Early 2014 trends in Sydney’s residential property market over $1 million – the party, if there was one, is coming to an end

March 18th, 2014

As the Sydney residential property market closed for Christmas last year, the question on many selling agents’ lips was whether or not the so called party, especially over $1 million, would continue in the New Year.

When that market opened six or so weeks later, mainstream media and many selling agents in their self serving weekly blurbs leapt on escalating auction clearance rates, hordes of so called Chinese buyers hoovering up prestige property  and the smashing of sometimes artificially low reserve prices to proclaim the status quo maintained.

Hardly surprising therefore, that Commonwealth Bank of Australia (CBA) data released during this period revealed that the net percentage of those expecting house prices to rise was at its highest level since September 2009.

The truth behind the scenes and beneath the  hype is that many of the same agents, realising that those clearance rates are more a function of tight supply than  wallets suddenly opening, were and still are quietly muttering amongst themselves that “this could be as good as it gets”.

While there were undoubtedly some strong individual results, there were also many sellers who suffered capital losses or derived meagre gains particularly where they had bought their properties in the last half of 2007 or first quarter of 2008.

Not much talk about those folks in all the hype.

And for a compelling busting of the xenophobic myth about those so called “Chinese buyers”, the entertaining article by Bernard Keane in the 10 March 2014 edition of Crikey entitled  “Chinese real estate invasion? Not according to the data fellas” is worth reading.

If what follows is any indication, then and consistent with what this article has been saying over the last quarter of 2013, those agents with their quiet mutterings may well be right:

Why?

In that six week hiatus:

  • Unemployment reached an unexpected 6% in January 2013
  • Qantas announced it was shedding 5,000 jobs
  • Inflation rose to a five year high
  • The Australian dollar fell to  around 90 cents putting inflationary pressure on the price of the exports to which Australians are wedded; in turn increasing the chances of  an interest rate  rise as predicted in CurtiseCall December 2013 (similar views having since been expressed by the Chief Economist of the HSBC, Paul Bloxham  and others)
  • In an address to the Australian Property Institute on 26 February 2014, CBA’s Chief Economist Michael Blythe and other speakers summarised Australia’s economic outlook as follows:
    • The consensus of the OECD, IMF, RBA , CBA, Government and economists  is that Australian growth will remain below an average 3% in 2014
    • Australia’s growth advantage over other economies will narrow further
    • There is a growth in savings which is  “highly unusual” given the near record low returns on such savings
    • Fears about job security are heading towards levels not seen since the GFC and
    • 2014 will mark the end of 23 years continuous economic growth
  • Billions of dollars worth of investment on  mining infrastructure were shelved with few replacement dollars coming from the non mining sector
  • Would be first home buyers deserted the residential property market
  • Planning reforms in New South Wales remained  deadlocked and
  • Australia’s foreign policy, especially in relation to offshore detention centres, had drawn  international condemnation leading to serious diplomatic rifts with its major trading partners, China and Indonesia.

For confirmation that all is not as it might seem in mainstream media, graphs presented in the address mentioned above by CBA and Charter Hall showed a bizarrely positive correlation between, on the one hand, peoples’ expectations that house prices will rise and on the other hand, increased rates of savings, the slowest rate of credit growth in 23 years and increasing fears about job security.

Our take on all this

To assess whether or not the positive expectation that house prices would rise was prevailing over those negative indicators and expectations, we analysed housing sales data compiled by APM between $1 – $1.5 million and above $1.5 million across six Sydney regions over the three winter months prior to 8 October 2013 and compared it to the five and typically, headier spring/summer months between 9 October 2013 and 11 March 2014. To be conservative, we reduced the latter period by six weeks to allow for the shut down between Christmas and the New Year.

The data

# Months City/East Inner West Lower NS Upper NS Nth Beaches South
8 July 2013 – 8 October 2013
< $1.5 million 328 322 294 328 326 270
Properties per month 3 109.3 107.3 98.0 109.3 108.7 90.0
> $1.5 million 467 202 324 289 196 81
Properties per month 3 155.7 67.3 108.0 96.3 65.3 27.0
9 October 2013 – 11 March 2014 
< $1.5 million 319 323 358 315 319 269
Properties per month 3.5 91.1 92.3 102.3 90.0 91.1 76.9
> $1.5 million 393 316 395 392 261 147
Properties per month 3.5 112.3 90.3 112.9 112.0 74.6 42.0

 

Graphs of that data

 

 

 

 

 

 

Analysis and predictions

Over the two periods:

  • Sales volumes in the lower price bracket ($1-$1.5 million) trended downwards in all regions except for the lower north shore where there was an insignificant increase.
  • With the inner west having  recorded the second largest drop in turnover in  the lower price bracket, the dream run enjoyed by that region came to an end
  • Playing catch up to the lower price bracket, sales volumes in the higher  price bracket (above $1.5 million) increased across all regions except for the city and east which peaked earlier than the outlying regions in this bracket
  • As the city and east is historically the  region whose trends the other regions follow, its significant reduction of volumes in the higher price bracket suggests the rally elsewhere across Sydney in the same bracket will be short lived.

Conclusion

 

Do superlatives such as ‘surging’, ‘booming’ and ‘on fire’ accurately describe top end trends in Sydney’s residential property market?

‘ … Not according to the data fellas’