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Sydney house prices 40% overvalued, market at end of cycle, says John McGrath
Topic Started: 30 Aug 2017, 01:28 PM (3,711 Views)
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Sydney market 40% overvalued, at end of cycle, says McGrath

30 Aug 2017

The founder and executive director of McGrath Estate Agents has said that the Sydney real estate market is 40 per cent “overvalued” and “at least 95 per cent through its current cycle”.

Speaking at the AussieThink conference in the Gold Coast on Monday (28 August), John McGrath emphasised that there are “two housing markets” in Australia, and that he believed that the one that incorporated the two major cities of Sydney and Melbourne was at the end of its cycle.

Mr McGrath said: “There are two markets in Australia, the Sydney/Melbourne market being one and the rest of Australia, and that could be broken into regionals and other capitals. If you look at the last 10 years, we have seen Sydney/Melbourne [prices] have doubled and we’ve seen most of the other capital cities increase by 10–20 per cent, so it really is a big separation of the two markets."

Addressing the Sydney/Melbourne market first, the founder of the real estate agency said that he believed the two cities were “at least 95 per cent through their current cycle”, adding that “it could be 100 per cent in Sydney”.

He explained: “I don’t see any material capital growth in the next few years and, equally confidently, I don’t see any material drop either. I’ve been through five cycles and each time the market does see significant growth over a two- to three-year period.... We think the Sydney market is 40 per cent overvalued.”

‘Small correction’ on the cards in Sydney and Melbourne

According to the industry thought leader, the end of the property cycle generally involves a “calming or plateauing”, or even a “small correction while the market catches its breath”, which he said was “a healthy thing”.

He said: “We say internally [at McGrath] what a good thing it is the market is settling down in Sydney and Melbourne, and we think that over the next few years there will be a short, small correction in small single digits — 3, 4, 5 per cent — but we see nothing worse than that.”

Suggesting that some pockets of the two cities could still see “a few percentage points of growth in the years to come”, he said that, overall, he was “not concerned about it falling off the cliff for any one market”.

“We have population growth, a strong economy, overseas investment, a number of things that have driven [the price increases] and I believe that it will continue to drive strong markets especially in these cities," he explained. "Couple that with relatively low interest rates as well, so that’s helpful.”

Looking outside of these cities, Mr McGrath said that other capital cities were “well and truly overdue for some form of growth”.

He particularly noted that he thought South East Queensland was “a sleeper” that would have “strong growth market going forward”.

“If you look at the traditional gap in value between Sydney and Brisbane (being the two major east coast markets in close proximity), it’s certainly greater now than I’ve ever seen in the 35 years of real estate history. So, do I think Sydney is overvalued? Yes. Do I think Brisbane is undervalued? Yes. I think Brisbane and SE QLD are undervalued.”

Mr McGrath said that major regionals would also be “beneficiaries” going forward; these are Wollongong, the central coast and Newcastle in NSW, where there is “strong lifestyle”.

He continued: “From a real estate perspective, I don’t think there will be anything dramatic in the next year. I think it will just be calming of the market ... But I think no matter what goes up and down, there is lots of opportunity and this industry will be at the forefront of taking the bacon.”

'We are not going to hit a property bubble'

Likewise, John Symond, executive chairman and founder of Aussie, said that he thought there will “always be pockets in the popular areas where prices will continue to edge up” and had “no doubt that there are pockets in Sydney and Melbourne that will go up 5, 6, 7, 8 per cent over the next year”.

However, Mr Symond emphasised that the property market is often touted as being in a “bubble”, but highlighted that Sydney was the worst performing capital city for housing growth in the decade of 2002–2012.

“It effectively had zero growth,” he explained. “The growth was less than inflation for 10 straight years ... [but media] focuses on what happened from 2012. On average, if you look at it over the last 15 years, it’s a different story.

“So, I’ve got no doubt that we are not going to hit a property bubble, we’re not going to a bust. The fundamental is that Australia is one of the best countries in the world.”

Mr Symond said that he thought that there will continue to be “a shortage [of housing] in certain areas”, but that, fundamentally, he thought the next 12 months would still have “low, affordable interest rates, an economy that is doing pretty well, and a global market that is in better shape than it was”.

Read more: https://www.mortgagebusiness.com.au/breaking-news/11432-sydney-market-40-overvalued-and-at-end-of-cycle-says-mcgrath
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Rufus
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According to people from Corelogic who were at the conference, John McGrath didn't say Sydney house prices are 40% overvalued, but he did say that the run up in prices in Sydney and Melbourne are about 95% done.
Edited by Rufus, 30 Aug 2017, 02:00 PM.
Take risks - if you win you will become wealthy, if you lose you will become wise
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zaph
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Why always 40%? 30%? 60%? Nope always 40%!
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Bardon
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zaph
30 Aug 2017, 03:38 PM
Why always 40%? 30%? 60%? Nope always 40%!
Because Jeremy Grantham said that is the number and that is what the banks are stress tested to. Its doesn't matter when he said it, it just is.

"Jeremy Grantham, chief investment strategist at Boston-based Grantham Mayo Van Otterloo, and Gerard Minack, chief strategist for global developed markets at Morgan Stanley’s Australian unit, are among those warning of a housing bubble in Australia, saying prices could tumble 40 per cent."

http://www.smh.com.au/business/banks-pass-house-price-stress-test-20101013-16jlf.html

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GloomBoomDoom
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You know it's a double bubble when even the vested interests are calling a top and saying it's way over valued.
MSE
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Stoo
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He also told his audience that he thought they were in for a period of growth. He is a salesman.
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herbie
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GloomBoomDoom
30 Aug 2017, 06:27 PM
You know it's a double bubble when even the vested interests are calling a top and saying it's way over valued.
Hello GBD - Would you still like me to get all worried and concerned that Brisvegas/SEQ is about to drop by 50% ?

Not that I would regardless - 'Cause I'm no more a bloody housing trader than I am a horse trader or stock market speculator.

But hey, Best of British to them that are anyway I 'spose ...

Hmmm - Although I've still got to admit to having a quiet(?) and somewhat deep seated loathing for the latter with them preying on 'old peoples and 'widows 'n orphans' pension funds', which will still continue to come through occasionally I suppose.
Edited by herbie, 30 Aug 2017, 07:40 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Chris
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Stoo
30 Aug 2017, 07:01 PM
He also told his audience that he thought they were in for a period of growth. He is a salesman.
But a horrific one. Too smart by half, it's ok to warn of price falls and reassure you have factored it in and are ready to respond strategically but to warn of dire falls and then announce you've got it covered ???

Vet says "I'm sorry, he won't make it. Don't worry though I was expecting this and I've got it covered'.?????


Edited by Chris, 30 Aug 2017, 09:56 PM.
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herbie
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Chris
30 Aug 2017, 09:41 PM
Vet says "I'm sorry, he won't make it. Don't worry though I was expecting this and I've got it covered'.?????

And you accuse me of talking gibberish?

Just go and get yourself a 'Plan B' Chris.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Foxy
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Zero is coming...

zaph
30 Aug 2017, 03:38 PM
Why always 40%? 30%? 60%? Nope always 40%!
It's the Foxbat rule, it is always 40%...
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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