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To the mainstream media - and property spruikers - the numbers from RP Data 'proved' that Sydney was the safest Aussie real estate market. The thing is, it isn't. And in a moment, we'll explain why Sydney's housing resilience has more to do with bailouts than strong real estate prices.
First, check out these quotes from the press:
'Sydney has been relatively resilient, with cumulative losses in the low single digits only.' The AgeAnd our favourite:
'Sydney's housing has pushed ahead, while the rest of the country is lagging behind.' Finance News Network
'Sydney's house prices, the country's most resilient because of a shortage of housing, rose in the December quarter by 0.7% on seasonally adjusted terms.' Sydney Morning Herald
'...it would seem that Sydneysiders are leading the recovery.' The Property ObserverEven though Sydney homes prices fell 0.3%, for some that was enough evidence to suggest property values were on the way up. And that it was going to lead the way in a housing recovery.
But there's a reason Sydney house prices didn't fall as much as other states...
Government Handouts Save the Market
From January-December 2011, the New South Wales government formed its own first home owners scheme. Not only did first home buyers get a $7,000 hand out from the state, the pollies also offered a stamp duty exemption on homes sold for up to $500,000.
Let's put it another way. If you bought your first home before the end of the handout, you would 'save' $17,990 in stamp duty costs. And, if you bought a block of land, NSW residents didn't have to pay stamp duty if the land was less than $300,000. That's a saving of $8,990.
Just like the federal government first home buyers bribe - er, grant - this incentive encouraged first home shoppers to buy before the free cash ran out.
Not surprisingly, this stimulus increased demand for Sydney homes. This meant, Sydney house prices didn't suffer in the same way as the rest of the country.
With free cash up for grabs, some in the housing industry expected positive numbers for Sydney. In September last year, Andrew Wilson, a senior economist at Australian Property Monitors, said New South Wales was likely to see an end-of-year buying spree because the grant was ending. He said 'First home buyers may go nuts over the next four months because they're only going to have that $18,000 saving for a limited time.'
And he was right.
At the end of the September quarter 2011, RP Data tells us that Sydney house price values were down 0.8%. Yet by the end of the December quarter, home values hadincreased by 0.7%.
In other words, the stamp duty savings brought forward first home sales. But James Tsolakis of Business Innovators says you need to look closer at the 0.4% house value rise in Sydney for December...
'If one drills into the numbers, it's more the high-end property that's sold which is skewing the results. We don't get very specific property data in this country, so you can't tell at a glance the average sale price. You might find quite a few sales in the eastern suburbs that have been discounted, but they're above the average sales price anyway.'
What Does He Mean?
Well, for starters, you often see the 'median' figure used. The median figure is simply the middle number in a range of numbers. For example, if five properties are for sale, you rank their sale price from highest to lowest. Then you go down the list and pick the middle number (three). That sale price becomes the median number.
The reason median figures are used is because averages or 'means', are more affected by high and low numbers.
However, high and low numbers still affect the median. Just not as much.
Does that mean Tsolakis is right? Did high-end sales skew the data? Possibly. Which could mean the Sydney housing market isn't as healthy as the numbers suggest.
So while Sydney has 'performed' better than the rest of the country for now, it's the housing market to watch over the coming months.
With the government stimulus no longer available to prop up the Sydney market, it seems certain the 'dwelling values' for the state will start falling. Just like the rest of the country.
Shae Smith
Editor, Money Weekend
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