How to manipulate property market machinations: Robert Simeon

The biggest challenge facing the Sydney residential property market is successfully calling the market accurately as against some who pluck figures out of the air with astonishing aplomb.

My preferred guide is the Australian Bureau of Statistics (ABS) capital city indexes for Established Houses which is released on a quarterly basis – it’s all about measuring price movements over time.

So I struggle when I see BIS Shrapnel noting that Sydney house prices have soared 45% since 2009 although I remain somewhat confused as we need to add further perspective by taking into account that house prices fell approximately 20 to 30% during the Global Financial Crisis (GFC). When we average out the fall in prices at say 25% then factor the recent run on the market prices then they have in real terms only climbed 20% which is a different story to the reported 45%.

Over this same period we have seen the emergence of an entirely new market namely the investment market which has been the stand – out performer, although it has very little to do with the established house prices. I’m sure if one looks hard enough you can find data that identifies Sydney house prices have jumped 45% although I don’t believe this is an accurate assessment – more a market price manipulation.

If we go back a decade for Sydney house prices we see most interesting market price machinations – from the September quarter 2004 through to June 2006 (eight quarters) the Established Houses in Sydney were in negative growth at around -5% per quarter. From September 2006 until June 2008 Sydney went into positive growth mode although not exceeding +10% growth with a quarter average of around 5% – then the GFC hit. From September 2008 through to June 2009 Sydney was back in negative growth with negative growth quarters of 6 and 7% the highest reported. Then in September 2009 until December 2010 house prices went back into positive growth where in March 2010 price growth peaked at 19%. Then in June 2011 through to June 2012 prices fell back into negative growth although not alarming with five quarters of bouncing from -1% to -3%. Then in September 2012 until June 2015 Sydney has been experiencing its bull run which has now extended to twelve consecutive quarters with the June quarter posting the highest quarterly growth of 21% – the previous high was 17% in September 2014. I might add that the month of September seems to be a catalyst month in property price movements both positive and negative.

We also need to recognise that in the December quarter of 2008 the Rudd Government moved the off – the – plan sales for new developments from 50% to 100%, so this has been a significant driver in the investor property market. Sydney has added approximately 20,000 new apartment developments which is unprecedented by modern day property data and this has been strongly assisted by the record low cash rate of 2% that will probably go lower in 2016.

The big question that remains for the best part unanswered is just how many of the new 20,000 apartments will have their purchasers default as APRA has increased the loan value ratios and the much speculated Asian buyer defaults given the massive correction in the Chinese stock market. It’s no secret that many banks and developers have these developments on a red alert for these most obvious reasons.

Having said that we need to clearly identify that these are investors and should not be compared to the traditional housing market. The off – the – plan prices in Sydney apartment blocks has gone off the Richter scale so if there is a price correction there this would then have minimal effect on the established home prices although it would slow the market down as a result.

We just need to balance the debate – over the past 44 quarters for the percentage change in median values for established houses in Sydney 17 quarters have been in negative growth and 27 quarters in positive growth. We also need to look at the cash rate which was 3.00% in April 2013 and fell to 2.75% in May 2013 and has been stuck on 2.00% since May 2015.

The United States has been sitting on their record low cash rate for a decade now so it appears that record low cash rates is the new norm in global economies.

There is no need to panic about property prices for the established homes although the investor market will make for fascinating viewing over the next few years.

I also can’t recall ever seeing the established house market with record low numbers of properties on the market either.

MOSMAN – 2088

• Number of houses on the market this time last year – 82

• Number of houses on the market last week – 48

• Number of houses on the market this week – 49

• Number of apartments on the market this time last year – 50

• Number of apartments on the market last week – 60

• Number of apartments on the market this week – 60

CREMORNE – 2090

• Number of houses on the market this time last year – 14

• Number of houses on the market last week – 7

• Number of houses on the market this week – 9

• Number of apartments on the market this time last year – 22

• Number of apartments on the market last week – 23

• Number of apartments on the market this week – 23

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 5

• Number of houses on the market last week – 9

•Number of houses on the market this week – 9

• Number of apartments on the market this time last year– 51

• Number of apartments on the market last week – 21

• Number of apartments on the market this week – 23

ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.