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Despite the ongoing negative sentiment, property investors in Australia have fared better than their share market counterparts.

Residential properties have increased by 1.46% nationally over the three months to March and achieved an annualised return of around 6%. Despite rising interest rates and inflation fears, RP Data’s national research director Tim Lawless said that when compared to the share market, this return is “very positive”.

“As an example, during the March quarter, the ASX200 and All Ordinaries dropped 15.5% and 15.8% respectively,” he said.

The only capital cities to record a fall in property values were Perth and Canberra, where dwelling values declined by 1% and 0.6% respectively over the quarter. Lawless said that despite the fall, Perth units hold the most expensive median value of any capital city at $464,000.

He added that Adelaide has the most affordable housing with a median value of $419,156, and is still the best performing city in the country.

“The city recorded the strongest gains in the market, with values increasing by 23.4% over the year to March 2008. Adelaide appears to have largely shrugged off the recent rate rises with consistent growth across all its regions,” he said.

Brisbane recorded growth of around 20%, while Melbourne growth rates – though still healthy on an annual basis – showed a considerable slowing in quarterly figures.

Sydney values increased by around 1% for houses and units over the first quarter of 2008 which, according to Lawless, isn’t a bad result, considering the impact that affordability pressures have already had on the market.

Michael Marquette of Marquette Turner stated that “there are a large number of the expensive areas in Sydney are starting to struggle, with markets in the inner city, eastern suburbs, Lower North Shore and Northern Beaches all recording flat to slightly negative capital growth”.

On a positive note for investors, Rismark International’s Dr Matthew Hardman said that with interest rates now at a 12-year high of 9.35%, the likelihood of another rate rise is reduced.

He added that another rise in interest rates would certainly cool the market further, causing more price falls of up to 5% in the mortgage belts of Sydney, Melbourne and Perth. “On the other hand, a constant interest rate environment, as we have experienced for the last few months, would likely put a floor under many areas which have seen significant value falls. If rates remain stable over the next 12 months, we’d expect national dwelling values to remain in positive growth territory,” Hardman said.

Even though the Reserve Bank this week kept interest rates on hold, it still faces a tricky balancing act in bringing inflation back to its 2-3 per cent target band as it risks pressing too hard on the rate brakes and driving the economy into recession.House prices grew at their slowest quarterly pace in a year during the March quarter – one sign that interest rates are having their desired impact.

And the number of job advertisements published last month jumped after a slow start to the year, in a sign that while the economy may be slowing, there is still plenty of strength in demand.

A senior strategist with TD Securities, Joshua Williamson, said a broad array of goods and services were contributing to inflation, not just higher petrol and food prices.

The Bureau of Statistics’ house price index rose just 1.1 per cent in the first three months of this year, compared with a 4.1 per cent increase in the December quarter.

Sydney posted the sharpest decline, with average prices falling 1.5 per cent, followed by Darwin and Hobart, with falls of 1.3 and 0.7 per cent, respectively.

Property markets in Brisbane and Melbourne remained buoyant, with prices rising by 2.8 and 4.1 per cent respectively.

New figures released by Residex reveal that Sydney property values have increased by 6 per cent plus (6.39 per cent median) in the past 12 months.

This is despite nerves of a continuing slump as a consequence to rising interest rates and the housing affordability crisis.

As such, prospective homebuyers could do far worse than buy now – get your foot in the door before Sydney prices start to climb again!

We are likely to see growth over the next couple of years, predominantly in the apartments sector of the residential market.

There are vendors out there with their mortgage lenders circling. This means that there will be bargains to be had, so if you can afford to buy now, make the most of this opportunity.

Even Macquarie Bank do not expect prices to drop by the 30 per cent figure recently reported, and in fact predict a slow recovery this year.

With the potential for rates to be cut next year, the indicators for growth next year are looking solid.

The best-performing suburbs, according to Residex, were Whale Beach, where the median value grew by more than 25 per cent to $3.792 million in the year to March, followed by the inner city suburb of Chippendale, where a 25 per cent rise pushed values to $638,500.

The eastern beachside suburb of Bronte was third, with a 24.4 per cent hike to a median of $2.208 million.

The unit sector recorded gains, with Sydney apartments increasing in value by 6.18 per cent to a median of $402,000.

Simon Turner

As recently reported by the ABC following an imaging study, stress from high house prices and sporting failures is shrinking Sydneysiders’ brains, compared to those of their counterparts in Melbourne.

The study, published in the journal Australasian Psychiatry, is the first scientific study into the long-standing rivalry between Australia’s most populous cities.

A team of neuropsychiatrists at the Royal Melbourne Hospital, scanned the brains of 20 Sydneysiders and 20 Melburnians to look for differences in brain structure.

In their study, the team leader Dr Velakoulis and his team used magnetic resonance imaging, or MRI, to study the thickness of grey matter, or ‘cortical thickness’, of the anterior cingulate cortex.

Brains This is a part of the brain that helps control decision-making and moods.

Without knowing which city’s residents they were imaging at the time, the researchers found that residents of Melbourne had a statistically thicker layer of grey matter.

The researchers corrected for age, as the older you get the thinner your grey matter is likely to be. Additionally the researchers also controlled for intracranial volume, since the taller someone is the bigger their overall brain will be,yet still the thickness was still thicker in Melbourne than in Sydney,” says Velakoulis.

FACT: Stress shrinks brains

The researchers wanted to test the theory that the differences between Sydney and Melbourne brains were from stress, which evidence suggests can cause a thinning of the grey matter in the anterior cingulate cortex.

They first looked at the influence of financial stress by calculating the median house prices in each city and correlating this with cortical thickness. The median property price in Melbourne in 2005 was A$347,000. But it was A$517,000 in Sydney.

The team concluded that the greater the median house price the less the cortical thickness.

Correlations: Sporting and academic success

The researchers also looked at how sporting and academic success differed between Sydney and Melbourne.

They found that since 1960, Melbourne has had 37 Australian Football League (AFL) premierships whereas Sydney only had one, in 2005.

This was when the Sydney Swans defeated the West Coast Eagles, says Velakoulis, who declares a possible conflict of interest as a Sydney Swans supporter.

Melbourne also has had more National Health and Medical Research Council (NHMRC) grants awarded to its researchers than Sydney, the researchers found.

The higher house prices and relatively poor sporting and academic performance all adds up to stress that is likely to be responsible for the thinning grey matter in Sydney brains, they say.

Competing hypotheses

The Marquette Turner team, however, query such conclusions, particularly given the only sporting focus being on AFL – there are not only many other football codes such as League and Union (both which would give negative support to Melbourne), there are numerous other team sports. Additionally, what of the individual sports such as Tennis, Horse Racing, Golf etc.

We suggest analysis could go one step further and look at those Melbourne and Sydney siders that are both academics AND sports players.

We could also look at this analysis from a different angle and suggest that as the brain matures it gets rid of unnecessary connections and becomes more efficient. It could be that Sydneysiders are much more mature and refined and, as one member of the team suggests (a Sydney-sider no less!) they have gotten rid of unnecessary brain connections but therefore have a thinner but more efficient cortex.

What happens next?
The team are hoping to further test this hypothesis with money from the AFL.

Marquette Turner question whether not only this continued focus on AFL may scew further results, but we also wonder whether the fact that Melbourne house prices are catching up to Sydney’s could in fact be leading to a shrinkage in Melburnian brains.

And finally, Marquette Turner are quietly breathing a sigh of relief given that our team covers both Sydney and Melbourne. 🙂

Simon Turner

PS. For those sceptical amongst you, the team consistsed of 6 Melburnians and a single Sydneysider.

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