SQM Says Sydney’s Property Market to Have Strongest Start In 15 Years

By Louis Christopher on 24 Jan 2014
No Comments yet, your thoughts are very welcome

Don’t believe the hogwash that came out of another reporting body over the weekend.

The Sydney property market is not about to slow – it’s actually about to have its strongest start in over 15 years.

Let me tell you why we remain so bullish on Sydney.

1. Stock On Market

Stock on market in Sydney fell to the lowest levels recorded on our index in December. For the month, there were just 20,479 properties listed in Sydney.

That was less than half the amount listed in Melbourne and just 75 per cent of what is listed in Brisbane.

2. Housing Finance Approvals

NSW housing finance approvals, which are predominantly driven by Sydney, kept rising through to the end of last year as measured by the ABS.

They were up another 1.8 per cent for the month of November and up 22 per cent for the 12 months. Certainly no indicators there that investors were slowing down.

3. Interest Rates and Investor Confidence

The outlook for interest rates has changed. The market is no longer factoring in a possible interest rate rise for this year. Indeed, the probability of another rate cut has increased. This will help investor confidence immensely.

4. Low Australian Dollar

The Australian dollar continues to slide. This will help Sydney’s finance, manufacturing and exports sectors.

There is already some evidence this may be occurring, as NSW recently recorded the second lowest unemployment rate across the country. There is also evidence that NSW businesses are becoming more confident.  

“The probability of another rate cut has increased. This will help investor confidence immensely.

Let’s also consider that the state budget coffers are currently receiving a massive boost due to stamp duty collections, thereby putting the state budget into unexpected surplus and allowing for potentially greater spending in infrastructure.

5. Sydney Has Been More Overvalued

Sydney has been far more overvalued before. Consider Sydney house prices to Nominal GDP, which is something we follow very closely.

Even after the rises of 2013, the premium in Sydney is still below the 25 year average premium and way below the point reached in 2003.

Sydney House Prices vs Nominal GDP

Source: SQM Research, ABS 5206 6416, seasonally adjusted

*Trading Economics forecasts of 2.4 per cent Nominal GDP. SQM Sydney house prices rise forecast of 15 per cent over 2014

In all of this, the one indicator to keep an eye on the Sydney market is this:

A solid rise in NSW building approvals which will likely keep rising over 2014.

Once we get a regular reading of over 5,000 building approvals a month, it will mean the market is building at a rate faster than underlying demand.

Now remember it can take 18 months (or longer!) between a building approval and final completion, so I don’t see an oversupply issue in Sydney for 2014. But perhaps for 2015/2016?

“Sydney has been far more overvalued before.”

We will be watching this closely throughout the year.

Finally, whatever you may think of the Sydney market, whether it is overvalued or deeply overvalued, the point remains that the market is momentum driven.

Just like with the listed shares or any other asset classes for that matter, property prices are never too high to go even higher, nor are they ever too low to go even lower.

The Sydney housing market is running with bullish momentum right now and there are no signs yet that the momentum is about to exhaust itself or get scared off.

About the Author

SQM Research is an independent property advisory and forecasting research house which specialises in providing accurate property related advice, research and data to financial institutions, property developers and real estate investors. It is founded and run by one of the country's most recognised and respected property analysts, Louis Christopher.

Share with friendsX