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Sydney median house price hits $844K - Domain Group House Price Report; While the nation's other capital cities floundered
Topic Started: 22 Oct 2014, 09:14 PM (2,196 Views)
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Sydney's median house price hits $844,000

October 22, 2014 - 3:36PM
Toby Johnstone

Sydney's median house price grew by a further 3.8 per cent over the quarter to an all-time high of $843,994.

Sydney house prices grew by $10,000 a month over the September quarter while the nation's other capital cities floundered, new figures show.

According to Domain Group's House Price Report the city's median house price grew by a further 3.8 per cent over the quarter to an all-time high of $843,994.

House prices have now increased by 16.6 per cent over the past year - a $120,000 jump.

The senior economist for the Domain Group, Andrew Wilson, pointed the finger at investors who had been drawn into the market by the prospect of capital gains.

St George Banking Group senior economist Hans Kunnen said one of the key drivers of the Sydney market was "the belief - a potentially mistaken belief - that house prices will continue to rise and capital growth will be achieved".

But Dr Wilson said Sydney's solid price growth would not continue.

"The clock is now ticking for that market as further signs of moderation are emerging," he said.

With more supply coming on Sydney apartment prices were more subdued over the quarter, growing by 1.6 per cent to $580,861.

Mr Kunnen expects that as affordability constraints kick in the market will "strangle itself because people are unable to buy".

But the HSBC's chief economist, Paul Bloxham, is more bullish in his assessment and said the city will "continue to see very solid house price growth until the Reserve Bank lifts interest rates".

Read more: http://smh.domain.com.au/real-estate-news/sydneys-median-house-price-hits-844000-20141022-119ral.html
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not worth it
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I'd rather the 844k
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Glenn Stevens
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Are dwelling prices overvalued? It's very hard to be definitive on that question. There are two aspects to the claim that they might be. The first is that prices relative to income are higher than they were 15 or 20 years ago. If this ratio is somehow mean-reverting, then either incomes must rise a lot or prices must fall. It could be that this analysis is correct, but the problem is that there is no particular basis to think that the price to income ratio 20 years ago was ‘correct’. There are reasons that might be advanced for why the ratio might be expected to be higher now than then – that the mean has shifted – though again there is little science to any quantification for such a shift. In any event, arguments that appeal to historical averages for such ratios lose potency the longer the ratio stays high. In Australia's case the ratio of prices to income on a national basis has been apparently at a higher mean level – about 4 to 4½ – for about a decade now.

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Ex BP Golly
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glennstevens
23 Oct 2014, 02:09 PM
Are dwelling prices overvalued? It's very hard to be definitive on that question. There are two aspects to the claim that they might be. The first is that prices relative to income are higher than they were 15 or 20 years ago. If this ratio is somehow mean-reverting, then either incomes must rise a lot or prices must fall. It could be that this analysis is correct, but the problem is that there is no particular basis to think that the price to income ratio 20 years ago was ‘correct’. There are reasons that might be advanced for why the ratio might be expected to be higher now than then – that the mean has shifted – though again there is little science to any quantification for such a shift. In any event, arguments that appeal to historical averages for such ratios lose potency the longer the ratio stays high. In Australia's case the ratio of prices to income on a national basis has been apparently at a higher mean level – about 4 to 4½ – for about a decade now.

Id say they were already out of whack 20 years ago Glenn.
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Glenn Stevens
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I think a comparison with the US is simplistic. If we put these two lines on a chart with a number of other countries with which we might want to make comparisons, the picture is much less clear:

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To the extent that we can make any meaningful statements about international relativities, the main conclusion would be that Australian dwelling prices, relative to income, are in the pack of comparable countries. In this comparison, the United States seems the outlier.

None of this can be taken to say definitively that Australian dwelling prices are ‘appropriate’, or that there is no possibility they will fall. It is a very dangerous idea to think that dwelling prices cannot fall. They can, and they have. The point is simply that historical or international comparisons, to the extent they can be made, do not constitute definitive evidence of an imminent slump. At the very least, the complexity of making these comparisons suggests we ought to look at some other metrics in thinking about the housing market.

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Edited by Glenn Stevens, 23 Oct 2014, 02:57 PM.
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Ex BP Golly
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Please ignore the U.S. data in my post above and feel free to concentrate on the Australian.

You will see that for 70 years from 1880 prices were in decline, then it rockets.

I confidently say it cannot continue like that.

You just say waffly crap.
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Glenn Stevens
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Ex BP Golly
23 Oct 2014, 03:05 PM
Please ignore the U.S. data in my post above and feel free to concentrate on the Australian.

You will see that for 70 years from 1880 prices were in decline, then it rockets.

I confidently say it cannot continue like that.

You just say waffly crap.
The period that you have chosen to focus on was unique for a number of reasons that have been discussed on this forum numerous times (yes, I've been a long-time APF lurker). But to repeat them (again) they are: financial de-regulation, a structural fall in interest rates, women entering the workforce and banks treating women as equals (lending them money). Is it your expectation that any of the structural changes I have listed above are likely to be reversed anytime soon?
Edited by Glenn Stevens, 23 Oct 2014, 03:16 PM.
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glennstevens
23 Oct 2014, 02:09 PM
Are dwelling prices overvalued? It's very hard to be definitive on that question. There are two aspects to the claim that they might be. The first is that prices relative to income are higher than they were 15 or 20 years ago. If this ratio is somehow mean-reverting, then either incomes must rise a lot or prices must fall. It could be that this analysis is correct, but the problem is that there is no particular basis to think that the price to income ratio 20 years ago was ‘correct’. There are reasons that might be advanced for why the ratio might be expected to be higher now than then – that the mean has shifted – though again there is little science to any quantification for such a shift. In any event, arguments that appeal to historical averages for such ratios lose potency the longer the ratio stays high. In Australia's case the ratio of prices to income on a national basis has been apparently at a higher mean level – about 4 to 4½ – for about a decade now.

So long as you and your RBA mates think house price valuation is related to price / income ratios, you will continue to misjudge valuation. House prices have now extended beyond fair value and are now entering a very risky phase.
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Ex BP Golly
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glennstevens
23 Oct 2014, 03:16 PM
The period that you have chosen to focus on was unique for a number of reasons that have been discussed on this forum numerous times (yes, I've been a long-time APF lurker). But to repeat them (again) they are: financial de-regulation, a structural fall in interest rates, women entering the workforce and banks treating women as equals (lending them money). Is it your expectation that any of the structural changes I have listed above are likely to be reversed anytime soon?
I would have thought financial deregulation would have created more competition, driving prices down and lifting stock on the supply side.

Nah. Didn't happen.

Having an additional wage earner in the family?, the wife shouldn't have seen prices rise from 3x to 9x wages.

Women are still discriminated against and are under payed.

The "strucural fall in interest rates" is nothing of the sort, but is a response to global crisis.

Unless you expect this crisis to continue indefinitely, then these rates are not the 'new normal'.

Nothing you have stated is a structural change.

Why should greater competition in finance- in effect cost the consumer far more than prior to deregulation Glenn?



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Glenn Stevens
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b_b
23 Oct 2014, 03:24 PM
House prices have now extended beyond fair value and are now entering a very risky phase.
Available evidence suggests that financial stress among households with mortgages is not widespread. Although it will always be the case that some individual households find it difficult to meet their repayment obligations in the face of negative events (such as job loss, illness or relationship breakdown), there is no evidence of systematic provision of credit beyond the amount that borrowers can be reasonably expected to repay. Arrears rates are low and have fallen since their 2011 peak. Most personal bankruptcies are unrelated to mortgage debt, and they have also declined in recent years, as have home repossessions. In addition, many households have built up buffers of excess repayments through offset and redraw facilities. These buffers provide those households with a cushion of prepayments that can be drawn down to avoid falling into arrears. In short, I think we can be confident that the situation is under control.
Ex BP Golly
23 Oct 2014, 03:29 PM
I would have thought financial deregulation would have created more competition, driving prices down and lifting stock on the supply side.
Financial deregulation increased the availability of credit leading to increased borrowing and purchasing power.
Edited by Glenn Stevens, 23 Oct 2014, 03:38 PM.
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