The last time we saw the gap between the Brisbane and Sydney median house prices at its current level was 2003. The 2003 gap resulted in outstanding price growth for South East Queensland from 2003 to 2008 as it clawed back the gap. This growth was driven by cashed up southerners seeing extreme value in our market which created an unprecedented amount of interstate migration into the South East corner including the Sunshine Coast. The best way to predict the future in any cyclic market is to look at the past. With the current slowdown in the Sydney market, now more than ever many southerners must be looking at our property prices and considering the long awaited move to the Sunshine State, with the outstanding lifestyle that is on offer.
It is important to note that 2003 was 14 years ago an much has changed in the world, for starters interest rates are much lower, currently sitting at record low levels with most banks offering home loan rates under 4%. Technology has advanced significantly which now allows opportunities for those who were once chained to the corporate inner-city ring the new found freedom to live and work in separate locations. But the biggest single factor that could distinguish 2003 from now is the fact that a huge portion of our population are getting ready to retire. The baby boomers are ready to move into retirement phase and the Sunshine Coast with its world class medical facilities, healthy outdoor lifestyle and its amazing beaches has to be on the radar for many, as the location of choice. How will these factors effect the Sunshine Coast market as Brisbane once again claws back the gap over the coming years. If history has anything to say I would suspect the future looks bright for Sunshine Coast real estate. Refer to the article below released earlier this week by Core Logic RpData outlining the capital city median house price data.
Corelogic Report January 2018
Although dwelling values have started falling in Sydney, the city remains substantially more expensive than the other capital cities. In fact, whether you look at the cost of houses or the cost of units, Sydney stands out as being much more expensive.
The above table clearly highlights how the cost of a house is substantially higher, despite the recent value falls, than the cost of a house across each of the other capital cities. The chart also highlights the much greater escalation in house values in Sydney and Melbourne over recent years relative to the other capital cities.
The above table shows the difference in median house values across the individual capital cities currently compared, to five, 10, 15 years ago.
House values are reasonably similar nowadays in Adelaide, Perth, Hobart and Darwin however, that has not been the case historically. Sydney also stands out as being substantially more expensive than other capital cities.
Another way to look at the difference in housing costs is looking at Sydney’s premium in terms of the value of a house relative to the other capital cities. Looking at this over time can potentially offer insight into how over/under valued some markets may be. With Sydney values falling recently most capital cities have seen a narrowing of the gap in house values nevertheless the gaps are currently recorded at:
It is a similar story when looking at unit values, with Sydney values falling recently yet remaining much higher than those across the remaining capital cities. Again, values have increased over recent years in Sydney and Melbourne while there has been minimal change elsewhere.
Sydney’s current median unit value of $762,509 is noticeably higher than in all other capital cities. In fact, the median unit value in Sydney is higher than the median house value in all other capital cities except Melbourne which highlights just how expensive housing is in Sydney. Even in Melbourne, the current median unit value ($572,115) is greater than the current median house value in all cities other than Sydney, Melbourne and Canberra.
Looking again at the Sydney premium it should be noted that there has been a recent decline in some of the differentials due to the declines in Sydney values. Nevertheless, the premium for Sydney units relative to other capital cities remain well above long-term average levels:
With house and unit values starting to decline in Sydney we should see a further fall in the premium that houses and units experience relative to the other capital cities. Despite an anticipated fall in the Sydney premium, it shouldn’t necessarily be expected that the gap will revert to longer-term average levels. Over recent years, housing costs in Sydney and Melbourne have become demonstrably more expensive than those elsewhere. Some drivers of this have included but not been limited to an undersupply of new housing (Sydney more so than Melbourne), high rates of migration to each of these cities, stronger economic performances of NSW and Vic relative to other states and territories and significantly greater employment opportunities in Sydney and Melbourne than in other capital cities. Although values are starting to fall in Sydney and Melbourne, most of these drivers remain for both Sydney and Melbourne. In fact migration is picking up into Qld but to-date there has been only moderate increases in values.
We would expect the Sydney premium to reduce over the coming years as values decline however, we also believe that historical premiums for Sydney relative to other capital cities don’t reflect the likely differentials in the cost of housing going forward. That is to say we expect that the cost of housing in Sydney and Melbourne will continue to be higher relative to other capital cities than it has been in the past.