I noted three weeks ago that Residex was holding back its January 2015 property market data until “the January growth numbers are firm and we are confident they reflect the actual outcome for the month.”
You can read that a number of ways, but my take was that the Sydney data was reflecting a market that was continuing to demonstrate strong capital growth rather than one which was slowing, as a number of experts have been predicting.
The numbers are now out and, sure enough, Sydney house prices increased by +4.1 percent over the last quarter, with unit prices also surging by +3.0 percent.
House prices in Sydney have boomed by +19.97 percent over the past year, units by a slightly more sedate +11.56 percent.At the current rate of progress house prices in the harbour city will reach $1 million within a year.
Brisbane house prices increased by +1.7 percent over the past quarter.
Over the past year growth has, however, been relatively soft in Adelaide (+3 percent), Perth (+3 percent), Hobart (+0.5 percent) and Darwin (-6 percent).
Growth has also remained soft in most regional areas.
Sydney growth continues
What the experts missed about the Sydney markets was that – in prime locations at least – supply is still barely only keeping pace with demand, and therefore rents have continued to surge, thus holding up yields.
House rents have soared +10.2 percent higher over the past year to $650/week and unit rents by +4.9 percent to $540/week.
Note that this dynamic does not happen where there is an “oversupply” of dwellings, as some commentators have been arguing.
As a result median rental yields on Sydney apartments have held up at above 4.6 percent which keeps investors coming back for more.
Meanwhile 3 year fixed mortgage rates have continued to decline to incredibly cheap levels, now available from just 4.18 percent.
As a result, Sydney’s market will likely continue to show price growth through 2015 as expected.
How much further prices will run is not known, and this largely depends upon how low investors are prepared to bid gross yields.
While I’m not suggesting this would be a “good thing” for the Sydney market, a simple model based upon the above Residex figures shows that if investors were prepared to force gross rental yields on units all the way down to 4 percent, then – even if median unit rents were to remain stone dead flat – median unit prices would surge +15 percent higher from $612,500 to above $700,000.
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