The Sydney Property Market Review/Outlook
While some commentators are suggesting that Sydney house prices will grow by as much as 10% over the next 12 months, others are predicting a 12% fall. Find out why finance expert Andrew Woodward believes that the positive news for Sydney is likely in the longer-term forecast.
As a property investor, you are often bombarded with statistics to the point of overwhelm. Don’t get me wrong, I love a statistic and a bunch of numbers to support decision making in property, but it does get to a point where you wonder if too many numbers can become distracting.
When it came to writing this article I wanted to do some research and really understand what was going on in the Sydney property market. It’s what you would expect, right?
This is where things got interesting. You and I both will have our own opinion on what we think the property market is going to do, based on a whole lot of the noise we hear around us every day…
But how much of it is just that, noise, and how much is actually helpful? I’m not entirely certain we will ever have the perfect set of statistics that predict the future, so it will continue to be necessary to do your research and make informed decisions based on the data you have chosen to include in your analysis.
So let’s have a look at what is happening in the Sydney market…
The June Data
First, let’s look at some data from June thanks to Rent.com.au.
While a lot has happened since June, and I will get to that shortly, it’s still a good place to start to get a feel for what is happening in the Sydney market.
The first statistic we often look to is the median rental, and in the month of June, they fell for apartments and were steady for houses. Given the recent trend of reasonable falls, this is not a bad sign.
Price per room is a measure of affordability, especially for those looking to share to save money. For June there were reasonable falls when compared to the same time last year. More affordable rooms mean more people able to snap up available properties for rent.
That’s not a bad start, a couple of signs things are looking up.
Then there is the metric of how long it is taking to rent or sell a property. For Sydney the June numbers weren’t great, both apartments and houses were 3% slower compared to May and 11% and 12% respectively when compared to June 2018.
That’s not such great news.
July Auction Clearance Rates
As I mentioned earlier, there has been a lot going on in the markets that has the potential to impact property markets.
In July we have seen another interest rate reduction. The official rate is now down to record lows of 1%.
The banks passed on most of the rate cut for homeowners, but in a clear step to stimulate investors, some of the banks passed on more than the official cut of 0.25%. In some cases, interest only loans were cut by 0.3%.
Couple the previous interest rate cut and the banks finally loosening the purse strings to make getting a loan a little easier, and we should have some more activity in the markets, right?
So let’s look at the auction clearance rates in July for the evidence.
For the weekend of the 13th and 14th July, the Sydney preliminary auction clearance rate as reported by Domain was a very strong 74.269% but only 283 properties listed for sale under the hammer and so far 210 results were reported.
The unreported rate was 25.8%, meaning the final clearance rate is likely to drop to around 67% to 70%.
Last weekend’s final clearance rate was revised to 66%.
A year ago Sydney could only muster a 43% clearance rate for the 347 properties listed for auction.
Two years ago (2017) a 64% auction clearance rate was reported for the 497 properties listed for auction.
What you will notice in these statistics is the significantly reduced volume of properties for sale this year compared to the previous years. Clearly, the combination of recent falling market prices and lending conditions, on top of the normal winter hiatus, have resulted in sellers holding off for now…
We really need to see these volumes increase to bring more confidence into the market. The end of school holidays continued strong auction clearance rates, and the flow-on impact of the reduced interest rates and recent tax cuts should help bring more buyers and sellers to the market.
The Outlook for Sydney
Having analysed the historical data it is time to look ahead and form an opinion of the outlook for Sydney in the next few years.
While we still face the possibility of a recession in Australia, the world awaits what might happen in the China USA trade war and the impact of Brexit, the outlook for the property market seems positive.
It is reasonable to assess that the Sydney property market is forming a bottom. Now that doesn’t mean we are about to head off into another boom.
The data we have analysed in this article clearly shows that the next 12 months are likely to be steady with some gains possible as more buyers and sellers enter the market.
I have seen predictions, something I don’t like to make by the way, of Sydney house prices growing by as much as 10% to falling by 12% in the next 12 months.
Just for the fun of it, I think it is more likely to be in the 0-3% range, subject of course to all the world and local events mentioned above, of course.
The positive news for Sydney is likely in the longer-term forecast.
It is likely we will see the current oversupply of apartments in Sydney slowly dwindled down in the next 5 years, helping to push prices up again as supply becomes tighter.
It is also likely that the Government is going to need to stimulate the economy with infrastructure spending to avoid a recession and maintain its commitment to a surplus. If the recession is avoided, then confidence will continue to grow and prices will surge again.
The outlook over the longer window of 5 years is likely to see returns back to historical averages in the 5-10% per annum range.
Again, while not a fan of predictions, this is my assessment of the data for now. It is not likely that we will see the next property boom for a few more years yet, there is just too much uncertainty for now to fuel the fire of positivity.
Andrew Woodward is a mindshift.money accredited money coach based in Sydney who teaches people to take control of their money and invest for their future, simply and efficiently. Sign up for his free weekly money tips at theinvestorsway.com.au.