April 2021

This is the 33rd in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

The effect of gravity on property value blast off

The SMH suggests the end of the current housing boom may be in sight, with prices leveling off into a more sustainable incline rather than the steep spike of the last couple of months, though as the ABC reports, since the RBA announced the CPI is below what many pundits expects, interest rates are likely set to remain at their current record low at least until June. Sarah Hunter from BIS Oxford Economics is quoted as saying that “CPI will accelerate sharply in the June quarter, and likely print above 3%.”

The important part for home owners and buyers, is about interest rates. For the foreseeable future any upward movement by the RBA is ‘realistically years away’ As Callam Pickering from Indeed Asia Pacific was paraphrased as saying. However, this has not stopped the large banks from raising their record low fixed price loans. Another ABC article reports that Westpac for example has just raised its fixed rate from 1.89% to 2.19%. It looks like the era of ultra-low interest rates might be coming to a close.

Another interesting development is the increase in vendors asking unrealistic prices in Sydney’s already exorbitant market. Domain ran an article that opportunistic home owners are trying to take advantage of the high prices and relatively low stock numbers. The sad thing is that sometimes these highly inflated prices actually sell. The article lists a number of regular suburban properties that sold for a million dollars over the reserve. Great for the vendor, not so much for the buyer who may now be locked into a debilitative mortgage.

Bank of mum and dad

In other news, the bank of mum and dad is at least partially being blamed for some of the upward pressure on home values, with an ABC article pointing to new research showing that the bank of mum and dad turns out to be the 9th biggest lender in the country. The article cites Martin North of Digital Finance Analytics as saying that this is a ‘regulatory blindspot’, and that his research says that people who get this level of help (the average amount being over $89k) are “three times more likely to default on their loan in the subsequent five years.”

In terms of the state of the market, the ABC also reports on the latest Core Logic data that the extraordinary 2.8% home value increase of March (the most in 32 years) are slowing in momentum, with prices undoubtedly beginning to hit on the upper edge of what is affordable, and that this is beginning to bite on the bubble. This upper limit of affordability may have been stretched due to Government stimulus and the unprecedented low interest rates currently available, but having said that, the article also reports that the most expensive quartile of the market has jumped 8.8% in the last few months, compared to 4.1% for the least expensive quartile. There’s not likely that many first home buyers in that uppermost quartile.

However these percentages ares chicken feed when compared to some of the massive gains in specific Sydney suburbs. Domain reports that properties in suburbs like Northbridge have had a whopping annual change in values of 28.5%, which, in an already blue chip suburb, means the median price has now topped $3.9m. An examination of the list shows that most of the gains (excepting perhaps Denham Court) are in highly established, traditionally wealthy suburbs. Perhaps these might be good examples of healthy child / parent relationships and subsequent use of the bank of mum and dad?

More trees and grass for better home values

For Earth Day 2021, Core Logic completed a case study into correlations between Sydney housing prices and green spaces (or ‘greenspaces’ as they refer to them). Being one of the most expensive cities in the world, this type of research must become more and more frequent. The results are in: there is a positive if weak link between house values and significant local green areas. Whether these are natural green areas, or landscaped seems to not matter as much as whether they are public or private areas. In a nutshell, the study found that

  • areas with less privately owned greenspace such as in areas with a higher level of high-rise apartments, placed greater values on publicly owned greenspace
  • areas scarce on greenspace had a stronger relationship between private greenspace and price.

The article make the point that some of the starker correlations on similar research in European cities were done in cities with significantly less green space than Sydney, which by comparison is actually quite green already. The full article and download of the report is freely available from Core Logic.