Sydney: Is This The Beginning of the End?

October 31, 2017

No one is a stranger to the fact that Sydney’s median house price has more than doubled since March ‘09, and the majority of Meridian’s clients have either profited greatly from the boom, or it has been the catalyst for their desire to grow a portfolio.

 

However, some time ago, Meridian identified the deterioration of several key fundamental drivers in the Sydney market; making it too risky for the limited growth potential it presented. But as we scroll through our news feed it appears that wider media are  finally jumping on board, with many headlines referring to the “cooling” Sydney market, chiefly noting  two key figures:

 

  1. Median House Price being reportedly falling by 2% in the last quarter

  2. The latest Auction Clearance Rates are below 70%, but more importantly below 50% in the outer suburbs.

 

With a little historical context, we can see exactly why these two key figures are being given so much attention:

 

Median House Price (MHP) being reported as taking a 2% fall in the last quarter

: CoreLogic RP Data’s Daily Home Value Index: Monthly Values for 30th September 2017 has found that the last quarter produced Sydney’s first month-on-month decline, after 17 months of consistent capital growth. Furthermore, Sydney’s last period of stagnation began in June ‘05, when the median house price took a backward movement -2.5% over the June - September period - you can see the parallels people are starting to draw to the start of Sydney’s last period of stagnation, where the market provided near 0% growth for 4 years.

 

The latest Auction Clearance Rates are below 70%, but more importantly below 50% in the outer suburbs.

: The week ending 21/10/17, CoreLogic reported Sydney’s Auction Clearance Rate (ACR) below the important 70% mark that we see in booming markets, at 68.8% (Sydney’s ACR for the same period a year earlier was 82.6%).  Of particular focus was the ACR recently falling below 50% in the important Sydney fringe suburbs, which have been the focus of so much recent growth at the back end of this boom period.

 

Falling ACR’s and the first backward movements of the MHP are certainly common characteristics of a cooling market, but more alarmingly all reports fail to acknowledge what is actually causing these two results - Sydney’s lack of affordability. At last measure, Sydney’s affordability was estimated at a record low 44.4% (to provide perspective; at the end of the last Sydney boom in ‘05, economists were very cautious that Sydney had reached a then record low of 40%).

 

While these figures have created some good headlines, and often choose not to draw any strong conclusions, one thing is true; buyers aren’t coming to auctions and bidding with confidence for one very simple reason - they can’t afford to. And when people can’t afford to pay more - they don’t!.

 

 

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