Sydney and Melbourne property markets continue to grow

According to leading economists from an exclusive Fairfax Media survey, Sydney and Melbourne property markets will continue to see more growth this year and the so-called property bubble is not going to burst just yet.

It is interesting to note that most of the 25 leading economic forecasters believe that property prices have increased due to economic reasons, rather than from lavish investor activity. Some of the factors that are believed to be the cause of the continuing higher property prices include historic low interest rates and lower mortgage rates, strong population growth and a relatively low unemployment rate, alongside high demand from foreign investors, negative gearing, capital gains tax and the poor public transportation.

It is predicted that property prices in Sydney on average will rise by another 10.4 per cent this year, whilst in Melbourne prices will rise by 6.4 per cent, but the increase won’t be as high as last financial year. According to CoreLogic RP Data, last financial year (2014-15), Sydney saw a growth of 16.2 per cent and Melbourne had a growth of 10.2 per cent.

With an increase in property prices, there are concerns about over-valuation which could cause problems later down the track if this price momentum continues. Some buyers are deciding to buy now as they believe they will be able to reap in the rewards of capital growth, but they need to keep a logical head and buy in good growth areas and not get too carried away if at an auction, as they might not see as high a growth as they were hoping for in the years to come.

There are also concerns about affordability and Economist Saul Eslake suggests, “Further inflation of house prices is not doing any economic good and is actually doing social harm and by widening the gap between those who own one or more properties and those who don’t.” He also states that it will “lock out an increasing proportion of younger adults from home ownership.”

Having said that, some of the economists state that Sydney’s house prices are playing catch-up to other cities and rebounding after a long period of flat prices. BetaShares’ David Bassanese said, "Relative to the national average, Sydney prices are only now back to their long-rum premium of 30 per cent."

The Housing Industry Association's Shane Garrett also said that it is "no coincidence" that the strong dwelling price growth in Sydney over recent years followed a decade between 2002 and 2012 where Sydney’s dwelling price growth was the lowest out of all of Australia's eight capital cities.

He also added that, "Overall, the level of dwelling prices in Australia's cities is well within normal territory with respect to household earnings, rents and mortgage interest rates".

So will Sydney and Melbourne’s property markets continue to grow in value? Sydney has been booming for over three years now and the last boom in 2001-2004 saw steeper price increases, but lasted for just three months longer than Sydney’s current growth phase. Then you have got the increase in the number of migrants swarming to both Melbourne and Sydney to think about which of course is pushing up the demand for real estate and pushing up property prices, and with Sydney’s growing population, there is a current shortage of approximately 125,000 dwellings.

However as property prices increase there will come a point in time where affordability will be stretched and demand will slow down as investors and home buyers will become priced out of the market. If the economists are right, then this so-called bubble and boom will end in around 12 month’s time and the Sydney and Melbourne property markets will continue to grow in value this year.
Published on 6th of July 2015 by Marty Stanowich
Marty Stanowich
Marty Stanowich


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