Sydney property prices in 2014 — appreciate by 15-20% or slow down?- Pete Wargent

SQM bullish on Sydney

There was quite a lot of debate in the early weeks of the year about whether Sydney’s property market would storm ahead or slow down.

SQM Research’s 2014 property market forecasts caused quite a stir when released last year.

Since rates have neither been slashed in recent months nor hiked, SQM’s ‘base case’ or Scenario 1 is the prediction in play, and that is for Sydney prices to boom by 15-20%

It’s too early to call a strong economic recovery.

If we did then the prediction would be 20-30% growth in 2014, but the latest data has not yet been strong enough from the labour market and therefore no interest rate hikes appear imminent.

The question is, will the 15-20% growth scenario be correct, or will the market slow down?

We’re about to enter the second week of March, so let’s take a look how things are tracking for the year-to date.

Source: SQM

The demand side of the property markets has remained imperiously strong.

Housing loan approvals are approaching record heights, investors are running wild and Australian Property Monitors has been consistently reporting auction clearance rates of above 80%, and closer to 90% in the hot sectors of the market.

As noted, interest rates are locked down at historic lows, and as the major banks continue to compete for market share, 2 year fixed rates have fallen to only 4.84%.

It’s unclear how long that will last but that is a stimulatory level of credit.

loan approvals

Low interest rates have clearly caused demand to rip.

Houses in Sydney are selling in around just a month, and apartments in just a few weeks, and this gauge has been falling still.

Source: RP Data

Demand is clearly still incredibly high. But what about supply?

SQM’s own figures showed Sydney’s stock on market hitting the lowest levels on record two months ago before bouncing a little.

Even so, stock levels are horribly low in Sydney at just 22,715 (compare them to Melbourne at 42,454) and remain down 16.1% on last year.

vendors

Source: SQM Research

To give the supply figures some more context, Tim Lawless of RP Data has produced an excellent series of charts, which serve to highlight Sydney’s supply problem.

Sydney

Capital cities

Source RP Data

Very messy-looking for Sydney.

Compare Sydney to other regions in Australia, for example, as RP Data does for both houses and units below

All regions graph HOUSES

Source: RP Data

Gosh.

All regions graph UNITS

Source: RP Data

Crikey.

Summary

So, to sum up, will Sydney prices rise by 15-20% in 2014?

Well, it was always going be too early to say “yes”, but equally, the indicators also all say to me that it’s definitely too early to say “no”.

Home values in the first 66 days of the year are up by $17,350 according to RP Data’s Daily Home Value Index, which equates to around 2.4%.

Only a complete mug would annualise 66 days of data…so here you go: that’s travelling at a shade over 13% annualised pace.

One issue to keep an eye on is asking prices – in the last few weeks, there has been perhaps an indication that asking prices in Sydney may be easing…watch this space.

Verdict: it’s too early to write off SQM’s predictions just yet.

And to sign off, here are the daily home values figures dropped into a chart for Sydney:

Source: RP Data

[post_ender]



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Pete Wargent

About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


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