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Could house prices in Sydney hit a no return point of $1.5 million?

by Maxine Smyth

By improving the availability of credit and reducing interest rates, Sydney could again become a very popular marketplace. Sydney, the most populous city in Australia, often leads to national comments on the housing market to the regret of the pundits.


By improving the availability of credit and reducing interest rates, Sydney could again become a very popular marketplace. Sydney, the most populous city in Australia, often leads to national comments on the housing market to the regret of the pundits.

For this there are different explanations. One is its manipulation of data and statistics throughout the world. Another is its vulnerability to market factors, such as lending. Consider , for example, the mid-2010s effect on residential mortgage lending by the Australian Prudential Regulation Authority (APRA). The most often spoken about was the expectation by APRA that lenders “assess applications for home loans using at least 7% interest rates,” which reportedly cut some buyers’ borrowing capacities by five to six figures overnight. This and more guidance was injured in the middle of 2019, at around the same time as three cash-rate goals (75 base points in total) cutting the Reserve Bank of Australia (RBA). This has also been consistent with the result of federal elections that residential investment is commonly assumed to gain.

Sydney and Australia were predicted to face high housing price rises in a year or more by 2020. Latent data from the Australian Statistical Bureau (ABS) indicated that this had already taken place from mid to late 2019 on many city and regional markets as a result of reforms. Unfortunately the coronavirus pandemic came upon us and encouraged positive and negative evaluation of the future of Australian rental and residential rates. In the first six months of 2020, the Federal Republic of Africa loans more than $115 billion for a series of programmes, between them JobKeeper, JobSeeker and HomeBuilder, to help RBA minimise its cash rate targets. In some capital cities, the month-on – month pricing corrections were seen in the CoreLogic Home Property Values Index but house prices are still substantially high than they were in each town except Perth 12 months ago. In other words, the price rise for housing in late 2019 was higher than the correction of pandemics (at least in this respect).

What at least happened to me suddenly was the Treasurer’s 23 September decision, with effect from April 2021, to reverse the 2009 Consumer Credit Protection Act. The point was that RLOs are not “fit for purposes … which risk slow down our economic recovery.” It is planned to reduce the pressure on households and small enterprises to receive credit, which is a less obstacle to prospective Australian homebuyers receiving a hypothec. Consumers are definitely better able to search for the best price, since credit is more available. This offers strong potential to improve competition among lenders by lowering mortgage interest rates.

Improvements in credit access have been accompanied by a decade of declining mortgage rates and rising house prices in Sydney. This plays a perceptive role for Australian home buyers. As it stands, mortgages in Sydney have been easier to get and more competitive than they were in the last six months or so. Consider the three key factors of house pricing, income and interest rates , for example, mortgage accessibility. Figure 1 indicates two such normal variable mortgage interest rates and a median house price in Sydney over the past two decades. A negative association between these two variables can be seen since 2011 (lines moving in the opposite direction).

But what about Sydney’s property market this latest negative correlation says? We can understand this even further by analysing a more common figure: the house price-to-annual income ratio. Figure 2 indicates that between 11 and 12:5 from 2002 to 2010, Sydney’s house price ratio was typically up to NSW’s medial personal income. It peaked at 16,193 by 2017, however. Income growth did not have much in common with price growth from 2010 to 2017. It all involved interest rates. This has not occurred, at least to the same degree, in other Australian cities.

I will argue that APRA speeches debated at the beginning of this article were the key factor that stalled Sydney House price growth since 2017. Now it is very likely that Sydney will be willing, as happened a little over a half decade ago, to enter a markets frenzy of the same or larger magnitude. The implicated median home price approaches, also reaching $1.5 million, by aligning current sales and interest ratios with those last encountered during Sydney’s 2017 top (see figure 3). The hip pressure on the house prices of Sydney could be even higher, given the assumption that more lenders are working towards interest rates that fall below 2%.

If the median house price of Sydney hit $1.5 million, it will become NSW ‘s annual personal income more than 22 times. In the midst of the post-pandemic recovery, where other variables do not interview, and if prices of Sydney eventually hit or surpass that amount, homes could achieve an intimidation. As an example, if APRA resurrected their serviceability measure above 7 percent on a home 80 percent loan-to – value ratio, borrowers would have to show that they could afford $105,000 in annual interest payments. This may sound insane, but just a decade ago the mere notion of a median house cost of over 1 million dollars was also ludicrous. Other ways to prevent the Sydney market from operating off the track, in addition to regulatory action, include factors not considered in the scenarios above. This can be internally restricted by lenders (as in recent cases for investors) for periodic credit growth, inability to finance purchasers’ deposits at flat rates, or the influences on feelings and borrowing capacity caused by Coronavirus. But here’s the trick: it took almost three years for APRA to avoid the medium price rise in the fluctuating Sydney property market.

I will advise investors to think first of all about how much an increase in interest rates they could afford when Sydney market (or any other Australian market) began out of reach.

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