After staging solid gains over the past few months, Sydney sees a reversal of its good fortune.
Sydney’s been one of the most robust markets in Australia over recent months – but it looks like it’s finally yielding to the weight of poor sentiment and global economic uncertainties.
According to Residex’s latest figures, median house price fell 0.84% to $668,000 over the three months ending September after notching up a 2.35% gain in the previous quarter. RP Data recorded similar results. However, APM data showed Sydney losing a more substantial 1.8% in value over the same period.
“Over the winter quarter buyer wariness was exacerbated by growing concerns over the state of the international economy, a weakening stockmarket and softening economic activity as indicated by rising unemployment rates over the mid-year period in all capital cities,” says Andrew Wilson, senior economist with APM.
Wilson adds that while the recent rate cut is unlikely to make a massive impact on prices, it will provide some welcome relief to mortgage holders and will also improve housing affordability.
BIS Shrapnel senior project manager Angie Zigomanis adds that the lower interest rate environment will bring forth an increase in first homebuyer activity.
“We expect buyer confidence to pick up next year, particularly with the lower interest rates. We also expect to see first homebuyer numbers pick up in the short term, thanks to the NSW government’s restriction of the stamp duty concession for first homebuyers to new homes only,” he says.
Zigomanis expects there is likely to be a late rush of first homebuyers during spring and early summer, who do not want to miss out on the existing stamp duty concessions before the January deadline. After this, there may be a lull in the market for established dwellings as buyers adjust to the new environment.
Zigomanis adds that Sydney’s property shortage is set to be a significant factor in driving value over the medium term. The picture is mixed: the Housing Industry Association has highlighted an 11.7% jump in seasonally-adjusted building approvals for NSW in August 2011 – but approvals for detached housing fell 4.4% in the three months to August.
This also follows a surprise slowdown in dwelling construction in the June quarter, with the ABS recording a 20.1% fall in new starts in Sydney. That’s the single worst quarter fall since December 2005, says Zigomanis, and follows a 3.5% increase in the March quarter.
The ailing state of construction starts is likely to keep pressure on prices – at least in the short term. Even so, the HIA warns that if action isn’t taken to address the supply situation, NSW could be short more than 155,000 dwellings by 2020 – and that would mean a serious crunch in terms of affordability.
Areas to watch
It seems affordability is already the watchword in the NSW capital. REINSW president Wayne Stewart says that sales activity is already strongest at the more affordable end of the market.
“Certainly homes in the lower quartiles are being snapped up at the moment,” he comments, “and there are certainly plenty of first homebuyers out there that would be taking advantage of that.”
Stewart identifies suburbs like Picnic Point, Cabramatta, Fairfield, Canterbury, Lidcombe and Guildford to see large amounts of buyer activity.
“They are among the lower quartiles of suburbs in Sydney,” he says. “Young homebuyers have become more conscious of buying in affordable areas, while still remaining close to infrastructure and amenities.”
As for regional areas, Stewart sees strong potential for Newcastle and the Lower Hunter.
“There’s been huge infrastructure spending allocated to those areas in the next few years, and I think that higher levels of employment and resource activity in the Valley will lead to strong investment.”
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