The Sydney property market has cooled since the heights of 2021, and the record price boom cycle is now over.
The RBA has increased cash rates three times since 4 May, 2022. By 0.25% to 0.35% on 3 May, by 0.5% to 0.85% on 8 June and a further 0.5% to a cash rate of 1.25% on 6 July.
While these rises are from record low interest rates, it has put property buyers on notice that rates are rising. More rate rises are expected by most commentators through this year.
Although APRA has already increased the interest rate buffer to 3% for banks when determining borrower’s serviceability (in October last year), the reality of the rate increase will tighten bank lending and add further caution to property buyers.
Although the initial rate rise was sooner than expected, it was inevitable that there would be property market corrections after a year of record house prices fuelled by record low interest rate rises and low supply during the covid lockdowns.
Reflecting the market softening, auction clearance rates have fallen. For April/May, clearance rates have been in the 59-65% range and June’s rates were mainly in the low 50%’s. This is compared to the strong 70-90% range at the end of 2021.
The premium end of the Sydney property market is currently the strongest, with quality houses in premium suburbs still achieving high sale prices, however the lower and middle sectors of the market are already seeing price falls and fewer buyers competing.
According to Domain’s Quarterly House Price Report, Sydney house prices hit a record median of $1.6m at the end of 2021, a rise of 33% for the year. Most of the areas we work (predominantly the North Shore, Eastern Suburbs, Inner West & Northern Beaches) experienced growth in excess, and some well in excess of this Sydney average.
The growth in the price of Sydney units was more subdued at 8.3% for last year, to a record high average price of $802,255. Units experienced about a quarter of the growth rate of houses.
The higher growth rate for houses vs. apartments is largely due to changes brought on by the pandemic:
- working and spending more time at home increased the desirability of more space, both indoors and outdoors
- limited opportunity to spend on travel and leisure pursuits, plus a reduction in overall expenses created a willingness to channel more funds into the family home
Through 2021 property prices in Sydney rose faster than rents, pushing investors’ yields lower. Investor activity through the first half of the year was reserved, however the latter half of the year saw more activity.
What do we expect ahead?
- more caution from buyers in most price sectors and areas as interest rate rises and the recent inflationary pressures take hold influencing household budgets
- housing supply is expected to be tight as vendors will be hesitant to list in the current market
- we expect high quality A Grade property in premium suburbs to hold up, however B and C grade property (properties with compromises and issues) has already been affected and will continue to struggle to perform
- we expect the gap in the growth rate between houses and apartments to narrow. The recent increasingly high cost of houses will force many buyers to see value in apartments and townhouses
- the return of overseas workers and students will provide stimulus in demand for rental apartments in the inner city areas and surrounding the universities.
- The return of immigration is likely to add to buyer competition
- regional and coastal properties are likely to be less attractive as life returns to normal, travel resumes, and commuting to the office becomes a reality
- The unemployment rate is currently very low at 3.9% (most recent figures for May 2022) and most other Australian economic indicators are positive, although rising inflation is a concern
- The media will continue to highlight the market negatives which will have an influence on consumer sentiment particularly at the lower end of the market
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