Over the past 20 years in the industry, I have experienced several peaks and troughs in the Sydney market. Each market has brought different benefits and challenges to both buyers and sellers. But can we say that the current market is “softening” or “going to bust”? In these past few weeks, we have been studying a range of articles, reports and sources that have been commenting on the condition of the market. The most reliable source that I condone and trust is the 'SQM Research – Housing Boom & Bust Report 2018' by Louis Christopher. This is the only guy I trust to comment on the market as he gets it right 95% of the time. In previous years, his reports have been fairly accurate especially his predictions for the market earlier this year. From this report, we can take these 4 key points away to consider in the current market:
1. Growth rates have slowed but have not completely diminished
We have seen growth rates for the Sydney Housing Market at a 10-12% increase over the last couple of years. This was an abnormal upswing for the market due to a number of contributing factors, including low interest rates, population growth and strong local economies. APRA have enacted significant restrictions on bank investing lending, which Christopher believes has contributed to growth rates decreasing to between 4-8%. These 'new' rates are still a good level of growth and are actually a positive, sustainable shift for the Sydney Housing market.
2. Certain postcodes are still performing at a strong rate
The slower growth rate can be said for Sydney as a whole market, but does not represent the different postcodes which are still experiencing strong growth. The growth rate differs from postcode to postcode depending on factors such as demographics, infrastructure and proximity to the CBD. Christopher provides guidance by rating each postcode on performance through a star rating, with Dee Why holding 3.42 stars and Mosman holding 3.46 stars. Recently realestate.com.au commented on the Dee Why market in the following article: https://www.realestate.com.au/news/investors-buying-in-dee-why-say-suburb-is-undervalued/. On the back of strong economic growth, certain price brackets and postcodes are performing well due to companies performing better and therefore giving their employees a pay increase or bonuses, resulting in some buyers upsizing, investing or renovating. This contributes to certain postcodes being in high demand and therefore, continuing to experience strong growth.
3. The Sydney Housing Market has been overvalued in the past
With these past abnormal growth rates of 10-12%, we can say the Sydney Housing Market has been overvalued. A combination of low interest rates, strong local economies, and excessive population growth continues to drive the market higher beyond its respective fundamentals. APRA have put stricter regulations in place that have been aimed to reduce this issue but how long will this last? We have also been hearing from Agents that have said sellers' expectations have previously been overvalued, however they are starting to adjust to these decreased growth rates. This would explain the recent Auction clearance rates and the amount of properties being passed in or withdrawn. Domain has commented on sellers adjusting their expectations in the following article: https://www.domain.com.au/news/sellers-adjust-auction-expectations-as-lower-end-of-the-market-softening-up-20171015-gz1cmf/?benref=smh.
4. It's not all doom and gloom, we have to adjust to these new rates as the norm
People have this preconceived idea that the market is all doom and gloom. In reality, we have to adjust to these new growth rates as the norm. The previous growth rates of 10-12% have been unsustainable, inflated and overvalued. With the new growth rate of 4-8%, your purchases will still be good investments and we can say this shift will have a positive impact.
I strongly recommend you read this report so please let us know if you would like a copy sent to you via email. I would also be happy to sit down with you to discuss the current market, please call me to arrange a meeting on 0419 200 018 or 9960 1066.