The Spectacular Sydney Property Boom

The spectacular Sydney property boom is finally easing off.

In his regular column on Switzer John McGrath will spend the next few weeks drilling down on the local trends occurring within each of the Eastern Seaboard’s major capital cities.

This week he started where all the major action is happening – the Sydney property market

Here’s what he said:

This has undoubtedly been one of the most spectacular booms in Sydney’s real estate history.John Mcgrath

According to CoreLogic RP Data, this growth cycle began in May 2012 and it’s been a strong climb since then.

On June 30 2013, Sydney’s median house price was $662,500 and it had risen 6.3% over the year.

Over the next 12 months we saw another 16.2% rise and a further 17.8% gain by June 30 2015.

By September 2015, Sydney’s median house price was $900,000.

Soon enough, we’ll have a million dollar median – in fact, some researchers say we’re already there, but everyone measures the numbers a bit differently.

Further interest rate cuts earlier this year extended the boom, along with strong demand from investors and a shortage of stock that resulted in auction clearance rates peaking at 89% in May.

The average time it takes to sell also reached record speed at just 26 days this year.

Lack of stock has been a big issue, particularly in destination suburbs where existing residents, seeking to upgrade or downsize locally, have been competing with an increasing number of out-of-area aspirants.

By mid-May, total stock available for sale was down 21% compared to the year before.

Many homeowners delayed selling because buying back in was simply too hard.

Things have since changed

As stated in our McGrath Report, stock levels began to improve in late Winter and by August, stock was only 5% lower than in August 2014.

New statistics released since our report was published show stock levels are now 4.7% higher than this time last year.

In reality, we are probably getting close to the peak of this boom.

Interest rates are unlikely to rise for some time but affordability is starting to bite.

Prices have risen to such a point that I believe more young families than usual will leave Sydney in favour of Melbourne, Brisbane or major coastal areas.

Many first home buyers are ‘rentvesting’ (renting were you want to live, and buying an investment property where you can afford) instead, which is a great option.

We’re also seeing more investors heading to Brisbane for the highest yields of the major capitals (as well as the Gold and Sunshine Coasts) with all three locations offering excellent prospects for near-term capital growth.

Tighter investor lending criteria is having an impact in Sydney and this is a good thing, as it is weeding out the investors who are leveraging themselves too highly.

However, this is only a speed bump in Sydney’s boom.

Investors on good incomes using new equity in their homes or SMSFs are easily able to satisfy the new criteria of lower LVRs, tougher serviceability and slightly higher mortgage rates.

Natural attrition will be what ends this boom

A simple case of prices getting so high that owner-occupiers back off to see what happens next, while falling rental yields and limited prospects for much more capital growth prompt investors to look elsewhere.

Anyone who owns a good quality, well located property in Sydney owns a piece of financial security.

Despite predictions that Melbourne’s population will overtake Sydney’s in as little as 15 years, Sydney will always be the powerhouse property market of Australia due to high migration, work opportunities and an undersupply.

And it’s important to remember that boom periods are only part of a growth cycle.

While I do expect this boom to cease soon, Sydney prices will continue to grow throughout 2016 – it will just be at a slower pace.

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'The Spectacular Sydney Property Boom' have 3 comments

  1. October 14, 2015 @ 6:24 pm Scott

    What happens after every boom?

    BUST! and all the people on the cusp of home ownership are waiting patiently. the perfect storm for Australian housing is coming and everyone knows it! Banks raising rates independently of the RBA??? even they see the writing on the wall…..

    better sell now while your in front anyone praying on more capital gains…

    Patience Daniel son….


    • October 14, 2015 @ 6:48 pm Michael Yardney

      thanks for your comment – but not every boom ends in a bust – sometimes it just fizzles out and slows down a little. When was the last property bust you know of?


      • October 14, 2015 @ 9:44 pm Scott

        Hi Michael.

        America didn’t see it coming – 2007 – But we are different right?


        The younger generation and other investors can’t keep this ponzi going forever, housing construction boom, immigration slowing and China money drying up….. We are being sold a pipe dream of ever increasing house prices on record low interest rates…. A lot of people are going to get burnt. The sad part is, as long as the “haves” portfolios (including the politicians) are growing, they don’t give a sh*t….. very sad…

        Interesting times ahead..

        Thank you.


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