The sum total values of New South Wales and Victoria residential properties are $2.76trillion and $1.83trillion, respectively. When combined, these two markets make up almost 70 per cent of the value of the country’s housing stock, according to the Australian Bureau of Statistics (ABS).
That’s why it’s little surprise that Sydney and Melbourne’s markets are constantly the focus of the media. With a turbulent recent past and an uncertain future, there’s a lot to be gained and lost investing in property in our two biggest cities.
With that in mind, how do the property markets in Sydney and Melbourne compare to each other right now? And where should investors focus their efforts in the future?
When combined, these two markets make up almost 70 per cent of the value of the country’s housing stock.
The most recent ABS Residential Property Index from June shows that prices in both Sydney and Melbourne surged by 13.8 per cent over the year. Melbourne’s average sale price for detached homes now sits at $713,000, while Sydney’s has just tipped $1.02million.
What’s revealing, however, is the more recent data on price growth. Sydney’s average price grew by just 2.3 per cent over the June quarter, less than Melbourne, which saw a 3 per cent increase.
This is Sydney’s slowest rate of growth since the September quarter last year, and suggests that media coverage of a slowdown in the city may be warranted.
It also suggests that Melbourne is now Australia’s fastest growing, and most promising property market. However, sellers in both markets are still enjoying capital gains. CoreLogic data shows that 97.8 per cent of Sydney sellers and 95.3 per cent of Melbourne sellers made a profit over the March Quarter.
Auction clearance rates in the cities show that there is still considerable heat in both markets.
Auction clearance rates in the cities show that there is still considerable heat in both markets. Melbourne has been particularly impressive, with a clearance rate that regularly exceeds 75 per cent, according to CoreLogic’s analysis.
Sydney has a clearance rate that regularly sits under 75 per cent, with lows of 68 per cent coming in late July this year. This is yet another indicator that, while there’s still considerable demand for property here, some of the urgency has come out of the market.
In theory, if this trend continues we will see continued downward pressure on Sydney’s house prices, which could lead to a small market correction.
Market sentiment in NSW fell sharply for the second time this year.
Property speculators have read the writing on the wall for Sydney, and the NAB’S Q3 2017 Property Survey shows they know the market’s changing. In fact, market sentiment in NSW fell sharply for the second time this year. This lack of confidence could be a self-fulfilling prophecy, spooking buyers, and affecting future price trends as a result.
Sentiment in all other markets improved, including in VIC and Melbourne, which recorded the largest rise of any state. Again, the sentiment of buyers and speculators around Australia shows that Sydney’s market may be flattening out while Melbourne’s is only getting started.
It’s difficult to accurately forecast the future of Australia’s property market. However, all signs point to Sydney slowing down while Melbourne continues to grow at a rate of knots. QBE’s Housing Outlook Report, for example, forecasts impressive value increases of 10.2 per cent from 2017 to 2020 in Melbourne.
However, all signs point to Sydney slowing down while Melbourne continues to grow.
Sydney on the other hand is expected to stagnate, with values forecasted to drop by 0.2 per cent.
It’s also worth noting that units in both Sydney and Melbourne are expected to fall in value by 3.8 and 4.8 per cent, respectively. This suggests that reports of apartment oversupply in both cities were accurate, and that this is starting to put downward pressure on prices.
Melbourne’s market is the clear winner here, after years of dominance by Sydney. However, it’s important to note that in any city, the right property and location can be a brilliant investment.
Speak to a local agent that you can trust, do your research and buy smartly and you’ll be able to find a solid investment regardless of which city you buy in.
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