This week’s property update: Is the Sydney property market about to overheat again?

I’ve been talking about this for the last few months… the bottoming of the slump in Sydney and Melbourne residential house prices. I thought they’d just bump along the bottom for a while.

But a bloke I really respect, SQM Research’s Lois Christopher, is thinking we might be headed for a quick return to boom conditions… and that would be a worry.

This is what he says:

Many leading indicators now suggest the current September quarter will record about a 2% rise in Sydney dwelling prices and we are expecting a rise of another 4% for the December Quarter. That should take the full year to be about a 1% gain compared to 2018. 

But let it be known, Sydney has bottomed out at an overvalued point. The data suggests the Sydney housing market remains 21% overvalued despite the two year correction. For reference, the average overvaluation (since 1986) in Sydney is 19% with a low point of 5.9% ‘undervalued’ in June 1987 and a high point of 55.5% overvalued in December 2003.  The most recent overvalued point was 51.6% in the June Quarter 2017.

Historically, the Sydney housing market has rarely been undervalued. There has nearly always been some sort of premium attached.

Effectively the current point suggests, that, left unchecked, we could soon be heading towards yet another historic overvaluation point similar to levels recorded in 2003 and 2017. 

The keyword though in this is “unchecked”. How will the regulators respond when they read newspaper headlines of a new booming Sydney housing market recording annualised double digit percentage price growth?

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