It's no secret that house prices in Sydney have been rocketing ever higher for some time now.
According to Domain, the median house price in Sydney at the end of 2016 was $1,123,991, more than 10% higher than a year earlier.
At the end of 2015, Sydney's median house price was $1,011,283 says Domain's chief economist, Andrew Wilson. The city is the second most unaffordable city in the world, behind Hong Kong according to the annual US Demographia International Housing Affordability survey. The median house price to wage ratio of 12 times for Sydney, with Melbourne coming in sixth with a ratio of 9.5x.
Sydney unit prices also had a strong year, rising 6.3% in 2016 to a median price of $711,256. Mr Wilson says that the city will probably see even more growth again this year, although interest rates are unlikely to decrease again in 2017 – like they did in 2016. The Reserve Bank of Australia (RBA) cut the official cash rate twice in 2016, in May and August – which stimulated the property market – and saw investor activity surge.
HSBC chief economist Paul Bloxham expects the housing market to slow further into 2017, doesn't expect the RBA to cut interest rates and says global interest rates are rising.
The latter will put pressure on the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) to raise mortgage rates to cover their funding costs. Between them, the big four account for around 80% of lending to the residential property market.
Another factor that could see Sydney property prices to stagnate or even fall are much lower median house prices in other cities including Melbourne, Brisbane, Adelaide, Canberra and Perth. Home buyers may be forced to consider moving interstate if they want to buy a house close to the city centre.
Melbourne's median price at the end of December 2016 was $795,447, while Brisbane's median house price was $540,758 – less than half that of Sydney's.
If the banks do raise mortgage interest rates, investors in Sydney property could be forced to sell out, which could push home prices lower. That should be good news for buyers.
