Sydney property prices dropped in May, but don’t expect that to continue

Sydney property prices dropped in May for the first time in six months, but these falls are likely to be short lived, according to CoreLogic RP Data.

Its latest Home Value Index found the city’s home prices fell 0.7 per cent over the month, which was the first time prices had slipped back since November, while nationally prices in the main capital cities dropped 0.9 per cent. Melbourne prices dropped the most at 1.6 per cent.

But RP Data head’s of research Tim Lawless said these price falls, especially in Sydney, were likely just “an adjustment” after a strong period of growth which this year alone has seen Sydney property prices jump more than 6 per cent, and 15 per cent over the past 12 months.

“I wouldn’t expect it to be a trend because outside the index there was a lot of data supporting the onwards and upwards values,” he said.

This included record auction clearance rates in May, which Domain Group has calculated will show the highest monthly clearance rate in the city’s history.

Other data that points to a return to prices growth included a continuing shortage of properties for sale, which generally placed an upwards pressure on prices, as well as a rise in consumer sentiment and a federal budget that was well received, Mr Lawless said.

Mr Lawless said May was typically a weaker month for prices growth, but this result was not due to seasonal factors.

“So this is more a correction in the index after a couple of very strong months of data flows. We’d expect a return to growth over the coming months.”

Figures from CoreLogic RP Data show that since the property market began its latest growth cycle in May 2012 home prices in Sydney have risen almost 40 per cent.

These figures come ahead of the Reserve Bank’s interest rate decision on Tuesday, which many economists expect will leave office interest rates on hold.

HSBC’s chief economist Paul Bloxham said that he expected the RBA to keep rates on hold in coming months, “as it weighs the risk of inflating asset price bubbles against supporting a needed pick-up in real economic activity”.

“Low interest rates are needed to support the rebalancing of growth towards the non-mining sectors and encourage the Australian dollar to fall. At the same time, low rates are also stoking a housing price boom in some cities, particularly Sydney and Melbourne,” he said.

SMH/ June 1, 2015