The RP Data leading mortgage index is out and the Summer bounce has topped out solidly below last year:
Listings are also taking on the characteristics of a correcting market, surging in the New Year:
Put this together with Housing Finance and property prices are going nowhere, with the risks clearly tilted down.
More specifically, take a look at the mix of the Sydney mortgage clearances by geography:
One has to know Sydney to understand this distribution. The inner city, Inner West and East are all wealthy areas that have high natural demand. But they are also driven by the “move up ladder” that comes from the Outer West, South and North West where property is more affordable. Basically, if you can’t afford to live near the water you buy out there and wait for prices to rise, cash in your equity then move closer in.
In 2003, the Sydney bust began in the West and South Western cheaper mortgage belts. That’s where auction clearances have now collapsed. It happens here first because the demographics cannot support higher house prices for long. People are simply less wealthy and on lower incomes so affordability bites more quickly than further in.
But when these outer mortgage belts deflate they trap those that moved out to get a foot on the bottom rung of the property ladder with negative equity and the move-up ladder stalls, plateauing the wealthier burbs as well.
In 2003 this process was manageable in Sydney owing to the huge population surge emanating from the mining boom. That saw an huge surge in incomes and rents that helped support the overall market as it corrected in real terms over ten years by remaining flat.
This time population growth is falling (though still strong), incomes are stalled and rental growth is weak. Interest rates are low and Chinese buyers are helping (see Ryde) but as a market it’s pushing against a very large downdraft in the mining bust.
You’d have to be a genuine optimist to see the outcome as benign this time as it was 2003. Full report.
