For the first time since the start of the growth phase of Sydney’s property cycle there’s been a reduction (albeit small) in month on month prices. Now, the same is true for Melbourne but, unlike Sydney, broad statements about Melbourne’s price trajectory can’t be made because of the extent to which that market is segmented.
Before the panic sets in, let me be clear: this by no means signals the start of a bursting bubble. As I touched on a few weeks ago, the largest reduction in prices for our capital city property markets over the last couple of decades has been 5 per cent (based on an index that combines prices in all our capitals).
As we indicated at the start of the year, affordability pressures would begin to reduce the purchasing power of Sydney property investors, which will in turn lead to an investment slowdown and ultimately price moderation, all of which we are now seeing.
Let’s not be slaves to sentiment shifts and instead be guided by research and education. Just this morning we delved into the archives and found a debate featuring our own Tony Hayek that was broadcast on George Negus’s 6:30 show on 20 June 2011. Among others, Tony’s opponents at the Sydney event included University of Western Sydney Professor Steve Keen and AMP Capital Investors Economist Shane Oliver. Here’s just a couple of quotes I found amusing:
‘I’ve always said I see a 40 per cent fall (in property values) over the next ten to fifteen years, I’d say that over the next five years we’ll certainly see something in the order of a 20 per cent fall.’ – Steve Keen
‘My feeling is that we’re in for a lengthy period, ten years or so, where house prices will effectively be range bound within perhaps a five to ten per cent range.’ – Shane Oliver
‘It’s flat, sentiments are down, it’s a good time to buy.’ – Tony Hayek
I’ll probably fall short of calling that last quote prophetic, but it sure is far closer to reality than anything Nostradamus ever predicted.
I’ll leave you with this fact; between the date of that debate and December 2015, the median price of a dwelling in Sydney has increased by 52 per cent. You don’t need to be a statistician to realise how outrageously far from reality the first two predictions, by a professor and economist no less, have turned out to be.
Where to for Sydney? No bubbles, no crashes, no doomsday, just a period of moderate or stagnant growth that will allow income growth to catch up to growth in property values, then the cycle begins again.