2014 certainly proved to be a very active and interesting year for the Sydney residential property market. There were highs, lows and everything in between. This brief report will aim to highlight some of the main observations from 2014 and what we may expect in 2015. At present the median price for a detached Sydney house is approximately $844,000 and the median unit price is $581,000 (source: APM). These figures represent an overall dwelling price growth figure of 14.6% for 2014. As the graph below demonstrates, Sydney House prices (unsurprisingly) have outperformed the national market and continue lead the other capital cities.

 

Housing prices 2014

 

Following the strong finish to 2013, pent up demand carried over into Q1 2014 ensured the property market got off to a bullish start.

The calendar year does not always start so strongly and typically the first quarter is comparatively quieter than the rest of the year. However buyer confidence saw some impressive sales results and this set the tone for much of 2014.

From March through to October Sydney witnessed some of the hottest market conditions on record with consistently high auction clearance rates, stemming from record level buyer demand continuously outstripping supply. During this period the monthly average clearance rate was an impressive 80%. As sales results throughout the city continued to surpass both agent and vendor expectations more and more owners made the decision to take advantage of the sellers’ market and list their properties for sale.

There’s always a tipping point in the supply:demand curve and this point appeared to be reached in late Q3 where record stock volumes appeared to be meeting the seemingly insatiable appetite of the market.

 

NOV auc graph

 

At this point the sheer number of properties on the market outweighed the number of committed buyers and the undersupply of good quality properties that buoyed the strong results earlier in the year began to dissipate. Having said that, good properties still sold well but the market-wide ‘heat’ was clearly on the wane. As 2014 drew to a close many Real Estate agents chose to reward themselves for a bumper year and take an early Christmas break. This, coupled with the softer selling conditions, further highlighted the rapid drop off in clearance rates and market activity heading into the holiday season.

A more tangible explanation behind the cooling market conditions was the drop off in rental yields as price growth outpaced organic rental increases. Simply put, the market could not continue to justify rental increases and a natural ceiling was reached. As the growing disparity between rental price stagnation and continuing sales price growth became evident, more and more investors hit pause in order to re-evaluate their investment purchase objectives.

A more pragmatic approach seems to be the order of the day as investors keep one eye on market trends and another on the RBA and the much-debated rate cut “likelihood” at the next RBA meeting.

 

 2015 Outlook

The fact remains that both 2013 and 2014 were both extraordinary years for property growth in Sydney. While our outlook is positive for the local market we anticipate that growth will be more subdued over the course of 2015 and revert to a more stable level than that experienced over the preceding two calendar years.

Loan approval figures remain an excellent way to predict the year ahead. While these remain positive overall they are not increasing at the same rapid rate that they were this time last year, indicating buyer activity may not be as strong at the start of 2015. In fact, according to the ABS, owner-occupier loan approvals have fallen for four consecutive months – irrespective of the perceived housing boom – and this is evidence that positive buyer sentiment has slipped. Despite this fall in owner-occupier approved loans investor approvals remain very strong indicating that property is still seen as a worthwhile investment for many.

The two graphs below show that the value of owner occupier and investor loans for residential property are closely matched while the graph on the right shows NSW has a whopping 47% share of investor loans. If the market does cool expect investor interest to continue to contract to proven areas of growth in established areas with good access to infrastructure.

 

ABS housing loan approvals 20142014 NOV ABS Home investor loan share

 

Another factor contributing to a slowdown is economic uncertainty with specific concern around unemployment figures. With unemployment rising 0.5% between December 2013 and December 2014, now sitting at 6.1%, there will be some knock-on effect on the property market. Low unemployment in particular drives rental growth and thus positively influences capital growth as a result. With low commodity prices and even the resource sector shedding jobs buyer sentiment is likely to be affected.

With some economic weakness many are predicting a rate cut in 2015 to help stimulate job activity and this may, once again, fuel cheap credit and increase interest in property. Rates have now remained unchanged since August 2013 so there is ample scope for the RBA to drop rates if required. The falling Australian dollar will also ensure that interest from overseas investors will remain strong which was a hot topic during 2014 due to the high level of Asian investors active in the market.

In summary, there are both positive and negative dynamics afoot that will make 2015 another interesting year for Sydney property. If buyers stick to the fundamental principles such as purchasing in established locations and at fair market value the medium-term prospects remain very good. While 2015 may not be a massive year there still is great potential to do well.

As always, whether buying, selling or even simply looking to renovate it’s important to seek good advice from a qualified and independent property investment adviser to ascertain the most appropriate strategy for this particular step in your life.

 

Follow: Subscribe to this post's comments