In times to come, historians will conclude that the Sydney real estate market was a year of two halves in 2015.
Interest rate cuts in February and May sent property prices higher and higher. As buyers gorged on record low interest rates, confidence in the market turned into outright blind faith. Some of the prices paid at the height of the boom may not be bettered for years to come.
In previous cycles, when the property market was so evidently overpriced and out of control, the Reserve Bank of Australia (RBA) would increase interest rates to slow the market. Frustratingly for the RBA, that was not a viable option during this boom.
Indeed, the Sydney property boom was already two years old when they surprised the market by cutting interest rates again in February. The two rate cuts in the first half of 2015 was akin to pouring petrol on the fire.
The RBA was forced to overlook the housing boom in Sydney and to a lesser extent Melbourne when setting the interest rate policy. The rate cuts were needed in every area of the economy bar the Sydney Melbourne housing markets.
Unemployment threatened the national economy, the mining boom had ended and the Australia dollar remained stubbornly over valued. By midyear, it was apparent the market was into or very close to price bubble territory. Investors had been replaced by speculators and emotional owner occupiers were bidding to crazy levels, much to seller's delight.
Chinese buying was apparent in pockets of Sydney and Melbourne; Self Managed Super Funds also entered the market to send prices soaring. First home buyers and those that sold prior to buying were losers during the first 6 months of 2015.
The Australian Prudential Regulation Authority (APRA) and the Foreign Investment Review Board (FIRB) imposed themselves on the market at the height of the boom.
In simple terms, APRA forced tougher lending standards on residential investors through the retail banks and the FIRB clamped down on illegal buying by Chinese and other foreign investors.
This regulatory intervention cooled the Sydney, Melbourne markets within a matter of months. These changes proved to be sensible policy. They averted an outright boom, bubble, bust scenario and ensured that interest rates could remain low and support much needed areas of the broader economy.
Perth for example is on its knees. Imagine what an increase in interest rates would do to that economy and/or housing market.
The notion of slowing the booming Sydney Melbourne property markets whilst trying to stimulate economic activity in underperforming cities and regions was clearly the right path to take. We are fortunate to have such prudent policy makers in Australia.
As the housing boom finished, many were happy to jump on the band wagon claiming the crash had started. This assessment does not fit with the data. Sydney property prices are finishing 2015 at higher levels than they were on January 1 2015.
Indeed, current property prices in Sydney are still very high by every standard. The party is still going but maybe the bubbly is a little flat for those sellers that missed the peak of the boom. The major risk for the Sydney market is the tens of thousands of apartments due to settle in the next 18 months.
There are increasing reports of buyers unable to raise finance or having lost previous finance approvals. If this proves to be widespread, it could spill over into the broader housing market as investors sell houses to fund apartment purchases. This seems unlikely, but it is worth keeping an eye on. 2015 was a win to the sellers.
What looked to be a knockout victory turned out to be a narrow points victory. But a win is a win.
All the best to you and your family for a Merry Christmas and Happy New Year in 2016.