Residex has released its home price results for the month of April, which registered a 0.73% (houses) and 0.63% (units) rise in values nationally, but a strong 3.29% (houses) and 2.02% (units) increase in Sydney:
According to Residex, the median house price in Sydney is now a whopping $821,500, with gross rental yields also falling below 4%.
Residex founder, John Edwards, was surprised by the strong results “as the data until April was indicting that the markets were cooling,.. [which] was justified given the difficult affordability conditions that exist”.
Edwards also believes that the strong growth and lofty valuations in Sydney poses problems on a number of fronts, and could “be a recipe for some significant adjustments later this year or, more likely, early next year”:
1) The growth in real terms (after inflation) for the last 12 months is about 17.25 per cent for houses and 10.78 per cent for units. It is reasonable to suggest that this market [Sydney] is approaching a boom mentality and this situation is dangerous, particularly for those who are borrowing heavily to get into the market. Interest rates are more likely than not to increase now as we move forward.
2) The current median value of Sydney houses is $821,500. This would require the median Sydney family to pay around 52 per cent of their after tax income (Affordability Ratio) to support home loan repayments on the median property, assuming a 20% deposit. This leaves just $812 per week available cash following home loan repayments, which certainly does not provide margins for emergencies and interest rate increases.
3) The high rate of growth will cause the Reserve Bank of Australia (RBA) some level of anxiety and potentially ensure there are no further interest rate decreases, and possibly bring forward interest rate increases. Historically, once the Affordability Ratio breaches 50 per cent, the market usually adjusts.
4) All are expecting unemployment levels to increase and this situation, coupled will all of the above, could be a recipe for some significant adjustments later this year or, more likely, early next year.
Too right.
