Tuesday, April 26, 2011

Sydney's Housing Market Shifts Unexpectedly

Property sales are heading west as the east slumps
SYDNEY'S great property divide is being turned on its head, with the wealthy Eastern Suburbs suffering a shock 15 per cent slump in property prices, while values in the city's west continue to soar.
The most prominent indicator is new housing finance which is now 30 per cent below levels reached in the first-home buyers frenzy of 2009. This reluctance to buy is also shown in the numbers of first-home buyers looking for property - only about 96,000, compared to 190,000 at auctions in late 2009.

Housing sales have also tumbled. Ray White Real Estate said the value of the houses it sold in March was 16 per cent down on March 2010 figures. Agencies also believe the number of houses on the market is at the highest level ever recorded in the city.
Property monitors and analysts are stunned by the sharp reversal in fortunes in traditional real estate hot spots, claiming the nine-month plunge has wiped billions from the collective wealth of the city's richest homeowners.
ARGH! It's not wealth. Unrealized paper gains on real estate are not wealth any more than debt is wealth, although at least the debt can claim to be real.

Let's say there is a little town called Two Rivers. It has 100 houses, all alike. Houses sell for $100,000 in Two Rivers and have done so for years, making the collective valuation of the town come in at $10,000,000. But one day this nice lady in a big yellow hat drives through town and she sees this little street of houses lined with tulips. Yellow Hat Lady adores tulips. She offers $150,000 for two houses (one for her and one for her dog) and the owners sell. By the standard of real estate valuations, every house in Two Rivers is now worth $150,000 and the collective valuation is now $15,000,000.

Truly, is that rational? One crazy buyer, or handful of buyers, or a mortgage fraud ring, get to decide the value of an entire swath of property? Crazy Yellow Hat Lady doesn't have an econ degree, may not even be able to balance her checkbook, but because she has more money than sense she gets to decide, in one fell swoop, that Two Rivers is now $5,000,000 wealthier. Seriously. That's how real estate "wealth" works.

If you think the moment Yellow Hat Lady took hold of the keys to her two houses that $5,000,000 of wealth suddenly materialized in the town square of Two Rivers like it was beamed in by Mr. Scott's transporter, then sure, you probably also agree that Sydney lost "billions of collective wealth".

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