Property insiders sour on market

The ANZ/Property Council industry survey is out today and making headlines in an MSM hopeful for a soft landing. Confidence has eased:

And price expectations have fallen sharply:

Whether that is meaningful I have no idea. The full report is here.

This, however, is meaningful:

Home loan rates would only have to rise 50 basis points – the equivalent of two Reserve Bank rate increases – to trigger an exodus of property investors from the Sydney housing market, according to financial modelling by research and consulting firm Riskwise Property Review.

Riskwise, which undertook the modelling to “take the guesswork out of investor demand forecasting” also found that home loan rates would have to rise by a much higher 100 basis points in Melbourne and 150 in Brisbane to trigger an investor exodus in those markets.

The firm reached its findings using the “surplus/shortfall ratio” (SSR) – the ratio between the gross rental return and the funds required to service a discounted standard variable mortgage with an 80 per cent loan-to-value ratio – and with 10 years of housing data provided by CoreLogic.

It found a clear correlation between the SSR and the number of investors in the market – the higher the ratio, the greater number of investors in the market. Using this correlation, it could then model the impact of interest rate increases and work out the tipping point in each market. Riskwise founder and CEO Doron Peleg said the biggest surprise was how close Sydney was to the tipping point. “Half a per cent, only a few tweaks from RBA, could make investors start leaving this market,” he said.

With that I completely agree which is why we won’t see it from the RBA.

Comments

  1. They talk about investors and ignore the owner occupier.. Two hikes will also trigger fair number of owners to sell.

    • Unless the banks continue to raise rates on investor loans but quarantine owner occupiers.

    • Vast majority of owner occupiers have already had the benefits of several rate cuts, sitting on plenty of equity and often pocketing the gains into a mortgage offset. Its the over-leveraged speculators who need shaking out. Time to hike RBA.

  2. The Traveling Wilbur

    And the Nobel goes to: Riskwise Property Review.

    Nice work. Though given this Research takes a while and given recent IO/Investor loan hikes, the proposed 50bp event horizon may already be closer than it appears for some in Sydney.

  3. Housing affordability crisis bonds Sydney community across cultures and religions – ABC News (Australian Broadcasting Corporation)

    http://www.abc.net.au/news/2017-07-13/sydney-housing-affordability-disaster-sparks-collaboration/8703234

    A diverse group of 600 people from across Sydney last night cheered and made impassioned speeches, bonded by the horror housing affordability situation that is threatening their communities.

    The Catholic Archbishop of Sydney mingled with other faith groups, single mums, business leaders, trade unionists and former homeless drug addicts.

    Magnus Linder, executive officer of Churches Housing and the chair of the Sydney Alliance Housing Team, said people were deserting Sydney because of the cost of housing and rent. … read more via hyperlink above …

    • Foreigners nearly 20% of the market. All the talk about Chinese crackdown amounted to nothing.

  4. I guess the scary part is the word exodus because no one really wants that do they as it could lead to everyone’s nightmare a crash and I think this could include home owner occupies and investors because many are in it up to their eyeballs. I’m not sure but I’d guess the RBA doesn’t want a nightmare on it’s hands and the government wouldn’t be too happy either and we should also think of the troubles for those forced to sell.

    It looks to me and I’ve had property for quite a few years and am in a good position luckily thank god that the banks themselves are sorting the riskier investors from the rest which is better by far than some sort of exodus or avalanche or nightmare if RBA was hasty because the RBAs rate changes are a mindset sort of thing and RBA raising rates would really spook lots of people.

  5. It’s job losses not higher interest rates that will crash things.

    Owner occupiers will sit at home in the cold and dark eating tinned dogfood before selling the PPR and most investors will do the same before crystalising a capital loss, if the banks allow them to.

    While this is happening, the shopping centres / department stores / boutique shops / beauty salons / restaurants / bars / travel agents / sports stadia / tattoo parlours / car detailing joints / car lots / cinemas / jet ski and boating stores / holiday resorts and towns of Australia will empty. The apocalypse foretold in the book of Revelation (Church of Propertology Revised Edition) will come when, and not before, the cohort that lose jobs as a result of that process intersects substantially with the mortgage paying population.