Sydney market wound down before APRA's brain-explosion: Terry Ryder

We have valuation firm Herron Todd White to thank for this quite startling revelation earlier in the week: “Signs of slowing have emerged in Sydney property markets.”

Were it not for the ground-breaking analysis and cutting-edge research of HTW, no one would have noticed that the Sydney market has been fading. 

The marked decrease in sales volumes since the start of the year would have passed us by.

The stark decline in auction clearance rates over several months would have gone unnoticed.

The significance of the steady increase in stock on the market would have been lost of all but the most brilliant among us. 

And the wind-down in the pace of price growth would have been quite meaningless.

Fortunately, HTW to the rescue, publishing a report that contains zingers like: “There are signs that the market may be cooling.”

Good grief. What were they thinking? Were they competing for first prize in a competition for under-statement of the year? Or was it the time-honoured tradition among the valuation profession of being unwilling to say anything meaningful for fear of being relevant? 

There are signs that the market may be cooling? Is there seriously some doubt that the Sydney market is in wind-down? 

This is sadly symptomatic of the absence of expert analysis in the residential property industry.

We had another example in a speech last week by Reserve Bank assistant governor Malcolm Edey, in which he made the most common mistake in real estate “analysis”. This is the theory that says that if Event A coincided with Event B, therefore Event A must have caused Event B.

It’s irrelevant that there are five or six other events that also were aligned with Event B - Event A has had the most publicity, so Event A gets the prize.

So APRA made some announcements and then signs emerged, a la HTW’s rip-snorting expose, of a cooling in the market, therefore APRA must have caused the de-heating. 

Obviously.

This overlooks the reality that the Sydney market peaked and started its gradual wind-down long before APRA had its self-indulgent brain-explosion.

The Sydney market peaked in the December Quarter last year. Sales activity dropped in the March Quarter, dropped again in the June Quarter and continued its steady dissipation in the September Quarter.

Little by little, that has been reflected in other data. 

Clearance rates are now below 60% for the first time in three years, following a pattern of decline stretching back months.

The latest quarterly price data, always a long way behind the real game, indicates Sydney growth has fallen back to levels on a par with Adelaide and Brisbane.

 But Edey, as a boffin who gets no closer to the coal face than his computer screen, sees only “tentative evidence that sentiment may now be turning”.

 I fully agree with the growing list of pundits calling the end to Sydney’s boom. I’ve been writing about it for the past 5-6 months.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.