Sydney prices recovering: John McGrath

Sydney estate agent John McGrath says Sydney’s property market is on the rebound and entering the beginning of the next growth cycle, though the luxury market may still have to wait.

The founder and current chief executive of McGrath real estate McGrath says Sydney will experience some price growth in 2013 with the surrounding regional areas likely to follow within 12 months.

“I believe the real estate markets in most parts of Australia, certainly Sydney, are past the worst and heading for some blue skies in 2013,” McGrath says in his spring 2012 report.

“That’s not to say I expect either a straight line growth recovery or an instant uplift in prices

“However…we are through the worst and at the beginning of the next growth cycle. We have already seen Sydney median prices grow by just under 2% in the past 12 months.”

To back up his “gut feeling”, McGrath cites lower days on market; a return of investors; increasing rents; and increasing affordability as key signs of a recovery.

McGrath says selling times have dropped from 50-60 days down to 30-40 days while figures show 45% of AFG loans approvals have been for investors suggesting there’s a steady pipeline of investors waiting to buy.

He says bidder turnout has improved in line with higher clearance rates, which hit a two year peak of 68% in August.

McGrath says rents have continued to rise in most metropolitan regions metropolitan regions with the median rent for a three-bedroom house in Sydney increasing by around 5% to $420 per week this year while the median rent for a two-bedroom apartment grew by 6% to $425 per week.

“This both encourages tenants to consider shifting to home ownership and provides investors better yields,” McGrath says.

He says affordability has increased, particularly for first home buyers with home loan rates are around 50 basis points lower than their long term average and fixed rates sitting around 5.39%. He says AFG reported August was its strongest mortgage month for home loan applications in more than three years.

“So, as we look at these factors and observations, it seems to me that all things considered we will see price growth in Sydney in 2013.”

“The surrounding regional areas are likely to follow within 12 months. Historically, these areas have a lag time of 6-12 months behind the major metropolitan markets and I imagine this will likely be the case again.

“Having said that, the property market is also experiencing a two-speed turnaround. Properties under $1m are in strong demand whilst those above $2m are less so.

“Many of the factors I have outlined have greater impact on first and second homebuyers than they do on luxury property owners.

“The key catalyst for the upper end recovery will be the share market. Interest rates, rents and unemployment are not really influencing factors for the top end. Many luxury owners are still awaiting some clearer resolution on the macro economy and the Euro zone before jumping back into the market.

McGrath predicts rents will increase 4% to 5% over 2013 while sale prices for properties under $750,000 will increase 2% to 5%, property prices between $750,000 $1.5m will increase 5% to 8% and prices will remain neutral for sales above $1.5 million for the next nine months before increasing 10% in the 2014 financial year.

He does provide the caveat that if the ASX hits 5000 points the top end of the market will see rapid increases earlier than suggested above.