AusFinance Gazette

Sydney House Prices are Increasing Again – But Why?

What are the reasons for this latest increase, and what does it mean going forward? Let’s take a closer look.

What’s the deal with Sydney’s property market these days?

Watching the city’s house prices skyrocket and then plummet and then bounce back again is enough to give you whiplash. Save your neck the trouble and take it from us—prices are officially on the increase and the projection for next year looks just as good. While that all sounds promising, what are the reasons for this latest increase, and what does it mean going forward? Let’s take a closer look.

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Between 2012 and 2017, Sydney experienced an increase of up to 75 percent in housing prices. But then things began to take a dip, with the banks pulling back on lending. Now, due to lower interest rates and income tax reductions along with easier access to credit and a renewed demand for housing, dwelling prices are climbing back up again.

In an attempt to take the heat out of the market, in 2017 the Australian Prudential Regulation Authority (APRA) began clamping down on banks that were targeting property investors and customers with interest-only mortgages by hitting them with tighter capital requirements for such loans. These restrictions have now eased. Furthermore, a recent loosening in APRA’s loan serviceability policy means that all borrowers can enjoy more lax regulations, opening the housing market up once more.

During the financial services royal commission, regulators were looming large, causing lenders to feel a little hot under the collar (and tight in the pocket). Banks were on edge and credit became extremely difficult to come across. Consumers were still interested in the property market but access to loans were restricted and the approved loan sizes were reduced compared to what was seen just a few months prior. Now that the royal commission recommendations have been released, lenders can now ‘get on with it’ and doors are open again to freely lend (albeit with responsible lending at the forefront of everyone’s mind!)

Another contributing factor is that after this year’s federal election, Australians and potential buyers no longer feel uncertain about taxation reform. Many potential buyers are at ease after Labor’s suggested changes to the property market as part of their election campaign didn’t eventuate, particularly changes to negative gearing.

Last but not least – record low interest rates! Rates have not been this low since the 1950’s and there’s a good chance that the Reserve Bank has not finished lowering rates with one or even two rate cuts being a possibility in 2020.

There’s also a healthy demand for housing back on the market—which may seem crazy, but it’s true. Since the decline in house prices, stock on the market has dwindled as sellers wait patiently for things to pick up again. With stock levels advertised persistently low, a sense of urgency in the market has intensified as buyer demand picks up. Coinciding with this, demand has slowly but surely been building from those who were struggling to secure a loan under tighter lending restrictions. Now that those restrictions have somewhat eased, it’s about to get busy again. If you’re looking for evidence, take leading property data service CoreLogic’s latest figures for a spin: in the last week of spring, over 3,000 homes went up for auction—the highest number since March 2018. So buckle up, because we’re in for a ride in 2020.

RBA cuts rates to 0.25%

See how much you can save with our lowest rate across dozens of lenders

See My Savings

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