Where to for Sydney in 2018?

Posted by Dominic Cavagnino

For some time now, the Sydney property market has outperformed the nation. However, all good things come to an end. Property markets are cyclical and typically a market cycle spans over a ten- to fifteen-year period. Throughout that time frame a market experiences periods of opportunity, value, growth and correction.

Between 2012 and 2017, Australian Bureau of Statistics data indicates that Sydney’s median house price grew by 76%. Throughout that period, the median house price in Sydney exceeded $1 million, however a slight decline in median values saw it drop to $940,000 by the end of 2017.

This increase was driven by strong economic conditions, consistent population growth and a sentimental shift. The positive sentiment created a herd mentality and resulted in the ‘fear of missing out’ driving property demand.

In 2017 we began seeing a shift and slight correction in the market. There were two key catalysts for the slowing of the Sydney market:

Strained Affordability
House prices are on average ten times the average household income and it costs 44% of monthly household income to pay for the average house. If interest rates were to increase just 1%, mortgage repayments would rise from 44% to 55%, posing a significant risk to Sydney families with high LVR mortgages. This risk is likely to result in unchanged interest rates throughout 2018 as the Reserve Bank Australia attempt to avoid stifling consumer sentiment and financial distress for Australian households.
Changes to lending
APRA’s tighter measures on interest-only lending introduced in March 2017 led to a significant retraction in the volume of investor purchases across the country. The reduction in investor activity eliminated a large portion of the buying market.

So, where to now for Sydney?

The gradual cooling of the market saw auction clearances rates fall below 65% in the latter half of 2017. A figure consistently above 85% throughout 2015 and 2016. This is likely to continue with sustained stabilisation of the market. We are now likely to enter a correction phase in the market cycle. This does not necessarily mean the ‘bursting of the property bubble’ or dramatic declines in dwellings values as being predicted by many. It is however likely to be a period of more subdued growth or stagnation.

Our research indicates that the best opportunities are still present outside of Sydney however we will actively monitor the cities sub-markets in search of any rare opportunities. For the foreseeable future our focus will remain on the growing Melbourne market.

Posted by Dominic Cavagnino, on 9th Jan 2018