From Richard Wakelin, dynastic property partisan, via the AFR:
…might the Sydney property boom peter out in a benign way without the Reserve Bank keeping interest rates artificially high for the rest of the nation? Much of the strong price growth in Sydney is “catch-up”. Even after its recent dash, prices in Sydney are only up 57 per cent since September 2003, based on ABS data, while Melbourne rose 89 per cent in that time. To some extent, we may well be seeing a return to normal circumstances where Sydney property enjoys a 20 per cent premium over its southern counterpart due to higher incomes, a larger population and a greater scarcity of land.
Viewed through this prism, the run-up in Sydney prices is rational. And if participants are acting rationally now, it is reasonable to assume they will stop pushing up prices once a point is reached where valuations can’t be justified based on rental returns or mortgage servicing costs. Yes, we might see an overshoot and a correction, but the correction will probably be characterised by a period of stagnant prices for several quarters rather than a short sharp drop in prices.
