Sydney Housing Bubble Is A Myth

PROPERTY experts have slammed reports of the Sydney housing market collapsing, pointing out the market is headed in a more unusual direction now that the boom has ended.

Sydney real estate has finally emerged from what economists are calling the “perfect storm” — a five-year boom period when wave after wave of home price rises turned the city into the least affordable housing market in the world behind only land starved Hong Kong.

The kind of market that has emerged in the aftermath of that storm is a more accessible one characterised by largely flat growth in prices but little chance of a collapse, according to housing experts.

Recent price movements have given a hint of how the market is taking shape: Sydney’s median property price remained largely unchained over the past six months, a dramatic slowdown from last year when the median shot up by a whopping 16 per cent.

Such a sustained plateau in prices was unprecedented over the past five years, when the median house price shot up more than $400,000 from $560,000 at the start of 2012 to the current $970,000, according to research group CoreLogic.

A report commissioned by QBE Lenders Mortgage Insurance forecasts the flat activity will continue for years to come.

Sydney’s median house price is expected to inch down 0.3 per cent over the next three years, while the long pipeline of new apartments under construction will result in larger price falls for units — albeit still a modest 3.8 per cent decrease.

Major price falls of 20-30 per cent, which would represent a collapse similar to the one that occurred in the United States during the global financial crisis, are highly unlikely, according to the report.

One of the study’s researchers Angie Zigomanis of BIS Oxford Economics says a crash is “off the cards” because Sydney’s population is growing too fast, creating strong demand for housing.

The current slowdown is also being driven by a drop in investor activity, not a rise in unemployment or a weakening economy — the two factors that have been at the root of nearly every market that has crashed in the past, Zigomanis says.

“Banks are lending less money to investors, so the investors are not buying as much property, and that’s the main reason prices have stopped growing,” he says.

Real estate mogul John McGrath says the shift away from the “crazy” price rises of the past is a positive for buyers and sellers because it is providing a soft landing from the boom.

“It would have been more concerning if the prices were still going up by 15 per cent or more,” McGrath says. “Instead, the market is finally taking a breather.”

Sydney real estate had for too long been a tale of two markets — the best of times for sellers, the worst of times for buyers — but it now looks to be more stable and balanced, McGrath says.

That greater balance is evident in the 19 per cent more homes currently up for sale compared to a year ago, which is giving buyers the much needed choice of properties they had lacked when the market was at its hottest.

The sum of the recent changes is that buyers who were shut out of the market by runaway growth in prices and fierce competition from rival buyers have a better shot at landing a foot on the property ladder.

It’s the best outcome the market could have hoped for, according to Douglas Driscoll, the chief executive of real estate group Starr Partners.

“We were dangerously close to a bubble last year. Probably as close as you can get,” he says.

“The plateauing of prices is actually bloody brilliant. It means Sydney is not overheating. Buyers won’t be trapped in a desolate landscape where they have no hope of ever getting a property. And that’s ultimately good for sellers too.”

Driscoll adds that Sydney’s shift from an extreme seller’s market to a more balanced one means would be sellers, many of who may have been holding onto their homes fearing they wouldn’t be able to find their next property, can finally move home.

“People who want to move home can sell knowing they can buy back into the market because prices won’t be constantly ramping up,” Driscoll says. “Buyers don’t need to resort to desperate measures to get into the market anymore. It’s a normal market now.”

Mortgage Choice broker Stephen Rossiter says buyers have gone from missing out on sales to now securing homes. “Last year, the market was so competitive that buyers were trying desperately to secure homes before they went to auction. Now they don’t have to. They have other options,” Rossiter says.

Upsizers Elissa Edwards and Janis Auzins recently discovered this first hand when they bagged a new home on the northern beaches after having struggled to get into the market for months.

The purchase has allowed the couple to finally sell their apartment on the north shore, something they hadn’t wanted to do until they had found a new property.

“It felt like it’s got easier as we went,” Edwards says. “We had been priced out of a lot of auctions but we started to feel like we could walk away from more sales knowing there was something else. Knowing all this, now we kind of wish we had sold six months ago.”

CoreLogic analyst Cameron Kusher says sellers like Edwards and Auzins shouldn’t be deterred by the changing market.

Sellers, on the whole, are in a slightly weaker position compared to where they were six months ago but their prospects of getting a high price relative to what they paid for their properties is still excellent, according to Kusher.

A recent CoreLogic study shows sellers of both units and detached houses have a more than 98 per cent chance of offloading their homes for more than they paid for them.

Sellers in regions such as the north shore, eastern suburbs and northern beaches can expect typical profits of more than $600,000 for homes they’ve owned for six years or more. Vendors in Western Sydney can expect profits of about $300,000 or higher.

Realestate.com.au chief economist Nerida Conisibee says the major challenge for sellers is to be realistic.

“Most homeowners won’t struggle to sell, but they do have to revise their expectations. They’ll get a good price, just not perhaps that dream price they could have got six months ago,” Conisbee says.

This trend is apparent in weekly auction clearance rates, which hit a two-year low of 58 per cent two weeks ago, Conisbee says. “Some vendors may be looking at what sold in their area six months ago and adding a little to that amount, when really there’s no reason to. The only problem sellers will have is they are priced too high.”

SQM Research director Louis Christopher says the only thing that could upset the current market balance would be a large-scale return of investors.

Investors had accounted for than 50 per cent of the Harbour City properties purchased in 2016 and 2015 and were the primary driver of the housing boom until banks, under direction from the Australian Prudential Regulatory Authority, began this year restricting investors’ access to interest only loans and high loan-to-value mortgages.

Were the lending policies to be relaxed again, more investors would start buying properties again. This would reheat the market and create conditions that could lead to price growth of 4-8 per cent next year, Christopher says.

“Banks are in the business of lending, that’s how they make their money.

They will be looking for opportunities to start lending to investors again in a few months and if it does happen the market will be back to the races,” Christopher says.