It is common for media pundits to be calling the Sydney property market fully cooked at the moment. After all, Sydney property prices rose 24% last year, and are due for a pull back. Right?
Plus, calling for a crash in the Sydney property market is a national sport.
While I agree that Brisbane and Perth will probably lead the gains in 2022, I think Sydney will be the biggest surprise market, in that its growth will exceed expectations.
A few reasons:
1) You can’t have a bubble without investors, and investors have been largely on the sidelines. In 2021, investors represented about 25% of all buyers compared to a decade average of 35%. It suggests that it is still too early for a pull back.
2) What we saw in 2021 was simply “reversion to the mean” following price drops between 2017-2019, and a flat 2020. To resume a long-term average performance of 7% growth per year, Sydney still needs to add another 10% or so in price appreciation by the end of the year.
3) Also, 31 December isn’t a brick wall. It is a symbolic date at the most. 31 December means nothing without a policy change, and there is unlikely to be a material policy change this year, save some APRA regulations potentially. Without a policy change, markets wind down rather than hit the brakes.
4) Lastly, interest rates: My guess is that if the US Federal Reserve starts increasing interest rates in 2022 but the RBA doesn’t until 2023/4, then the AUD will go below $0.70 in fairly short order. This should bring overseas buyers in for the first time in about 6 years. This buying will come into Sydney first, keeping the market going for another year or two.
And in an environment where interest rates are low and inflation is high (and probably higher than reported), negative real interest rates means that the banks are effectively paying people to borrow.
Ultimately however, what happens year-to-year, is all noise. It is better to zoom out to observe broader trends, and whether (for example) Perth outperforms Brisbane or vice versa in 2022 is ultimately immaterial. We are not traders after all.
A far healthier approach is to think of it this way: don’t worry about what you want to buy in 2022; instead think about what you want to own in 2030, and what you need to do to get there.
And while I am biased, Sydney still stands out as Australia’s premier city.