Sydney Property Prices Regain All Lost Ground

Post by Sharat on April 21, 2013 · Under banking, News · 10 Comments 
sydney (2)

Property prices in Sydney have regained all their losses since the property slump in 2010 making it the first Australian city to do so whilst Melbourne has maintained steady prices despite predictions that prices would fall further.

According to RP Data Rismark, property prices in Sydney rose 1.5 per cent in March making it the first city in Australia to regain all the ground lost over the last three years.

The Australian residential property market had a strong month in general with nearly every major Australian city recording growth.

The national house price rose by 1.3 per cent during March which was the second strongest month since property prices fell.

“[Nationally] the March 2013 result is one of the strongest we’ve seen over the 3 years since March 2010,” said Rismark International CEO Ben Skilbeck. Mr. Skilbeck added the only Australian capital city that did not experience any growth was Adelaide.

Cameron Kusher of RP Data added that the Sydney property market had been strong since last May.

“Sydney has experienced a long period of sustained under performance. There’s not a lot of new construction taking place but population growth is starting to ramp up again, which is what I really think is driving that market.

House prices in Melbourne rose by 0.8 per cent in March contradicting RBA predictions that more falls were likely in that city.

Brisbane house prices rose by 1 per cent, Darwin clocked 2.4 per cent, Perth 3.4 per cent and Hobart 2.4 per cent.

Property prices in all cities except Sydney remain below 2010 levels despite the growth trend resuming.

Price of Houses in the UK by Images_of_Money, on Flickr

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10 Responses to “Sydney Property Prices Regain All Lost Ground”

  1. Your Financial Partner | Sydney Property Prices Regain All Lost Ground – Money AU on April 21st, 2013 11:03 pm

    [...] Sydney Property Prices Regain All Lost GroundMoney AUProperty prices in Sydney have regained all their losses since the property slump in 2010 making it the first Australian city to do so whilst Melbourne has maintained steady prices despite predictions that prices would fall further. According to RP Data Rismark, …Cashed-up investors fight for Sydney homes – ninemsnNinemsnRecent Property Report From RP Data Indicates Strong Performance Of …Daily Markets (press release)all 4 news articles [...]

  2. Aka on April 22nd, 2013 12:00 am

    4.7% in Adelaide

  3. Mr. B on April 22nd, 2013 12:32 am

    Except for Perth. Perth is loser city in a loser State

  4. Tom on April 22nd, 2013 7:57 am

    What a joke.

    The price data is produced by a professional spruiking outfit, RP Data, based on the self interested and selective reporting of real estate agents.

    A better guide to market demand could be found in the volume of total sales and housing finance data, particularly from new entrants, who prop up the existing market.

    The data shows:
    - an accelerating decline in the number of first home buyers entering the market;
    - record low increases in housing finance; and
    - very low sales in general.

    This is hardly the sign of a market frothing with demand.

    Moreover the claim Sydney prices are now at 2010 levels is deliberately misleading. Even if you accept the dubious RP data, the dollar value may be the same, but the real value, given inflation, is around 10% less than 2010 values.

    A better guide is your own experience. My generation (20-35) is steering clear of property. No one has bought. No one is intending to buy soon. It's cheaper to rent or live with parents; and it means not being locked into a debt trap for the next 40 years. With that knowledge property doesn't seem like such a sensible bet.

  5. Demografix on April 22nd, 2013 11:19 am

    Please let us call it waht it is. House price inflation, not a recovery, not a rise, but price inflation.

  6. M.J on April 24th, 2013 2:52 pm

    Tom, will you be living with your parents for 40 years? My properties will be worth 350% – 400% more then, better than inflation :)

  7. Tom on May 7th, 2013 8:43 am

    M.J., I think you missed my point.

    My point is that AT THE MOMENT alternatives to buying make more sense. Ie, better to rent or live with family and save the money.

    If I thought the market was going to increase in price in the next five years, then I would buy.

    Leaving aside the data, I also note that in the last few weeks:
    - Building product manufacturer Boral has come out saying that demand has collapsed and they need to lay off more jobs, in addition to the 700 they have already shed;
    - the RBA has come out saying it expects property prices to decline in real terms for the next five years;
    - the Prime Minister has said the market will not increase like it has in the past;
    - Chinese demand for AU goods falling well beyond expectations;
    - a massive decline in tax receipts, indicating unanticipated lower economic activity throughout our entire economy; and
    - the likely emergence of an Abbott government at the end of this year, who intend to pursue austerity policies which will seriously damage market demand throughout the country.

    All this while unemployment is rising and business is screaming for a further interest rate cut today to 'save' the economy.

    If the RBA cuts rates it will be the lowest settings since 1960. Emergency rates.

    I hardly think it is wise to make a major life decision in a context of economic 'emergency'. I can imagine the crush of buying a property with a huge loan only to find myself unemployed or for the property to be worth 50% of what I paid, or both!

    In a time of uncertainty risks can be taken – but not in a market at a peak that is unlikely to be supported by the fundamentals now – and the emerging fundamentals. Spain anyone? 40% youth unemployment … Property prices crashed.. People suiciding because they have lost everything? Not worth the risk.

  8. sharat on May 7th, 2013 8:11 pm

    Tom

    I think the comparison to Spain is melodramatic. Australia hardly has an irrational property bubble that was financed by lax lending, banks are amongst the strongest in the world signalling a very sound mortgage book. The economy grew for 22 consecutive years and has still to contract. Interest rates are low, the only thing a slow down in China means is prices for raw materials fall which is probably a good thing because the dollar can weaken and Australian manufacturing will get some much needed relief.

    I think you exaggerate the significance of low interest rates, try comparing even at these levels the Australian official rates with US treasuries.

  9. sharat on May 8th, 2013 4:30 pm

    I think you are perhaps overly pessimistic, though you are perfectly entitled to that opinion. Management of the economy has generally been pretty good. There are some headwinds, but Australia has faced much worse before. A weaker dollar will make a lot of difference.

  10. Tom on May 8th, 2013 4:05 pm

    Sharat,

    Your argument is a good one. We have had long term economic strength which has helped protect us against some of the worst of the economic problems overseas. However, it has come at a cost.

    Using increased property demand and higher property prices as a driver for broader economic activity has emerged to be a dangerous strategy because:
    1. House prices have primarily been driven by debt rather than increases in income.
    2. The debt levels have increased faster than national income, individual income or labour productivity.
    3. This inherently means that the debt level cannot increase forever – because debt needs to be serviced.
    4. It appears we have met the barrier at which debt will not expand.

    If our income doesn't increase, our ability to service debt does not increase. If we can't service more debt, we can't pay more on property, and the market can't rise.

    Moreover, just like with most debt advertisements – 'buy now, pay later' – the previous generation has purchased economic prosperity by running up a tab that now has to be repaid. Without ever increasing credit, the bill is called and we all need to pay – hence the broadening recession.

    The broader economic headwinds play into this as well. We have an aging population, declining demand in Europe, the US and China, all leading to lower exports – and our real unemployment rate (think labour force participation rate) are declining sharply.

    These point to lower national income, which helps fuel the deflationary spiral.

    **Melodrama, You Mean It Can't Happen Here?**

    It is happening.
    I've listened to several years of property spruikers claiming that the market has bottomed and it is only up from here. Yet each time the market has not recovered.

    The economic consequences are likely to be significant. consider – in 2008, prior to the GFC hitting, the Australian Senate held an inquiry into house prices in Australia. There was bi-partisan agreement that leaving the debt fueled bubble continue would lead to catastrophic economic consequences. Of course, the politicians argued over how to deal with it, because neither party wanted to be seen end the party for mortgage holders. They defined three options. They were – do nothing and have catastrophic consequences; allow prices to stagnate and incomes/inflation to catch up; or take decisive action (ie, lower negative gearing concessions progressively over several years and raise lending standards) to reduce property prices sharply.

    Unfortunately the GFC hit and the Government panicked – and took well known measures to increase the velocity of money in the economy. The $950 payments; and of course the measures to sure up housing demand among new home buyers.

    Prices continued to rise. The politicians kicked the can down the road. Juliar got elected, barely. Politics on a knife edge have meant that the conditions have not been right to attack the property market.

    We haven't done nothing. We've made the problem worse.

    **Lax Lending Standards – Alive and Well in Australia**

    I would be more comfortable if we did have strong lending standards. Unfortunately, the 2012 Senate Economics References Committee into the banking sector is finding that lax lending standards along US lines are exactly what we have.

    Consider the Reserve Bank's submission:

    "The growth of housing credit was also supported by the expansion in the range of mortgage products, including: … Low-doc loans are targeted at self-employed borrowers , or those with irregular incomes, who lack the documentation required for a standard loan. Low-doc loans are estimated to currently account for about 7 per cent of owner-occupied housing loans approvals. … High loan-to-valuation ratio (LVR) loans were marketed by an increasing number of lenders, allowing borrowers to access the property market with either a small or no deposit

    link: .

    ie – housing price growth has been fuelled in part by those who would otherwise never get a loan.

    Also consider the Sydney Morning Herald: "Banks cheated on home loans, inquiry told" 08 August 2012

    "Australian banks have been accused of giving home loans to people who can't afford them, and doctoring the paperwork so the loans looked OK."

    "Ms Brailey called for a royal commission into the banking industry to examine the problem."

    Note Senator Cameron, leading the charge has questioned the brokers and they have not satisfied him that the allegations are untrue.

    There is real reason to doubt the lending standards applied in tens of thousands of loans. Worse economic conditions will test the strength of those decisions. If assets are written off en masse then we're in trouble.

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