Sydney price growth to be even stronger than forecast: SQM Research

Louis Christopher, the managing director of SQM Research, has upgraded his forecast Sydney house price growth to a probable 11% to 15% for 2015.

There were previously 8% to 12% price growth expectations for Sydney.

But he puts the current surge in some perspective, noting it was not happening elsewhere in the country. 

He maintains that despite all the hype, Sydney prices are still more affordable than at the peak of the last boom.

"Back in December 2003, on our valuation, the market was 55% over fair market value," Christopher told the AFR's Robert Harley.

"Today it is 25% over fair value.

"So it is over valued, but not to the magnitude it was in 2003," he says.

In a position paper entitled, The National Housing Bubble That Isn't, Christopher argued: 

"Let me tell you it’s wrong to take a broad-brush stroke on the housing market when all the evidence suggests there is no national housing bubble currently in existence.

"Sure, you could make the claim that Sydney property is overvalued and in bubble territory.

"Perhaps you could make the claim that parts of Melbourne are also experiencing a strong run up in prices as well.

"However, please try telling residents of Adelaide that they are in the midst of a property bubble when prices have been almost stagnant for the past 12 months. Prices haven't done much better in Brisbane, Hobart or Canberra for that matter. 

"Or the Gold Coast and Sunshine Coast which have recently bottomed out after a housing price crash.

"There are also literally hundreds of other smaller townships and residences dotted around the country which have not experienced capital growth in a very long time and are running at discounts to incomes.

"These localities are influenced by local factors.

"No matter how cheap mortgages are, prices in these localities will still rise and fall, largely as a result of the fortunes of their local economies."

He presented a table from the Australian Bureau of Statistics that showed one and 10-year annualised results for most cities which he wrote appeared "rather benign".

He does not rule out that there won’t get a housing bubble in future.

"Our forecasting modelling does suggest that the current low rates and low Australian dollar will be increasingly stimulatory to at least the Melbourne and Brisbane markets on top of the already booming Sydney market," said Christopher.

Source: 2015 Housing Boom and Bust Report

The above table covers SQM's forecasts for 2015 made back in September.

"For the record, given the interest rate cut we have had and the fall in the Australian dollar, we now believe our ‘Scenario Two’ forecasts are increasingly in play over the base case ‘Scenario One’ forecasts.

"And on those numbers, Melbourne and Brisbane house prices could take off, particularly later in the year." 

"In Sydney itself, I recognise the market is trading in overvalued territory.

"If our forecasts are right for this year, the market will move to a point which would suggest it is 40% overvalued.

"That would be the second highest point we will have reached since the 1980s."

Louis Christopher points out that there are some very logical reasons "which are not in any way associated with cheap mortgages".

"Sydney has, for example, strong population growth," he said.

"The city expanded by an estimated 90,000 people last year.

"With this population increase the city has still been underbuilding even while building approvals have picked up.

"NSW has a strong state economy and the future is looking good on infrastructure spending, presuming the 'poles and wires' sell-off goes through state parliament.

"Sydney unemployment is lower than the national average."