It’s late Spring in Sydney. Temperatures are rising and the days are getting longer.
However, for the property market, it’s looking more like winter.
Prices in Australia’s largest and most expensive housing market have fallen in the past two months, leaving the decline since July at 0.6%.
As a result of the recent weakness, annual price growth has slowed to 7.7%. It had been as high as the high-teens in March this year.
It’s been an abrupt turnaround for the previously high-flying Sydney market where prices have risen by 74% since early 2012.
Tim Lawless, Head of Research at CoreLogic, called it a “significant turn of events”. George Tharenou, economist at UBS, went one step further, suggesting the weakness in Sydney signals that Australia’s housing boom is now “officially over”.
While no one knows just how long the weakness will last, it’s clear that Sydney’s market is cooling fast, weighed down by a combination of tighter lending restrictions on local and foreign investors, higher mortgage interest rates, affordability constraints and a noticeable pickup in the level of stock on offer, rising to 25,625 properties over the past four weeks, the highest level since the end of 2012.
The crimping of demand and increase in supply has taken a toll, and not just on prices.
As seen in the table below from CoreLogic, Sydney’s final auction clearance rate for last week fell below 60% for the first time since January 2016.
Just 58.3%, well down on the 80.5% level reported in the same corresponding week a year ago. Put another way, for every 10 properties that went up for sale last week, just over four failed to sell.
In comparison, Melbourne, Australia’s other major auction market, saw its clearance rate outperform at 70.2%, despite a record number of properties that went under the hammer.
That was only down marginally from 70.3% in the prior week.
However, like Sydney, its clearance rate was also below the 77.5% level reported one year earlier, an outcome that fits with the slowdown in price growth seen over the past three months, dropping to just 1.9%, the weakest level since the middle of last year.
It too is slowing, but not to the same scale as Sydney where prices are going backwards.
According to Corelogic, final clearance rates improved in Adelaide, Canberra and Perth but fell in Brisbane and Tasmania.
Sydney, which led the boom, is now leading what appears to be a modest slowdown across most other parts of the country, particularly in the eastern states.
As seen in the next table below, some of the previous hot-spots in the Sydney market such as the Inner West, Eastern Suburbs, Northern Beaches and Lower North Shore have seen clearance rates fall substantially from the levels seen earlier this year.
Gone are the days of 90% plus levels. Indeed, there’s none in the 80s or 70s now.
So why does it matter that clearance rates are falling?
So with clearance rates now sitting at the lowest level in nearly two years, it suggests the recent weakness in Sydney may extend for a few months yet, at least based on historic patterns.
And given that Sydney has acted as a lead indicator for Australia’s broader housing market in recent years, that also suggests that the price momentum in other capitals may too start to wane, mirroring what’s being seen in Melbourne.
After jumping to the highest level since late 2015 previously, auction volumes look set to decline substantially across the nation this week, thanks largely to a long-weekend in Victoria for the Melbourne Cup Carnival.
The are currently 1,862 properties going to auction, down from 3,713 last week. 1,148 of those will take place in Sydney, down 6% from a week earlier.
CoreLogic says that Mosman in Sydney will be the busiest individual market with 26 homes scheduled to go under the hammer. It’ll also be busy in Randwick, St Ives and Vaucluse — also in Sydney — with 20, 18 and 14 auctions scheduled respectively.
Aside from Melbourne where volumes drop to just 258, lower levels are also expected in all other capitals aside from Canberra.
The spotlight, therefore, will once again be on Sydney. It will be interesting to see how it performs given the headlines seen this week.