What will happen to Sydney prices in 2017?

What will happen to Sydney prices in 2017?
What will happen to Sydney prices in 2017?

Despite periodic warnings from the Reserve Bank about crazy prices, the Sydney market place has just had a year that no-one foresaw in terms of continued strong price growth.

But Brian White, chairman of real estate agency Ray White, says that homeowners’ and buyers’ sensitivity to interest rates remained "acute."

Any talk of rising interest rates dampens buyer enthusiasm across the Sydney property market.

And when rates do actually rise, the doubts set in further as buyers pause putting their hand too deep into their pockets. And often not buying at all.

It was no surprise that the tail end of 2016's auctions has seen a seasonal turn in the pitch as the last minute boost in numbers hits the market.

Clearance rates that were in the 80s, now into the mid-70 as many buyers turned off - perhaps to come back next year.

The recent auction market fatique also had much to do with interest rate headlines.

Ever since the Trump triumph in the United State in early November, its been subject to much speculation.

And the past fortnight has seen the big banks make early adjustments, to fixed rates more so than the more popular variable home loans. 

The Commonwealth Bank, the country’s biggest lender lifted the rate of its popular 3-year fixed rate by 0.20 percentage points to 4.24 percent.

It also lifted its longer-term 5-year fixed rate by 0.60 percentage points to 4.74 percent.

CBA was following Westpac with a RateCity.com.au analysis showing a further 20 lenders had lifted rates 268 fixed products since November 1.  

Peter Arnold, data insights director at RateCity.com.au said fixed rates are based on market expectations of future rates and "are the best indicator that we’ve got that a variable rate hike on the way.".

“Previously, banks were betting on lower rates in the future but we’re seeing those expectations change by the day."

All the recent talk and then movements will dictate the direction of house price growth in 2017, having already started to dampened the market.

There are two substantive price forecasts out for 2017. 

Housing price growth of between 5 and 6 percent is expected for 2017 for detached houses is tipped by Paul Bloxham, the HSBC chief economist.

He expects Sydney apartment prices to track at a slower pace than detached houses at between 0 and 4 percent.

Bloxham noted what he called a substantial 66 percent ramp-up in housing prices in Sydney since mid-2012.

He added some of the price growth was at a "worrisome pace" of Sydney price growth, particularly in 2014 and 2015.

But following a tightening in prudential settings starting in late 2014, housing price growth had slowd from double-digit growth last year to high single-digit rates this year.

The other forecast came from SQM's Louis Christopher who has more often got it right than wrong.

He suggests the Reserve Bank of Australia will need the Australian Prudential Regulation Authority to reign in home lending once again, or lift interest rates, or do both to avert a dangerous housing bubble.

Christopher suggested a scenario house prices in Sydney could rise between 11 and 16 percent given a combination of factors including loose monetary policy, strong population growth and booming local economies.

The early November forecast assumed a stable interest rate environment, a stable exchange rate and no further home lending restrictions by APRA.

A rate rise by the RBA of 25bps would curtail the rising Sydney market to beween 8 and 13 percent for the year.

The article first appeared in the Saturday Telegraph

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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