Housing Bubble Warning as Sydney Home Prices Skyrocket 3

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Wednesday, April 1st, 2015
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Sydney property prices have skyrocketed to new record highs, sparking warnings to investors amid growing risks of a housing bubble.

Sydney home prices jumped three per cent in March, to be 14 per cent higher over the past year, according to figures from CoreLogic RP Data.

Property prices in Sydney are growing at double the rate of all the capital cities combined and are showing no signs of slowing down, after February’s interest rate cut fuelled another boom in the market.

CoreLogic RP Data head of research Tim Lawless said Sydney had recorded auction clearance rates of more than 80 per cent in each week since the February 3 rate cut.

The city recorded its highest ever auction clearance rate of 88 per cent on Saturday, according to figures from Domain Group, despite it being voting day for the NSW election.

Mr Lawless said Sydney’s growth trend appeared to have disengaged from the rest of the capital city housing markets, which were recording much slower price growth.  The strongest performer after Sydney was Melbourne, but prices there rose only 5.6 per cent in the past year.

Meanwhile, gross rental yields in both cities were approaching record lows, prompting calls for investors to be careful.

“Prospective investors may be wise to use some caution when considering their investment options,” Mr Lawless said.

“When the Sydney housing market starts to lose momentum, there is some risk that recent investors could be left holding a very expensive but low yielding asset with a lower-than-expected rate of capital gain over the coming years.”

Mr Lawless said the latest figures would likely present a challenge for the Reserve Bank when it makes its interest rate decision next week.

CommSec economist Savanth Sebastian said the strength of the housing market would weigh on the RBA’s decision.

“A big question for the Reserve Bank is whether another rate cut adds to risks of a bubble developing in the housing market,” Mr Sebastian said.

“While the discussion of a housing bubble will continue to be mentioned in media headlines, it is likely that increases in land sales, healthy building approvals and solid new home sales will result in a greater supply of homes over 2015.

“As a result of increased home supply, price gains will become more restrained next year.”

UBS economists said home prices were not an impediment to an RBA rate cut.

 

HOW PRICES HAVE MOVED IN THE PAST YEAR

  • Sydney up 13.9 per cent
  • Melbourne up 5.6 per cent
  • Brisbane up 2.7 per cent
  • Adelaide up 2.2 per cent
  • Canberra up 1.5 per cent
  • Perth down 0.1 per cent
  • Hobart down 0.3 per cent
  • Darwin down 0.8 per cent

Combined capitals up 7.4 per cent

 

By Belinda Merhab
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3
  1. Tim Jones

    This probably will end up being a bit of a bubble but it should be borne in mind that Sydney still has a significant housing shortage as an overhang from years of underbuilding – BIS Shrapnel, for instance, puts this at 50,000 dwellings. Eventually, the market will probably overshoot, but for now, these rises look to be a reflection of what still remains a situation of undersupply.

    What's more worrying, perhaps, is markets like (Perth) massive oversupply and Melbourne apartments (tipping toward oversupply).

  2. Jurgen S.

    And still the RBA is expected to reduce interest rates in order to avoid even the most temporary of growth dips, while the NSW government fails to adopt proper measures for expanding housing supply.

    • Rob

      Well, todays RBA decision to leave interest rates on hold indicate the concern the RBA has with the Sydney market. Basically the RBA has done all it can and its time for the Federal Government to temper the investor buying frenzie using borrowed money in the Sydney property market. Will the current government act with taxation reform to temper the Sydney excesses? – I don't think so. But if the bubble bursts, politicians pensions should be on the line.