For several years now, I have argued that Sydney housing offers relatively good value from an investment perspective. This was based upon the view that Sydney housing was relatively undervalued following an extended period of under-performance over the second half of the 2000s, as well as tighter supply and generally stronger fundamentals than the other major capitals.
The situation has changed materially over the past 18 months, however, following the 22% surge in Sydney house prices over that period, driven by unprecedented demand from property investors. This has seen Sydney’s price premium relative to other capitals move back to its longer-term average, in turn eroding its value from an investment perspective.
This report revisits the Sydney housing market and finds that while the upswing in prices likely has further to run, valuations are clearly entering the danger zone, presenting a highly risky proposition for both prospective housing investors and first home buyers alike.
