Promised Sydney housing correction up in smoke as market remains hot: Pete Wargent

The promised housing correction has totally gone up in smoke in Sydney with prices moving well above previous peaks.

There have been a raft of articles discussing the auction frenzy at the weekend in Sydney, with some examples of crazy bidding occurring and the usual generic comments blaming Asian buyers for spiralling prices.

Historically, auction clearance rates (although auctions only represent a fraction of the total market) have been seen as a leading indicator of property price action in the two major capital cities Sydney and Melbourne.

Elsewhere in Australia, there are so few auctions held that the trend is of far less significance.

This may go some way to explaining why only four months ago there were all kinds of hare-brained theories being bandied around to explain why Sydney prices were 'falling' in spite of auction clearance rates and activity which were clearly booming.

Some suggested that more properties were being sold into a falling market, which seemed incredibly unlikely given the sales figures that were being reported.

There were other theories as recently as the first week of June this year that a few weeks worth of soft price action was a result of an instant consumer backlash against the federal budget (it is highly unlikely that property prices could respond immediately to a budget given the settlement periods involved).

Of course, since that time prices have reportedly boomed in Sydney and Melbourne.

In truth though, this just goes to show that the shorter the timeframe for considering property price movements, the greater the margin of error for misreading the trend.

All that we can really say is that (a) historically auction clearance rates have been a leading indicator of property price movements, (b) auction clearance rates are close to record heights in Sydney at an outlandish 88%, and (c) therefore, it is likely that property price gains will continue at the least through the remainder of 2013.

I note that the sector of the market I called as being the outperformer (the inner west - and in particular the suburb of Erskineville) is still recording incredible clearance rates with 90% at the weekend.

It was reported that that one buyer paid $890,000 for a crumbling hovel in 'Erko', a sure sign of a market entering a period of temporary insanity and sky-high prices.

Prices in Erskineville in the inner west are going berserk as I specifically predicted on this blog.

For this reason, I would suggest that buyers today begin to consider other sectors of the harbour city - in particular a few of those beautifully located suburbs on the dark side (i.e. to the north of the coat-hanger).

His new book 'Four Green Houses and a Red Hotel' was released on 1 September 2013.