Sydney’s property market appears to be hitting its peak this October, with dwelling values rising by only 0.3% in the last three months.
The high concentration of investors in Sydney relative to other capital cities means that tighter credit policies and higher mortgage rates for investors are dampening the Sydney marketplace more than others.
We’ve included the Sydney property market video below, along with the transcript.
Welcome to CoreLogic’s Sydney property market update for October 2017
Across the Sydney housing market, it was the detached sector that pulled the monthly and quarterly growth figures down.
While unit values are also appreciating at a slower rate, detached housing values actually fell by 0.3% over the month and they were 0.2% lower over the quarter, while unit values actually recorded a subtle rise.
The Sydney housing market doesn’t share the same sort of concerns around unit oversupply that’s affected the Brisbane unit sector and to a lesser extent Melbourne ‘s.
Potentially the affordability challenges facing Sydney buyers within the detached housing sector are also pushing some demand towards the median to high-density sector where, based on median values, houses are almost $300,000 more expensive than units.
The slowing in housing market conditions
The slowing in housing market conditions shouldn’t come as a surprise considering the recent history of dramatic capital gains across the Sydney and the Melbourne markets.
Since dwelling values started rising in 2012, Sydney values have surged by 75%, while Melbourne values are up by 57%. Macro prudential measures introduced by APRA at the end of 2014 and more recently in March of this year have played a key role in curbing the pace of appreciation, particularly in Sydney, where investment has been most concentrated. On the back of changed regulations, investors and interest-only borrowers now face a premium on their mortgage rates. Based on the data to the end of August, variable rate investment loans were typically attracting a 60 basis point premium.
While we expect growth rates to continue moderating, at least from a macro perspective, driven by Sydney and to a lesser extent Melbourne, there are likely to be other factors that will keep a floor under housing values. Housing demand fuelled by strong migration has risen during 2017 with the Australian Bureau of Statistics reporting the third highest net overseas migration result on record over the March quarter of 2017. Australia added more than 86,000 new residents from overseas over the quarter, most of which will contribute to demand for Australian housing. Almost 75% of these migrants arrived in New South Wales or in Victoria.
While investors are likely to scale back due to disincentives such as higher mortgage rates and low rental yields, first home buyers are a rising presence in the housing market. Based on July data, first time buyers reached their highest level since 2013. Stamp duty concessions that became available in July for first home buyers in New South Wales and in Victoria helped to push the numbers higher, but other states where incentives were unchanged also saw higher proportions of first home buyer activity. Additionally, mortgage rates are likely to remain close to historic lows. Although the cash rate may rise in 2018, the likelihood of a substantial lift in mortgage rates remains low, considering household debt levels are at record highs.
Overall, we’re expecting that growth rates will continue to moderate across the combined capital cities. However, the slowdown is likely to continue to be influenced by weaker conditions in Sydney and to a lesser extent in Melbourne. We’ll be tracking the movements in housing market conditions along with other key economic and demographic factors at www.corelogic.com.au.