The Sydney property market has lead the way for price growth since January 2012, with the median house price increasing by 82% in the five years to December 2016. Over the period, the proportion of suburbs in Sydney with a median price below $600,000 declined from 44% to 11%.
Property markets move in cycles with periods of growth, followed by periods of correction and stagnation. Figure 1 charts the phases of Sydney’s housing market between 1986 and 2016. Notably absent are significant price corrections, with the largest decline being 5.5% between January 1991 and December 1992. This followed a growth phase where prices increased by 120%.
Figure 1: Sydney Cycle Phases and Price Growth: 1986 – 2016 (%)
Source: House Prices In Australia: 1970 to 2003 by Peter Abelson and Demi Chung, ABS 6416 and Full Financial Property Research
Between January 1997 and December 2004, the median house price in Sydney increased by 144%, heralding the familiar ‘bubble risk’ warnings. The International Monetary Fund was particularly bearish at the time, warning of a ‘Housing Boom to Bust’ in the Sydney Morning Herald on September 18, 2003.
At the time of publishing, the median price in Sydney was $455,000 (less than half the price in 2017). What followed was a two-year correction (2005 – 2006) where prices declined by 3% and a five-year stagnant period (2007 – 2011) where prices increased 7%. A reality far from the predicted bursting bubble.
The most recent growth phase (2012 – 2016), which by most measures has approached its peak, has seen Sydney house prices increase 82%; the least significant (percentage) price growth phase since 1986. As it has following the last two cycle peaks, the Sydney property market is likely headed for a period of subdued growth due to affordability constraints
A Soft Landing
As it has following the last two cycle peaks, the Sydney property market is likely headed for a subdued period due to affordability constraints. It’s a landing that’s will likely be soft given low interest rates, strong demand fundamentals, the highest Gross Domestic Product per capita of any city, falling apartment approvals and the nation’s
- Sydney contributed 38.6% of all GDP growth in 2015/16, the highest since 1991/92 (Source: SGS Economics and Planning).
- At $80,000, Sydney’s GDP per capita is $10,600 higher than the national average – the highest margin since 2004/05 (Source: SGS Economics and Planning).
- Sydney’s 4.5% productivity growth rate in 2015/16 was the highest since 1999/2000 and the third highest on record (Source: SGS Economics and Planning).
- $72 billion in infrastructure investment between 2017 and 2021.
- According to Standard and Poor’s, the mortgage delinquency rate in New South Wales is the second lowest in the country at 0.79%