and the smell of dust and distant eucalyptus.

        What I found was that apart from one or two who I knew well I was generally very cautious in bumping into my fellow countrymen – particularly in Europe – lest I bump into an utter wanker, an approach taught by experience. And I know I wasnt the only expat Australian who had that approach.

        I came back mainly to give my kid a solid grounding in english (as I think that will be of use to him no matter what he does in life) and to experience an Australian kids upbringing – I do think it is superior, Australia is a fairly kid friendly place.

        But there are limitations and once you get to secondary school you start to identify that Australia has a fairly segregated (private/public) and inordinately expensive system, and about the worlds most expensive higher education (compare with Germany or most places – not UK – inside the EU). That breeds a quite overt anti intellectualism, and suspicion of thinking about complexity, causes and effects – and ultimately a fear of chewing over almost anything because ultimately it leads to a negative implication for a vested interest of some sort

        Beyond that you start to identify that Australia is crafting a world benchmark uncompetitive economy revolving around mining exports, a population ponzi, and uber private debt overlaid with and generational ransoming, garnished with cheap conservative trimmings (like knighthoods, a monocultural press and worship of the FIRE sector), which is telling anyone with any sort of inclination to doing something substantive than suburban existence to take it elsewhere. Australia is telling it kids (and I think this is largely a revert to mean in that it is similar so I am told to the cultural attitudes of Australia for most of the 1900s until Whitlam and others decided to give Australian culture some breathing space) that is a place for the mundane and that anyone looking to push boundaries of any description should be looking at North America, Europe or Asia.

        Thats pretty much what i have found in returning to my homeland – pretty much a setup designed to discourage any form of intellectual aspiration, inwardly focussed, with a default mindset of assuming the rest of the world is inferior. I too would very much encourage the younger set (and when I say that i mean anyone under about 40) to have a look around elsewhere – there are certainly viable alternatives.

        …and as I keep telling my Mrs, when in Rome do as the Romans. If it has become a nation of ginormous pisstaking then pisstake along with the rest. If it worships dullardry then do that in public (and she has mastered the ‘Hi how are yooooeeeewwwwww’ line beloved of shop assistants almost everywhere). If the social mindset is terrified of discussing art, economics, politics, the rest of the world then dont talk about it except for those who we know have an interest in such stuff. Dont think about nationalism as something somehow integral to anyone, just think about it as a passport to be gained and later used (sort of like a lot of international real estate investors). We just serve the time and move on. And if in the sere and yellow of life it is delivering good outcomes, then come back then and enjoy the sunset, if that looks better than what might otherwise be available.

        More Australians should have a look overseas for sure, and they should take longer than a 1 month boozefest to do it.

      • @Gunna, if that’s your experience of Australia then I can see why you are so down on the place. Mate it sounds like you’re stuck on the set of The Block or something. You know you do have the choice of who you knock about with! I grew up in a small country town and so know exactly what you’re talking about, but when I hit adulthood, I soon moved into groups of people beyond the bogans you just described. BTW, if every nation on earth doesn’t have its share of bogans, then I’ll be damned.

  11. Yes Mav, Turnitup is right. This has been your first comment in years! I disagree with. Otherwise, I do enjoy reading your posts.

  12. I’ll admit, I’ve never been to St Albans. I wikipedia’ed it to learn it was 15kms from the CBD.

    9% IR, well now you’re just looking for excuses. Can we step back to reality for a moment please? You can lock in 5 and a bit per cent for 5 years! Principal and interest! In 5 years time when you’re ready to refinance, you’ve had 5 pay rises (let’s say you’re a teacher).

    As for it hardly being a bargain, why would you feel entitled to a bargain? I hope you do not, because you are not. You may argue that you are entitled to buy affordable housing, and here you’re presented with it on a platter, and you refuse to see it.

    • I don’t think they’re looking for excuses at all. They’re not being handed affordable housing on a platter

      You’re trying to present a $320k house as a sign nothing is wrong.

      $320k is still 4.5 times wages, and it’s one house.

      It’s very cheap, in a cheap suburb. You expect the entirety of Melbourne’s working young to pack into this one house?

      Affordable housing means when an average income family has a choice of a variety of suburbs, all trading off utility in location, bedrooms, local amenities, public transit infrastructure, and is around 3.5 time wages, $240k. Ratios found in the affordable cities of the US, all common with looser zoning laws.

      The below average housing in suburbs like St Albans then are available for those whose family situation has less than average income, such as single parent households, one disabled parent, low skilled workers, or recent migrants

  13. RP, I’m not trying to present it as a sign nothing’s wrong. I know as well as anyone there’s something very, very wrong. But I like to see the whole picture, not just the one-dimensional one where affordable housing is non-existent.

    As for…… “Affordable housing means when an average income family has a choice of a variety of suburbs, all trading off utility in location, bedrooms, local amenities, public transit infrastructure, and is around 3.5 time wages, $240k. Ratios found in the affordable cities of the US, all common with looser zoning laws.”……

    That’s just not going to happen in Melbourne or Sydney. ‘Average’ income families won’t have their pick of suburbs unfortunately. I came to terms with that years ago.

    As for your point about St Albans being a ‘cheap’ suburb…. does that mean it’s not a great place to own a home, or raise a family?

    • As for your point about St Albans being a ‘cheap’ suburb…. does that mean it’s not a great place to own a home, or raise a family?

      No, it means if average families are taking the bottom suburbs, where do the below average families live?

      I’ll make the comparison to Sydney, and what boomers had available as choices to them.

      They weren’t bleating about unaffordability, by pointing at Kirribilli or Elizabeth Bay.

      They could acquire cheap by Sydney standards, housing in Hornsby, Or the Hills District, or East Hills and Chipping Norton.. or Miranda.

      (Equivalent for Perth would be Duncraig, Maylands, Bateman, or Thornlie.)

      All varying locations in Sydney for new suburbs. If they wanted to live closer, places like St Peters, Merrylands, Hurstville, Lewisham, Eastwood in older suburbs that didn’t quite have the amenities, such as number of bedrooms, etc.

      (Perth: Glendalough, Queens Park, Medina)

      That was available to average income earners, those below average could find shelter in places like Auburn, Liverpool, Mt Druitt.

      The boomers weren’t forced to only have the choice of half of Auburn

      That is why this is perfectly matched with the worst aspect of generational theory.

      It is about the opportunities being denied, and that cost, the wealth transfer in particular.. who are the beneficiaries of this.

      • Yep it’s the same in Melbourne, Boomers had the chance to buy properties in decent locations for two or three years salary. Obviously our generation does not have that opportunity. They also went to shitty schools where they got belted and there were 44 kids in a class.

        Your last point is a good one. I don’t disagree with most of what you’re trying to say by the way.

        Do you mind if I ask a question…… what are you doing about this injustice?

      • They didn’t have 44 kids to a class at all.

        Chifley’s reforms, and Menzies’ bribes to the DLP meant education was well funded.

        I am planning to emmigrate. I ventured into Malaysia late last year, was negative on that. i am continuing my search

      • Fair enough if you’re looking to put your money where your mouth is RP. I sincerely wish you all the best with the move. Think I’d be looking for a country that doesn’t have captial punishment, but that might just be me.

      • They didn’t have 44 kids to a class at all.

        Just checked an old school photo.

        Marrickville Boys school – 1954 – Class 4A

        Number of kids in the photo – 44.

      • @Nunatak, wow, I just pulled that number out of the sky, but there you go.

        I dare say that schooling today is far more comfortable than it was ‘back then’. Bloody hell, today we even have Individual Learning Plans for each and every student. Plus laptops. iPads. Reading recovery for those in need. School psychs. Nurses. Indoor play for those kids struggling in the jungle that is the playground. Kids in Australia have never had it so good I suspect.

  14. Ha talk about a Frankenstein moment!

    Glen (Frankie) Greenspan: “the economy, look it lives, it lives”

  15. Why hasn’t the FIRB ever conducted a compliance audit of the visa status of purchasers of existing dwellings in Sydney?