Sydney has been the epicentre of the housing bubble and is now the epicentre of the fall. Prices topped out in the June quarter of 2017 and are now down around 15%. In calendar 2018, according to the Australian Bureau of Statistics, prices fell by 7.8% but a sizeable 3.7% in the final quarter. We cannot find another quarter with such a significant price drop in Sydney – even during the Global Financial Crisis. A new acronym has started popping up in the Australian press – FONGO (fear of not getting out), as opposed to FOMO (fear of missing out).
Analysis by Demographia suggests that: “Available data shows that house costs have generally risen at a rate similar to that of household incomes until comparatively recently. This is consistent with cost trends among other basic necessities, such as personal transport, food and clothing…Historically, the Median Multiple has been remarkably similar among six surveyed nations, with median house prices from 2.0 to 3.0 times median household incomes (Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States). Housing affordability remained generally within this range until the late 1980s or late 1990s in each of these nations.”
So what has changed?
In a nutshell, availability of credit and urban containment policies – the latter placing an artificial cap on available land. The credit phenomenon, particularly in Canada and Australia, is apparent from the chart below. In both countries it has now reached an extreme, whereas in the US and UK it has significantly moderated.