Is the property market crashing?

It’s hard to read a paper at the moment without finding an array of negative headlines about Sydney’s declining property market.  While media reports paint an overwhelming gloomy picture for the market, a closer look at the data tells a more nuanced story.

Sydney’s top end dragging down the averages

The Sydney residential property market as a whole recorded negative growth in the first quarter and for the year to April 2018.

However, the latest data from CoreLogic shows this result was largely driven by the premium end of the market.

The most affordable 20% of dwelling values recorded gains in these periods.

In fact, the more affordable half of Sydney dwelling values recorded an uptick in prices when averaged out over the year to April 2018. However, a pullback at the more expensive end caused the overall average to be weighed down.

The top end of Sydney dwelling values ($1.4m-$1.8m+) experienced the most significant decline. These properties suffered a substantial 7.2% decline over the 12 months to April 2018 which dragged the average down to -3.4% for the market overall.

Affordable property at the medium-low price ranges (under $875K) has been far more resilient.

“We often tell our investors to read the numbers, and understand the data, not the sensational headlines, and this is a typical case in point,” said Ironfish Head of Property, William Mitchell.

“Sydney has been an incredibly hot market so we do expect the overall market to trend sideways for a period. However, as the data demonstrates, there are sub-markets which can outperform the wider market, and these are the markets that we are looking for when it comes to selecting property to recommend to our investors.

“Though there will be a pullback in prices in pockets of Sydney, owners need to remember the market has increased significantly since the boom began in 2011, so a small adjustment is not a ‘bust’.”

Melbourne property market continues to perform

Like Sydney, the headlines for Melbourne property have focussed on the negative; specifically, Melbourne’s marginal decline (-0.7%) in residential property values for the first quarter of 2018.

Yet the data reveals that the Melbourne market has continued to perform, with the vast majority of price points recording positive growth over the 12 months to April 2018.

The affordable end of the market again recorded the largest gains. Properties priced $803K and under recorded an average gain of 9.87% in the year to April 2018 – a very strong result.

Only the most expensive dwellings (i.e. the top 10% of prices) recorded a negative gain in Q1.

The return of first home buyers 

The outperformance of more affordable product has been much attributed to more first home buyers returning to the market. This is a trend we’ve seen not just in Sydney and Melbourne, but also across all the 5 major capital cities.

First Home Buyer mortgages on the rise

In Melbourne, strong population growth coupled with the increasing appeal of apartment living has further underpinned demand for the affordable end of the market.

Melbourne apartments recorded the strongest capital growth (6.8%) compared to apartments in any of the other 5 major capital cities for the year to April 2018.

Given Melbourne house prices have increased up to 70% since mid-2013, apartments continue to offer a significantly more affordable alternative to buyers.  At current median values, a Melbourne apartment is about 33.9% cheaper than purchasing a standalone house – providing a very strong incentive.

“With the tighter lending environment at the moment, affordability is definitely the flavour of the month. As a result, we are seeing more buyers turning to apartments and this market is expected to perform well in the medium term,” Mr Mitchell said.