Sydney’s property market appears to be hitting its peak this September, 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 September 2017
Sydney’s housing market recorded no growth in August, and the past three months have seen dwelling values rise by only 0.3%. The slowdown in capital appreciation shouldn’t come as a surprise, considering Sydney home values have been rising at a rapid pace for more than five years. Clearance rates are holding around the mid to high 60% range, and homes are now taking an average of 41 days to sell, which is on level with a year ago, but substantially higher compared with earlier months of 2017. Advertised stock levels are now tracking 16% higher than a year ago, which implies buyers are slowly getting some leverage back in what’s been a very hot market.
Overall slower growth conditions
Overall, slower growth conditions in Sydney and to a lesser extent in Melbourne are likely to be a welcomed evolution in the housing market performance by policy makers such as the RBA.
So far the cooling trend has been very gradual, implying that macro-prudential policies are having a flow-through effect on housing conditions. The growth cycle in both cities has run for five and a half years now, providing a substantial wealth boost for homeowners but also creating much frustration for those who don’t yet own a home. Sydney and Melbourne dwelling values have increased by 75% and 56% respectively since the growth cycle commenced in early 2012. However, growth rates have been far more moderate across the other capital cities.
The policy settings around investment credit growth and new interest-only settlement targets have seen credit policies tighten, and pushed mortgage rates higher for both investors and interest-only loans. These disincentives are likely to continue to weigh down investment demand, which will have a much more pronounced effect in those markets where investors are most concentrated. New South Wales has the heaviest bias towards investment with fifty eight and a half percent of the value of all Housing Finance commitments being for investment purposes. Clearly tighter credit policies and higher mortgage rates for investors are dampening the Sydney marketplace more than others.
Another contributing factor to slower home value appreciation is the high price of housing relative to incomes, particularly in Sydney. Affordability barriers are preventing some prospective buyers from participating in the market. The recent availability of stamp duty concessions in New South Wales and Victoria is likely to provide some support for first-time buyers, but it’s not likely that a rise in first home buyer activity will completely offset the demand gap left by fewer investors.
Overall, the outlook for Australia’s housing market depends on a broad range of factors including local, economic and demographic conditions, as well as supply factors and credit policies. However, if the current trends continue, Sydney dwelling values could start to drift lower over the coming months. Historically, a negative shift in home values has followed every growth phase so it’s reasonable to expect a period of moderate value falls following such a sustained period of strong capital gains. With the spring selling season kicking off in September, it will be interesting to monitor the impact of higher inventory levels on the Sydney and Melbourne market, especially given evidence of slowing growth conditions accompanied by stock levels that are already higher than they were a year ago.