Property market update: Sydney, May 2021

After easing by a small degree in April, price growth in Sydney has picked up steam again, as the combination of ultra-low interest rates, solid consumer confidence, and low supply boosted prices to record high levels in May.

A decline in the number of new listings in Sydney during the month was also met with solid demand from buyers looking to get a piece of the hot property market, and consequently, auction rates clocked in above or near the 80 per cent mark each week during the month. 

CoreLogic’s head of research, Tim Lawless, described the current market conditions have lined up to be a ‘perfect storm’ that was driving up prices. 

As the economy continues to gather speed and the RBA remains committed to keeping the record-low interest rate environment in the near future, there are no indications that the capital city markets, particularly Sydney, are about to cool any time soon. 

Here are the highlights of Sydney’s property market in May 2021.  

Property values

Sydney’s property market is now one of the hottest in the world as house prices in the city rose by a staggering $1220 a day.

According to the latest data released by CoreLogic, home values in Sydney rose by  3.0 per cent for the month and 11.2 per cent for the year. The average dwelling value of a property in the city now stands at $970,355, about $20,000 more than it did last month. 

Mr Lawless explains "from a geographic perspective, it was the smaller capital cities that led the housing market out of the COVID slump, but now Sydney has risen through the ranks to record the largest capital gain over the past three months with values up  9.3 per cent." 

Houses continue to outshine the unit market in the NSW capital. Sydney’s median house value in May climbed another 3.5 per cent to a record $1.186 million.  That takes the total increase for the year so far to an astounding 15.1 per cent. 

While growing at a slower pace than their detached counterparts, units are still moving up towards the $800,000 median milestone, a significantly higher level than in any other capital city market. Sydney’s unit market posted  a 1.8 per cent increase during the month, with the median value rising to $781,708. 

Although housing values are now rising the fastest once again in Sydney,  the annual growth rate is generally higher across the smaller capitals, as well as Regional New South Wales.  Housing values across Regional NSW are up 18.6 per cent compared to May 2020. 

Supply and demand 

Across the country, advertised stock sold at a faster rate than new listings were coming in the market, indicating that the widely felt FOMO sentiment among buyers has not dissipated in May. 

Figures released by SQM Research showed that national residential property listings dropped in May 2021 by 6.3 per cent  to 245,953 from 262,617 in April 2021, and old stock is being cleared nationwide as the number of buyers outpace sellers during this property boom.  

Total listings in Sydney slightly declined by 3.5 per cent from 28, 446 to 27, 440 over the month, which was met by feverish demand from buyers which resulted in high clearance rates in May. 

SQM Research managing director Louis Christopher said the number of old listings (property listings over 180 days) across the country had fallen by 44 per cent over the past 12 months, falling from 139,686 listings to just 78,260.

“It shows there are definitely more buyers than sellers, and it suggests to us that there’s been no material slowdown since the end of [the federal government schemes] JobKeeper or HomeBuilder,” he said.

Mr Lawless said that the combination of rebounding economic conditions and low economic rates are propping up consumer confidence, which in turn is underpinning the strong demand for housing. He added that the imbalance between demand and supply (characterised by the advertised supply remaining significantly below average) is continuing to fuel the urgency among buyers which are adding to the upward pressure on housing prices. 

“The sales to new listings ratio remains around 1.1, meaning for every new listing there is more than one sale occurring,” said Mr Lawless. “This rapid rate of absorption is keeping advertised inventory levels extremely low, despite the rise in new listings. As a consequence, vendors remain in a strong selling position while buyers have a weak position at the negotiation table.” 

As housing sales activity continues to outpace the number of new listings added to the market, the total number of homes advertised for sale remains approximately 24 per cent below the five-year average. 

Auction rates 

The low level of supply and high buyer demand kept auction clearance rates high in May.  Auction clearance rates have held in the mid-to-high 70 per cent  range throughout the month, easing a little from March when clearance rates were consistently finalising above 80 per cent, but still significantly above the decade average of 64 per cent.

According to CoreLogic, the week ending 30 May 2021 saw 2,905 auctions held across the capital cities, which returned a final auction clearance rate of 73.5 per cent - the lowest clearance rate recorded across the combined capital cities this year. Sydney recorded a final clearance rate of 76.0 per cent for 1,174 auctions held during the period. 

Rental market 

While sales have been on the rise so far this 2021, the rental market’s performance has been significantly more subdued. This is more notable in Sydney,  where rents are still down 3.0 per cent compared to the same period last year. 

The city’s unit sector has been particularly weak, as the closed international borders have had a more significant impact on tenancy demand in Sydney and Melbourne rental markets. Sydney rent houses are up by 2.0 per cent over the last three months while unit rents are 1.8 per cent higher. Unit rents continue to be 7.5 per cent below their 2018 record high and are 3.0 per cent lower over the last 12 months. 

Sydney was the lowest yielding capital city, with a gross rental yield of 2.6 per cent, followed by Melbourne with 2.9 per cent.

CoreLogic noted that with  investor activity rising hand in hand with new residential construction activity, the long-term outlook for rental markets is likely a slowdown in the rate of rental appreciation, at least until international borders re-open, which is seen to boost tenancy demand, particularly in the inner-city precincts of Melbourne and Sydney.  

Vacancy rates 

According to Domain, the national vacancy rate fell from 1.8 per cent in April to 1.7 per cent in May. Vacancy rates across all the capital cities slightly eased or were unchanged in May said Domain senior research analyst Nicola Powell, with “extraordinarily tight” conditions in many of the smaller capitals making it harder for tenants to bag a good deal – and driving down the national vacancy rate to its lowest level since February 2020.

Renters in Sydney have greater options when it comes to finding a rental, with 2.7 per cent of properties left vacant in May. The city’s west area offers the highest vacancy rates,  with 4.6 per cent of properties in the Parramatta region and 4.4 per cent of rentals in the Auburn area untenanted throughout May. They were among a dozen Sydney regions, mostly covering Sydney’s middle-ring suburbs, which posted a vacancy rate above three  per cent. Meanwhile, the inner city’s vacancy rate fell to 2.9 per cent  from 3.2 per cent in April.

At the other end of the spectrum, the areas with the lowest vacancy rates in the NSW capital are Camden (0.3 per cent), Blue Mountains (0.4 per cent), Wyong (0.4 per cent), Gosford (0.6 per cent), and Campbelltown (NSW) (0.6 per cent).    

Outlook

What does the future hold for Sydney in the coming months?

There is a general consensus among market experts that there will be a continuous appreciation of values throughout the year and well in 2022, as record-low mortgage rates and high levels of consumer confidence continue to provide fuel to the 2021 property market boom. 

Adding to the raft of bullish forecasts, AMP Capital chief economist Shane Oliver said home prices could climb another 10 to 15 per cent by the end of next year. Meanwhile, Westpac senior economist Matthew Hassan said he expects price gains to moderate with a total national increase of 15 per cent for all of 2021.

On a cautious note, Mr Lawless from CoreLogic said that growth could slow to a more gradual rate as affordability constraints dampen activity, particularly among first home buyers. 

“Worsening affordability pressures are likely to impact first home buyers more than other segments of the market, and there are already signs that first home buyer demand is pulling back.

“Investors, on the other hand, are stepping up their activity across the housing market, motivated by prospects for continued capital gain and low interest rates. The resurgence of investor participation, and high levels of activity in the owner-occupier non first home buyer segment may account for the continued strength in dwelling markets despite affordability constraints,” according to the researcher.

The rise in housing supply, along with demand remaining low due to closed international borders, could also slow down the rise of housing values.