Property prices have risen with gusto in the past six years and this prolonged period of growth has resulted in a Sydney median house price that could have bought two apartments back in 2012 – with change to spare.
It has been a once-in-a-lifetime creation of wealth for those lucky enough to own a Sydney home before the boom began. However, the conditions have meant the opposite for first-homebuyers vying to get on the ladder.
This year has brought a speed change for Sydney’s property scene. Photo: iStock
This year has brought a speed change for Sydney, as double-digit growth gives way and the market moves on to the next chapter. This is the normal ebb and flow of a property cycle, which defines the movement of home values through four phases, from boom to correction, through to a price bottom and then recovery.
A property cycle tends to exist every seven years, although Sydney has bucked this trend with multiple cycles during the past two decades. Even though the cycles differed in duration and ferocity, each was followed by a price pull-back that varied just as much.
A property cycle tends to exist every seven years, although Sydney has bucked this trend with multiple cycles during the past two decades.
That said, not all price cycles result in a period of negative growth. Often they can result in a more moderate pace compared with the boom but still remain positive, while in others declining prices can ensue.
A dive into Sydney’s house-price history reveals some interesting peaks and troughs. In mid-2002, Sydney house prices notched a peak annual rate of growth of 22.8 per cent, with prices topping at $565,765 by early 2004. By this time the market had run out of steam, which subsequently produced one of the most notable falls in Sydney house prices since the early ’90s.
By the time house prices reached the low point, just over $40,000 had been shaved from the median, bottoming at $525,272 in September 2005. It took four years for house prices to surpass the peak achieved in 2004.
During this time the state was transitioning through a period of low economic growth, rising interest rates and a comparatively strong Australian dollar. The economic environment is a little different now compared with the 2004 downturn, with interest rates historically low and hikes a fairly distant prospect.
The rise and fall of Sydney house prices is a sign that the market is healthy. Photo: Steven Woodburn
During another price cycle in mid-2011, houses hit a high of $646,761 with a peak rate of annual growth at 16.1 per cent. This shorter cycle was a stark contrast to the one seen in 2002, with a relatively minor price correction, just over $12,000, and by early 2012 house prices had surpassed the previous peak.
It is important to remember that numerous property cycles are experienced between cities, property types, suburbs and even streets.
For Sydney, a gradual pull-back of house prices to a sustainable rate of growth, one more in line with wages, will be the best outcome. The rise and fall of Sydney house prices is a sign the market is healthy, reducing the risks of a damaging boom-and-bust scenario.
article from domain.com.au