St Clair Property and The Sydney Price Crash

Please use this thread to talk about the August newsletter, and in particular, the St Clair property and the press coverage of the Sydney Property Crash.

If you haven't seen the article then you can find it here: Link

Cheers,

- Steve

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Remember that success comes from doing things differently.
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Hey guys!
There are other factors we need to look at than just what the media puts up as truth.
That house in St Clair for starters needed a big re hab.The $40 K estimated by the agent may well blow out as we havent seen the inside.

Also I was speaking to a friend of mine who has lived in the area for 7 years.His opinion is it has changed alot since then.He says he is moving out soon as the crime has got pretty bad in the area recently.There are gangs of kids roaming the streets in his opinion.
Whether this is true or not we just need to be careful listening to reports from the media and taking that as truth for what the property market is doing just from 2 examples. This is the stuff that changes the market as people listen to what they hear on the news etc and act accordingly as if it was gospel.

We've got 70 yrs on planet earth,Lets make the most of every day!

This is kind of what I said in the other thread on this. After living in St Marys (quite close to St Clair) for 2 years I cannot see that an average 3 Br house would ever be worth 450k (from the pic that is an average house!). Its just not a 450k suburb. So to take this case and talk about a crash should be embarrasing for the owner as they paid way too much when they purchased it.

I think its a very abnormal distortion and should not be used as evidence. Id rather look at the median house value movements in the area (ie Residex) which would then at least smoth out the abnormal.

Originally posted by World Changer:

we just need to be careful listening to reports from the media and taking that as truth for what the property market is doing just from 2 examples. This is the stuff that changes the market as people listen to what they hear on the news etc and act accordingly as if it was gospel.

As I pointed out on another thread, this is not just one or two extreme example properties...

Here's more from Louis Christopher, the from the company who produce the official figures used by ABS/RBA et:

Sydney Edition 24 August 2006

When is a crash... a crash?

An interesting story came out earlier this week, which was published in The Sydney Morning Herald regarding the state of the Sydney housing market. The main focus was a number of examples where property owners have lost as much as 42% based on a purchase in 2003 and a subsequent sale this year. Please click here to read the story.

A number of the sales were forced repossessions and highlighted the extent to which how much red ink some mortgagees are in. No doubt, given the most recent rate rises, this number will surely rise.

However I think it is only fair that we point out this is not occurring in the majority of transactions and to think the Sydney market has “crashed” as per the titled headline is probably taking the point too far.

Yes certainly the market has fallen, and in some areas fallen considerably. Yes there are examples of where home owners have lost everything. However we have found that the majority of Sydney repeat-house sales over the period 2003 to July 2006 have actually been in the positive. Please see the table results below.

Percentage of Resales

Price decline 31.8%

0 to 2% increase 13.3%

4 to 8.5% increase 13.9%

8.5 to 20% increase 21.7%

Greater than 20% increase 19.4%

NOTE: Based on properties selling between 2003 and July 2006 for data reported to APM prior to 24/7/2006. A total sample of 4526 properties were used.

That said, when one assumes average buying and selling transaction costs of 8.5% of a property’s value, we note that over 59% of repeat sales have been in the red in terms of estimated net losses for the owner.

If we were also able to take into account the cost of renovations and the cost of borrowing money I would suggest that the percentage of people who have lost money purchasing Sydney residential property during 2003 would be far, far higher.

What we also haven’t had a chance to do is provide the results for the unit market, which one would have assumed to be even more revealing.

But even so, the market in my opinion hasn’t actually crashed. Though, it is up for debate what is defined as a crash. In the stock market a crash is the generally accepted term to use when stock price indexes fall by 20% or more, as was the case in 1987 and 1929.

So translating this to the property market, our Sydney wide composition adjusted house price index has fallen 10% from the peak, which was recorded at the end of 2003.

That’s a significant downturn and in my opinion a hard landing. Though, you won’t be hearing from our organisation that it’s a crash.

We will be saving those headlines for the appropriate time.

Louis Christopher

For emphasis?
32% of resales have sold for less (gross) than they were bought!
59% of resales have sold at a net loss!
Factoring in interest costs & renovations, these figures "would be far, far higher".

So over 3 years, interest costs alone would have come to 23%. This shows that well over 80% of this large sample of properties have been resold at a loss! Perhaps close to 100% once stamp duty, agents fees, mortgage insurance etc are included!

F.

Oh dear, not the St Clair property again. Talk about a beat-up.
It was overpriced to start with and then got thoroughly trashed by whoever was living there.
Buy let's not let that get in the way of the story.
Even better, let's ramp it up and factor in transaction costs. Then we can say that the loss on that property was over 50%!
But why stop there? Let's also add interest payments. That will take the loss to over 60%!
Stop the presses! Let's call Today Tonight and tell them we've got a story that's right up their alley.
Or we could be sensible and acknowledge that the loss on that property is not representative of the market?
Are there lots of people in Sydney sitting on negative equity? Of course. But like all markets, there are great variances from area to area. I mentioned in that other thread that during the same period as that St Clair property dropped in value, my PPOR went up 17% from my purchase price to a recent bank valuation. (I know the true value is that realised upon sale, but the local RE agent came in at a higher estimate than the valuer). My Sydney IP during that same period dropped and recovered. A recent bank val on it was $720K, almost the same as it was in 03.
Having said that, I'm not looking to buy in Sydney any time soon.
Scott

Tax Depreciation Schedules
Australia wide service
1300 660033
scott@depreciator.com.au
www.depreciator.com.au

I'm with Scott. They hear of an extreme example and make a story suggesting it is the norm.

Media has so much influence on the markets that they should be more responsible - we all saw how the lifestyle shows about property kept the boom running and running. Now they are doing the opposite and panic mongering.

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
simon@mortgagehunter.com.au
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

The people writing the stories, typically do not own substantial amounts of real estate and simply run with any old theme and grab an example to illustrate their point. Chuck in a comment or two from "an expert", preferably one with a swanky title behind their name.....Prof X, or Mr Y Business Dev manager, or Dr Z - CEO of research group K etc....and there you have it....a top notch story.

A 24 yr journo cadet, still living at home with Mummy and Daddy, with not a jot of RE experience, either purchasing or renting manages to grind out a column filler, and then moves straight along to her next assignment of interviewing a little old lady about cat friendly garden designs......Suddenly intelligent, savvy investors worth 100 or 1000x her wealth are suddenly sitting up and taking note of what she has to say or imply because it's in some widely read newspaper or magazine, debating the pros and cons of the material spewed forth.

Staggering stuff.

Another classic example the other day in the Age I think where the paper's chief economic writer I think blathered on about nasty landlords chewing up taxpayers dollars whilst claiming negative gearing benefits.....using an us and them approach, implying he didn't own any property whatsoever. Now how can a chief economic writer have no financial interest in property and expect to be taken seriously ??

how right you are , mortgage hunter and depreciator.......

"Media has so much influence on the markets that they should be more responsible"

But isn't the real issue people trying to use the media for their own means.
as an example, i remember some spruiker called steve something, getting on Today Tonight saying that he could turn people into Millionaires within 12 months thru property investments, promoting his wealth creation programs.....
So who's responsible here....
the spruiker or the media????
Should the media waste on air time with people like this???
Or should the media expose people like this???? (as abc mediareport did)

and Dazzling, good to see that you've done your research "A 24 yr journo cadet, still living at home with Mummy and Daddy, with not a jot of RE experience".............
Jonathan Chancellor has been reporting on Sydney's residential housing market since 1986 when he was appointed property editor of the Sydney Morning Herald

That would make him 4 years old , when he got the job.......
and better still...this "4 year old" , wrote the book.......
"The Sydney Hot Property Guide includes 101 smart moves to make money from Sydney real estate."
obviously as a child he had no idea...
the book sold heaps, as well as any book on property investments at the time
remember "0-130 properties..etc..."

so i totally agree with you Dazzling.....

"Staggering stuff."

this 4 year old, had no more knowledge........ than that spruiker claiming he could turn people into millioniares

its all hype..........

sadly ...a lot of poeple fall for it

Good point Dazzling , but unfortunately the media is a beat up of paid ads . A large portion of stories are advertorials (paid editorials). An expert is someone that made there money by doing not by telling people how to ...

I think we should all be taking this negative media hype and putting it in our negotiating kit , to assist in some real mean low ball offers.

Love what you do.

Originally posted by Mortgage Hunter:

I'm with Scott. They hear of an extreme example and make a story suggesting it is the norm.

Doesn’t this:

Based on properties selling between 2003 and July 2006 for data reported to APM prior to 24/7/2006. A total sample of 4526 properties were used.

That said, when one assumes average buying and selling transaction costs of 8.5% of a property’s value, we note that over 59% of repeat sales have been in the red in terms of estimated net losses for the owner.

If we were also able to take into account the cost of renovations and the cost of borrowing money I would suggest that the percentage of people who have lost money purchasing Sydney residential property during 2003 would be far, far higher.

Indicate that it is, indeed “the norm”?

And can we agree that it is absolutely “the norm” for property prices to appreciate at a lower rate than the cost of interest, thus leaving home-owners with a net loss? Let’s check, since 1971 (the period over which the ‘doubling every seven to ten years’ can reasonably be argued), Melbourne house prices have risen on average by around 9%pa. Interest rates averaged over 10.1% annually (the annual figures ignore short spikes >15%). In only 17 years out of the last 35 have average house price gains exceeded average interest rates. Six of these were in the highly inflationary 70s, and six were during the recent boom. If

Summary:

• Widespread? Tick.
• Normal? Tick.
• More to come? Tick

F.

Sigh. Maybe we're misunderstanding eachother, Foundation. I've read other posts by you and you're alot more cluey than me.
I have said a couple of times that the 42% fall in value of that St Clair property was an exception.
By that I mean not all properties have fallen in value by 42%.
I keep reading and rereading the things you cut and paste and can't find anything in them that suggests a 42% drop in value is the 'norm'.
Have prices dropped? Yep. Have people lost money? Yep. Are there people sitting on negative equity? Yep.
No argument there.
Has the fall in value across the entire Sydney market been 42%. Nope.
Sorry, I still think that 42% drop in value (60% if we factor in costs + interest) is an exception, not the norm.

This weekend the SMH will do its Spring suburb by suburb price movement thing. That's going to spark a whole new round of generalising. Just as there are price variations in a city, there are variations within a suburb.

Tax Depreciation Schedules
Australia wide service
1300 660033
scott@depreciator.com.au
www.depreciator.com.au

Just on the suburb by suburb thing.
In mid 02 I sold a house in Sydney. It was an unusual house in a small suburb of pretty standard houses. It sold for $1m.
Now, not alot of houses in that suburb get sold - just enough for statistical purposes I'd say. Most of them in 02 would have been priced around $5-600K.
I remember reading the SMH spring house price guide that year and noticed that houses in that suburb jumped in value by 22% in the previous six months or so. Far more than the surrounding suburbs.
I'm not sure, but I suspect that $1m sale may have skewed the stats. Still, I'm sure it brought a smile to the faces of lots of home owners in that suburb as they read their paper over breakfast that Saturday and discovered that their house was worth 22% more than it was at the beginning of the year. Of course, the next set of stats, without a big sale to positively skew the results, may have had them choking on their cornflakes - the average for that suburb would have fallen relative to neighbouring suburbs.
If there are insufficient sales in a suburb, they won't put a percentage stat in. But I suspect they don't take out the high and low anomalies. I bet property owners in St Clair won't be looking forward to reading the SMH this weekend.
It's also interesting looking at unit prices changes. I recall Annandale in Sydney used to have some pretty old unit stock. Then some years ago, developers started building groovy, expensive apartments. So the average price for units shot up. All those people with daggy old 70s units suddenly thought their unit has gone up massively in value.
Scott

Tax Depreciation Schedules
Australia wide service
1300 660033
scott@depreciator.com.au
www.depreciator.com.au

yeah i agree its media hype to sell newspapers.
however, the media does influence people.
if enough people believe it then it will come true.
i think what steve was trying to say in his last news letter, is that although prices have stagnated or gone down, if enough people believe there will be a crash then it (will/may?) happen.
i think the phrase "madness of the crowds" is pertinent at this stage of the game. and to buy now is at your own peril. i'm not saying theres not deals out there, i see them all the time. however due diligence is called for at this stage of the game
cheers all

shaun

Lead, Follow or get out of the bloody way

Phew.
Got the Sydney Morning Herald Spring Property Guide on Saturday and didn't slit my wrists!
The Guide looks at price changes in Sydney and surrounds over the last 12 months.
The suburb where my Sydney IP is (Annandale) has gone up 3.6%. The average sale price went from $632K to $655K. The suburb where my PPOR is has gone down .05%. But it's a big suburb and bank vals have shown my place going up in value.
Strangely, St Clair out west isn't listed. It's not a new suburb by any means, so that's odd.
Erskine Park is the suburb immediately east of St Clair. Houses there have gone up 2.2%. Colyton is the suburb to the north. Houses there have gone down 0.2%. St Marys is north west. Houses there have dropped 4.3%. Based on the surrounding suburbs, St Clair hasn't moved much.
There are suburbs in the outer west where average prices have gone up, but obviously many more where they have gone down.
The south western suburbs have faired worse, but there are still isolated suburbs where the prices have gone up.
In the inner west, there are a few suburbs with gains over 10%. The northern beaches and east are similar.
As a whole Sydney has obviously suffered, but I don't look at markets as a whole because I don't buy whole markets.
Scott

Tax Depreciation Schedules
Australia wide service
1300 660033
scott@depreciator.com.au
www.depreciator.com.au

Hi Foundation,

i have enjoyed many of your posts , but many also are very negative. i do live in Melbourne , but thankfully not in the Western suburbs , because i may have to drive over the Westagete bridge (huge bridge ~ for those not aware) and would be tempted to jump.
Has all of this built up negativity given you analysis pyralysis?

If you like i will post every sale in St Clair for the past 12mths to prove it is not the norm.

Wholesale Property Brokers
www.wpb.com.au
Australia*Hong Kong*Singapore*India*Malaysia

Okay! Who is this investor who brought the property at such a discount and is now getting around 5% yield on a brick and tile property in sydney.

Anyone on the forum want to own up?

Come on.

Or do we just sit on our hands and watch other people get properties at huge discounts.

This guy will be writting a book in a few years and have his own website telling us how to buy properties at auction significantly below value.

Then we will all get on his website and say "yeah but that was back in 2006 - it was easy back then!!!! It would never work now."

But sadly by then when the masses have tha courage to get off their buts and actually do something the time will have past and prices will again be "too high" and yields "too low" for investors.

Why do we need media to tell us how to invest - is it because we need someone to hold our hands every single step of the way. Or is it more important to feel right and to be acting with the majority than actually having any cash in our pockets.

When interest rates were 5.99 5% gross return sounded great.

Now that we are lokking at 7.3s+++ and going higher, doesn't sound quite so good.

Also you sure its 5%, you talking gross or nett.