Sydney’ property prices have been going crazy this year, with the average median dwelling price rising 17.7% in the seven months to 31 July 2021.
But rising property prices aren’t unique to our city. They’re part of a worldwide trend that’s happening in different property markets across the globe.
Sydney’s meteoric price rises
Sydney property prices have grown really fast over 2021. Take this for example – if you had an apartment worth $2 million at the start of the year, you could now expect it to be worth $2,354,000. That means your property was gaining value at the rate of around $12,000 a week. And you didn’t have to lift a finger.
But while people may be questioning whether this is sustainable, the reality is that Sydney’s growth rate really isn’t that different from many places around the world.
Taking a global perspective
The median value of a property in the United States, for instance, rose 13.2% in the year to June 2021. And that’s a median across the entire country.
In Los Angeles County, the median price rose 25% in the year to May 2021. In Manhattan, the average sales price rose 12% in the June 2021 quarter alone. And, in fashionable Austin, Texas (home of Dell and other tech companies), the median price rose 30.5% over 2020.
North of the border in Canada, prices rose 17.08% in the year to quarter 1 2021.
Move across The Atlantic and much of Europe is experiencing the very same thing. Germany is in the midst of a prolonged price boom with values lifting 11.12% in the year ending March 2021 – the 45th straight quarter of year on year rises. Sweden (13.17%), Denmark (12.43%), Norway (10.24%) and the United Kingdom (9.07%), all experienced strong year-on-year growth over the same period.
Closer to home, New Zealand has experienced its fastest ever property price growth, registering 22.1% in the year to March 2021.
Finding a common thread
A lot has been written about the impact of COVID on our economy and how Australia managed (at least until recently) to avoid the worst of the fallout from the virus. Some attributed local property price growth to the government’s relatively successful handling of the virus over 2020. But, looking through the list of countries and cities experiencing price growth, there seems to be more to it than that.
Some countries, like the United States, United Kingdom and Sweden were hit especially hard by the coronavirus but property prices still took off. So the direct effects of COVID-19 can’t be the only answer.
Interest rates are at record lows everywhere
Here in Australia, we all know that interest rates have never been lower. The RBA has slashed the official cash rate to 0.1% and the banks are willing to offer us fixed-rate home loans at around 2%.
With interest rates at this level, someone budgeting for mortgage repayments of, say, $5,000 would be able to borrow around $1,350,000 on a 30-year principal and interest loan. If interest rates were at 7% just as they were a decade ago, that same loan would cost closer to $9,000 a month. A budget of $5,000 would only allow you to borrow around $750,000. People here can afford to borrow quite a bit more than they once could.
But the same phenomenon is happening in many countries. In Sweden, the official cash rate is zero per cent and average mortgage rates are 1.3%, compared with 6% in 2000 and 14.5% in 1985.
In the United States, the average 15-year fixed mortgage rate is 2.66%; in the United Kingdom 10-year, fixed mortgage rates average 2.36%.
The cost of borrowing is cheap in many places and people are taking advantage of this.
The flipside of low interest rates is that investors are often willing to accept a much lower yield, and this can push prices higher too.
The unequal nature of COVID-19
While money is cheaper, there is also evidence that, despite the pandemic, wages are rising in many countries for the first time in quite a while. Across the European Union wages rose 3.3% in the year to December 2020. Meanwhile, the United States is experiencing its highest wage gains in 20 years. Even here in Australia, wages were rising after a period of stagnation – although lockdowns may change this.
So around the world, we’re seeing the case where some people have more to spend, as well as the ability to service a much bigger loan. They’re using this to access more money than they once would have and this is driving up property prices.
If you’re interested in buying or selling in Potts Point and Elizabeth Bay contact my team today.