Sydney’s feeding frenzy continues with last weekend being the biggest auction offering on record with 1,471 auctions according to RP Data and clearance rates over 78% shows the bubble is still growing strong. With these latest results pushing the Harbour City’s property price growth to 17 percent for the 12 months compared to just over 11 percent in Melbourne.
According to Australian Property Monitors – Artarmon is Sydney’s fastest growing suburb with a median home price of $1.385 million with a massive 44% increase in median price over the past 12 months – second place is Birchgrove followed by Rose Bay.
With Easter then Anzac day the next couple of weeks will place everything on hold and then it will be interesting to see how the market responds.
The housing market in Australia currently valued at $4 trillion appears to be overvalued by at least 10%. Within the next few months, Sydney will become the city with the most expensive residential property market.
Borrowers should keep two things in mind, when will a bona fide housing bubble emerge and once interest rates return to normal levels how steep the price falls are likely to be.
When the Reserve Bank of Australia dropped its cash rate to a record 2.5% in August 2013 mortgage rates fell to unprecedented levels as low as 4.49%. The resulting rush in investor activity particularly in Sydney, has seen property prices booming quarter on quarter.
Even though the RBA issued a warning to banks and borrowers on the unsustainability of the current activity, which suggests the RBA has to be considering a rate increase, the surge in home prices continues. Latest figures indicate an increase of 2.3% in March 2014 in Australia’s eight capital cities taking the total growth in the first quarter of the year to 3.5%. While Sydney’s housing market has shown the biggest increase recording an increase of 4.4% in the March quarter.
As dwelling prices in Australia’s hot capitals have jumped over 10% in past 12 months Sydney alone has leapt by 15%.
While there is no indication of the boom in price receding with the national auction clearance rates consistently over 70%. According to the RBA, there is an increase in the share of households’ preference for real estate as their best choice of savings. This is similar to the property boom in the previous decade, a similar trend that may produce similar results within the next few months.
The Australian Bureau of Statistics reported that an increase in investors including foreign nationals has resulted in first home-buyers being priced out of the market. First home buyers only accounted for 13.2% of the market in the beginning of the year. Conversely, despite the exceptionally low borrowing costs, the number of borrowers opting to pay down debt as opposed to clearing their loan balances with their savings has increased. It is comparable to pre-global financial crisis levels. Owner-occupiers utilizing interest-only loans have leapt to over 25%. Buyers with deposits under 10% comprise a relatively high 15% of the total number of loan approvals.