Buyer confidence set for a surge

Good employment prospects and a lucrative rental market help Sydney's housing market stay strong, writes Alice Archer.

Sydney home buyers should brace themselves for a spring surge in property prices, following the "hottest winter ever" in auction clearance rates.

That's the view of Australian Property Monitors senior economist Andrew Wilson, who says August had the highest auction clearance rate of any month on record.

Dr Wilson says Sydney still has the most expensive housing of any Australian capital, and is expected to "smash through" the $700,000 median house price barrier over the September quarter. The median price for units is also set to rise, breaking through the $500,000 mark for the same quarter.

Dr Wilson says Sydney out-performed all other Australian capitals during each of the three phases of the property cycle in the past three years. "All housing markets went through a correction phase in 2011 and Sydney prices were not as badly affected as they were in other cities," he says.

"In 2012, the market generally went through a recovery phase and Sydney recovered faster than the others. Sydney has tended to have lower rates of unemployment than other cities. Local unemployment rates affect confidence, and generally in Sydney we are seeing a higher level of confidence.

"In 2013, we are moving back into a growth phase and Sydney continues to be the best-performing capital city in terms of house prices."

Dr Wilson says there are many reasons why the Sydney property market is so strong. "Obviously people are attracted to areas where there are good employment prospects, but also, there is a big incentive for people to buy their own home in Sydney because the rents are so high."

He says the median weekly rent for a house in inner-city areas is $500, making it the most expensive rental market of all the capitals.

For buyers, the most expensive areas of Sydney are the eastern suburbs, lower north shore and parts of the northern beaches. And while these areas always perform well, there is less competition in the "prestige market" (above $3 million).

So where are the opportunities for first-homebuyers? According to the Australian Bureau of Statistics, Sydney now has the lowest proportion of first-homebuyers of any capital city. Dr Wilson says one reason for this is that many of those buyers bought last year because of changes to the State Government's first-homebuyer grants.

"Another main reason is that Sydney first-homebuyers are competing with the investor market for the same properties. At the moment, we are seeing a national flight to bricks and mortar investment," he says.

House hunters shouldn't be disheartened however, with mortgage interest rates at a record low.

The Sydney housing market is also a world leader in terms of its "resilience and robust nature", says Dr Wilson.

"There is still plenty of affordable housing in the middle-fringes of the western suburbs. Suburbs like Mt Druitt, St Marys and Macquarie Fields are becoming gentrified and increasingly popular with a broader range of buyers. You can still buy a three-bedroom house in those spots for less than $400,000."

He says first-homebuyers are also snapping up apartments in inner-city areas for entry-level prices starting at $350,000. "It's not just because apartments are more affordable, it appears to be a lifestyle choice. The young ones want to live in cosmopolitan inner-city areas and don't necessarily want a backyard."