Sydney property prices are in correction mode and are unlikely to find a reprieve anytime soon. On supply side of things, vacancy rates in Sydney are over 3% and continue to increase. We are not expecting the vacancy rates to improve anytime soon. There is a significant amount of units that is expected to be completed, especially in high density corridors.
Chart below shows how Sydney home prices are travelling. We are seeing that the prices are in historically low correction area. We are also seeing that the price declines are not showing any signs of stabilisation.
The house price correction seems to intensify. We are not sure if the “improved” February clearance rates are a meaningful indicator. The houses in both luxury, top and middle tier are still leading the correction. This further strengthens our thesis that Sydney correction is an affordability story. We have highlighted this before, and we continue to highlight our belief that 2019 is not the year for Sydney property market.
We expect the market to continue the correction with properties that are less affordable leading the market down. We are also cautions due to uncertainty of Federal government change, negative gearing policy updates and property buyer sentiment.
We would either want house prices to decrease a bit more or see wage inflation before we change our thesis. It is unlikely we would see employees receiving significant pay rises anytime soon.