The recent pick-up in Sydney house prices is a product of investor speculation, though investors continue to support activity in a number of other states. Investor activity is at an unprecedented level in Sydney. When this inevitably normalises, Sydney house prices will decline.
Housing market activity has picked up significantly since the Reserve Bank began its latest cutting cycle. Owner-occupiers are taking the opportunity to upgrade on their existing purchases, while investors believe there are opportunities to make a quick buck.
But for first home buyers, it has been an entirely different story: their activity has never been weaker.
The growing divide between investors and first home buyers should be of increasing concern for policymakers and, indeed, investors themselves. Eventually the market will run out of owner-occupiers looking to upgrade or downgrade, which will leave investors simply speculating among themselves.
Sydneysiders will find, as they did in 2004, that this process is unsustainable. Following that episode, real house prices meandered along largely unchanged for the best part of a decade, following an investor-fuelled boom that faltered at the end of 2003.
Even to this day (and despite the recent boom), Sydney's real house prices are effectively unchanged since December 2003. It is a sobering reminder that house prices do not always go up and that there can be prolonged periods where price growth is weak or negligible.
On Friday, the Australian Bureau of Statistics released investor data that emphasised the growing divide between investors and first home buyers.
Investor home approvals have increased in all states during 2013, but the rise is most notable in New South Wales. Investor approvals in the state are up by over 30 per cent annually and, as the graph below shows, they are significantly above normal levels.
By comparison, approvals in Queensland and South Australia have increased only modestly.
But that is only one part of the story. The investor-to-FHB ratio – which measures the ratio between the value of loan approvals for both investors and first home buyers – has increased to an unprecedented level in New South Wales.
More importantly, it is completely out of whack with the rest of the country. Investors have been active in the other states but to nowhere near the same extent. Investor growth in Queensland and South Australia has been fairly weak, surprisingly so given the level of interest rates offered to investors.
I should note the investors are not inherently bad. The market needs investors to support affordable rental opportunities and boost the housing stock. However, investors are also the most volatile category of housing loans: they tend to get a little ahead of themselves during the good times and, when the situation sours, they leave in droves.
In short, investors can create more volatility in house price fluctuations and that often isn’t a good thing. Given housing is over 60 per cent of household wealth, changes in house prices can have a significant effect on economic activity.
It is clear that investors are driving Sydney house prices, but the situation is less clear in the other states. Investors appear to be mainly supporting moderate growth in Melbourne and Perth and preventing prices from falling in Brisbane and Adelaide.
It certainly does not surprise me that the two mainland states with the slowest investor growth, Queensland and South Australia, have had only modest house price growth in 2013.
So what will happen now?
We are not often certain about anything in the housing market, but we can all agree that the recent rise in investor activity in New South Wales is not sustainable. Investor activity in Sydney will inevitably slow and, when it does, it will happen quickly.
As a result, Sydney house price growth will slow significantly and more than likely begin to decline once investor activity normalises. It wouldn’t surprise me if Sydney saw something similar to when the first home owner boost was removed in 2009 and house prices gradually declined over the following two years.
For the other states, it is less clear. Investors may begin to move their attention towards other states and that could support house price growth. However, I see a period of soft growth in these states, particularly given the weakness in first home buyer activity. Outside NSW, I expect house price growth to be at around the same pace as income growth over the next couple of years.
Why would there be anything other than a soft landing or continuous price increases, for at least the next decade. Ive been expecting a price crash across the country for the last 5 years, but there always seems to be some reason as to why it does not eventuate. The entire region to our north is full of wealthy non citizens who view real estate in this country modestly affordable by comparison to their regions, not to mention eminently more secure.
Given that government controls to limit foreign ownership are ignored, and not enforced why are we surprised that property prices keep on the up and up. The average home owner was shafted first by Howard and co for the largesse in tax avoidance afforded to them. Then when this country in the throws of a social aneurism unbelievably voted Krudd and co into power the Kruddmister did the only thing he could to keep the value of his property portfolio inflating and that was to open the floodgates to foreign ownership without review or controls.
The current bunch of crooks in govt continue the selling out of the citizens of this country, the influx of foreign money is now an addiction, the mad monk cannot afford to allow anything to interrupt the climb of property prices, most likely because he has a personal interest in it but also because it would be political suicide for his party to distress the current crop of specufesters if the value of their portfolios dropped.
Previously we had a whole country experiencing a multi year boom on boom economy, believing the good times could go on forever. Combine that with a union movement itching to get rid of a Howard govt that had come down hard on the militant unions. It was payback time alright. Combine that with a middle class left wing greenie movement (financially comfortable due to the boom) feeling it now needed to spearhead left wing socialist agendas, because they where doing quite alright themselves and the economy was always going to be good from now on wasn’t it.
Combine that with a new generation of voters who had never in their lives experienced any kind of economic adversity, rejecting the LNP conservative social agenda and starry eyed by the more media savvy KRUDD, who traded on their rejection of a older more stodgy Howard, and who made good use of that generations lure to bright shiny objects without substance or creditability. A generation with the attention span of goldfish sucked in by reports purporting to show KRUDD as some kind of media celebrity descend from on high to rescue us all from the evil troll Howard. Votes from complacent citizens flowed to labor and the greens and it was hailed as some kind of revolutionary win, a new paradigm to save our souls from corruption. Howard didn’t help much, he should have passed the baton to Costello before the election.
stinkbug omosessuale Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments. Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck! See here Property will be 50-70% off by 2016.
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