Sydney's residential market is hot - glowing red hot or white hot: Pete Wargent

The Sydney property market is running the full spectrum of heat according to Australian Property Monitors.

Not only are "low interest rates clearly fuelling a red hot market", the recent cut in rates "will continue to fuel a white hot Sydney winter" market as well.

Confused? Yeah, me too.

Basically, APM is saying that the market is hot - but the colour of the heat seems to remain a matter of conjecture at this time.

We probably need a heat colour scale index or something.

But how hot can the market get? It's a fair question.

Auction clearance rates hitting 84% is red hot, no question.

Or white hot.

OK, let's not get bogged down in the actual colour of the heat. 84% is a hot market.

When you look at an unemployment rate of 5.7% and commentators are trying to infer that we've almost never had it so bad, it's worth remembering that when the unemployment rate falls to 5% or below, that is considered to be close to full employment.

The unemployment rate can never go close to 0% because there will always be frictional unemployment, seasonal unemployment and a certain%age of the population that will remain unemployable.

In a similar vein, auction clearance rates are very unlikely to hit 100% across a city on any given weekend - there will likely always be properties that are passed in as vendors seek to maximise their settlement price or fail to sell for other reasons.

That said, in the white (or red) hot sectors of the market such as Sydney's inner west, clearance rates have been hitting at around 90% and the market is clearly booming.

It's about as far removed from the inevitable housing bust predictions as it is possible to be.

Heck, even the central coast is starting to record good figures, so the Sydney market must be red (or white) hot.

Perhaps predictably, Dr. Andrew Wilson of Australian Property Monitors didn't miss a beat in taking the opportunity to stick the boot in: "I notice everybody is now getting on the housing market recovery bandwagon. Bit late fellas - don't lose your day jobs!"

Wilson took time out to take a quick side-swipe at Westpac too: "House price growth strong in July? Yet Westpac's sentiment index fell. Go figure. Guess index not a guide to house prices (lol)".

In summary, in Sydney expect property prices to break new record highs over the coming quarter.

Here's the useful stuff from APM's market wrap:

"Sydney recorded a stunning 83.8% auction clearance rate at the weekend with the mid-winter market continuing to accelerate at record levels of buyer activity despite a surge in listings.

This weekend’s result was the highest recorded for the year and the fifth consecutive weekend with clearance rates above 80%. Sydney’s weekend auction market is currently tracking its highest ever clearance rates with low interest rates clearly fuelling a red hot market.

And record clearance rates are being recorded despite a surge in listings with the number of auctions in Sydney 32.2% higher than the number listed over the first two weeks of August last year. The best regional auction result in Sydney this weekend was recorded by the south with an auction clearance rate of 90%.

This was followed closely by inner west with 89%, the central coast with 86% and the west with an 83% clearance rate.

The decision by the Reserve Bank last week to cut interest rates will continue to fuel a white hot Sydney winter auction market now tracking at record levels of buyer activity.

Strong prices growth will certainly follow as indicated by the latest ABS data reporting that Sydney house prices increased by 2.7% over the June quarter – an identical result to the APM Sydney data released two weeks ago."

Pete Wargent holds a range of finance and property qualifications and is the author of Get a Financial Grip – a simple plan for financial freedom.