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2012 Sydney house price & interest rate predictions

Marty McDonald - Wednesday, January 11, 2012

It's that time again...with the new year upon us it's time to get out my crystal ball and make a prediction for the Sydney housing market for 2012 as well as provide a snapshot of what other property forecasters are saying. I also throw in my two cents worth on interest rates.

What some of the property "experts" are saying for Sydney house prices in 2012.

- Residex are saying annual increases of 3% across the city and their predicted hot spots to be mainly in far western Sydney. They are predicting 10% increases in some outer areas where median house prices currently under the $500,000 mark.

- Australian Property Monitors (APM) are predicting between 3 and 5% growth in median prices in Sydney and stronger growth in the more affordable end of the market / areas.

- AMP's Shane Oliver is predicting essentially flat house prices nationally.

- Steve Keen is predicting down 10% . This seems quite measured for him!

My 2012 Sydney house price predictions

I think there will be:

  • No growth in the lower to middle end of the market (median prices less than $550,000).
  • 5% pa growth in the mid market of $550,000 - $900,000.
  • Flat in the upper middle bracket of say $900,000 to $1,400,000
  • Declines of 5% in the $1,400,000 to $2,000,000 market.
  • Finally I think there may be some carnage in the super premium end with falls of up to 10% pa or more in the above $2,000,000 market.

My reasonings.... 

The lower end of the Sydney property market has artificially been propped up since 2004 by the NSW first home buyers stamp duty concessions scheme which exempted fist home buyers from paying stamp duty for properties under $500,000. This ceased for established dwelling as at the 1st of Jan 2012. First home buyers who are most active in the lower end of the market will now not have as much purchasing power as they did previously due to more of their deposit being consumed on fees rather than their actual deposit. For example a first home buyer looking at a $500,000 property will now have to have saved and additional $18,000 deposit to cover the transfer stamp duty and to borrow at the the same LVR ratio as previously. This will either delay their purchase which will mean lower demand and eventually lower prices or could immediately force prices down as the first home owners simply have less money to bid with / compete against one another with. Remembering that although first home buyers only account for traditionally around 18% of the market they do provide the catalyst for the bottom end market. 

The middle market which I have defined as having a median of between $550,000 and $900,000 will be the strongest market I think. This is the prime mortgage belt market with owners having stable jobs and generally low levels of mortgage stress. Being the most stable of demographics, think teachers, local accountants, government workers etc I think this market will be insulated from any specific industry down turns and lower interest rates should also benefit this market the most.

The next tier up from $900,000 to $1,400,000 will be caught between the better performing tier below it and the poorly performing tiers above it and should be relatively flat.

Above $1,400,000 there may well be some real shocks to the down side at the individual property level but less so across the market generally. Some big losses may distort the figures which are always a bit rubbery at this level. 

I expect to see some bigger losses in the upper market with some semi forced selling by overextended finance types who may not be getting big bonuses this year and may have been holding out for the last few years waiting for the market to improve.

Interest rate prediction 2012?

I say down 0.50% pa over 2012 to bring the RBA overnight cash rate of 3.75% pa. I think the major banks will keep about 0.15% pa of the cuts. This should bring an good home variable home loan rate to just under 6% pa.

Thanks for reading!

Marty McDonald

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About the Author: Marty McDonald is principal of mortgage broker “Mortgage Experts”. Marty specialises in assisting active property investors with loan structuring advice and implementation as well as helping credit worthy borrowers with slightly outside the box income and employment situations. Find Marty on  and LinkedIn.

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