Magnificent Million-Dollar Milestone for Sydney!

Median Dwelling Value +2% in July to $1,017,692
Houses +2.1% to $1,258,203; Units +1.6% to $810,236

  • HISTORY MADE AS SYDNEY’S HOME VALUE INDEX BREAKS THE MAGIC MILLION MARK
  • IMPRESSIVE YTD RETURNS OF 18.2%: 20.9% FOR HOUSES AND 10% FOR UNITS
  • STRONG CLEARANCE RATES THROUGHOUT JULY (JULY 3 – JULY 31: 71%, 73%, 77%, 72%, 75%)
  • INCREASING SIGNS OF SLOWING MOMENTUM IN MORTGAGE DEMAND

 (CoreLogic and REIA figures. Chart Source: RBA 2021)

July 2021 will go down as a watershed moment for the Sydney property market. Faced with a strict lockdown, the people of Sydney displayed remarkable spirit and confidence in the future of their city, bidding up median residential dwelling values by two per cent to a new all-time-high of over $1,000,000. Sydney becomes the first Australian capital city to register a seven-figure value for median dwellings.

Month on month, house values increased just over $1000 per DAY to over $1.25m. Units also performed strongly as affordability issues pushed some would-be home buyers into lower-priced units. Median unit values now exceed $800,000, with their 3.1% gross yield comparing favourably to the record-low 2.3% yield for houses.

Clearance rates remained strong throughout July, averaging 73% over the five July weekends. These figures were particularly impressive given the current restrictions facing prospective home buyers and bode well for continuing strength and stability in Sydney’s housing market into year-end.

Sydney’s year-to-date returns of 20.9% for houses and 10% units are both well ahead of national averages at 15.6% and 8.9% respectively. Adding fuel to these gains, rents have picked strongly for houses and turned positive for the beleaguered unit market. Sydney house rents have increased 7.2% annually. Unit rents are up 0.9% over the same period, marking the first positive return since the steep 2018 downturn.

Gross rental yields have ticked lower to 2.5%. With comparison rates on mortgages at around 2.8%, the median Sydney property investor now faces negative cash flows from highly-leveraged investments. As a direct result, the ABS (Australian Bureau of Statistics) reports a 1.6% decline in the value of new home loans in June. For owner-occupiers, total loans decreased 2.5%.

With less housing finance in the market, home building approvals also fell 6.7%. This trend seems set to continue for the remainder of the year as the economy weathers the challenge of continuing lockdowns in many Australian regions.

The RBA warns of a September slowdown

In his monthly policy statement on 3 August, Reserve Bank of Australia Governor Philip Lowe noted that “GDP is expected to decline in the September quarter” but that “the economy is benefiting from significant additional policy support” which will “assist with the recovery.”

In addition to holding interest rates at a record low 0.10%, “the RBA will continue to purchase government securities to the tune of $5 billion a week until early September and then $4 billion a week until at least mid-November.” In other words, the RBA is flooding the financial system with liquidity to see the Australian economy through this latest challenge.

This is welcome news for property investors. It shows the RBA is not targeting housing prices in its policy making. It will tolerate some housing affordability issues in leading markets like Sydney to help the economy as a whole. This predictable and growth-friendly credit policy gives new home buyers and investors the confidence to enter a property market now hitting historic seven-figure highs.  Housing credit growth should continue to remain strong.

 

The Bottom Line – Affordability Issues are beginning to weigh on property returns

As CoreLogic notes in its most recent Home Value Index report, Australia’s 10-year monthly average of dwelling value appreciation comes in at just 0.4%.

Wages are simply not keeping up with spiking consumer inflation and property price increases. Easy credit from lenders can only go so far. For first home buyers in particular, the new benchmark for Sydney housing is now a million dollars. Sydney’s housing market should brace for some “round number resistance” at this million-dollar mark as prospective buyers pause and ask “Can we really afford this?”

At the same time, the new $1,000,000 benchmark should prompt more buyers to come to market in Spring. With Sydney property prices already up 17.7% YTD, a more moderate rate of appreciation should be expected into year-end as meaningfully more supply finally hits the market.

 

Continued success!

 

The V-Mark Design Team