Sydney
The crazy Sydney market of earlier this year may be over, but potential remains, writes Ben Plohl. Image – Canva
  • Sydney prices up nearly 15 per cent in a year
  • Fear of missing out (FOMO) driving some sky-high sale prices
  • Market fever starting to dissipate, a return to a more sustainable market

Did you know that the Sydney median house price increased 11 per cent in the three months to May this year?

What is so staggering about that price uplift is that over the year, the total median price increase was 14.8 per cent, which means those 90 days were responsible for the lion’s share of the growth.

At the time, for about a six- or seven-week period, some buyers did seem, well, a little insane to me.

We would attend open homes or auctions and some of the prices that were being paid for properties were crazy.

We missed out on a number of properties at the time for our clients, but everyone was more than happy with that – rather than paying potentially hundreds of thousands of dollars over market price.

Back to today, and it does seem that some of the Sydney market’s “madness of the crowds” has dissipated in parts.

Don’t get me wrong, there is still strong demand for listings, and prices are still increasing.

But the days of properties selling in mere hours for eye-watering prices appear to be (thankfully) behind us.

Sydney city

Market fever

You might be wondering what the heck happened at the start of the year?

Well, smarter economic brains than mine will one day explain it, but it does seem like there was a short-lived bubble at play in some locations.

As Scottish journalist, Charles Mackay, said back in the 1840s, crowds of people can sometimes behave irrationally – and especially when there is supposedly “easy money” to be made.

Back then, he used Tulip Mania, the South Sea Bubble, and the Mississippi Company as prime examples of such speculative bubbles.

Fast forward a few hundred years and it seems that for a short period of time earlier this year, some buyers threw out common sense and property investment fundamentals in their frenzy to purchase a piece of Sydney real estate.

For some with deep pockets, the fact they may have overpaid for a property will probably not make much difference to their bank balances.

But for others, their prized, frenzied possession could wind up taking years to even return to the purchase price they paid.

What’s important to understand about the Sydney market, though, is that there is plenty of life left in her yet.

The frenzy may have subsided but that doesn’t mean that property prices won’t continue rising.

There are myriad reasons for that, but part of it remains the low levels of supply, coupled with robust buyer demand and record low interest rates.

New data out recently, also showed that Sydney’s vacancy rates are normalizing, with it hitting 2.9 per cent in May, according to SQM Research.

Even the oversupply of rental properties in the inner-city of Sydney has improved, with the vacancy rate in the CBD down to 6.8 per cent.

So, what does all this, including an ancient economic history lesson, mean?

Well, it means that a sustainable property market is always superior to a slightly crazy one.

And that the fundamentals of Sydney as a strategic investment location remain as sound as they ever did.

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