• Headlines concerning soaring property prices in Sydney are now almost a daily occurrence. However all this focus on Sydney and a potential ‘bubble’ is masking the lacklustre movement in other property markets around the country. Simply put, Sydney is not Australia and local economic factors are playing a more significant role than changes in interest rates. So what has been happening around the country?

 

Overvalued, Undervalued

  • The latest data from RPData indicates that the house price index rose slightly in all capital cities in March (1.4%), and over the quarter dwelling prices increased by 3%. After many months of apparent rampant growth, this constituted the lowest point since September 2013 which would suggest that the housing market is finally moderating.

 

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<li>However these numbers should be taken with a grain of salt as they are inevitably inflated by the Sydney market which has increased by 13.9% over the past year, well beyond even Melbourne (5.6%), while the rest of the country has either dipped into negative or is simply cruising on stable (Brisbane 2.7%, Adelaide 2.2%, Canberra 1.5%, Perth -0.1%, Hobart -0.3% and Darwin -0.8%).</li>
<li>Indeed, after such a flurry in the Sydney market the median price for a house has reached a whopping $781,600, while the median price in Hobart is less than half at $340,000. This is the result of successive increases in house values in Sydney for the last ten years, but especially in the last year when cheap credit, negative gearing and SMSF’s created a seemingly unquenchable demand for property in Sydney, but not in other markets.</li>
<li>SQM Research believes that the Sydney property market is now overvalued by 25% and predicts that by the end of the year it will be overvalued by 40%. This will be the second highest overvaluation SQM Research has ever recorded, with the highest in 2003 when the market was overvalued by 55%. As the graph below clearly shows, this overvaluation eventually led to a (negative) re-adjustment.</li>
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