Has the Sydney market actually peaked yet?
Date Posted: May, 2015
When the Reserve Bank of Australia (RBA) cut the cash rate to 2.25 per cent in February, it prompted the lowest interest rates on home loans that we've seen since 1968. The decreased cost of mortgage debt saw people flock into a Sydney market that was already aflame, and auctions for Sydney luxury homes and the like went through the roof.
And now it's happened again, with the official cash rate cut by the RBA board to an all-time low of 2 per cent. I was surprised by this, to be honest – it's a lot of fuel to add to the property fire, and the Sydney market is already reaching unprecedented highs. I understand that the RBA wants to stimulate the rest of the economy, but what sort of implications is this going to have for Sydney real estate? Will it push local real estate to yet another peak?
Wheels keep on turning, prices keep on rising
The Real Estate Institute of NSW (REINSW) has the Sydney median pegged at $914,056 for the March quarter of this year, based on figures from the Domain Group's House Price Report. And Malcolm Gunning from the REINSW thinks this is going to break the million dollar mark before the end of the year.
While his main concern was people being priced out of the market, I think other important points can be taken from this news. First, the market hasn't reached its apex yet – the canny house hunter, with the right advice from a buyers' agent, can easily still make profit out of investment propertty in the current climate.
And secondly, those who already own a home are likely experiencing the same increases in home price. That means more value when you sell, and given current supply issues, you're always going to be able to sell. It creates great conditions for getting out and buying a home now, safe in the knowledge that you can unload your current real estate with a snap of your fingers.
When will the peak occur?
On current forward projections, prices could keep rising for another 12 to 18 months. That gives you a lot of room to purchase Sydney investment property, and also a time frame to organise your finances. The market growth won't be sustainable forever, and interest rates will rise eventually.
This means you have to make sure your investment is sound, and that your finances can handle a rise in interest rates down the line. Speak to your broker, but I'd recommend a 2 per cent interest rate rise buffer when you budget.
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