Sydney has cooled, but it will not stop growing in value in 2016: John McGrath

Sydney has cooled, but it will not stop growing in value in 2016: John McGrath
Sydney has cooled, but it will not stop growing in value in 2016: John McGrath

Home values in Sydney have shown incredible growth over the past three-and-a-half years, notes estate agent John McGrath in his latest Switzer blog. 

Sydney’s median home values (all properties combined) have risen by 48% since the growth cycle began in May/June 2012, latest figures from CoreLogic RP Data reveal.

By comparison, Melbourne is up 31.5% over the same timeframe, with Brisbane next at 15%.

Among the other capitals: Darwin 12.6%; Adelaide 10.9%; Perth 10.7%; Canberra 9.6%; and Hobart 6.3%.

On a national scale, it’s been a two-tier market led by the East Coast since 2012, he says.

But now things are slowing down.

"Sydney has cooled but I’m not concerned. What is really important to realise is that Sydney will not stop growing in value, it’s just going to settle and return to a normal long-term pace of incremental growth," says McGrath.

"Yes, I think it’s fair to say the boom in Sydney is probably over. Auction clearance rates have dipped from the 80% band mid-year to the 50% band now and that’s quite a drop. Of course, supply has increased over Spring but that alone doesn’t explain a 30% decline in clearances. The market is simply cooling down now and that’s a really good thing." 

After such a long run of growth, some consolidation might be expected. New price benchmarks have been set for all types of properties right across the city and it might take a while for those prices to be cemented in, he says.  

According to him, three major factors have slowed Sydney down: 

1. A tightening of lending criteria for investors has had a significant impact, as investors have been a driving force in this boom

2. Many investors who still meet lending criteria are now looking outside Sydney. When you get rapid capital growth, rental yields inevitably decline and that’s the case in Sydney, with houses yielding 3.2% and apartments 4.1%.  Brisbane offers the highest yields of the major capitals at 4.3% for houses and 5.3% for apartments – and more importantly, Brisbane has greater scope for imminent capital growth 

3. Real estate markets are cyclical. At some point in a growth cycle, every market will reach a peak and plateau. 

When markets begin to cool, it’s inevitable that there will be small drops in prices month-to-month and that’s what happened in Sydney in November. 

The median house price fell -1.5% and apartments -0.7%.

But there’s no need to be too concerned as this was expected as this is normal at the end of a boom, he says.

The important thing is to distinguish between the end of a boom and the end of a growth cycle. It’s the end of the boom, not the growth cycle, he concludes. 

Sydney Property market

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