If all the houses in Sydney were lined up according to their value – from the most expensive harbour-front mansions to the cheapest fibro places on the urban fringe – the house in the very middle would fetch about $550,000.
Even though the price of that median Sydney home has fuelled a political frenzy about deteriorating housing affordability, it has not in fact changed much for some time.
When the property boom peaked at about Christmas 2003, the city-wide median topped out at $570,000, according to Australian Property Monitors. As prices in many suburbs sagged in the boom’s aftermath, the median fell back below $520,000 and was stuck near that level for a considerable period. By the end of last September it had climbed back to $548,344, still about 4 per cent short of the boom-time peak.
So Sydney’s median house price has been stuck in a relatively narrow band above half-a-million dollars since mid-2003. That is in stark contrast to the four years before that when the city’s median price surged from $294,000 to $514,515.
Perth may have reached a similar threshold. Over the past few years house prices in the western capital have soared. But prices have slowed noticeably around the $500,000 mark. Perth’s median price rose a modest 3.3 per cent in the year to September, from $493,752 to $510,254.
Canberra is on the brink of becoming Australia’s third city with a median price above half-million dollars.
The median price there jumped 17.7 per cent in the year to September to $485,262. But the rate of growth in the last quarter of that year slowed to a relatively subdued 1.7 per cent, as the median price pushed towards that $500,000 benchmark.
The general manager of Australian Property Monitors, Michael McNamara, says median house prices in several property markets have levelled off in the $500,000 to $550,000 band.
A pattern seems to be emerging: when a city’s median home price reaches about half-a-million it stays there.
“The cities with a median price up over the $500,000 mark just don’t seem to have any more fuel left in the tank; they seem to be stagnating,” McNamara says. He thinks that communities in the country’s two most expensive property markets, Sydney and Perth, are approaching “peak debt”.
“There’s a logical limit to the amount a community can gear itself up with debt relative to wages,” McNamara says.
“My argument is that Sydneysiders and Perth residents are reaching that limit, and that’s why we are seeing more subdued property markets there.”
The ratio of median prices in the country’s two biggest property markets, Sydney and Melbourne, adds weight to the half-million dollar threshold theory.
Between 1990 and 2004 Sydney’s median price averaged about 1.6 times the Melbourne median. But since 2004 that differential has fallen sharply. In the September quarter this year Sydney’s median was only 1.25 times Melbourne’s median price of $435,064. McNamara thinks the gap is narrowing because Sydney has hit peak debt.
If he is right, future house price growth in Sydney and Perth will hinge on the behaviour of wages. Prices may only rise in line with the spending power of the city’s buyers. That will limit the potential for another big price boom.
But it is a different story in cities like Melbourne and Brisbane, which are yet to reach the half-million dollar threshold. Buyers in those cities have more “fuel in the tank” before they reach peak debt.
“Once upon a time we saw large differences between cities like Sydney, Melbourne, Brisbane and Perth, but that seems to be changing,” McNamara says. “The median prices in Australia’s capital cities are starting to cluster around the $500,000 mark.”
Sydney’s reputation as the country’s most expensive city has already been threatened by Perth. It may not be long before other state capitals join the challenge.
Author: Matt Wade
Disclaimer: Australian Property Monitors is owned by Fairfax Media, publisher of Domain.com.au.
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