You’d have to be living in a dark room not to realise that the Sydney and Melbourne property markets have recorded phenomenal price growth over the past five years, with house prices rising 66.9% and 39.8% respectively since the growth cycle commenced in mid-2012.

This surge in property values was driven buy these two states’ strong economies leading to jobs growth and population growth at a time when record low interest rates led to a spike in investor activity (from both locals and foreigners.)

However the markets in these two capitals were very fragmented and some suburbs have fared better than others.

The latest McGrath Report used stats compiled by CoreLogic to identify the 10 Sydney and Melbourne suburbs with the strongest house price growth in the five years to June 2017.

The biggest boom winners in Sydney

  1. Bringelly +170.1% growth
  2. Kemps Creek +166% in the west
  3. Clareville +125% on the northern beaches.
  4. Galston + 123.7%
  5. Blackett + 123.3%
  6. Luddenham +113.2%
  7. Tregear + 112.4%
  8. Concord West +111.1%
  9. Denistone + 110.5%

Melbourne’s top growth suburbs

  1. Huntingdale  +103% growth
  2. Ashwood +91.2% and neighbouring
  3. Ashburton 90.6%
  4. Box Hill North + 90.0%
  5. Mont Albert North +88.8%
  6. Blackburn South + 87.4%
  7. Highett + 85.3%
  8. Doncaster East +84.1%
  9. Forest Hill + 83.3%
  10. Mount Waverley + 82.1%

What’s ahead?

In their report McGrath suggests:

After a five year upwards trajectory, we are now seeing affordability constraints and tighter lending conditions softening demand in both the Sydney and Melbourne markets.

Affordability is always a factor at the end of booms.

The market cycle eventually reaches a critical price point where buyers begin to exit the marketplace.

Some owner occupier buyers renovate instead of trading up while others leave the city altogether.

Investor buyers begin to lose interest as capital growth prospects wane and yields become too small to service the loan.

New restrictions on lending to investors have been a major factor reducing demand as well.

Typical post-boom market trends we expect to see over the next year include an increase in stock, as more vendors come to market with hopes of achieving a final boom price and thousands of new apartments are completed following the construction boom.

Apart from first home buyers, we will see a gradual reduction in demand as investors exit and owner occupiers struggle with affordability.

The buyers remaining in the market will be choosier given improved supply, leading to an increase in average days on market.

Auction clearance rates will fall back to the more normal rate of sale around 60%.

After several months of post-boom activity, vendor discounting will increase as sellers finally adjust their expectations and accept that boom level prices are no longer achievable.

But McGrath still sees price growth in these markets:

The report continues:

Price growth will continue – albeit at a slower pace, particularly in Sydney and Melbourne’s best suburbs.

The citywide medians will rise and fall over many months as the market rebalances.

Overall, there is a possibility of a minor price correction and this would be healthy for the long term sustainability of our major city markets following such a prolonged period of rapid growth.


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About Michael Yardney
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media.