People are fleeing Sydney’s real estate market. Picture: 20th Century Fox

Sydney is about to see an exodus as expensive local house prices start to make other states look attractive, according to analysis by Deutsche Bank.

A good local job market has so far kept people people from moving out of NSW.

“But wage growth is no better than elsewhere, and young people have found it difficult to get into the housing market,” write strategist Tim Baker and research associate Joseph Kim in a note to clients.

“Historically, people have tended to move from NSW to other states, particularly when Sydney house prices get relatively expensive.

“Yet interstate migration out of NSW has hit a 35-year low. We expect a tipping point soon, that sees interstate migration rise to average levels, at least, over the next 1-2 years.”

With migration patterns one of the key drivers of property demand – and therefore prices – an exodus of people from NSW to other states looking for more affordable homes has the potential to further moderate the recent price gains in the Sydney housing market.

In an interview with Business Insider last week, NSW Premier Mike Baird said he was “heartened” by emerging evidence that the explosive growth in Sydney property prices of recent years is slowing.

“So I think there seems to be some normal market conditions returning,” Baird said. “If it starts to fall, that’s a matter to wait and see but there’s no doubt that it’s certainly stabilising in the past couple of weeks.”

However, even with good wages, Sydney house prices are expensive, as this chart shows:

Queensland looks like a good option.

“Houses in Queensland are far cheaper than in Sydney, even accounting for income differences,” says Deutsche Bank. “And Queensland offers a shorter commute (a bigger deal than commonly appreciated), lower costs in general (tolls, parking) and of course warmer weather.”

The average Sydney home price has risen above $900,000, up from below $700,000 in 2013. However, in Brisbane prices have been steady at $500,000 for more than seven years.

“People have moved to Queensland from other states for decades now, taking the state from 16% of Australia’s population to 20% in recent years,” says Deutsche Bank. “But this trend has slowed in recent years, with interstate migration into Queensland hitting a 40-year low.”

The number of people moving to Queensland is at a low but that’s about to change.

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