Sydney house prices record significant drop

by Julia Corderoy05 Jan 2016

Australia’s top performing housing market, Sydney, has recorded the largest fall in property prices of all capital cities in the quarter ending December 2015.

Sydney house prices dropped 1.2% over the month of December, according to CoreLogic RP Data’s Home Value Index, leading to a 2.3% fall in prices for the three months ending December 2015. This was the largest quarterly fall in house prices for the eight capital cities, followed by Melbourne which recorded a 1.9% drop in house prices over the quarter. 

Brisbane and Adelaide were the only two capital city housing markets to record quarterly capital gains, of 1.3% and 0.6% respectively. 

Across the combined capital cities, house prices remained flat over the month of December, while dropping 1.4% over the quarter ending December but rising 7.8% over the year ending December 2015. 

The combined quarterly drop in capital city property prices, particularly in Sydney and Melbourne, is in stark contrast to the first quarter of 2015, when combined capital city home values rose by 9.3%. In Sydney, house prices rose by 14.1% in the first quarter of 2015 whilst in Melbourne they rose by 13.3%. 

However, despite the recent weakening of housing market conditions in Sydney and Melbourne, the two largest capital city housing markets still recorded stronger annual gains than all other capital cities, up 11.5% in Sydney and up 11.2% in Melbourne. Dwelling values in Brisbane and Canberra were up a more sustainable 4.1% over the year. 

“In dollar terms, Sydney home owners have seen approximately $82,000 added to their wealth thanks to the strong capital gains over the year while home owners in Melbourne have seen the value of their dwelling grow by approximately $60,400,” CoreLogic RP Data head of research Tim Lawless said.

“Brisbane home owners are $18,560 better off while Canberra owners have seen the value of their homes increase by approximately $21,900. Home owners in the remaining capital cities have seen some erosion of their wealth via falls in the value of their dwelling.”

According to Lawless, the slowdown in Sydney and Melbourne is being driven by a range go organic and external factors.

“Organic market conditions have been derived from affordability pressures, rental yield compression and cyclical factors, while factors from external influences largely stem from a change in the regulatory framework introduced by APRA which has made it more expensive and difficult for investors to access housing finance. Added to this is higher mortgage rates and more restrictive credit policies and loan servicing requirements.” 

Lawless predicts property prices will continue to decline in Sydney and Melbourne throughout 2016, however considering population growth has remained strong in these areas and economic conditions are very healthy in these cities, he said he would be surprised if dwelling values fell materially before conditions start to level.

The city that is showing the most promise for capital gains in 2016 is Brisbane, according to Lawless, specifically the broader South East Queensland region.