There are currently about 730 construction cranes in Australia, 321 of which are in Sydney. In the US, Seattle has the most cranes with 65 active. Clearly, Australia is being overbuilt, Sydney in particular. This has been a cause of concern to many commentators over the past few years as the Australian property bubble has continued to inflate.

And now reality bites. Median Sydney prices are down 4.1% so far in 2018, and that is without the enormous supply of homes under construction hitting the market. Clearance rates (most houses are auctioned) are also under serious pressure. Sydney’s most recent clearance rate was 46.1%, near the lowest in a decade.

Sydney is the capital of the state of New South Wales. At April 2018 there were about 88,000 homes under construction in the state. And to put further downward pressure on demand, net migration is also slowing.

So just how low will prices fall? Depending on the commentator 2% or so (real estate agents and the like) to 15% (brokers and others), with the downturn almost done or with 1-2 years to go.

Of course, it could be much worse, depending upon domestic and international economic conditions. Given that building houses to sell to each other is Australia’s main industry, an ongoing slowdown could have serious economic impact. When there are not 730 but say half that number of active cranes, the flow on to employment and sector profitability will be enormous. This will in turn reinforce the downturn, which could end up being much more that 15%, perhaps as much as 40%. Interesting times ahead.

11 October 2018 Markets