Despite two years of misery for property investors, Sydney has bottomed out at an overvalued point, new research has suggested.
According to data released by SQM, Sydney still needs to fall by another 21 per cent to reach its fair value based on the relationship between nominal GDP and house prices.
Despite being overvalued, “leading indicators now suggests the current September quarter will record about a two per cent rise, with the December quarter expecting to double that with a 4 per cent rise”, SQM Research’s managing director, Louis Christopher, said.
Taking into account the falling prices of property over the first two quarters, the September and December growth would leave property investors one per cent better off than they were this time last year.
The property expert foreshadowed diminishing growth due to house prices outgrowing income.
“Housing price rises cannot outpace income growth forever. And the more the gap between the two, the more housing prices have to be supported by cheaper and easier access to credit,” Mr Christopher stated.
However, Mr Christopher acknowledged that investors in the Sydney market will always pay a premium attached to the harbour city.
Mr Christopher warned that current point suggests that if left unchecked, we could soon be heading towards another historic overvaluation similar to 2003 and 2017.
The property expert said “initial thinking is, they are unlikely to respond well and may introduce more lending restrictions once again. Then again, if the powers that be feel cornered due to perhaps rising unemployment pressure or the need to hit inflation targets, etc., they may well let the market run.”