News

September 22, 2016

Sydney property boom isn’t over yet as auction clearance rates soar

The weekend’s auction market result of 85.1 per cent, the highest in 18 months, means Sydney’s housing market might still be in for booming prices, experts warn.

On Saturday, clearance rates jumped above 90 per cent in the upper north shore, south and inner west.

At the same time in 2015, the auction clearance rate was about 15 per cent lower – at 71.3 per cent – having come down from a record 89.2 per cent in May last year.

At the time, interest rates were at a then record low of 2 per cent andproperty prices were up 8.4 per cent over the June quarter amid a surge in investor activity.

The big question now is whether similarly high auction clearance rates will result in higher property prices.

In the top performing upper north region, bidding was strong for five-bedroom 1 Northcote Road, Lindfield. It sold under the hammer on Saturday for $4.3 million and “well exceeded expectations”, McGrath Lindfield sales agent Sarah Davis said.

Of the six registered buyers, three were bidding and it sold to a young family from Drummoyne. It last sold in February 2000 for $1.3 million.

“The market is pretty tight up here … it’s a conservative area that doesn’t turn over very often,” Ms Davis said.

“When something [like this] comes up, you do get a bit of interest because they’re like hen’s teeth,” she said.

Compared to the same weekend last year, it’s even rarer to find a home, with 567 properties up for auction on the weekend, compared to 832 at the same time in 2015.

This chronic lack of listings, coupled with the Reserve Bank cutting interest rates in August to 1.5 per cent, was pushing auction clearance rates higher into spring, AMP Capital chief economist Shane Oliver said.

“The auction clearance rate is heading back to the highs we saw in first half of last year, which is a bit of a concern for the RBA,” Dr Oliver said.

High auction clearance rates typically translate into property price growth. Already, Sydney has been through the “longest growth cycle in modern times” as a result of a drawn-out period of historic low interest rates, which began in November 2012.

“The property market usually doesn’t turn down until interest rates start rising,” he said – and there are no increases in sight.

“The RBA won’t respond with higher interest rates [to cool the market], but they might jump in with more jawboning to try and talk the market down and, if that fails, turn to APRA for a tightening in lending standards,” he said.

“There’s nothing else that I can see that will put an end to it at the moment.”

If property prices do start to surge again, Domain Group chief economist Andrew Wilson agreed the regulators would be looking to act.

“When you’re getting areas above 90 per cent it’s looking a lot like last autumn when it was a crazy market,” Dr Wilson said.

“The elephant in the room is what is going to happen to prices – are we now heading back into those 10 per cent plus a year growth days?

“Asking prices are on the rise, auction clearance rates have strengthened, we know that will mean higher prices.”

Propertybuyer managing director Rich Harvey said it was simply “economics 101 … there’s no supply and high demand, which will absolutely push up prices”.

“Constriction of supply is one of the primary drivers [of today’s market],” Mr Harvey said.

The cost of stamp duty and the lack of anything to buy after a vendor had sold were behind the slump in listings and the strong sales results for those who do list, he said.

He pointed to the sale of a 70-square-metre one-bedroom apartment in Woollahra for $1.51 million at 6/166 Queen Street.

The reserve was $1.2 million and it was sold to an older downsizing couple, selling agent for the home McGrath Edgecliff partner Ben Collier said.

“A lot of what’s driving these apartments in these areas isn’t investors, it’s downsizers,” Mr Collier said.

“There has been this pent-up demand for so long, with nothing to look at. If it’s a good quality property it is being snapped up,” he said.