Residential real estate underpins Australia’s wealth with the gross value of sales this year exceeding $286.4 billion from 438,277 sales. After five years of incredible growth, the property market fell lightly into a correction phase; an essential part of the market cycle. Both capital city and regional dwelling values have fallen with Sydney house prices now 8.1% lower than they were in November 2017. The reason this correction was felt more, was due to the pace at which it happened; values shifted quickly over the past year from growth to declines.
After a different 12 months for Australia’s property markets, 2019 looks likely to be a year of greater stability. That’s not to say prices won’t fall further, but the pace of those falls will slow in the first half of 2019 before we move into another moderate growth phase.
Looking at what happened in 2018, we can see that the market was influenced by the overly-negative media coverage and hype, hence transaction numbers fell 18.2% in Sydney year on year. In contrast, the total number of listings is much higher than it was last year, sitting 20.2% higher with over 30,000 properties on the market in Sydney alone.
The time to sell a property has increased as transaction volumes fall with fewer active buyers in the market and the median days on market in Sydney now sits at 47. As the correction phase settles in, vendors are having to meet the market with a discount, the median vendor discount for Sydney is 6.8% as at November. Auction clearance rates have continued to trend lower over recent months, now sitting near 40%, however with solid interest in private treaty and expressions of interest campaigns, more real estate agents are recommending this method of sale over an auction.
While previous housing cycles have been generally dictated by changes in interest rates, the current correction phase has been heavily influenced by changes in credit availability. The slow down in credit growth is mostly due to the sharp reduction in investment lending; down 18.1% over the past year and 35.6% lower relative to the 2015 peak.
With more attractive market conditions, first home buyer demand has increased over the past year, growing to 14.9% of all owner occupier housing finance commitments.
2019 looks to bring about further change with banks and potential borrowers adjusting to new tighter lending standards, with lending growth to resume but at a more moderate pace. Also supporting house prices will be projected strong population growth, lower unemployment, faster wage growth and increasing first-home-buyer activity.
Domain forecasts that Sydney house prices will be close to unchanged in the year to December 2019 after falling by about 8% in 2018. They then expect prices to grow modestly in 2020. House prices are predicted to fall by about 12% from their peak of almost $1.2 million in June 2017 to a predicted low point of just above $1 million in mid-2019. At this low point, Sydney house prices will be back at their mid-2016 level.
Sydney unit prices are expected to be more resilient than house prices. Unit prices are expected to fall by about 3% over the year to December 2018, but then prices are expected to grow modestly over the next two years at about 3-5%. Sydney unit prices are predicted to fall by 6% from their peak of $769,000 in June 2017 to their lowest point of about $720,000. At this low point, Sydney unit prices will be back at their late-2016 level.
The NSW government’s stamp duty concessions are also likely to support unit price growth. However, one major downside risk to Sydney unit prices is whether the large pipeline of new unit construction is absorbed. Given projected strong population growth, we think this will not result in city-wide price falls, although some areas with a particularly large amount of new construction may see prices remain weak.
Tighter lending conditions have weighed heavily on Sydney property prices, particularly for more expensive properties, but we think this is likely to have played out by mid-2019. Low unemployment will also support prices, with the NSW unemployment rate forecast to be 4.75% through to 2020 (and could potentially fall to a lower level). Another supporting factor is NSW’s population growth, which is expected to remain at around 1.5%.
The North Shore has been well insulated from major market swings and remains a top regional performer and key target for aspirational buyers. With over 230 properties sold in 2018, Savills continues to be the highest selling real estate agency on the North Shore. If you’re considering selling or buying in 2019 now is the time to give our team a call to discuss how we can make your real estate dreams a reality.