Insight

01.02.17  Property Trends

 

Sydney Property Market: The Stark Contrast Between 2016 And 2017

Sydney's eastern suburbs had a huge year in 2016 and the data confirms what we knew - prices are at a new record for the region, to rent and to buy.

House prices increased 15.6% from December 2015 to December 2016, leaving the median house price at $2,200,000 for the city and east on Domain Group data. This is second only to the Lower North's $2,430,000 median price. Just a year ago, the median price in the eastern areas was about $1,900,000. Many of the homes bought under the median priced range could best be described as neat, but in original condition.

Rents have also skyrocketed in line with this demand, up 10.5% over last year to $1,050 a week. These rents now match those in the highest price region, the Lower North, where they remained flat over the year.

While the east has always been a desirable place to live, the market has changed every year of the boom and has proven to be quite difficult to predict. For the past 24 months, economists and real estate agents have been expecting a permanent slow down. It just didn't happen.

The start of 2017

This year has started very differently to the close of 2016. While the east is almost always characterised by more demand than supply, an extremely low supply of homes for sale was the defining feature of the last six months of the year. While we're still anticipating high levels of competition, it's likely the ice is thawing a little as vendors begin to sell their properties - perhaps realising that any slow down in the market will be subtle.

Conversations we were having at the end of 2016 are turning into sales campaigns now. And buyers who missed out last year and now back in action, along with those who have set their resolution to get in during 2017.

It's also interesting to see how differently we're starting the year now to January 2016. At the beginning of last year, the market was slowing significantly with confidence falling. Investors were notably absent for a period of time and moves from the banking regulators looked sure to quell the hunger from those buyers. Add to this that both sellers and buyers were unsure about what the future held and, on some measures at least, property prices were declining. As a result, the auction market began to struggle.

But this year, while the auction market has yet to really start it's incredibly unlikely we'll see a repeat of the low clearance rates of January and February 2016. We'll all be watching the clearance rate figures, the bidding and the turn out at auctions now Australia Day has passed and the year begins to get in full swing. This will be one of the earliest revealing data and anecdotes that will guide us about how this year will perform.

The year ahead

Already, some are claiming this year will be similar to 2015 - hot on the way in, and slow for the last quarter. But it's likely we might see something altogether different, a more consistent market that doesn't materially change outside what would be expected for the seasons. In the boom, part of the problem has been the lag effect, where selling before buying has meant missing out on a substantial sum of money. And buying before selling has meant holding two loans at once.

The beginnings of a return to a 'new normal' that will have home buyers breathing a sigh of relief - able to buy and sell in the order that suits their lifestyle, rather than continually chasing the market. With house prices as high as they are, slower levels of sustained growth are preferable for almost everyone in the market.

The conundrum now is whether investors will continue to buy into the Sydney market. Savvy portfolio investors who see long-term value will likely always desire blue-chip property in markets like the east, particularly where there's the potential for future redevelopment.

But whether those looking for cash flow - with just 3% rental yields in the east being typical for houses - and quick growth will look interstate and to other markets is less certain, particularly with prices so high.

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Eastern Suburbs Market Report

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