Vancouver, Sydney and Melbourne show same property slowdown

When markets in Vancouver, Sydney and Melbourne show the same patterns, it’s likely a major trend is emerging.

Like Sydney and Melbourne, Vancouver has seen massive Chinese investment in real estate. Picture: istock

When three similar global city real estate markets start showing the same patterns, it’s highly likely you are seeing a major trend emerging.

The three major markets showing the same nervous trends are Vancouver, Sydney and Melbourne. And what is happening in the real estate market is being duplicated in other areas of the economies of Australia and North America.

Because we are a little behind in timing to understand what is happening in Australia, it is best to start with Vancouver. The western Canadian city, like Melbourne and Sydney, has seen enormous Chinese buying of real estate. Vancouver prices are higher than Sydney or Melbourne. And, again like Melbourne and Sydney, a series of clamps and higher taxes have been imposed on overseas investors in Vancouver.

Accordingly, Vancouver has seen an easing of prices but, more importantly, volumes have been slashed because sellers can’t move their stock. In April the volume of detached Vancouver houses sold fell a staggering 50 per cent. Apartments fared much better but were also sluggish. Across to the east of Canada in Toronto, the volume reductions were not nearly as spectacular but the market is also very jittery, particularly as Canadian houses are about 50 per cent more expensive than US houses.

And so we return to Australia where over the weekend, while the overall clearance rates have not been too bad, in Melbourne we saw a relatively high number of houses passed in, in key prestige suburbs like Kew, Camberwell, Hawthorn, Malvern and Brighton.

In Sydney, the upper north shore clearance rate was only 73 per cent while the northern beaches managed just 68.8 per cent. (The west and south west of the city were even lower). And in the Sydney apartment market sales numbers are down. In apartments, Melbourne is obscured by the glut of small inner city apartments.

On the overall dwelling price front, there has been an easing. Melbourne prices dropped 0.5 per cent last week to sit 1.8 per cent lower than a month earlier.

Prices in Sydney fell by 0.1 per cent, a seventh straight weekly decline that left prices in the NSW capital 1.3 per cent down over a month.

What we are seeing in the three markets (Vancouver, Sydney, Melbourne) is a reduction in Chinese buying and reluctance by the non-Chinese locals to buy at the high prices.

In Australia, the biggest driver of the domestic economy has been the rise in dwelling prices in Sydney and Melbourne. Higher real estate values made people feel confident and it also drove a substantial rise in dwelling investment.

The slower real estate sales combined with no rises in non public servant salaries is causing motor and retail sales to stall. The share market is clearly nervous. And we are just at the start of the process. Traditionally, once dwelling buyers lose the flower of abundant confidence there is a period of much lower volumes because sellers are reluctant to meet the market. That’s what we are seeing in Vancouver. That can continue for some time. To cause a significant fall requires a trigger.

In theory, in Australia sluggish real estate sales and a tough market in retail and cars should mean that interest rates will be lowered. But the margin between US and Australian bonds is at an historic low--- our bonds normally carry a higher rate than the US. While the bonds and official interest rates are different markets they are linked. If the Reserve bank were to lower rates we would likely see a big fall in the currency which would push up prices.

Of course in the US, Wall Street and the whole nation is on the edge of their seats waiting for the Trump stimulus. Markets assume it will happen. It had better happen or we will see a very big fall, which will affect all markets including a jittery dwelling market. The world has a lot riding on President Trump.