Here are two critical factors in pushing Sydney's median house price to nearly $1 million

Photo by Patrick Riviere/Getty Images

Sydney’s seemingly unstoppable house price boom is showing little sign of slowing and may even be accelerating again.

Residex data released today shows the median house price in Sydney surged to $993,500 at the end of June, an increase of 6.94% on three months earlier.

The June quarter gain took the total increase in the median house value to a staggering 20.36% – two-and-a-half times larger than the annual increase recorded in the second best performing Australian capital city, Melbourne.

The chart below tells the story. It’s literally a case of Sydney’s housing market versus the rest.

Not only did the median Sydney house price jump by over 20% from levels of a year earlier, according to Residex, the median unit valuation also leapt by 15.44% to $656,000.

They’re huge numbers, particularly considering unemployment continues to hover around 6% with wages growth, as a consequence, running at multi-decade lows.

While it is easy to blame investors for pushing the city’s median house price higher, perhaps there are two other factors – less-well publicised, but interrelated – that have also contributed to the continued uplift in prices.

The RBA cutting interest rates below 3% in May 2013 and, partly in response to this move, the 27% decline in the Australian dollar against its US equivalent.

The chart below from ANZ, using data CoreLogic RP Data Rismark, shows how the average Sydney property price rose from around $700,000 in early 2013 to just over $1 million as at June 2015.

That’s an increase of over 40% in two years and one month, all at a time when the RBA reduced its cash rate to a record-low level below 3%.

Not only have lower borrowing costs likely contributed to higher Sydney property prices, it’s likely that the lower Australian dollar is helping make Sydney property seem like an absolute steal for anyone using US dollars (or currencies that closely mirror the changes in the dollar).

From May 2013 through to June 2015 the Australian dollar fell by 27% against the US dollar. Against the Chinese yuan it was slightly less, declining by just over 25%.

Although not as large as the increase seen in the median Sydney property price, to foreign investors the increase isn’t anywhere near as pronounced as for local buyers.

While increased investor involvement has likely contributed to Sydney’s hot property market – something that led Australia’s banking regulator, APRA, to implement tighter restrictions on lending to this segment – the fact that the RBA is unlikely to lift interest rates any time soon, combined with many predicting further declines in the Australian dollar in the year ahead, means that the increases recorded in the past year may, at least for the short-term, be seen as the norm rather than the exception.

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