Is the Aussie housing market about to “rip” like NZ?

Citi says so at the AFR:

“The RBA’s almost singular focus on the currency will lead to the inevitability of what always happens when rates fall—asset prices go up,” Citi’s Brendan Sproules and Thomas Strong said. “Particularly housing.

“Certainly, the AFR’s Banking Summit gave credence to this view, with a broad acknowledgement that housing would accelerate. And as APRA noted with the ‘concentration risk’ in mortgages for the Australian banks, there are many implications here to be noted for bank investors.”

After a bumper week for bank shareholders last week at the hands of an improving picture for the economy and housing market, Citi’s analysts questioned the expectation among investors of sustained pressure on lenders’ top line from “a debtless recovery”.

“Some have moved expectations for house prices… but not for housing credit growth. To our mind, this seems a ‘slight’ disconnect”.

Citi pointed to the dramatic reversal in house prices in NZ which has followed a “messy” policy response. The Reserve Bank of New Zealand estimates for the residential market in 2020 swung from a decline of 7 per cent in August to growth of 10 per cent for the year in a revision from the central bank last week.

“As we discovered over in NZ… some central banks have taken the pursuit of a low currency a bit too seriously,” the analysts said.

“After misreading the tea leaves with what was happening in the local property market, in adding stimulus over and above what was required to shore up the economy, they have overlooked the fact that they are sending housing to the moon.

The question is is Australia the same as NZ? For now, the answer is no. Unemployment in NZ is 5.3% versus 7.2% in Australia and, although it is rising, it is clearly on a lower trajectory than Australia and will stay that way for the foreseeable future.

As well, vacancy rates are lower and rents have still been growing in major cities, contrary to Sydney and Melbourne. As Leith has noted, NZ never built out its immigration boom the way our southern cities did.

Australia also faces economic headwinds that NZ does not in its China decoupling and what will be falling iron ore ahead, plus the foolish Depressionberg Unstimulus.

For now, I expect the Aussie property market to bifurcate with non-virus capitals outpacing virus capitals as the latter chews through its extraordinary inventory problem.

That said, as the vaccines arrive and with them a resumption of immigration, albeit slower and lower than in the past, the Sydney and Melbourne markets will backfill and we all know what that means.

David Llewellyn-Smith
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Comments

  1. Mortgage rates have fallen from 4% last year, to less than 2% now.
    This means people can borrow double the amount of money for the same cost.
    Therefore house prices will double.
    The maths is simple.

    • The90kwbeastMEMBER

      Everything you just wrote is so wrong I don’t know where to start… go play with a mortgage calculator champ and you might want to revisit your post.

      • You seem to have forgotten that “interest only mate” is the australian way. At least short term. But how long are people holding or waiting to refinance anyway?

  2. In north west sydney, the prices have already ripped over the past 6 weeks. Most houses up 15-20% in comparison to similar homes sold over the past 12 months. As someone who had been looking to buy, I’ve missed the boat and will be paying dearly now.

    • The90kwbeastMEMBER

      Yeah, the Hills is certainly doing well right. 15-20% sounds pretty high though. I would have said 5% gain anecdotal and with inventory clearing in a matter of weeks (4/5 bedroom houses, 3 bedroom townhouses).

      • I was probably generalizing – I’m finding the $1m+ are closer to 5-10% (particularly the hills).
        Some of the other suburbs in the west are rocketing – kings langley and surrounds. I saw a home in seven hills go for 1.2m… absolutely ridiculous and was at best priced closer to 900k. Buyers are panicked, and loaded with cheap money.

        • The90kwbeastMEMBER

          Fair enough I’ve only been following Castle Hill and surrounds. Agreed, cheap money is floating around and going where it usually does in this country; property.

          3 bedroom reno’d townhouses on strata in Castle Hill are now routinely fetching $950-$1.05m which is just nuts.

          • Display NameMEMBER

            I sold in Castle Hill about 3 years ago now. I went back there for the first time last weekend to the ghetto formerly known as Castle Hill. Five 20+ story building surrounding the shopping centre and another 5-10 of these sort of buildings to come within 1km of the shopping centre. None of the utility of the city and all the draw backs of 40Km from city centre.

            When I first went to the hills about 30 years ago, there were cows across the road from the gym I went to. Now its grid lock most of the time. I used to spend 3hrs a day in the car. Now its 40min. It was a great area to raise the kids. Less so now. And will be even less so in ten years time. It is a good example of density in the wrong place.

          • The90kwbeastMEMBER

            @ Displayname, if you think Castle Hill is a ghetto I’m envious of the standards and wealth you have to buy into the suburbs in Sydney that are demonstrably nicer than Castle Hill.

            “None of the utility of the city and all the draw backs of 40Km from city centre.”

            Metro stage 2 once done in 2024 will allow you to travel from Castle Hill to Pit St in about 30-35 mins. When I lived in Randwick it took 40 minutes by bus to get to the city, and Randwick is 10km away…

        • boomengineeringMEMBER

          Alex,
          sympathize, I suppose all you can do now is wait it out and hope the banks prediction of another 5% rise next year does the opposite.
          Just repeat to yourself ” wealth goes from the impatient to the patient”.

          • Thanks boom, unfortunately with a second kid on the way and my current rental now a construction zone due to 3 x 10 story apartment blocks being built across the road in rouse hill, I have no choice but to bite the bullet in the new year and not drag my family through another move into a rental property. Not looking forward to paying the financial price, but will be nice to finally hang pictures on walls without asking for permission.

        • truthisfashionable

          Think I was watching the same house in Seven Hills, absolutely shocking and already a few others seem to be using that as the price basis.

          • Yep I think agents are using this panic buying to set the next price floor in the market. Unless there is a wave of forced selling (which there won’t be), then I expect this will be the new pricing point. Gah!

        • Do what I did and move to Glossodia, 10m NW of Windsor. 1000sqM, 4br, pool and large shed for low 8s.

          We are moving from North Kellyville.

          • Been half tempted by Wilberforce/ freeman’s reach but the daily commute to city will be the end of me. Furthest i can justify is box hill, and even that is a stretch (financially and distance).

        • (replying here as it appears I cannot directly reply to your last message).

          I’m lucky in that I WFH full time, and probably will only need to do max 2 days per week in the office next year, if at all.

          For the times I have to go in, I’ll drive to Tallawong station and get the metro. It’s a good option if you only have to do it 2 or 3 times a week.

    • innocent bystanderMEMBER

      but, but, MB says Syd & Melb are in dire straights.
      me thinks they need to get out more.

    • Mate you sound like a spruiker – but in case you are not sit down and listen.

      90% of all purchases being made RIGHT NOW in Australia are from existing home owners. You need to really understand that as its an absolutely insane. 10% are first home buyers and I would say less than 1% of purchases of this ilk are within existing properties.

      There are ZERO foreign buyers, there are ZERO migrants, ZERO business travelers, students, tourists or anything else.

      The only input is expats which represent around 30,000 purchases across all of Australia – we have around 400,000 gross (combined of all above) each year.

      A combination of things is happening – the first one is – epic levels of absolute guff – total spruik rubbish. The do data scraping on the major real estate websites and what is being sold compared to what is being listed is an absolute disaster – stock is just piling up.

      Yes SOME things are selling – but nothing compared to what is NOT.

      But here is the real kicker – yes people are out there buying properties – but as I said they are almost entirely existing home owners – now SOME of them are going to be buying second homes for no reason other than that. But almost all of them will be either renting them out as investment properties or with most are looking for a change.

      I would honestly say that 10% of the people I know are moving – its insane – many leaving Victoria for coastal and QLD sunshine. Without exception they are all buying and renovating to some degree and looking to move over the holidays. They are all planning on selling in Feb -March as that is when – according to them – the borders will open up and they can sell to “Chinese buyers” and make a killing.

      Now at the start of Covid there was lots of conversations with developers and speculators in real estate – on this website and others. And the consensus was that there would be NO impact on house prices till November / December and that those under duress would not need to start selling until at least February March next year.

      Further there would be no impact on house prices until April May and that things will be well crashing by September 2021.

      The view expressed was that September 2021 will not be the bottom however it would be at least 2/3rds of the way down by then and worth jumping in before the market turns.

      That has been my plan for six months – and nothing I have seen will change that. Yes there is some enthusiasm primarily from marketing and advertising agencies spruiking things and a few buyers – but the real data says things are very average – but no crash.

      It would be sheer lunacy to think there will be no impact – honestly its insane to think otherwise.

      There is mass unemployment in the form of Job Keeper coming, there is mass unemployment as the bankruptcy holidays are ended, Victoria has increased its apartment rental vacancy rate by 27%!!

  3. Goldstandard1MEMBER

    What’s important is to borrow as much as you can, sleep terribly from worry and then retire and die early. Then your kids get that worry and capital gain in the form of an inherritance, and borrow as much as they can and wash and repeat. It’s like in the lion king- the circle of life.

    • It’s the wheel of fortune, yeah
      It’s the leap of faith
      It’s the band of hope
      ‘Til we find our place
      On the path unwinding, yeah
      In the circle, the circle of life

  4. It’s gonna rip. Lowe has unleashed fury at 1.9x%
    1 in 5 want to buy in the next year.
    Not many want to sell.

    By April 2021 the market will be spiralling out of control we’ll need macroprud again. Debt to income limits possibly.

    • Goldstandard1MEMBER

      The question is, once everyone has had no choice but to get in, then something happens that unravels it……what then? It’s not like everyone can sell overnight like in shares.

    • 90% of the purchases are existing buyers – and most of them have bought prior to selling with the intention of selling in the new year.

      IF you actually look at the data (I scrape websites) almost every where is seeing stock pile up.

      There are no new buyers in Australia, tourists, foreign buyers, students, migrants – so WHO are they intending to sell too ?
      First home buyers make up about 10% and they buy in estates.

      Australian real estate is driven almost entirely by morons – while the reality of market fundamentals has not even put on his socks.

      Expecations for market correction were never EVER in 2020 – always forecast to begin late 2021 – we haven’t even ended JobKeeper or bankruptcy holidays.

      Its like passengers on the Titanic declaring nothing to worry about because they walked up the stairs to the next level and there was no freezing water – its just hugely stooopid on a massive scale.

      • innocent bystanderMEMBER

        is your data national? or just inner Melbourne?
        I monitor certain suburbs in Perth and occasionally NSW and I can’t see anything that even remotely resembles what you are saying. Other anecdata here on MB from other parts of the country imply the same.

        • That’s National stock. Big compression in QLD and WA stock. NSW compressing at trend, VIC a marginal compression given late selling season start but that fuse has been lit.

          • innocent bystanderMEMBER

            thanks, that ties in with what I am seeing – who knows what Crush Loader is looking at.

          • That particular anonymous poster’s personas are somewhere known for being prone to exaggeration.

      • Its bullshit. It needs to correct.

        If I couldn’t afford I would go further west. Holsworthy etc are still good.

    • I’m planning on buying late 2021 like every other speculator and developer in the country who decided that would be the market correction when Covid hit – relying on all the morons to jump in now to make that decision even better.

      Its astonishing just how stupid people are being.

      Jobkeeper is here to stay – and you can’t even go bankrupt – forever moneeeeee!!

      • Maybe. I thought it was going to go tits up for many years. I just think as long as the Fed keeps printing and we head towards negative interest rates then i think its unlikely it will crash. The government has made it clear that they regard property as the economy, because they are corrupt and lack vision.

        I am hearing lots of stories of the monied buying real estate as they regard it as a better investment then the banks. They are all paying in cash.

        Of course long term it doesn’t look good.Always need a greater fool to keep it going.

        I just don’t care anymore.I want a home where the doors work, the windows can be closed and my shed doesn’t leak.

  5. Conservative Snowflake

    It’s already ripping in places
    Trying buying coastal property in SE Qld now that Sydneysiders and Victorians realise they can work remotely from anywhere their recently sold overpriced $2.5m workers cottage can buy them.

  6. In Sydney it has diverged into two markets. House prices are going up, while apartment prices are going down. The for rent listing have exploded : 2200 properties for rent when I search my area in Domain.

    Expect a 30% drop in rent. If not more.

    • Rent demand is tiny this half because so many buyers think they’ll be able to buy early next year so dont want to lock in a rental contract. When prices rip and they’re outbidded repeatedly they’ll reassess and return to the rental market. Rent will stablise by end of 1Q next year.

      • The only people who have bought in the last few weeks are complete morons who have no idea we are even in a pandemic.

        There are the odd houses selling – but stock is piling up twice as fast – and the only people buying are existing home owners (First home buyers are in estates). So almost every single one of those sales in the last few weeks will see an equivalent house listed for sale in the next few weeks.

        This disaster hasn’t even started – and anyone thinking it wont is honestly just oblivious to the basics of reality.

      • Unless they are living in tents to avoid locking in the rental contract that is a very poorly thought out argument,

  7. There’s only one opinion that matters in all of this lot, and it’s not this blog’s or Jacinda Ardern’s or Scott Morrison’s, it’s the opinion of the unelected bureaucracy/oligarchy that runs both of our economies and countries. And that bureaucracy has told anyone who rises to the ‘power’ of Government the same thing ‘ “Listen, Jacinda/Scott/Whoever thinks they have a mandate to ‘run’ the country, there is already a swag load of debt that needs to be managed, and it’s always going to increase, and complicating that by encouraging a property price recalibration will not be in your political interests. So, best not to do it. Remember, we can make things difficult for you if you do”
    (PS: I didn’t get the message of what “Roadkill’ (Hugh Laurie’s latest miniseries; a “Yes, Minister” revamp ) was all about until I realise – Roadkill?, that’s us)

    • The most unfortunate fact is that the biggest losers are those Aussies who have refused to play the real estate game.
      And as long as the game keeps paying handsome dividends it will continue to be the best game in town, there’s no way that this will end with an orderly correction, It’ll go into the wall at full speed and then we will begin the rebuilding process, both figuratively and literally (given the construction quality and our economy’s dependence on RE).
      So until the shtf it’s time to ‘ave a go you mug! you gotta be in it to win…

      • FUDINTHENUDMEMBER

        Unless you’ve played the NASDAQ game or the bitcoin game over the same period, that is. Then everything is ALSO awesome.

  8. The response to COVID-19 reinforces the perspective that no matter what happens the Government will bail you out. So borrow as much as you can, if you can’t repay the loan, the Government will accomodate you.

  9. ‘…the Sydney and Melbourne markets will backfill and we all know what that means.’
    Right so it’s not a one turn game. Future projections does not equal oversupply. Future projected oversupply will be met by the entire quango just like TFF and cutting the rates.

  10. Market has been going gangbusters on NSW Mid-North Coast with what appear to be WFH lifestyle change and retiring boomer types pouring in from Sydney. Rental market for similar properties to ours (3/4 bed homes) is tighter than a fish’s @rsehole.

    Landlord just told us they’re selling up to take advantage of the increase in demand. House will be going on the market for offers between $690-$720k according to RE Agent. It’s a 4/2/2 on 834sqm. A similar 4/2/2 house (same builder) in the street on 604sqm went for $650K in October after 102 days on market. Average time on market now is 71 days. Owners have given us first dibs if we want to buy. Could easily cover mortgage payments on our income but we don’t have 20% deposit yet.

    We have to pin our hopes on a suitable rental becoming available in a very tight market, an investor buying the property so we can continue to rent or just biting the bullet (providing bank of M&D can help with going guarantor or deposit) and buying the house (or another similar property if it is available).

  11. My wife and I are currently looking for a new property, we are existing home owners who’ve paid off our current house in 11 years, as we purchased it back 2009. When we visited some home builders last weekend, most of the buyers are middle aged couples with their near teen children. A couple of years ago when we would browse we would see young couples, where we went last weekend, young couples were scarce. In addition, we’ve contacted a couple of agents about land as we try to gauge the market if we are better off selling our current land and buying a better sized or positioned one. The agents told us most inquiries are from “buyers”, as in non first time home owner buyers, as they have their own category. Not too surprising, the prices are not low. Land 50+ km from CBD Melbourne is commonly priced at 500K or more for a 500sqm approximately. Land within 30-40km of Melbourne are in the 700-900K. These are not “young” couple prices, they arent attracting new home owners because building a house cost another 350-600K depending on the size and features. So you are looking at likely 850K to 1.1 Million dollar houses post build. Looking at established homes, the numbers are down but the areas we looked at a few year back were around 900K to 1.2M around inner western Suburbs, Essendon and Strathmore area. Today?, the prices are all above 1.2M and the same sized house a few years ago that advertised for 1.1M or near, are now advertised for 1.5M.

    The agents are circling in on existing home owners with paid off mortgages and equity. We are now reconsidering about entering anew mortgage, it is crazy. They are gauging the prices, sellers are hoping the buyers are other home owners with money or equity, it is disheartening. You’d think a dire economy and inflated unemployment would make people more risk averse.