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Is the Sydney property bubble about to burst?

clock icon June 16, 2017
tag iconSydney Property

There’s no shortage of headlines telling us we’re in a property bubble and that it’s about to burst.

On top of that, recent CoreLogic data confirmed a slight dip in the market is enough to cause some people to panic.

Of course no one can predict with certainty what will happen to houses prices from here. But history provides some pointers. Past Australian housing booms have tended to end with prices falling modestly, or flat lining for an extended period, rather than crashing down.

Let’s look at our median house price data

Since 1970, Sydney house prices have more or less doubled every 10 years.  We’ve seen slight dips in the market after 4-5 years of strong growth, but historically, the market recovers.

median house price sydney

After surging for 5 years, our hot property market may finally be cooling. House price growth is slowing in Melbourne and Sydney, the two epicentres of the boom. New lending volumes are down following a clampdown on interest-only loans. And there are now concerns that apartment prices could fall in parts of Brisbane and Melbourne because of an oversupply.

Sharper falls are certainly possible – as the U.S. and European experience during the Global Financial Crisis shows – but are unlikely in Australia while our regulators keep a tight rein on bank lending practices, or unless we are hit by an economic downturn unrelated to housing.

What does this mean for you?

Owner-occupiers don’t have much to worry about. It’s nice to feel richer because your property’s worth more, but you only realise a capital gain when you sell. If you want to use your equity to purchase an investment property, it’s still a good time.

The key is to be sensible. Think about “serviceability” – making sure you have the income to cover an investment loan, especially if it’s negatively geared. Also, factor in the possibility of interest rates rising.

Investors. While the property market is slowing in some areas, investing isn’t impossible. You just have to choose wisely. Look at the area you want to buy in and think about supply and demand for housing. Supply is one-half of the equation, so look at things such as development application (DA) approvals to see how much is in the pipeline.

First home buyers. Rising house prices can cause people wanting to buy into the market feel further away from their goal. The positive, however, is that the slowing prices give first-home buyers room to breathe and save more money and find the perfect property. Also, with the new stamp duty concessions from July 1, first home buyers can get into the property marketing without paying stamp duty.

Successful Ways tips for protecting yourself from a property bubble burst

1. Watch where home loan rates are going. If you’re not happy with your mortgage rate, say no thanks to your lender and opt for a lower rate.

2. Don’t bite off more than you can chew. If you’re in the market to take your first step on the property ladder, buy within your means. To find out how much you could potentially borrow, speak to a mortgage broker.

3. Make full use of your offset account. Already committed to a large mortgage? Put aside as much as you can into your offset account. This means you’ll be building up funds in addition to your monthly home loan repayments. Hopefully you won’t have to access those funds, but it’s a good emergency planning strategy.

4. Not all property is created equally, so regardless of where we are in the property cycle, choosing the right location for rental yield and capital growth is the key to successful property investing.

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