Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 17 March 2015

Vacancy rates tighten in February (Sydney house prices to surge +20pc)

SQM sees (some) tightening markets

It's always worth following SQM Research for their timely and informative market data.

SQM's figures for February had already shown us a key reason as to why Sydney's market is so strong, that being that the levels of stock on market are being absorbed so quickly that stock levels have declined year-on-year to a country mile below those of the only equivalently sized Australian city.

Today, SQM released its vacancy rate figures for February 2015 - you can read their commentary here.

The figures showed that vacancy rates are continuing to blow out in the resources-focused capitals of Perth (2.6 percent) and particularly Darwin (3.3 percent).

The inertia in the Adelaide (1.5 percent) and Hobart (1.3 percent) markets have seen vacancy rates steadily tightening in recent years which should ultimately provide a timely short-term boost for these two lacklustre housing markets.

Brisbane, Melbourne and Canberra all experienced seasonal declines in February.

I'm less familiar with the Canberra market but history certainly does show that vacancy rates in Brisbane can be seasonally high in the month of January before declining again as the calendar year progresses.

That said, I do believe that on a city-wide basis vacancy rates in Brisbane must eventually rise again, with areas such as West End and South Brisbane set to be pumped with new supply of units.

Yesterday I went for a nose around the old Myer Coorparoo complex which has seen a site development approval lodged for a lazy 442 apartments - this may not sound like much if you live in one of the largest capitals, but it's a lot of medium density supply for sleepy old Coorparoo!

I forgot my camera, uncharacteristically. Next time.

Problem child

And then there's Sydney.

SQM's enlightening data shows yet another of the reasons why the Sydney property boom is not ready to quit - the inherent undersupply of stock has kept rents rising as well as prices.

According to SQM's data Sydney house asking rents and unit rents have risen over the past 12 months.

On the other hand, rents have declined in Perth, Canberra and Darwin, and are flat in Adelaide.

This has kept gross yields acceptable levels for Sydney investors while record low mortgage rates have made interest only loans more serviceable than ever. 

And so, prices keep rising.

Small wonder then, that Sydney prices have been forecast to sky-rocket by 37 percent over the three years to 30 June 2017.

Brisbane prices are also forecast to zoom 14 percent higher over the next two years.

Not much life elsewhere, though.

From the serious financial press, aka. the Australian Financial Review:

"Sydney house prices will rise 20 per cent over the next two years, pushing the median house price well above $1 million by June 2017, according to the latest forecasts from economic researchers BIS Shrapnel.

It is forecasting a 17 per cent rise in Sydney house prices in the current financial year (prices are already up 14 per cent for the year to March according to CoreLogic RP Data) followed by rises of 13 per cent and seven percent over the next 24 months.

Pent up demand, a push by investors into the market and an undersupply of new housing stock will drive the price surge in Sydney, pushing the market further out of reach of first-home buyers and driving up rents.

Similar market dynamics will drive a 14 per cent surge in Brisbane house prices over the next to years to June 2017, but outside of these two markets the outlook is much weaker."

On the flip side, Perth prices are forecast to be down three percent over the next two years through the mining downturn.

Melbourne prices are forecast to "barely keep pace with inflation", while Adelaide prices are not even forecast to do that.