The fact that Sydney is one of the 5 most expensive cities in the world to live in, does not seem to deter people from wanting to buy property there.
According to the Core Logic HVI December 2015, the desire to acquire property in Sydney is so strong that home buyers are now paying $82,000 more than they were in December 2014. And Melbourne home buyers are paying just over $60,000 more than they were paying in November 2014.
Further price increases are forecast over the next 5 years, with Sydney expected to have a growth of approximately $227,000 and Melbourne with an increase of $101,000, being the two most substantially changing markets in Australia.
This may explain why buyers have become more reluctant to purchase in the latter stages of 2015. And, if the forecast increase in value is indeed accurate, then it is possible that the downturn in sales will continue for some time.
But with home values going up and home buying going down, where does that leave the sellers?
Compared to previous years, 2015 had the slowest increase rate per capita in the last 4 years. And it would seem that as the values go up, we are inevitably, heading towards a house sales slump.
So why is this happening? It’s quite simple – Rent.
Rent does not decrease with the increase in housing value being experienced in cities like Sydney or Melbourne. After all the renter knows nothing about the value of the property they reside in, and as long as prices continue to go up, one can expect home owners to hold onto their properties awhile longer because the rental value will remain strong. As a result in the more expensive rental areas, houses and units will continue to sell at ever increasing prices as people vie for these lucrative assets. As rent continues to remain strong, home buyers may find themselves struggling to find a place to buy in the areas they seek to live.
In other states, like Darwin or Perth, this is not the case. Both cities have had price drops of between $18 – 20,000. As a result investors have been unable to justify the price of their rents, and as such investment properties are no longer desirable. Sales, on the other hand, while softening, have not decreased very much at all, mainly because it is now much cheaper to come by a residence in their softening market.