The Australian property market has enjoyed some wonderful boom years over the last half decade – but dropping home prices in larger markets such as Sydney can have consequences on the entire countries’ housing market. So the important question for Perth Investors to ask and understand are – what is happening in Sydney and what does it mean for investors in Perth?
Sydney Property Market Overvalued
The Sydney housing market has a problem in that it is widely considered as overvalued. In a new report on the Global Real Estate Bubble Index, the major investment bank UBS ranked Sydney as the third most overvalued property market in the world, behind Hong Kong and London. While Sydney is not in the bubble risk category like London and Hong Kong are, and a crash unlikely, it does mean that the market will slowly correct itself and property values will most likely slowly decline.
Perth’s Property Market Will Likely Respond to These Changes
As Sydney’s overvalued property market starts to adjust and return to its true value, Perth’s property market will likely fall with it. This decline has already been observed, with Perth’s median house price declining from its peak of $551,500 in December 2014 to $530,000 in June 2015. Some experts expect the prices to drop by 3 to 8 percent before the market stabilizes.
However, that doesn’t mean that investors should panic. Median home prices are only one indicator of economic stability, and real prices are dropping as well. This means that once the market has dropped as low as it will, it could be a perfect time for investors to purchase properties – and then watch as they increase in value.