House prices in Sydney are likely to “plateau and remain expensive” rather than experience a significant correction, according to Citi Research.
The company said the “exceptional price growth” seen in Sydney’s housing sector in recent years owed to low exposure to the declining mining and manufacturing sectors combined with a low interest rate cycle, low unemployment and an excess demand for property, rather than evening out with growth in other states.
“There is also an argument that during the previous decade prices for these other capital cities were improving while Sydney’s median price was only sideways, hence the current period is Sydney’s catch-up. This argument, while somewhat appealing, is incomplete,” the company said.
Citi Research said a significant correction in the housing market would likely require a “large sustained increase in unemployment”, which the company said would be most likely triggered by an interest rate tightening cycle.
“However, households on average have substantial positive equity in their residential properties and mortgage repayment buffers that would take some time to unwind before forced selling occurred,” the company said.
“The most likely scenario is that Sydney prices plateau and remain expensive unless there are some large, external, negative shocks to the economy.”