NSW Excerpt from the 2015 October Market report
Extreme growth persists in Sydney
Even with the threat of tighter lending and higher mortgage costs, buyers in Sydney continue to storm the market and are pushing prices to heady new heights
It was bound to happen that the median price of Sydney houses would hit the million-dollar mark. Experts have been forecasting this for a while, given the momentum of the market during the past two years.
What surprised a lot of people, though, is how quickly prices got there.
The June quarter results from Domain showed the median house price in Sydney surging 8.4% to $1,000,616. Units saw similar strong performance, with the median jumping by 6.6% to $656,078.
“We’ve been expecting that median to push above the $900,000 mark as the market has been showing no signs of slowing down,” says Andrew Wilson, chief economist at Domain.
“We were not surprised that we got to the million-dollar median in the June quarter, but we were surprised that we got there so quickly. We were originally looking at the March quarter next year, even the December quarter this year. The June quarter was an extraordinary result. We reported 8.4% growth over the quarter, which is the strongest rise we’ve ever recorded over a quarter since the late 1980s market boom. It’s the strongest local growth rate of the modern era.”
Wilson points to the interest rate cut this year as a catalyst for this continuing surge in prices.
“Low interest rates have improved affordability. Investors are still interested in the Sydney market due to its strong economy and high level of migration; it is essentially ticking all the boxes at the moment,” says Wilson.
CoreLogic RP Data showed similar strong results in its July Home Value Index. During the month of July alone, the median house price climbed by 3.3% to $921,500. Since January, house prices have soared by 13.5%.
“Sydney remains the hottest housing market, with dwelling values moving 18.4% higher over the past year. This is the highest rate of annual growth since 2002. House values were up by 19.8% over the year and unit values increased by a lower 11.9%,” says Tim Lawless, head of research at CoreLogic RP Data.
Investor activity remains strong
Despite the recent move by APRA to rein in investor activity, there are no signs of a massive decline in activity.
According to Wilson, Sydney is still attracting massive interest from investors, as shown by the high proportion of investment loans taken during May.
“Investor numbers have been very strong in the Sydney market, which is not a surprise. You go where the money is going. And there’s a lot of money going into Sydney at the moment. The numbers from the Australian Bureau of Statistics show investment lending accounts for 62% of all loans taken over May. This gives you a strong indication of investor activity in Sydney,” Wilson says.
“I don’t think the questionable move by the banks to raise interest rates on investor lending during a low interest rate environment will have a material impact on investor interest. I don’t think it will have an impact on the market, except perhaps to push up rent.”
All eyes on the August data
While there’s no sign of waning demand, auction clearance rates have tracked back slightly, Wilson says. However, he believes this could just be a seasonal factor at play.
“The high auction clearance rates are unlikely to be maintained, and we saw the clearance rates moving backwards at the moment. The August numbers would be interesting to see as it indicates the kind of activity we’re going to see in the spring. My sense is it’s going to be a strong market,” he says.
“Sydney is well ahead of everyone else. This is the new normal. This is the strongest market we’ve seen since the late 1980s, maybe exceeding the boom in the early 2000s. My sense is we’re in for long investor activity in the Sydney market. Yields are still attractive to investors. I think the efforts by APRA and the banks to slow the investor market won’t have much impact.”
The rise of the fringe suburbs
With prices surging everywhere in Sydney, the lower-priced, outer-fringe suburbs are now racking up huge demand from buyers.
Suburbs in the Illawarra region, such as Exeter and Jamberoo, saw median prices soar by 45% and 43% during the past 12 months, according to CoreLogic RP Data.
The Upper North Shore continues to attract buyers, with suburbs like Asquith gaining 44% during the same period.
SUBURB TO WATCH
Cherrybrook: Ripe for the picking
If you think Cherrybrook is good now, wait till you see it in a few years’ time.
For starters, the Cherrybrook railway station is due to be finished by 2019 as part of the North West Rail Link. It is estimated to be so popular that it will also attract residents from neighbouring West Pennant Hills and Dural.
Secondly, Cherrybrook Technology High School has recently been designated $7m in the 2015 state budget. This will mean that 18 classrooms in a three-storey building will be added to the grounds. The idea is to accommodate the school’s surging popularity which has seen its numbers almost double in 20 years.
Cherrybrook is 23.5km from the Sydney CBD and already benefits from a regular bus service to the city. Within the suburb is the Cherrybrook Village Shopping Centre, and for anything more substantial it’s very close to the Castle Hill
Shopping Centre. It’s also near the Norwest Business Park, which provides stacks of employment options.
One impressive statistic for investors is the 7% per annum growth predicted over the next eight years, according to OnTheHouse.com.au.
Furthermore, despite the median house price of $1,318,000, you can still buy houses in Cherrybrook for less than $1m. Those on Kate Place and Carmen Crescent are in quiet and sought-after locations within walking distance of city buses, and not too far from shops, restaurants and cafes. Three-bedroom houses there have the added benefit of being in the Cherrybrook Technology High School catchment.
Can you afford to buy in this suburb? Find out how much you can borrow