Residex has released its house and unit price results for the month of May, which registered solid growth in house prices nationally (0.56% MoM; 2.35% QoQ; 2.80% YoY), but weaker unit price growth (0.40% MoM; 0.81% QoQ; 1.77% YoY):
According to Residex’s founder, John Edwards:
A significant landmark was achieved in May. The cost of the median house in Sydney is now more than $700,000. If growth continues at an annual rate of just 5.2 per cent per annum, which is a likely outcome and is less than the Residex model predicts, the Sydney median house price will rise to $1 million over the next seven years. In fact, the Residex predictive model suggests this outcome will be achieved a year earlier, by 2019…
Some notable points evident in the table include:
– House price growth across Australia is now positive for both units and the house and land market.
– No major capital city (Sydney, Melbourne, Perth) in the house and land market has provided a negative result in the month of May.
– A slowing in the mining development sector is impacting on growth in Western Australia (see WA Country).
– The unit market in Victoria is proving to be much more immune to the calculated oversupply issues. There appears to be a very careful release program underway by large developers.
– Sales activity has improved but needs to improve more significantly in major capital city markets.
– While auction clearance rates have improved, the volume of stock on the market remains limited and low stock levels are driving price growth. Lower auction clearance rates are expected to continue as vendors start to be less realistic about minimum asking prices given the reported more positive growth news.
Personally, I view Edwards’ predicted growth forecast for Sydney as highly optimistic. At a median price of more than $700,000, Sydney houses are already very expensive, tracking around 8.5 times average pre-tax full-time earnings (of circa $82,000). Moreover, disposable incomes are unlikely to experience much growth in coming years as the mining boom unwinds and households are already highly indebted, crimping potential price appreciation. Added to this, the New South Wales Government seems intent to boost land/housing supply across Sydney, which should (in theory) further limit upside potential.
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