Median Sydney Property Prices – Forecast & Background

Published 3 April 2011

In this Property Market Report we examine the broader Sydney market. A background on median Sydney property prices is given for the period 1996-2010 and a forecast is provided for 2011 to 2015 by leading property analysts BIS Shrapnel.

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Background

1996-2003

Growth = avg. 12% p.a.

What a golden era for Sydney Property. The Median Sydney Property Price grew at an annualised rate of 12% p.a.! Good times for those who bought in 1996. However for those who started to look to purchase housing towards the end of 2003 housing affordability in Sydney was not so great.

2004-2005

Growth = 1.7%

By 2004 mortgage repayments as a percentage of average household income had increased from around 20% in ’93 to over 40%. Housing affordability was reaching disastrous levels (can anyone hear the echoes?). This led to new home buyers being priced out of the Sydney market and being forced to look for property on the outskirts of the city. Further to this, migration into Sydney from overseas stalled.

2006-2007

Growth = 0.9%

We all remember this period (or have we forgotten already?). A very interesting time indeed; interest rates were rising and decreasing affordability was starting to put downward pressure on property prices.

On the other side of the coin there was a dwelling deficiency emerging as new dwelling commencements were falling as well as an increase in migration from overseas. These factors led to a very modest increase of 0.9% in Sydney Property Prices for 2006-2007.

2008

Growth = 0.6%

This is where things really started to get interesting. The RBA raised the cash rate by 100 basis points to counteract inflationary pressures. The move by the RBA and a tightening of global credit markets was mirrored by an increase in variable rates of more than 1.4% in less than a year! Talk about feeling the squeeze!

As the second half of 2008 began to show the beginnings of a global recession investor appetite began waning and property purchasers were slightly more cautious. In response to this the Australian Government increased its First Home Buyer incentive schemes.

2009

Growth = 2.6%

Prices started to stabilise in ’09 after a complete reversal by the RBA to lower interest rates by 4.25% in the space of less than 6 months. This lead to a 3.8% drop in variable rates by the banks and affordability was looking better once again. This prompted more owner occupier activity and housing prices bucked the trend in the US & UK.

2010

Growth = 11.9%

With interest rates at historical lows and the risk of Australia falling into a recession fading away; buyer sentiment was looking good again. There was increased activity at the lower end of the Sydney market which flowed through to the middle tier.

 

Sydney Median Property Price Background & Forecast

Sydney Median Property Price Background & Forecast, Source: Derived From ABS Data and BIS Shrapnel

Forecast

The forecast below is based on analysis from leading property analysts BIS Shrapnel.[1]

2011, 2012, 2013

Growth = avg. 6.3% p.a.

Three key factors will underpin the expected average 6.3% p.a. median Sydney property price growth during 2011, 2012 and 2013;

  1. tightening vacancy rates
  2. increasing stock deficiency
  3. solid rental growth

Add to this a further expected improvement in consumer sentiment as the economy gets back into high gear Sydney property prices are looking good for the next 3 years.

2014, 2015

Growth = avg. 3.4% p.a.

It is expected that continued supply shortages and increased demand will continue to push up Sydney prices.

However as the Australian economy continues to grow strongly amidst local skills shortages there is expected to be more inflationary pressure. This will likely lead the RBA to tighten monetary policy and push interest rates up once more.

Rising interest rates together with an expected upturn in new dwelling construction during this period should have a dampening effect on Sydney property prices.

The median Sydney property price change is expected to be an average 3.4% p.a. growth over 2014 and 2015.

[1] The Outlook for Residential Land in Sydney 2010-2015, 2010, BIS Shrapnel

Where do you think the Sydney median property price is heading?

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