Sydney market: Cooling or Crashing?

Unless you’ve been living under a rock somewhere, you’d be hard-pressed not to have heard a doom and gloom news story or read a similar article on the state of Sydney’s cooling housing market.  As usual, everyone has an opinion, with experts varying. It’s been a mixed bag of forecasts however with the following experts providing their rundown on what’s likely to happen in the market:

RPData Core Logic’s Research Head, Cameron Kusher: CoreLogic publishes Australia’s only daily and monthly property price indices, and also collects data on auction clearance rates and mortgage activity

• Expecting a further slowdown in national housing market conditions during 2018
• Credit policies remaining tight as regulators keep a watchful eye out for a rebound in investment credit growth or a reversal in the trend towards fewer mortgages with a LVR of more than 80%
• Interest rates likely to remain on hold in 2018
• After housing values surged 75% higher over Sydney’s growth cycle and 59% across Melbourne it’s rational to expect some slippage in dwelling values across these two cities
• “To the end of November 2017 Sydney prices were already down 1.3% and I think by the end of 2018 we could see them down as much, potentially, as 5 or 6 per cent in some regions.” Kusher said

BIS Oxford Economics managing director Robert Mellor: BIS Oxford Economics has provided business research and forecasting services to clients since the mid 1960s and recently merged with BIS Shrapnel

• Robert Mellor has been forecasting property markets for decades and is another analyst who sees cooling and weakness in prices, without a collapse this year.
• Forecasting a small price decline in Sydney over the next year or two with prices down close to 5% from their peak of June 2017, largely due to oversupply of new apartments.
• “Those price declines are probably showing up to a greater degree in the off-the-plan purchases. The boom that lasted for over five years is over in Sydney. The level of price growth is going to be fairly modest across the country during calendar ’18,” Mellor said.

 

SQM Research Managing Director, Louis Christopher: SQM Research is an independent property advisory and forecasting research house which specialises in providing accurate property advice, research and data to financial institutions, developers and investors

• SQM Research forecasting modest to moderate price growth in Sydney of 4-8% with more optimistic forecasts than other experts in the industry
• Christopher believes Sydney and Melbourne markets to be overvalued but goes on to say that “Just because a market is overvalued doesn’t mean it will immediately correct”
• “The market will pick up a bit in the second half of 2018 and that will be on the back of the banks being able to expand their lending books once again. The banks are now underneath the key APRA thresholds and are in a position to open up their books.” Christopher said.

So what does this all mean for Sydney prices in 2018?  Whilst it’s clear that the golden run of escalating prices in most suburbs has slowed and the rate of capital growth simply unsustainable it doesn’t mean that a collapse in prices is on the cards.  After all, we live in a truly high-demand international city, with increasing population forecasts, along with the attractions of our world class capital.  A strong local economy, coupled with ongoing demand and a large population of home owners will ensure that Sydney continues to be attractive to both owner occupiers and tenants.

However, with Sydney’s annual growth rate tracking at 3.1% ; a stark difference to just eight months ago when values were rising at the annual rate of 17.1% (Source: CoreLogic Dec 2017 Hedonic Home Value Index results) fewer buyers were able to get onto the property ladder in Sydney (and forced to look further afield at areas such as the central coast ) which meant that a slowdown was inevitable.  Banks cutting back on interest only loans to investors, along with tightening credit criteria, also put the brakes on investor buying, with a noticeable decrease in activity in this segment of the market.

The media also played a role, with vendors choosing to hold off on selling their properties as the market continued to change. Increasing gloomy reporting on the changing cycle, these same sellers rushed to list their properties on the market, which resulted in a bigger pool of properties in the last quarter of 2017, giving buyers more choice and superior price negotiation in some suburbs. As buyers agents, we have also certainly have noticed far more “price adjustment” emails and higher activity from selling agents as the market experiences a cooling.

It’s important to reflect that, despite the slowdown in overall growth rates since August 2017, Sydney dwelling values remain 70.8% higher than their cyclical low point in February 2012.  We have been through one of the largest booms in the last five years in our popular capital city. Weaker housing market conditions look likely to continue this year but if you have a long-term view, then this shouldn’t impact, as cyclical growth is well anticipated in the property market.

Savvy buyers may well hold the upper hand in many suburbs of Sydney if supply increases and demand drops off but it’s also vital to remember that Sydney is not and never will be ONE market.  It’s very much a segmented city, with those more popular and ‘harder-to-gain-entry-into’ suburbs likely to experience much weaker cooling growth rates (or none at all) than those oversupplied suburbs that will have a surplus of OTP (off the plan) and new apartment stock.

In our opinion, it’s the OTP and new apartment market that may potentially suffer the most when it comes to slower or decreasing growth.  Along with the changes to foreign ownership buying (which included a doubling of the surcharge stamp duty from 4% to 8%) and further restrictions on Chinese nationals being able to take funds out of China, developers have also been feeling the pain as the government (again) changed the rules on the percentage of stock that could be sold to foreign investors (now capped at a maximum of 50% as of 2017 budget) as well as unattractive changes to capital gains tax.  All of these are set to have a major impact on new developments, and especially those in over supplied suburbs. Established property is an entirely different segment of the market, however, and this needs to be considered in any property search and acquisition.

So, in conclusion, it appears we may be in for a sedate year of minimal growth in some suburbs, whilst others plateau and potentially experience falls ranging up to 8-10%. What’s obvious is that we are moving into a more “normal” market post-boom which is all part of the traditional property cycle and shouldn’t stop you from buying, if your finances are in order, you are well-researched and the timing is right. Waiting for a crash that may not eventuate may mean you miss out on your dream home or investment opportunity in these more favourable buying conditions.

Want maximum negotiating leverage using House Search as your trusted buyers’ agents here in Sydney?  Expert advice on what, where and how much to pay is essential to success. Call us now or complete our online wishlist to see if we can help you today. We look forward to being of service.