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What will be the likely outcome for the rest of the country if Sydney’s fortunes suddenly head south? We asked the experts.
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National property price outlook

With some experts now predicting an imminent Sydney property market crash, the key questions have thus become: how likely is it, and what will the repercussions be for the rest of the country if prices tank?

Depending on where you look, forecasts can be dire. An August 17 report on domain.com.au, for instance, highlighted an expert consensus that Sydney’s double-digit growth days were over, with increased restrictions on investor activity and increased levels of apartment development key factors in the expected decline. And of course, there are those who contend that the boom has simply run its natural course, leaving prices with only one way to go.

But despite such forebodings, not everyone shares the same level of concern. Indeed, CoreLogic senior research analyst Cameron Kusher believes that a moderate drop in house prices is far more likely than any kind of doomsday scenario.

“There are always plenty of people willing to predict a housing market crash, particularly following a surge in prices such as that which we have seen over the past five-years,” he explains. “If we look at recent history, following a surge, we do see a fall in values and it is reasonable to expect that we may see one again. However, in recent periods of corrections across Australia, we have tended to see moderate falls, say 10-15 per cent, and a period in which values broadly track sideways for a number of years. This is the scenario we see potentially occurring in Sydney, particularly where population growth is so strong, mortgage rates remain low and the economy is continuing to expand.”

 

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Price growth in Melbourne is being driven by unprecedented population increases and low supply.

Every market is an entity unto itself

Echoing these sentiments is Real Estate Institute of Australia (REIA) President John Cunningham, who thinks a major correction in the absence of severe external global factors is highly improbable.

“We don’t think a major correction is likely,” he says. “While we’ve got a strong economy, I don’t think there’ll be a major correction. If we had economic issues, like rising interest rates, which is not likely, or a world catastrophe, like a GFC or a war in North Korea, then the market would stall. But at this stage, the underlying demand is strong in Sydney because of jobs.”

So, what if, despite measured assurances, a major correction does occur? What will be the likely outcome for the rest of the country if Sydney’s fortunes suddenly head south? Well, probably not a lot, according to Cunningham. He points to the fact that every market is an entity unto itself, with local employment levels and prevailing economic factors constituting the real drivers behind house prices.

“Each of the cities have different dynamics,” he explains. “When you look at why Sydney and Melbourne are out-performing the rest of Australia, primarily it’s because of their economies. Things are booming along in Melbourne. There’s available land and people are going down there for jobs, whereas in Western Australia, prices are down 20 per cent due to the downturn in mining. They’re actually running anti-cyclical to the east coast. So again, the housing market is all about jobs and the economy.”

Irrespective of the Sydney’s prospects, Victorian property experts are similarly unconcerned by the possibility of dire times north of the border.

“Any downturn in the Sydney market is unlikely to affect local property prices, particularly as price growth in Melbourne is being driven by unprecedented population increases and low supply,” explains Real Estate Institute of Victoria (REIV) President Joseph Walton. “Melbourne remains considerably more affordable than Sydney, with buyers able to get a foothold on the property ladder for less than $350,000. In Victoria, buyer demand and vendor confidence has continued throughout winter and we are expecting a strong spring auction market.”

 

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South Australia is regarded as a solid investment ground that is more affordable than Sydney.

But… what if?

Without in any way suggesting that he accepts the premise of a Sydney price crash, Real Estate Institute of South Australia (REISA) CEO Greg Troughton also believes any such occurrence would probably have a minimal impact in his state.

“If there is a correction, then Sydney’s reputation of being more affordable, post any correction, might slow the investment attraction here in SA, which is regarded as a solid investment ground that’s more affordable,” he explains. “Nonetheless, given our growth is consistently steady, that growth might soften a little but increasing affordability through that softening should see a natural balance for Adelaide in any event.”

But not everyone is as convinced that a major Sydney downturn would engender no broader calamity. Deviating somewhat from this business-as-usual view, CoreLogic’s Cameron Kusher believes that if a crash were to happen, the national fall-out would be devastating and all-consuming.

“If a crash were to happen, the repercussions would be wide-reaching,” he says. “With the economy slowing, it could potentially result in a recession. Borrowing would be more difficult and household wealth would be wiped out. I understand why some people may want a housing crash. However, the repercussions of a crash would be wide-ranging and fairly devastating.”

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Owen Thomson

A regular contributor to The Sydney Morning Herald and The Age for over a decade (sections include Good Weekend, Sunday Life, (Sydney) Magazine, Drive and My Career), Owen Thomson's journalistic work has also featured in newsstand publications including The Bulletin, GQ and Men’s Style.

The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.