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CHART OF THE WEEK
Sydney House Prices to Nominal GDP
The Sydney housing market has bottomed out. Many leading indicators now suggest the current September quarter will record about a 2% rise in Sydney dwelling prices and we are expecting a rise of another 4% for the December Quarter. That should take the full year to about a 1% gain compared to 2018.
But let it be known Sydney has bottomed out at an overvalued point. The data suggests the Sydney housing market remains 21% overvalued despite the two year correction. For reference, the average overvaluation (since 1986) in Sydney is 19% with a low point of 5.9% ‘undervalued’ in June 1987 and a high point of 55.5% overvalued in December 2003. The most recent overvalued point was 51.6% in the June Quarter 2017. The most recent undervalued point was 1.6% undervalued in September 2012.
This is all based on our view that there is a relationship between nominal GDP and house prices. And when you read this chart we think the evidence is there. Logically there should be a relationship. Housing price rises cannot outpace income growth forever. And the more the gap between the two, the more housing prices have to be supported by cheaper and easier access to credit.
Historically, the Sydney housing market has rarely been undervalued. There has nearly always been some sort of premium attached.
Effectively the current point suggests, that, left unchecked, we could soon be heading towards yet another historic overvaluation point similar to levels recorded in 2003 and 2017. The key word though in this is “unchecked”. How will the regulators respond when they read newspaper headlines of a new booming Sydney housing market recording annualised double digit percentage price growth?
Our initial thinking is they are unlikely to respond well and may introduce more lending restrictions once again. Then again, if the powers that be feel cornered due to perhaps rising unemployment pressure or the need to hit inflation targets, etc., they may well let the market run.
And then finally consider what happens if we have another rate cut?
Next week we will run the chart for Melbourne.
DISTRESSED PROPERTY OF THE WEEK
3B Aberfeldy Avenue, Woodville SA 5011
Built in 1993, this 3 bedroom, 2 bathroom courtyard home is located only minutes away from the Queen Elizabeth Hospital, Woodville Train Station and the conveniences of Port Road in Woodville SA, approximately 9 kms north from Adelaide CBD.
Initially on sale in November 2018 (over 180 days on market), the asking price has been reduced from $415,000-$435,000 to $369,000-$389,000. Based on statistics, you would expect to pay between $520,000 to $525,000 for houses in this area.
This area is starting to show some good growth with Asking Prices for houses in postcode 5011 increasing 5.8% over the 12 months and a 2.2% increase over the month, after a 3 year increase of 10.3%. This is a better performance than the Adelaide region which has shown 1.1% asking price growth over 12 months and 0.4% over the month for 3 bedroom houses.
The home is approximately 207 sqm in size, and comprises a separate sitting room, kitchen with stainless steel European appliances overlooking the open plan dining/living area, all bedrooms have built in wardrobes plus main bedroom with ensuite. There is also a 2-car carport with an automatic door leading to the fully paved all weather outdoor entertaining area providing lots of room to entertain family and friends.
Although, peacefully tucked away at the rear of the property, the home is in a locality that is mixed with residential properties and commercial and industrial land uses located along Port Road. Nearby is McDonalds restaurant and an electricity substation on Port Road near Aberfeldy Avenue.
It is an affordable property that's ideal for 1st home buyers, investors, couples and downsizers. Investors will be excited to know that the current Vacancy Rate for the area is a low 0.9% indicating low supply and higher demand. Data shows you can expect rents of $400 per week for this 3 bedder. However, rents have declined 1.8% over the month, after an increase of 5.2% over the quarter and 11.5% over 12 months. The gross rental yield is 4.0% for 3 bedroom houses in this area.
Adelaide is still the most affordable capital city in the nation, it might be worth monitoring this region. The SQM website features free property data that is now more interactive, easier to navigate and user-friendly, so keep monitoring this market’s growth at SQM Research’s free property data. Also consider the Property Valuation product for more in-depth data and property price estimator.
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SQM RESEARCH HOUSING INDEXES
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