By Chris Lackey AAPI

Sydney residential real estate prices are on the rise with limited stock at the heart of the change.

Record real estate prices, high auction clearance rates of 74 percent and a hype of activity are the norm when reviewing the weekend newspapers. Sydneysiders love property, and they love it even more when the value of their property appears to be increasing on almost a weekly basis. The flip side of course is the concerning feeling of having missed the proverbial boat, the opportunity to secure ones place in a rising market.

Trends indicate that buyer demand in areas such as Sydney’s inner west is declining, however, lack of stock and fierce competition at auction is resulting in prices too difficult to justify from a valuers perspective. The frenzy of activity has seen many hesitant buyers take the plunge, compelled to enter the market before the opportunity to purchase grows out of reach.

This predicament for buyers is a real one, particularly for those caught in the rental cycle. While Sydneysiders are traditionally lifestyle conscious, other family related issues such as keeping kids in school, close to day care or family support are becoming overriding factors in a city that requires two incomes to sustain the mortgage.

Although home ownership in capital stable areas remains desirable and achievable under current interest rates, if rates continue to rise it is expected that prices will plateau.

Prestige markets such as the eastern suburbs, lower north shore and northern beaches are continuing to recover, without the dramatic serge in prices prevalent within more affordable locations. While prices are responding positively to improvements in the Australian economy it is more likely that this segment of the market will plateau, rather than continue to climb beyond previous highs.

Western and south-western markets are experiencing similar stock related issues. These areas were major beneficiaries of the approximate $1.155 billion issued by the NSW State Government under the First Home Owners Grant scheme, since January 2009. It seems inconceivable that price growth is still occurring given the substantial decline in the number of first home buyers to 18.1 percent following the expiration of Boost grants and rising interest rates. However, buyers are ‘doing their numbers’ and when compared with the current cost of weekly rents, for many, home ownership is the more favourable option.

While supply remains an issue stock must also remain affordable in order to defend against rising interest rates. Unfortunately, this is unlikely to occur, which renders the lower end markets sensitive to interest rates and thus volatile when compared with stronger, more stable inner city markets.

Current frenzied activity is characteristic of an overheated market, where properties that are inherently inferior, either due to location or quality, are selling significantly above value in short marketing periods, when they would ordinarily attract little interest and be priced according to their actual worth.

For this reason it is recommended that potential purchasers exercise caution when entering the current market, exercising patience, whilst conducting the necessary research of the market segment they are considering. Like all markets, Sydney prices rise and fall and compulsion can lead to a hasty decision that buyers may regret later.

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