Property market in full bloom as Spring heats up – but fears of a bubble are premature

The Melbourne and Sydney property markets have continued to strengthen so far this Spring, despite sporting grand finals in both Victoria and New South Wales negatively affecting listing numbers for the past two weekends.

Sydney’s clearance rate is continuing its impressive run of above 80%, while Melbourne continues to sit in the low to mid 70s.

This weekend 81.8% of properties listed in Sydney sold, while Melbourne achieved a clearance rate of 75%, according to Australian Property Monitors.

Sydney’s listing numbers were down, with only 256 properties up for grabs because of the NRL grand final on Sunday.

In Melbourne 732 properties were on the market over the weekend, compared to only 44 the previous weekend when the AFL grand final took place.

The consistently strong market clearance rates have triggered fears of a property market bubble.

But RP Data Victorian housing market specialist Robert Larocca told SmartCompany such discussion shows a “misunderstanding of the real state of the market”.

“The Reserve Bank has lowered interest rates for a reason and that is having an impact on the market, but that impact has only to been to recover lost ground, not to head into new territory,” Larocca says.

“People would be wrong to confuse a recovery with a boom.”

In September former RBA board member Bob Gregory said a bubble was “inevitable”, but Reserve Bank assistant governor Malcolm Edey has been outspoken about his beliefs a bubble is unrealistic.

Last month he told the ABC there was “unrealistic alarmism” in the market.

“We shouldn’t be rushing to reach for the bubble terminology every time the rate in house price increases is higher than average, because by definition that’s 50% of the time,” he says.

Clearance rates in Sydney are now more than 20% higher than they were a year ago, but the growth is still subdued in the higher-end of the market, with houses over $2.5 million not selling as easily.

Larocca says the growth in the Melbourne market is spread across all price brackets.

“In Melbourne the improvements we’re seeing are in different segments of the market and you’d need to look back on the past six months of 2013 to really identify any trends,” he says.

“So far this year we’ve had an average clearance rate so far of 70%, which is a14.5% increase on last year, but it’s still well short of 80% and I’d be surprised to see us reach solid figures of 80% this year.”

Larocca says house prices also indicate the markets in Melbourne and Sydney have strengthened.

“The biggest news at the moment is that new data last week showed Melbourne is not quite at a new nominal peak median house price, but if the market repeats the performance of September and August this month we will be,” he says.

The latest monthly house price index from RP Data and Rismark released last week showed Australia-wide capital city house prices increased by 1.6% in September.

This was driven by a house price increase of 2.5% in Sydney and 2.4% in Melbourne.