By John McGrath
The numbers are in and price growth in Sydney during the three months of Winter was flat at just 0.3%, according to the latest monthly report from CoreLogic. This result was pretty much an extension of Autumn when we saw virtually no growth at all.
Compare this to the Summer quarter when we saw 4.5% growth and last Spring when we had a 2.3% bump and clearly, things have changed in 2017.
The Winter quarter result reiterates to me that Sydney is very near the top of its cycle or has even gone through it by now. There’s no bubble and I believe no chance of a major correction. Price growth has simply slowed down which is exactly what we want it to do at this stage.
After more than five years of very strong growth, during which time median home values in Sydney have risen by 75%, it’s time for some stabilisation. We need the market to calm down. It’s had a phenomenal boom run but continued growth at this point would be dangerous.
I think we’ll have a strong Spring season and maybe a small amount of price growth during what is traditionally a hot selling period. But equally, I wouldn’t be surprised if citywide price growth remains flat.
Even if we continue to see above reserve prices in the best suburbs, there is clearly weakness in other parts of the market that might counterbalance any strong results elsewhere and give us another quarter of flat growth across the city as a whole.
There is a possibility of a small and short correction of a few percent at some stage – maybe this year or next year; and this would be healthy for the sustainability of the market. If it happens, it’s nothing to worry about.
The slowing of price growth in Sydney appears to have been a catalyst for increased listings with vendors no longer having to experience FOMO (Fear of Missing Out) as prices level out.
We’re already seeing indications of this with a weekend newspaper report quoting a 16% increase in listings today compared to this time last year, according to CoreLogic data.
It’s fair to say that home owners who might have been holding off til the peak are realising we are probably there or past it by now.
This increase in stock won’t do much to the market, it will simply increase supply a bit, in an environment where we are vastly undersupplied, to meet the buyer demand still out there.
It’s still a seller’s market, however it will be tougher to sell homes with less desirable features such as a poor aspect or compromised location such as a busy road. It is typical to see buyers become much more selective at the end of a boom when listings increase.
If you have a good quality home in a good location and you invest in a great agent and a smart marketing and selling strategy, you should expect to do well this Spring.
Sydney continues to have strong drivers, including deep demand, population growth, overseas investment and low interest rates. While I do think some precincts of Sydney are overvalued compared to other areas of Australia, it is a world class international city and a major financial centre. Take a look at similar cities around the world and you’ll find a similar situation.
As Sydney slows down, I see great potential for significant growth in South East Queensland, which remains substantially undervalued compared to Sydney and Melbourne.
I also expect growth in the single digits for regional markets close to the two big capital cities, such as Wollongong, Newcastle, the Central Coast and Geelong.
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