Sydney property market is going to give the RBA one hell of a headache

Without a doubt one of the overwhelming characteristics of the Mosman market was the insatiable desire of residents to trade in the market. Today, it is instinctively clear that this desire has been lost as a result of the global financial crisis (GFC) as residents re-calibrate their lifestyles and requirements. For example, in 2012 out of 52 weeks there were on 33 occasions more than 100 houses on the market. In 2013 Mosman has only broken the 100 mark on just four occasions which explains why so few houses are on the market. I did a comparison for house sales in Mosman for 2013, 2012 and 2007 (the golden market before the GFC hit.)

Bear in mind before the GFC Mosman used to trade approximately 10% of the approximate 4,800 houses – 480.

Mosman house sales January 1 2013 to November 7 2013.

• Total – 267

• Average Price – $2,825,942

• Private Treaty – 207

• Public Auction – 60

• Total Value Sold – $714,324,833

• Adjusted Clearance Rate – 44%

Mosman house sales January 1 2012 to December 31 2012.

• Total – 283

• Average price – $2,852,759

• Private treaty – 250

• Public auction – 33

• Total value sold – $788,975,000

• Adjusted clearance rate – 22%

Based on what is on the market today it would be fair to assume that 2013 Mosman house sales will go very close to reaching $1 billion as well as breaking the 300 barrier, so all in all the Mosman market is performing much better than many give credit.

Mosman house sales January 1 2007 to December 31 2007.

• Total – 374

• Average price – $3,035,363

• Private treaty – 324

• Public auction – 50

• Total value sold – $1,135,225,667

• Adjusted clearance rate – 38%

So that’s what the good old days looked like although I’m prepared to forecast that Mosman will go very close to $1 billion in 2013 with total value sold. Houses are in blue and apartments in purple.

Of course next year is another story with surging Sydney property market could spoil RBA’s New Year given on Melbourne Cup Day the Reserve Bank of Australia (RBA) left the cash rate at 2.50% so I don’t think the cash rate will be changing anytime soon. The Aussie dollar is climbing back slowly to a possible parity so should the RBA raise the cash rate this would almost certainly drive the Aussie dollar to parity and beyond.

SQM Research director Louis Christopher was reported as saying the “number of enthusiastic buyers, particularly in Sydney, was behind the shortage of housing stock on the market” compared to this time last year. He said Sydney’s stock levels were down a “staggering” 17.3% which is about right given Mosman is struggling to break 100 yet two years ago we had 175 houses on the market in November 2011.

Record low interest rates have seen the Sydney property market recording yearly growth past double digits to sit at 11.4% according to the Australian Bureau of Statistics (ABS). Sydney is leading the way with the weighted average of the eight capital cities posting a more than healthy 7.6% gain for the twelve months to September 2013. Canberra and Adelaide are still lagging behind recording 1.2 and 0.6% for the quarter. Perth (0.2%), Darwin (0.4%), Brisbane (1.2%), Hobart (1.4%), Melbourne (1.9%) and Sydney posting (3.6%) so one can only imagine the conundrum facing the RBA with which direction to take the cash rate.

Unless Sydney starts cooling down it will in all probability allow certain areas to crash and burn given the rest of Australia is so far behind. The areas that will be hardest hit will be south-west Sydney which previously has always had huge price corrections and given they are recording record prices so it’s hard to see this being sustained. In 2004, south-west Sydney sustained drops of up to 55% although this time around I don’t see it being as severe given what rocked the market then was the cash rate jumping from 4.25% in February 2002 to 6.75% in December 2007.

The cash rate will go back up and as history shows there are always casualties along the way.

He has also been writing real estate blog Virtual Realty News since 2000.

The RWM real estate model has sold in excess of $1 billion in database sales globally.