Property Bubble Crew Hit The Media With Predicting A Crash?

Every time Sydney house prices increase the prop­erty bubble crew hit the media with neg­at­ive head­lines pre­dict­ing a crash.

These doom­say­ers may very well be right., how­ever, we feel that there are five key trends that des­troy their cur­rent predictions:

1. The median Sydney res­id­en­tial dwell­ing price has increased at an aver­age rate of just over 2.5% per annum over the last 10 years. Hardly a boom. Espe­cially when you con­sider this growth rate is almost exactly the same as the aver­age annual infla­tion rate over the same period. In other words, when tak­ing into account the impact of infla­tion, median Sydney dwell­ing prices have not increased (in real terms) at all over the last decade.

2. The num­ber of prop­er­ties selling in NSW is on the rise (see chart below) but these num­bers are def­in­itely not in boom ter­rit­ory. In fact, July’s prop­erty sales num­bers are only the 3rd highest over the last 10 years and approx­im­ately 20% below the boom num­bers that we saw between 1998 and 2003.

NSW office of State revenue

3. The last time Sydney saw a prop­erty boom the median res­id­en­tial rental yield dropped down to below 2.50%. As you can see below, Sydney’s yield has dropped by 1.80% for houses and 1% for units. These neg­li­gible declines are cer­tainly not what you would expect to see in a boom. More import­antly, yields of 4.61% for houses and 5.08% for units are rel­at­ively high when look­ing over a 20 year history.

Australian Property Monitors Rent Report

4. Another typ­ical char­ac­ter­istic of a prop­erty asset bubble would be an over sup­ply of res­id­en­tial dwell­ings. How­ever, as you can see below, new dwell­ing con­struc­tions have been on a steady decline for 10 years. The boom between 1998 and 2003 saw approx­im­ately 40% more new con­struc­tions than we have seen over the last 7 years.

 

Australian Bureau of Statistics

5. Finally, whilst new dwell­ing con­struc­tion has been declin­ing since 2002, the pop­u­la­tion of NSW has increased by 720,327 people!!. Sydney accounts for 506,982 of that growth. This is a clas­sic case of demand start­ing to out­strip sup­ply. If prices were rising in a mar­ket where sup­ply was out­strip­ping demand then we would also be mak­ing the case for an asset bubble risk. Clearly this is not the case in our cur­rent market.

RP Data Blog

As you can see, the case against Sydney being in a prop­erty asset bubble is quite power­ful. And this argu­ment has been made without get­ting into other macro aspects driv­ing growth such as the SMSF sec­tor mov­ing into res­id­en­tial prop­erty and the massive build up of cash depos­its (look­ing for bet­ter yields) in the Aus­tralian economy.

Please do not hes­it­ate to get in touch if you would like to dis­cuss your prop­erty goals. We would love to help.

About 

With expert­ise span­ning mort­gage lend­ing, prop­erty law, prop­erty invest­ment and bor­row­ing to invest within Self Man­aged Super­an­nu­ation, Aaron Sains­bury offers more than 25 years pro­fes­sional advis­ory expertise.

He is an enthu­si­astic sup­porter of fin­an­cial lit­er­acy, work­ing closely with cli­ents to help them gain and main­tain con­trol of their fin­an­cial future.

Aaron is thor­oughly com­mit­ted to build­ing lifelong rela­tion­ships with cli­ents based on the highest qual­ity ser­vice, advice and trust.

Con­tact Aaron dir­ect on 02 9818 8643 .

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