Tracking Market Demand for Housing in Sydney
The question has been asked almost constantly for the last 12 months. Is the Sydney property boom over? A lot of people who have been in this market for much longer than myself have weighed in on the topic, and they’ve yet to come to a consensus. What we do know, however, is that demand for housing in Sydney has shifted in the last few months, and prices play an impact.
The current data through mid-December shows that median home values in Sydney have increased by 49% since mid-2012. In a little over 3 years, the prices have skyrocketed, and while other markets in Australia have been strong (Melbourne was up 31.5% over that same time period), none have been this strong. It’s no wonder so many people expect the bubble to pop, assuming this is a bubble we’re looking at.
If you’re an investor or are preparing to purchase a property for the first time, now is an interesting time. All signs point to a slowdown, but what can we really expect in 2016 and beyond?
The Impact of the Recent Slowdown in Sydney
We can’t ignore the facts. Since the median home price in Sydney broke $1 million in July, things have started to slow ever so slightly (and more so in recent months). Auction clearance rates ended the year in the 50% band (down from 80% and mid-year), there was even a slight decline in values in December.
What’s driving the slowdown? There are several factors, including:
- Lending Criteria – Lending criteria for investors was looser before 2015 and with the recent tightening, people are forced to make better thought out decisions, possibly with less capital to invest.
- Investor Movement – Because of how high prices in Sydney rose in the last four years, the investors who have the funds are now looking to other markets with greater upside. Brisbane, for example, offers a higher yield on both homes and apartments than Sydney. As prices increased, this gap grew.
- Cyclical Market – When new high prices are set in the real estate market, it tends to slow down, consolidate and plateau for a time. The driving forces to push those prices higher simply aren’t there right now.
Are these signs that a massive bubble is about to burst? Not necessarily. What they are is a sign that a historic boom is slowing down, but there is still opportunity to be had.
Why Sydney Property Is Still a Good Investment
Property prices won’t crater anytime soon. They may not continue to rise at unheard of rates, but they will remain consistent and the demand is still there, especially in suburbs that are just now starting to see the capital improvements that other hot areas have in the last decade.
For those still interested in investing or purchasing for the first time, remember that interest rates are still low and will likely increase. This in itself is an opportunity if you have the capital to invest. When rates increase to the standard 8% range in the coming years, you will wish you had taken advantage of them now.
As the property market starts to heat up for the coming fall, don’t be surprised to see Sydney prices rise only slightly. Many forecasters are predicting between 3-5% growth in 2016 (rather than the 16% we saw in 2015). But there are still deals to be had and opportunities to be snatched. For the savvy investor the market is still here.