SQM still uber-bullish on Sydney housing


From SQM Research’s free weekly newsletter:

We continue to remain bullish on the Sydney housing market. Don’t believe the hogwash that came out of another reporting body over the weekend. The market is not about to slow, its actually about to have the strongest start yet in over 15 years.

Let me tell you why we remain so bullish on Sydney:

1.  Stock on market in Sydney fell to the lowest levels recorded on our index in December. For the month, there were just 20,479 properties listed in Sydney. That was less than half the amount that’s listed in Melbourne and just 75% of what is listed in Brisbane.

2. N.S.W Housing finance approvals, which are predominantly driven by Sydney kept rising through to the end of last year as measured by the ABS. They were up another 1.8% for the month of November and up 22% for the 12 months. Certainly no indicators there that Investors were slowing down.

3. The outlook for interest rates has changed. The market is no longer factoring in possible interest rate rise for this year. Indeed, the probabilities of another rate cut have increased. This will help investor confidence immensely.

4. The Australian dollar continues to slide. This will help the Sydney’s finance, manufacturing and exports sectors. Perhaps there is some evidence this maybe the case, with N.S.W now recording the second lowest unemployment rate across the country and some evidence that N.S.W businesses are becoming more confident.

Let’s also consider that the state budget coffers are currently receiving a massive boost due to stamp duty collections right now; thereby putting the state budget into unexpected surplus and allowing for potentially greater spending in infrastructure.

5. Sydney has been far more overvalued before. Consider Sydney house prices to nominal GDP, which is something we follow very closely. Even after the rises of 2013, the premium in Sydney is still below the 25 year average premium and way below the point reached in 2003:

ScreenHunter_949 Jan. 21 17.18

Though in all this, the one indicator to keep an eye out for on the Sydney market is this:

ScreenHunter_950 Jan. 21 17.19

A solid rise in NSW building approvals which will likely keep rising over 2014. Once we get a regular reading of over 5,000 a month it will mean the market is building at a rate faster than underlying demand. Now remember that it can take18 months (or longer!) between a building approval and final completion. So I don’t see an oversupply issue in Sydney for 2014. But perhaps for 2015/2016? We will be watching this closely throughout the year.

Finally, whatever you may think of the Sydney market, whether it is overvalued or deeply overvalued, the point remains that the market is momentum driven. Just like with the listed shares or any other asset classes for that matter, property prices are never too high to go even higher, nor are they never too low to go even lower.
Bullish momentum is running with the Sydney housing market right now and there are no signs yet that the momentum is about to exhaust itself or get scared off.

Next week, I’ll provide an update on the mining towns with a break up of vacancy rates for 70 of these towns. Should be fun!”

3 Responses to “ “SQM still uber-bullish on Sydney housing”

  1. Sounds reasonable…

  2. Peter Fraser says:

    It’s a high quality report that should be close to the money.

    Thankfully as the RBA has to let this one run we will see a genuine supply response in late 2014 and 2015 that won’t be cut off by rate hikes, as it usually is. That should contain prices for a long time.

  3. Pfh007 says:

    One factor that is often overlooked in Sydney is that that supply collapsed in Sydney during the various inquiries into the relationships between the ALP and developers – including the ones down in Wollongong.

    There such a wiff that almost any large development struggled for approval and from a political point of view they fell into the too hard basket. This happened right across the state.

    Frank Sartor referred to this in his ‘The Fog on the Hill’.

    With a change of government that paralysis is starting to lift.

    Slowly but surely the slow functioning brains cells in the NSW economic policy areas are also starting to comprehend the cost to the state economy of a dysfunctional housing construction sector.

    This is starting to happen on BOTH sides of politics.

    Getting housing construction moving is a winner for both sides.

    The LNP like to see business happening and the ALP (at least some of the less dim ones) are starting to understand the damage that their ‘Sydney is full and milk the housing cow’ policies were doing to their base.

    Harry Triguboff’s whisperings to RG the other day about excess supply is a hint that finally policy is starting to point in the right direction. Harry loves the current dysfunction because he has the capital and brains and competence to work the current situation.

    A functioning land market will put Sydney and the Gong and the Hunter and the mid and North Coast in the box seat.

    Low cost housing, low cost office space will be a magnet to business and employees.

    With a careful introduction of LVT to the new developments and the use of bonds for financing services, the future could be very bright.

    Well this what I think as I wish upon a star each night.