Supply constraints and affordability pressures conspire to supercharge Sydney’s rental market.
It may have been the Duke of Gloucester who referred to “the winter of our discontent” in Shakespeare’s Richard III, but it’s been more of a summer and autumn of discontent where property markets are concerned.
Capital growth has stagnated and in several cases gone backwards in many of the major cities during late 2010 and early 2011, not helped by higher interest rates, rising stock levels, natural disasters and the absence of first homebuyers from the market.
However, Sydney seems to be the shining beacon amongst the mire, with RP Data reporting that it was the only capital city not to see a fall in median price in the quarter leading to February 2011. Both houses and units experienced some capital growth that month – 0.1% for houses and 1.3% for units – holding up Sydney’s overall median price at a cool $500,000.
True, it’s not the stellar growth that Sydney has seen in years past, but Cameron Kusher, senior research analyst at RP Data, says that it’s a solid outcome in the current market.
“Yes, the market is slowing, but it’s still one of the better performers,” says Kusher. “The number of listings is high, but the rate of increase is slowing; it really peaked in late 2010, and has been steadily trending downwards in early 2011.”
Kusher says the decline in listings is thanks to a growing reluctance to sell in a softening market.
“Sellers have realised that it’s not the best time to bring properties to market: we’ve seen the number of new listings falling in Sydney over the last four to five weeks,” he comments. It’s a good thing, too, because buyers are still proving extremely cautious, with activity from first homebuyers and investors remaining very low – creating a Mexican standoff between buyers and sellers.
“We’ve got to a point with interest rates where people are hesitant over spending $200, let alone buying property
,” adds Kusher. “The bulk of transactions are coming from upgraders. However, many upgraders are stuck – while they may have found a suitable property to upgrade to, they are experiencing difficulty in selling their existing property.”
Andrew Wilson, economist at APM, agrees that the market is slow – but highlights that the pieces are falling into place for the NSW capital.
“Sydney is the ‘least quiet’ of all the markets; it’s suffering from the ‘hangover’ of demand dampening. So, while we haven’t seen any real growth, we haven’t seen strong declines in house prices in the first quarter, either,” he says.
“However, Sydney’s in the best position for growth by all measures. Supply is constrained, the economy is strengthening and unemployment is below 5%. In fact, there’s record job growth – that will translate into wage growth and start closing the affordability gap.”
The final piece of the puzzle – the interest rate outlook – also looks promising. Wilson explains that the medium-term outlook for rate rises is ‘benign’.
“It’s likely that we won’t see any rises until late in the third quarter of 2011 or early in the fourth quarter,” he says. “Yes, the resources industry is driving the economy, but there’s still some concern over softness elsewhere, which seems to be leading the RBA to be careful with interest rate policy.”
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