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Have Sydney property prices finally peaked?

Have Sydney house prices finally peaked?

Sydney has experienced a rare flat month for capital growth in its property market as regulators target investment and interest-only lending.

A little heat appears to have escaped the supercharged property markets of the south-eastern capital cities, the latest CoreLogic monthly numbers suggest.

Sydney dwelling values were flat across April, with median unit prices actually declining by 1.2% for the month, the Harbour City’s weakest monthly result since December 2015.

The sluggish performance of the country’s largest property market meant dwelling values across the combined capitals increased by just 0.1%, with Hobart (up 1%) and Adelaide (up 0.8%) showing the strongest monthly gains.

Canberra posted a surprise drop of 2.8% last month, while house and unit prices in Perth continued to fall.

Hobart remains the star capital city performer of 2017, where property prices have gone up 6.6% in the four months to 30 April. Its year-on-year (YoY) growth of 13.6% isn’t far off Sydney’s (16%) or Melbourne’s (15.3%) and is the capital’s strongest annual gain in more than 12 years.

Sydney investor market tightening

Head of CoreLogic Research, Tim Lawless, argued “the softer results should… be viewed against a backdrop of an ever-evolving regulatory landscape which is firmly aimed at slowing investment and interest-only mortgage lending.

“Testament to this is mortgage rates, which have been edging higher, particularly for investors and interest-only loans, as well as rental yields, which have been hovering around record lows,” he said.

Gross rental yields for houses in Sydney and Melbourne have fallen to just 2.7%, compared with 4.9% for Hobart and Darwin houses.  

“The higher cost of debt, as well as stricter lending and servicing criteria, has likely dented investment demand over recent months,” Lawless said.

“In a city like Sydney, where more than 50% of new mortgage demand has been from investors, a tighter lending environment for investment purposes has the potential to impact housing demand more than other cities.”

CommSec Chief Economist Craig James said some regional areas are benefitting from high property prices in Sydney and Melbourne as buyers shift their attention to more affordable markets. He pointed out that “annual growth in regional house prices is the strongest in 2½ years with regional NSW leading the way”.

James also argued that “the flattening out of home prices in Sydney and declines in apartment prices represent a wake-up call to investors”.

Other signs of slowing

As well as weaker-than-usual capital value growth, Lawless also pointed to lower auction clearance rates and higher listing numbers as other indicators of a “subtle weakening” of the market overall. He also highlighted a slip in mortgage demand over April, though he cautioned that any slowdown in lending-related activity for this month could be attributed to seasonal factors.

“We need to be cautious in calling a peak in the market after only one month of soft results,” Lawless said.  

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.