By John McGrath
Sydney property values fell by 0.7% in the month of May; and the city was among six out of eight capitals to record a decline, according to the latest report from CoreLogic RP Data.
It’s the first monthly drop in a year for Sydney but it is absolutely no cause for alarm at all. In fact, it is welcomed.
After three years of growth, the market has got to take a breather at some point. It can’t keep going up forever and I believe this is a healthy sign. In order to consolidate the fantastic growth we have seen in Sydney property values, the market needs to settle down. We need people to get used to these higher prices and accept them as new benchmarks for the areas where they want to live. That requires time and stabilisation.
I wouldn’t be unhappy if this was the first sign of the Sydney market easing a bit, but I really don’t think we’re there yet. Even the analysts at CoreLogic RP Data are saying this small drop in value is probably just a blip. Sydney is experiencing record high clearance rates, record high investor activity and a significant reduction in supply versus demand this year. Add to that record low interest rates and it’s hard to see the market truly cooling any time soon.
Here’s what Tim Lawless, the Head of Research at CoreLogic RP Data, says about this month’s official figures.
“The weaker reading across the May results is likely to be short-lived, with the Index expected to show better growth next month.
“Other market indicators are also pointing to stronger conditions for the Sydney and Melbourne housing markets with auction clearance rates remaining at or close-to record highs throughout May along with low advertised stock levels across the largest cities, particularly for Sydney.
“The negative May result is likely due to a natural correction from the previously strong month-on-month results. Added to this is the market stimulus due to lower interest rates, and a well-received federal budget in May – all of which are likely to keep momentum going in the market.”
Maybe towards the end of the year, after what will probably be a strong Spring season, things will start to change and Sydney will drift into a period of stability, with more instances of small increases and small decreases month-to-month.
I agree with RP Data’s assessment that restrictions on investment lending being introduced by the banks, coupled with general affordability constraints and new supply in the Sydney apartment market, will eventually have a tempering effect on the market as a whole, we just have to wait and see as to when this will be felt and how big an impact it will have.
If you’re looking to buy in Sydney with a view to holding long term (as you always should), the worst thing you could do right now is delay it. Don’t take this month’s data as a sign that everything is about to collapse. And don’t take it as a reason to procrastinate either! Ignore the headlines and stay on track with your personal investment goals. With a long term view, you will definitely see an upside.
Click here to subscribe to the Switzer TV channel on YouTube and keep up to date with all of our shows.