by John McGrath

The latest stats might show a slip in national property values, but on the ground we are yet to see a material correction to prices. In fact, in many areas of Australia, buyers will tell you their local market is as hot today as it has been all year.

RP Data’s latest monthly report shows a 1.9% decline in capital city dwelling values (houses and apartments combined) for the month of May. Sydney values dropped -1.1%, Brisbane fell -1.7% and the worst performer, Melbourne, lost -3.6%. Prices were also down -1.8% in Adelaide, -0.8% in Perth and -0.6% in Hobart. The only two cities not to record a decline were Darwin (+1%) and Canberra (+0.1%).

Honestly, I am not surprised by this decline. As RP Data’s research director, Tim Lawless says, it is routine to see a cooling in the Australian property market in April and May after the traditionally busy Autumn selling season. We generally see strong sales activity in February and March, followed by an easing in market conditions as we head into Winter. That’s pretty standard stuff.

But it’s also 100% expected that after big price growth in 2013 and a strong start to 2014 in markets like Sydney, activity has to cool at some point.  That’s the nature of cycles and one that I consider healthy.  When prices continually rise, there comes a point where buyers stop wanting to participate.  They get nervous about paying too much in a market they perceive as overheating so they go back to the sidelines.

The question is whether we are there yet, as one month of data showing a softening in values does not prove we’re at the end of what has been a spectacular run.  Markets ebb and flow and recovery cycles tend to go on for three or more years.  In Sydney – which is leading the national recovery, we’re about a year into this latest growth cycle and as I suggested earlier, it’s healthy to see a plateauing at some point.

It’s worth remembering that when you see median prices rise or fall by 1% or 2%, it generally indicates a pretty stable market overall, or a market where some areas are hot and some areas are cooling.  This is the case in Sydney right now. Our agents are seeing an ongoing increase in demand for properties under $1M in suburbs close to the CBD, while market conditions in other parts of the city seem to be easing.

If you look at clearance rates and what’s happening with auctions in the two biggest auction markets in the country, Sydney and Melbourne, we’re seeing record activity with the month of May being a stand-out period. According to Australian Property Monitors, there were 3,411 homes auctioned in Sydney in May – 74% more than May 2013 and a historical record for the city.

In Melbourne, there was even more auctions at 4,456 – also the highest number ever recorded for May in that city. And in both cities, clearance rates remained strong in the mid to high 70% range. 

Overall, I still expect price growth in 2014 but it will inevitably slow. In Sydney, I think we will see 5% to 8% growth this year off the back of almost 15% last year. That would give us a collective 20% growth for the first couple of years of this cycle and that’s a significant – yet sustainable, rise in property values.