Property market update: Sydney, March 2021
Capital city property values continued to surge over March, with Sydney leading the pack. As experts hint of the possibility regulators may take steps to stop the property market from overheating, can the NSW capital continue its growth streak?
The summer season may be over, but Sydney’s property market continued to heat up in March.
March marked a significant inflection point in the country's property market, as Sydney and Melbourne have now staged a full recovery from earlier downturns. Property values in the NSW capital continued to soar in the third month of the year, with prices recovering beyond their last 2017 peak.
Experts are now pointing at FOMO, or fear of missing out, as the main driver for the growth in dwelling values, as buyer demand continues to outweigh supply in capital markets. The FOMO sentiment among home buyers, coupled with cheap credit, is translating into strong buyer interest and record sales.
But data shows that investors may still be on the sidelines of the tightening property market in Sydney, as they steer away from Australia’s biggest capitals.
The subdued investor activity is attributed to the ongoing lending restrictions. Additionally, investor confidence in Sydney continued to sit below usual figures. According to Momentum Wealth’s new survey, only 8 per cent of investors viewed the NSW capital as a market with the greatest potential.
On top of that, major banks, economists and analysts now suspect the boom could come to a halt due to the expectation that regulators could put their foot on the brakes to stop the market from overheating.
But, Melbourne and Sydney have generally defied the gloomy expert expectations of experts, with both showing fairly strong results against the impacts of the pandemic.
ANZ recently predicted property prices could surge as much as 19 per cent in Sydney before slowing in 2022. The bank’s economists say regulators could step in to curb lending to stop the market from overheating.
With these all in mind, it seems Sydney’s property market may be facing an uncertain scenario in the coming months. For now, let’s take a closer look at how it fared in March.
Property values
Data from property research firm CoreLogic showed that the nNational home value index saw a 2.8 per cent increase in March, rising at their fastest pace since October 1988.
Sydney led the pack for capital gains over the month, with dwelling prices surging 3.7 per cent over the month and 6.7 per cent over the first quarter in the year, bringing the median value in the NSW capital to $928,028.
On a monthly basis, Sydney’s house market continued to outpace the unit market, as detached houses rose 4.3 per cent while units edged up 2.1 per cent in value. At an annual rate, Sydney house values rose 7.7 per cent to a median value of $1,112,671 while units rose 0.2 per cent to stand at a median value of $755,360. Despite the weakness in Sydney’s unit market, CoreLogic noted that the sector has improved, notching two consecutive months of increasing values.
CoreLogic’s research director, Tim Lawless said “The last time Sydney housing values recorded a quarterly trend this strong was in June/July 2015. Following this brief surge, the pace of growth rapidly slow as limits on investor lending kicked in to slow the market.”
Supply and demand
The strength of the housing market, according to CoreLogic, is being underpinned by “a disconnect between demand and supply".
CoreLogic’s data showed that the total number of advertised listings continued to be extremely low throughout March. In fact, total listing numbers over four weeks ending March 28, showed advertised stock levels were 25.5 per cent lower than the five year average.
Data from SQM’s research supports this scenario, with listings said to have continued their monthly decline in March, slipping 0.5 per cent on the month and 16.7 per cent on the year.
In Sydney, however, the number of properties listed for sale rose by 0.9 per cent over the month, as total listings climbed from 26, 772 to 27,011. But the modest monthly increase is overshadowed by the large annual rate decline, as listings fell 7.5 per cent from 29, 209 in March 2020.
Louis Christopher, Managing Director of SQM Research said that despite the decline in overall listings, it is still not strong enough to keep up with the growing demand. “While overall listings fell, absorption rates continued to increase, so we saw overall property listings fall slightly over March, as they did in February; demand for property is still outstripping supply.”
Auction rates
Unprecedented buyer demand has driven auction prices to record highs across capital city markets over the past month. “Home auction markets have soared to record highs over March, reflecting unprecedented buyer demand for available property,” said Archistar chief economist Dr Andrew Wilson.
Archistar’s most recent My Housing Market report found that all capital cities saw significant increases in the median price of houses sold at auction over the year ending March 2021. Brisbane saw the highest level of annual price growth at 29.3 per cent, followed by Sydney with 16.4 per cent, Canberra with 12.2 per cent, Melbourne with 11 per cent and Adelaide with 10.9 per cent.
Based on houses sold at weekend auctions in March, Sydney recorded the highest median price for houses at $1,609,375. Over the month, the NSW capital recorded an impressive 90 per cent clearance rate.
In the week ending 28 March, Melbourne and Sydney continued to be ahead of their peers in terms of auctions as they saw the biggest number of houses go under the hammer, representing almost 87 per cent of all auctions. Of the 3,791 auctions over the weekend, 3291 were from the two cities, CoreLogic data revealed.
The NSW capital recorded the most success, with 89.1 per cent of 1,392 auctions in its market turning into a sale. The city's final clearance rate has been above 80 per cent for the last seven weeks.
Looking ahead, although auction markets are up for a “quieter month” in April, Dr Wilson expects auction results to continue driving a surge in home prices.
Rental values
Rental market conditions across capital cities remained diverse in March, with noticeable differences between the regions and housing types. Perth and Darwin continued to be the tightest rental market among capital markets, as both house and unit rents in both cities continue to record double-digit annual growth.
Sydney’s rental market managed to find its footing in March as annual house rents posted a 3.0 per cent increase. Weaker rental conditions can be seen in the unit sectors as annual unit rents are still in the red, edging down 4.9 per cent. The weakness in Sydney’s unit rental market is attributed to the demand shock caused by stalled overseas migration and international border closures.
With housing values climbing faster than rents, gross rental yields have been trending lower. Sydney and Melbourne stand out as having a much lower yield profile.The NSW capital’s saw gross yields hit a new record low in March, recording a gross yield of 2.7 per cent.
Vacancy rates
For the third consecutive month, national vacancy rates held steady at 1.9 per cent, standing only 0.1 per cent percentage points higher compared to the same period last year and 0.7 per cent lower than the COVID-induced April 2020 peak, according to new data from Domain.
Overall, vacancy rates remain tight across all capitals except Melbourne and Sydney. The NSW capital’s vacancy rate edged up modestly, rising from 2.8 per cent in February to 3.0 per cent in March. Over the year, vacancy rates in Sydney are up by 0.3 percentage points.
The impact on the rental market in Sydney and Melbourne has seen inner-city regions or those close to universities remain a tenant’s market, while landlords have greater balance of power in outer-suburban areas, according to Domain’s report.
Parramatta (4.9 per cent), Auburn (4.9 per cent), Strathfield- Burnwood- Ashfield (4.3 per cent), Pennant Hills – Epping (4.1 per cent) and Hornsby (3.8 per cent) had the highest vacancy rates in the NSW capital. Meanwhile, the areas with the lowest vacancy rates over the month were Wyong (0.4 per cent), Camden (0.5 per cent), Blue Mountains (0.5 per cent), Gosford (0.6 per cent) and Sutherland – Menai – Heathcote (0.8 per cent).
Melbourne and Sydney’s strong exposure to international border closures will ensure reduced demand for rentals for the foreseeable future, at least until restrictions are lifted, and may take some time before they recover to pre-COVID vacancy rates.
Outlook
Overall, capital city housing markets continue to be supported record low interest rates and recent economic conditions that have consistently defied forecasts. Because of these factors, Aussies are feeling optimistic and confident in making high commitment decisions related to the property market. The increase in buyer demand has not been met with the same level of increase in inventory, resulting in strong selling conditions, amidst a FOMO sentiment amongst buyers, putting upwards pressure on housing prices.
Generally, experts believe that housing values will continue lifting in 2021 and well into next year. As the housing market reaches record high values, speculation is increasing as to what will trigger the next downswing phase of the property market cycle. Historically, similar periods of the property market boom phase have been previously dampened by factors such as rising interest rates, weaker economic conditions or changes to credit availability.