Sydney prices have separated from the rest of the country: Cameron Kusher
The increase in the value of Sydney homes over recent years has been significant and Sydney home owners now have a substantial amount of equity, it will be interesting to see what they do with it.
The latest CoreLogic RP Data Home Value Index results were released earlier this week. Apart from an update how house and unit values have shifted in November, the release includes the latest update on median selling prices for houses and units across the capital cities. From this data it is becoming increasingly evident that housing costs in Sydney have well and truly separated from the rest of the country.
The CoreLogic RP Data Home Value Index results highlight just how much stronger value growth has been in Sydney, and to a lesser degree Melbourne, relative to all other capital cities. The first chart highlights that since the current growth phase commenced in June 2012, value growth has been significantly greater in Sydney than in most other cities. This has occurred despite the fact that Sydney was already the most expensive capital city.
The second chart compares median house and unit prices across each of the capital cities. This data is based on median prices over the three months to November 2015. Sydney has the greatest median house ($950,000) and unit price ($675,000). In fact, Sydney’s median unit price is higher than the median house price in all other cities except Melbourne where they sit at the same level. To put the differential into some perspective the combined median house ($495,000) and unit price ($400,000) is lower than the median house price in Sydney.
It is important to remember that the median price provides an indication of the typical home selling at a period of time. It can be impacted by compositional bias if lower or higher priced stock is selling. Nevertheless it does afford an understanding of what the typical home is currently selling for.
To better understand exactly how much Sydney has separated from the rest of the capital cities in pricing terms, we’ve looked at the approximate dollar value change from the recent low point in the market through to the end of November. The data shows that home values have increased substantially across Sydney and those who have owned a property in Sydney for more than a few years are likely to have accumulated a sizeable level of equity in their property.
At their most recent low, Sydney median house prices were recorded at $620,000 and median unit prices were $465,000. From that time to the end of November Sydney house values had increased by 51.7% and unit values by 38.3%. In dollar value terms this is an increase of $320,265 and $178,245 respectively. Of course some of that increase may be due to improvements however, that rise in the value of Sydney houses and units are much greater than increases in all other capital cities.
The substantial rise in prices and the subsequent boost in housing equity probably also points to why many lifestyle markets are now seeing value rises. Anecdotally, home owners from Sydney and Melbourne are now more able to purchase lifestyle properties given the wealth effect of higher property prices. It also indicates that someone could sell out of Sydney, buy into another market and pocket a significant amount of capital from the balance from the sale. This is probably quite appealing to some Sydney-siders that are retired or close to retirement as well as those that own their own business.
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him here.