Sydney Australia Real Estate, Why is It Hot?

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Why are prices of Sydney Australia real estate so expensive and why would they keep going up? 

Sydney is leading all state capital cities when it comes to property prices.

The median price keeps going up and up.

Since 2013 the market has heated across all suburbs, auction clearance rates are high, with many bidders and crowds watching.

Properties change hands very quickly.

Is it a bubble? Will it pop? Opinions are divided.

Eight Reasons for Prices to Continue on The Way Up

If we are to consider history, house prices should go flat or down for a while and then shoot to new highs. But they may just keep going up.

Here are 8 reasons for real estate in Australia and especially in Sydney to continue its growth trend. It is a virtuous circle, based on a number of factors which drive each other, and together, they keep the market hot.

1. Economy

Sydney Australia real estate did not lose value during our mild recession. The financial crisis did not hit the Australian economy as hard as it did others countries. The need for resources kept Australia in an enviable position and while some staff was made redundant, especially in the financial sector, not many jobs were lost during the recession.

The economy bounced back, although mining does not fuel it any longer and unemployment is not high. This means most houses kept their value, and especially prices at the top end, which are less sensitive to market tremors.

2. Population

The population keeps increasing naturally and through immigration. And a large number of skilled migrants prefer Sydney. So there are more people that need houses.

3. Low Interest Rates Fueled Sydney Australia Real Estate

The interest rates went down during the crisis, so keeping up with mortgage repayments or even paying more was easier. They didn't go as low as in US or other hard hit economies, but offered a welcome relief to many families struggling with their mortgage.

For example a decrease in interest rate from 9% to 5.5% on a $400,000, 25 years mortgage reduced monthly payments by 900 $.

Then for a short while interest rates crept back up, but did not reach the levels before the 2008 recession.

They continued to decrease again, with the turmoil in Europe influencing the rest of the world. And with several cuts in a row interest rates reached historic lows, which heated the real estate market.

4. Salaries

With the economy going well, there are more jobs in the market and not enough talent to fill them. More jobs drive wages up so people are more positive about their future and start investing or spending more money. They have more money available to pay a mortgage.

And did I mention low interest rates for the mortgage?

real estate ads in newspaper

5. Confidence

Strong economy, good wages and low interest rates drive the level of confidence up, so house hunters are quick to snap homes when they come to the market.

6. Property Investors

Investors have come back to the property market as shares lost their oomph during the recession. Bricks and mortar appear to be safer in such times.

As low to mid priced properties tend to have a higher yield than the more expensive homes, this is where the large majority invests in. This is also the first home buyers territory, so it is becoming more difficult to get that first house.

7. Real Estate Sydney - Scarce Land Release

Sydney is a huge city with suburbs extending well into former farm and bush land. There are very few land releases for new stand-alone houses.

Which means more people have to compete for the existing houses.

And drive prices up. House prices drive apartment prices up too.

8. Number of People in a House

Households tend to get smaller:

  • marriages can split, so one of the partners needs to find a new home,
  • young adults move away from mum and dad's home.

What used to be a household for several people becomes a home for one or two. The others are on the market looking for a new house to live in.

There are other indicators that point to Sydney Australia real estate prices cooling down soon.

Real estate is always a moving target, changes happen very quickly and there are more and more people thinking the bubble is about to burst.

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