SQM Research's Sydney price rise predictions have been vindicated
When SQM Research predicted back in September last year that Sydney dwelling prices would rise by 15-20% in 2014, and possibly by significantly more, there were more than a few raised eyebrows.
Source: SQM Research
Some went so far as to be directly scornful. Yet, given the fundamentals of the market at that time, the underlying logic of the prediction was sound enough and SQM will once again likely prove to be pretty close to the mark.
Dwelling prices in Sydney had under-performed household income growth for almost a decade, and, crucially, interest rates appear set to remain at what are historically extremely low levels throughout the year and potentially well beyond.
Notably Australia's official cash rate will remain materially below where it was during Sydney's last property boom through to early 2004 for some time to come yet.
Even now in April, the Reserve Bank rhetoric suggests that the first rate hike is potentially some way off, particularly since inflation is expected to be consistent with the Reserve Bank's stated 2-3% target over the next two years.
In other words, interest rates are not going to be the handbrake which stops the current Sydney property boom in its tracks.
Rather, the music is only likely stop in this Sydney property market cycle once buyers deem yields to have fallen too low, such as they eventually did in Q1 2004.
Those who plan to own well-located, desirable property in Sydney over the coming decades appear set to be very happy with the outcome.
Auction clearance rates in Sydney remain remarkably high, the levels of stock on the market remain significantly lower than where they were a year ago in spite a flurry of vendor activity, and prices have continued to rise.
RP Data's index shows Sydney outperforming the rest of Australia over the past year, and indeed the five capital cities price growth has largely been driven by Sydney's dwelling price growth itself, in concert with broadly equivalent price activity in Melbourne.
Whether 2014 price growth in Sydney ends up being 10%, 15% or even 20%, SQM's logic will prove to have been broadly accurate. For what it's worth, below are the year to date figures as reported by RP Data.
We're only a week into April and it already looks likely that another month of gains will be recorded in the harbour city. And if you take the view that such indices are inclined to lag, then SQM's prediction looks very much to be in decent shape.
In any case, certain locations are beginning to record blistering results, including Sydney's lower north shore.
And you can probably begin to add parts of the Campsie/Canterbury/Bankstown sector of the market to that. Meanwhile, the popular inner west suburbs closer to the central business district have been flying for some years now.
When I discussed Sydney's real estate prospects in a brief chat with SQM's Managing Director Louis Christopher, he likened Sydney dwelling prices "to a high PE stock", which I thought was a worthy analogy.
Sydney's property will likely continue to trade at a premium to dwelling prices elsewhere in Australia since massive population growth and the sheer intensity of demand for inner suburb real estate factors in that Sydney will be a solid city for property owners for generations to come.
The population of Sydney is expected to grow to some 8 million over the coming decades.
I've spent plenty of time in other high-density cities including London, Hong Kong and Singapore and observed with interest the appreciating prices of well-located real estate.
Those who plan to own well-located, desirable property in Sydney over the coming decades appear set to be very happy with the outcome.
You can visit AllenWargent property buyers (London, Sydney) or Pete's blog.
His new book 'Four Green Houses and a Red Hotel' is out now.
