Market comment: Great expectations and the decade ahead

Tue, 18 Feb 2020

Market comment: Great expectations and the decade aheadAustralians are eager to buy houses according to the latest Household Spending Intentions (HSI) survey released by the Commonwealth Bank. The HSI combines real-time spending data from CBA household transactions with search information from Google Trends, then maps the results to official data on consumer spending to provide an indication on householders’ future spending patterns.

“Home buying intentions spiked higher in December and are now running at a record rate,” Commonwealth Bank chief economist Michael Blythe wrote. “Buying intentions are at levels that are consistent with ongoing dwelling price growth…[and] are also at the point where the early signs of a positive wealth effect are starting to emerge.”

It’s not so surprising then that the latest Domain House Price Report data shows Sydney recorded its first annual price growth since the market boom ended in 2017 with house prices increasing 6.8 per cent to a median of $1,142,212, while unit prices jumped 3 per cent to a median of $735,387.

The Report also showed that the city’s median house price regained another $73,000 in the 12 months ending December 2019, while unit median prices achieved an increase of 3 per cent or $21,197.

“I don’t think we’ve really picked up where we left off [last year], I think it’s better,” auctioneer Damien Cooley, of Cooley Auctions, told Domain’s Kate Burke.

“In the very few auctions that we’ve seen already … we’re seeing buyer strategies that are seen in boom markets. Strong opening bids, confident and quick bidding … and buyers not being afraid to kick off the auction.”

Domain’s senior research analyst Dr Nicola Powell said Sydney had recorded the most robust quarterly rebound since June 2015 for both houses and units. “We’re seeing growth over the quarter that was reminiscent of the boom. If we see the pace of growth continue, it’s likely [records] will be set in the next quarter,” Dr Powell said.

She said that houses had regained almost two-thirds of the value lost during the 18-month downturn in only two quarters, while units had recovered half of the value lost. This means that house prices are now only 4.6 per cent below the mid-2017-high and unit prices are 6.2 per cent lower.

Nerida Conisbee, chief economist at, noted that Sydney’s city and southern suburbs led the nation for house growth last year with an upward leap of 12.6 per cent: “That was actually the strongest market in Australia,” she said.

“There’s nothing to suggest conditions will change … buyers are very active, there are very low interest rates and access to finance is getting better,” Ms Conisbee added.

There’s a definite shortage of properties on the market relative to the healthy demand. Figures from SQM Research shows there are 24,062 properties for sale in Sydney – a 24.8 per cent slump compared to this time last year.

SQM Research managing director Louis Christopher told Domain’s Tawar Rasaghi that the midpoint for a market that’s in equilibrium is somewhere around 30,000 [listings]: “The market will still keep rising this year. There’s not an immediate rush for sellers, but sellers must recognise the market has turned in their favour and we don’t know how long that will be for. And at some point, it’ll come to an end and that may be as early as next year.”

AMP Capital chief economist Shane Oliver, who believes the RBA will take the official cash rate to 0.25 per cent by the middle of the year, told the Herald’s Shane Wright he expects a 12 per cent increase in Sydney through 2020.

"The reason is simple: the RBA is a long way from meeting its full employment and inflation objectives, the bushfires post a significant short term threat to growth and this could be accentuated if the Wuhan coronavirus significantly weighs on tourist arrivals, the RBA is likely to yet again revise down its growth forecasts leaving it no closer to its objectives," he said.

"The absence of significant fiscal stimulus for now leaves all the pressure on the RBA and this is likely to result initially in rate cuts down to 0.25 per cent."

Former Reserve Bank governor Ian Macfarlane agrees, recently telling the Herald’s Michael Janda  that he sees no chance of a collapse in house prices despite their dramatic and ongoing upwards trajectory: "I think a fundamental shift in the relative price of housing has occurred over the last 30 or 40 years, I don't think it's ever going to go back to where it was.

"I think that those huge long-term structural factors are so powerful - the desire for people to compete with each other to buy houses or apartments in places where there are good jobs, which means big cities, people coming from other parts of the world to do it, people coming from the country to do it, people are already here doing it.”

He did suggest that a period of price stabilisation is likely: “"I don't think it can continue to go up as fast as it has over that period. I think we've reached the limit of the household sector's capacity to service mortgages."

Another expectation of a slowing market came from Westpac chief economist Bill Evans, who believes the RBA will slice interest rates once by June: "We expect house price increases to persist throughout 2020, boosted by rate cuts, momentum and an easing of credit conditions," he said.

"However, the pace of increase in 2020 will be below the second half of 2019 as stretched affordability, cautious investors and oversupply of high-rise weigh on the markets."

Apartments defy gravity

Sydney apartment prices continued to rise in 2019 despite several concerns about defects in newly constructed buildings. The city-wide median apartment price rose 3 per cent to $735,387 in 2019, as shown by Domain’s latest House Price Report. 

That prices growth picked up speed in the last three months of the year, when prices rose 4.3 per cent in the December quarter from the September quarter. Perhaps it’s because of this that NAB economists have forecast Sydney unit prices to rise by 4.3 per cent in 2020. 

Richard Matthews Real Estate selling agent Jackson Cox told Domain that the number of older apartments and the number of interested buyers were fuelling price growth: “We have more buyers focusing on older styles, the 1960s and ’70s redbricks - Not as many are focused on new units newer than 2010.”

He said that type of apartments was the most highly sought-after by investors and owner-occupiers, especially those first-home buyers that fall in the $600,000 to $700,000 price bracket.

Market economics managing director Stephen Koukoulas said apartment prices did well during last year’s downturn because of strong demand and the election result: “The election result in the middle of the year was a saviour for what was a pretty negative first part of the year … given apartments are generally more negatively geared than [detached] dwellings,” he said.  

He also added that the price performance also coincided with rate cuts and credit relaxation: “We saw the apartment market get a floor under it and do surprisingly well despite the building problems and construction problems that were quite high profile.”

But not all apartments have performed well. Apartment sales in Sydney’s Olympic Park dropped last year as the Opal Tower saga continued, as shown by new data from Domain. While the legal battles continue in the Supreme Court, sales in the suburb have plummeted by a massive 75 per cent in the year ending December 2019, while the median unit price fell 9.8 per cent to $715,000.

Belle Property Sophia Zhou said the real problem with the Olympic Park suburb was that sellers who bought at the peak are trying to recover their losses since the downturn. “The problem is the price off-the-plan is higher than the current value … that’s the difficult part – [the difference between] the original price and the current market price.

“When we talk to some vendors, they don’t think it’s a good market to sell. They’re going to hold for two years and wait for the train station upgrade,” she told Domain.

Apartment buyers’ rating tool

It’s been revealed that a key part of the NSW government's developing plan to fix the state's building-standards crisis hinges on credit rating agencies developing a new risk-rating tool they will be able to sell to prospective apartment buyers. The Berejiklian government has also announced new powers for the Building Commissioner to use the proposed rating tool to select sites for audit and call a halt to apartment projects that could become future Opal Towers.

Credit rating agencies, expected to develop this risk-rating tool at no cost to the government, have expressed some concerns about the concept. Among these concerns are that the tool would be outside the industry's body of expertise, which generally focuses on credit risks, and the obvious difficulty in obtaining information about defective buildings and phoenixing developers in time to provide consumers with meaningful information.

Even if the tool can be developed by credit rating agencies, there's little hope that a fix can be found in the near future. This is shown by Building Commissioner David Chandler telling the Herald that he aims to have a "proof of concept" rating tool by July this year, with expectations the information will be available to the public by mid-2021.

However, in a recent blog post Mr Chandler said: "By 2025, it should be possible to provide a high level of compliance and resilience confidence for new buildings." That’s a long time to wait considering just how many new apartment buildings are presently under construction or in advanced stages of planning. 

Mr Chandler is confident the credit rating agencies will be able to pull together enough information to give consumers an accurate picture of risky projects: "The risk-rating tool will draw from up to 100 different data points to determine whether a development displays indicators of compliance riskiness," he said.

"A project that is likely to have major issues usually shows it struggles in the running of the business and the management of the worksite, for example, the age of a company, its financial stability and means, worksite safety record or dealings with other people with poor track records."

However, Dr Laura Crommelin, who is conducting a two-year project focused on building defects in 600 high-rise developments built between 2008 and 2017 in Sydney, told the Herald that the information required is hard to obtain: "The thing we’ve found is just how difficult it is to put a clear number to this and dig out the information.

“It's all fragmented, it's held by lots of people. And it's in the interests of some people not to have it out in the public, which is understandable but tricky if you're trying to tackle and address the problem."

A Walk Score?

Most Australians haven’t heard of a ‘Walk Score’, but an estimated 30,000 real estate agents in North America and other places overseas have been using a Walk Score system of one kind or another to promote properties for several years, and it’s now gaining ground in our property markets too. 

So, what is a Walk Score? It’s simply a scoring system with results from one to 100 that measures the ‘walkability’ of any address. It provides an answer to all those questions about how easy it is to walk from that address to services and other places that meet homeowners’ daily needs. These can include shops, schools, public transport, parks, libraries and even commercial centres.

If a property achieves a Walk Score of 70 it’s probably convenient to public transport and shops, meaning those living at that address could possibly get by without the expense of car ownership. Those familiar with the scoring system estimate that every point above 70 can add from $700 to $3000 to the value of a property, acknowledging that people will pay more for a location that’s more convenient to services than other addresses further away from them.

Urban planner Mike Day, co-founder and director of urban planning and design consultancy RobertsDay, is confident that the Walk Score concept will boom in 2020. He told’s Alexis Carey that, while many inner-city areas are very walkable, the challenge is to replicate that model in newer areas further from the city centre, particularly with the aim of reducing the need for vehicle ownership.

“For Millennials or people of modest means it is becoming more difficult (to buy property), but people forget how significant the cost of a car is – it’s not so much about affordable housing but affordable living because the cost of transport in some growth areas is exceeding the cost of housing,” he said.

“Around the world, car ownership is declining and a lot of people in the younger generations are deferring getting their licence and some aren’t at all. We need to create urban environments that are more compact and that are inspired by those inner-city neighbourhoods.”

The Victorian Minister for Planning, Richard Wynne MP, launched a plan for ’20 minute-neighbourhoods’ in January 2019 which targets ‘improved liveability’ by creating a city where residents can access most of their daily needs within a 20-minute walk from their homes. The plan foresees the townhouse model becoming more prevalent as it avoids hassles with body corporates and enables better use of land than the outdated ¼ acre block.

Mr Day said some of the other biggest trends in 2020 that reflect the need to improve the Walk Score for residential properties include the creation of residences on top of retail and commercial sites, the growth of sustainable and affordable “mobility on demand” in our suburbs, more pedestrian friendliness, the separation of roads, bicycle paths and pedestrian paths and a return to smaller homes and centralised amenities for communities.

The decade ahead

As the past few years have amply demonstrated, it’s not always possible to know what’s going to happen next in the Sydney property market. Prices can tumble as fast as they’ve grown, and supply fluctuates with changes to things like rates of immigration as well as the wellness or otherwise of the local economy. 

Domain recently made a brave attempt to define the major trends that will shape our property market for the next decade.  The full text by Domain’s Trent Wiltshire (referenced in our Sources at the end of this article) runs for a considerable length and contains a wealth of facts and statistics that will be of interest to all those seeking to shape a long term vision of where the 2020s will take us. To give you a brief summary:

Interest rates – likely to remain at very low levels
Population growth – rapid population growth to continue
Public transport – proximity to public transport will become more important
Medium density housing – more medium-density housing will be built
Larger family-friendly apartments – more 3- and 4-bedroom apartments to be built
Detached houses – will become smaller due to land costs and smaller families
Energy efficiency – more energy-efficient houses and buildings will be constructed
Tenants – a growing number of renters will become a political constituency
Pensions – government may include value of family home in age pension assets test
Baby boomers – more aged care places will be needed, as will housing that enables seniors to live independently

Mr Wiltshire believes that, after a decade of price boom and busts, our property markets will see prices rise at a slower rate than in previous decades. He also sees that major changes will be driven by our changing demographics, especially by Australia’s continuing rapid population growth.

It will be some time before we know the accuracy of Mr Wiltshire’s prognostications. We can mention that in this column exactly ten years ago this month, on 23 February 2010, in our article entitled “Fair winds blow for Sydney property”, our panel of experts made the following observations about the year ahead:

Louis Christopher, managing director of SQM Research, said: “Our general growth forecast is between 6 percent and 8 percent.” 

Mark Armstrong, a director of Property Planning Australia, was even more bullish: “Sydney prices grew by more than 12 percent last year and there’s no doubt we’re going to see the market grow by more than that this year.”

RP Data’s Cameron Cusher said that “The major influences this year will be the impact of rising interest rates and the removal of the first-home buyer grant boost. These two factors are likely to result in the Sydney market seeing lower levels of property growth than that witnessed during the past twelve months.”

BIS Shrapnel senior economist Jason Anderson said in the Australian newspaper that the lack of new building and the influx of migrants had led to a mounting housing shortage: "We estimate the national shortage will reach about 150,000 dwellings, concentrated in NSW, where there is an 84,000 shortage."

While reminiscing about the year 2010, let’s also remember Professor Steve Keen from the University of Western Sydney who that year lost his bet after confidently forecasting back in October 2008 that the value of Sydney property was going to drop 40 percent and the fall to the bottom of the trough would take 10 to 15 years to reach.

Although Professor Keen remained defiant about the logic underlying his forecast, he repaid his losing bet by walking from Parliament House to Australia’s highest mountain, Mt Kosciusko - a distance of 224km. And of course, the ‘fall’ he forecast never happened.


‘Seller’s market for quite some time’: strong buyer demand, slow listings see price growth to continue’, Tawar Razaghi, Domain, 9 February 2020
‘Sydney auction market kicks into gear for 2020 as confident buyers push up prices and clearance rates,’ Kate Burke, Domain, 7 February 2020
‘Sydney Olympic Park sales plummet after Opal Tower defects revealed,’ Tawar Razaghi, Domain, 6 February 2020
‘Lower rates will mean higher house prices, economists say,’ Shane Wright, Sydney Morning Herald, 2 February 2020
‘Australians eager to buy houses but not much else,’ David Scutt, The Age, 21 January 2020
‘Sydney house prices record largest annual gain since 2017 peak,’ Tawar Razaghi, Domain, 23 January 2020
‘Sydney house prices jump by up to $300,000 in suburbs leading the property rebound,’
Kate Burke, Domain, 26 January 2020
‘Sydney’s city and south region is ‘strongest market in Australia’ with 12.6 per cent house price growth,’ Stephen Nicholls,, 30 January 2020
‘Australian house prices keep rising, but former RBA boss Ian Macfarlane can't see a crash coming,’ Michael Janda, ABC News Online, 20 January 2020
'Angry, depressed': Owners in dire straits years after roof ripped off,’ Matt O'Sullivan, Sydney Morning Herald, 20 January 2020
‘Sydney’s apartments are still getting more expensive, despite defect concerns,’ Tawar Razaghi, Domain, 2 February 2020
‘The seven major property market trends in the 2020s,’ Trent Wiltshire, Domain, 20 January 2020
‘Unit buyers to pay for ratings check on dodgy apartments under reforms,’ Nigel Gladstone and Carrie Fellner, Sydney Morning Herald, 23 January 2020
‘Why a ‘Walk Score’ could be the key to making a fortune on your property,’ Alexis Carey,, 14 December 2019