Sydney’s Quarterly Home Price Index Is About to Go Negative

Property Market Update for Week Ending 28 May 2017 

Key Property Market Highlights: 

• Auction supply near last week’s level, but demand was weaker.
• Auction volume will decline next week, increasing competition amongst buyers.
• Sydney home prices have fallen 2.24 percent in the last seven weeks, equating to zero percent quarterly growth. Melbourne‘s not far behind.
• Brisbane and Adelaide remain resilient, and Perth showed some signs of strength this week.

This Week’s Preliminary Auction Activity (Week Ending 28 May)

Supply was strong across the combined capital cities again this week, with auction volume up only slightly to 2,850. The preliminary clearance rate was 74.6 percent, up from 73.1 percent last week. One year ago, both supply and demand was weaker, with 67.7 percent of 2,480 auctions successful.

Source: CoreLogic

In Sydney this week, 1,086 homes were auctioned and preliminary results show that 76.2 percent found a winning bidder. Last week, 74.0 percent of 1,075 auctions were successful. Over the same weekend last year, only 811 auctions were held and the clearance rate was 73.2 percent.

The results in Melbourne were almost identical to last week. The city was host to 1,350 auctions, with 77.3 percent of them successful. Last week, 77.9 percent of 1,326 auctions were recorded as successful.  

Both Perth and Canberra also posted preliminary results in the 70’s this week.

Last Week’s Final Auction Results (Week Ending 21 May)

Sydney agents are still working hard to prop up home buyer psychology. Last week’s preliminary clearance rate of 80.7 percent was adjusted down to 74 percent. That’s nearly 7 percentage points of inaccuracy in the preliminary count. Could that mean Sydney’s true result this week will prove to be below 70 percent?

Here are the final results for all the capital cities last week:

Source: CoreLogic

For the historical data of weekly auction clearance rates, click here.

Recent Price Movements

As of today, 30 May, 2017, Sydney’s rolling three-month growth rate amounts to zero. By the final day of the month tomorrow, we’ll likely go negative.

Melbourne had a rough week, with buyers there willing to pay 1.5 percent less than the week before. Though its quarterly numbers are faring slightly better than Sydney, Melbourne has still managed to wipe out most of its quarterly gains.   

Both Brisbane and Adelaide are up nearly 2 percent on the quarter. Perth improved over the past week, but remains in negative territory for the year.

Here’s CoreLogic’s most recent data for all the capital cities:

Source: CoreLogic

Property Market Analysis

The Sydney and Melbourne auction markets haven’t looked this weak since January. Supply remained strong, but demand had noticeably dropped. Mind you, a clearance rate above or even near 70 percent is nothing to scoff at, and plenty of support remains for home prices. After four stellar years of growth, one would expect the market to pause for a breather.                         

Auction volume will slide a little next week, with around 400 fewer auctions scheduled for our two largest capital cities combined. With supply waning as we enter the winter months, we may see a little pop in clearance rates. It will be interesting to see if there’s a corresponding increase in what buyers are willing to pay.

Brisbane and Adelaide remain the most resilient markets. As I mentioned last week, the resilience of our smaller capitals is likely due to prices there already being more in line with the fundamentals of wage-price growth.

What It Means For Investors

If you’re selling in Sydney or Melbourne, be realistic with your reserve price. Demand is not what it was in March and April when you began planning to sell. Be willing to adjust your expectation down at least 2 percent. Don’t show any weakness to your agent though. Clearly communicate that you still expect him or her to work hard for the highest possible price.

If you’re a buyer, be very careful about speculating on generic capital growth. As I’ve written several times over the past month, what our regulators ultimately want is zero home price growth over the next ten years. If they can lift wages by 3 percent per year over the same period, Sydney home prices will be relatively inexpensive again.

As always, seek out education to learn how to find problems and provide solutions. You’ll need to be creative to achieve positive cash flow. Also, keep in mind, the more land you have, generally, the more options you have in the future.

What’s your property investing strategy in the current market?

Take a moment to share your thoughts by leaving a comment below. 

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.