Property market update: Sydney, June 2021

Despite the latest series of COVID-19 lockdowns taking some momentum out of the recent real estate boom, Australia’s property market still finished the financial year on a strong note.

CoreLogic’s national home values increased by 1.9 per cent in June, bringing the annual growth to 13.5 per cent for the financial year. This is the highest annual rate of growth seen across the country’s residential property market since April 2004. 

A raft of factors, such as continuously low mortgage rates, falling unemployment, elevated consumer confidence, the accumulation of savings through the COVID lockdowns last year and relatively low advertised housing stock, all underpinned strong demand conditions, according to CoreLogic head of research, Eliza Owen. 

Federal government programs like the First Home Loan Deposit Scheme and the New Home Guarantee have also fueled the recent property market boom.

However, the housing market has clearly lost some growth momentum. Softer growth rates are being recorded in almost all capital city markets bar Canberra, with Sydney slowing down from its 3 per cent in May by a few percentage points in June. Additionally, there is some uncertainty over how the new string series of lockdowns would affect the market conditions.  

For now, here’s a look at how Sydney’s winter market is shaping up in 2021. 

Property values 

The Sydney property market continued to resist early pandemic warnings of steep declines, as record-low interest rates and government stimulus fueled a buying frenzy. But despite another month of strong gains, there are signs that some heat is coming out of the market.

Dwelling values in Sydney rose by another 2.6 per cent in June, bringing the city’s annual growth rate to 15 per cent. The average dwelling value of a property in the NSW capital now stands at $994,298, almost $24,000 more than it was last month.

The growth of dwelling values in the city was led by houses, posting a 3.0 per cent monthly increase that brought the annual growth rate to a staggering 19.3 per cent. The median value of houses in the NSW capital currently stands at $1,224,613. 

Meanwhile, the city’s unit market recorded a 1.6 per cent increase, with median values at $794,193 at the end of the month.  This brings the total annual gain to 5. 1 per cent. 

“It is quite startling to see how much house values have risen in the space of six months especially,” said Tim Lawless, CoreLogic’s research director. “It’s due to this ongoing shift in preferences away from anything with density … there definitely seems to be more people wanting to live in a detached home [as a result of the pandemic].

While the housing market continued to outperform the unit market in terms of price growth, the gap between the two was likely close to a peak, said Domain senior research analyst Nicola Powell. She said the demand and unit price growth was likely to gain momentum in the following months as the housing market slipped out of reach for more Aussies.

Values at the high end of the capital city markets – the top 25 per cent of dwelling values – have retreated for the first time in nine months. Across the top 25 per cent of dwelling values in the combined capital cities market, growth in dwelling values in the most recent quarter stood at 8.0 per cent, easing from the 9.2 per cent in the three months to May. While the 8.0 per cent increase was still the highest observed among the property tiers that were analysed, the growth rate also had the biggest monthly deceleration. 

According to Ms Owen, the easing in the pace of growth at the top end of the market is another clear indication of a change in the property market’s momentum. She noted that the rest of markets tend to follow movements of the higher-end tier and its lack of acceleration for the first time since late 2020 may provide insights on how the market moves in the coming months. 

Supply and demand  

Demand for houses did not cool off as winter progressed, with property listings declining again in June following a drop in May.

Figures released by SQM Research showed that residential property listings in Sydney fell by 2.4 per cent in June to 26, 788 from 27, 440 in May. Compared to 12 months ago, listings declined by 9.5 per cent.

Over the month to 29 June 2021, SQM reported that asking  prices in the city rose by 3.2 per cent for both  units and houses. 

Louis Christopher, Managing Director of SQM Research said that demand remains strong despite the quieter winter season, as property listings fell month-on-month. He also highlighted the steep decline in old listings (properties that have been on the market for over 180 days) in June, indicating that old stock is being sold and that new listings are not offsetting the decline. 

Old listings in Sydney fell by 7.0 per cent over the month from 4,248 in May to 3, 952 in June. At an annual rate, old listings declined by 36.8 per cent. 

Corelogic’s data affirmed the trend of strong demand and low listings across the country. While new listings have risen alongside prices, total stock on the market continued to be low.  The latest listings count from Corelogic revealed that during June, the total advertised stock remained 24.4 per cent below the five-year average.

According to Ms Owen, the dynamic of strong consumer demand and low housing supply is causing urgency among buyers. She said  the steep decline in unemployment rate , elevated savings and confident consumer sector have boosted buyers’ appetite. She added that these factors, along with continued low mortgage rates, is one of the most significant demand drivers. 

Auction rates 

The trend of demand outstripping supply has resulted in relatively high auction clearance rates across capital cities throughout June. But the outlook for the auction market looks bleak in the coming weeks, as a series of lockdowns in Sydney are seen to dampen market activity. 

Over the week ending 27 June 2021,  2,960 homes were taken to auction across the combined capital cities with a final clearance rate of 75.4 per cent, according to Corelogic.

In Sydney, 1,084 auctions were held during the last week of June, with 77.5 per cent reporting a sale.  In the prior week ending 20 June 2021, 1,157 homes went under the hammer with a final clearance rate of 76.8 per cent. The figures were an improvement from the results on 7 June 2021, when Sydney’s clearance rate fell below 60 per cent. 

Rental market

Rent values across capital cities continue to see strong growth in June, despite gross rental yields flattening over the month. 

Sydney, which was one of the worst pandemic-affected rental markets, showed a more defined recovery trend through June. Unit rents were 1.1 per cent lower over the year to June, an improvement from the recent trough in the annual growth rate of -5.7 per cent in December 2020. Meanwhile, house rents in the city posted a 5.7 per cent annual gain. 

For the second consecutive month, Sydney was the lowest yielding capital city, with an unchanged gross rental yield of 2.6 per cent in June. 

Recent figures from ABS housing finance have shown a strong lift in investor financing since the start of the year, albeit of low levels. The return of investors to the Australian dwelling market may help to gradually improve rental conditions, Corelogic stated in its report. 

Vacancy rates

The national vacancy rate posted its third month of declines in June, with all capital cities except Melbourne and Sydney now back at their respective pre-pandemic vacancy rates.

Domain’s Vacancy Rate Report, June, revealed that the national rental vacancy rate fell to 1.6 per cent in June, down from 1.7 per cent in May, the lowest point since the firm’s records began in 2017.

Despite this, rental markets in Australia’s biggest cities are showing signs of recovery, as data showed that the number of available inner-city rental properties halved since the height of the COVID crisis as new tenants flock to Melbourne and Sydney. 

Over the month, Sydney’s monthly vacancy rate fell by  0.1 per cent to 2.6 per cent. The inner-city vacancy rate halved from 5.6 per cent at  an annual rate, to just 2.7 per cent last month. 

“I do think it is a signal the cities are repopulating,” Dr Powell said. “Part of the reduction in available rents in Melbourne and Sydney could also be due to investors tapping out of the market and selling to owner-occupiers.”

Sydney’s million-dollar markets 

While 2020 has been a proverbial wrecking ball for the majority of the Australian property market, Sydney’s markets have managed to bounce back,  with some even breaching the one million dollar market threshold. 

Corelogic's first Million Dollar report showed that the NSW capital is home to the highest number of million-dollar markets, with 340 house markets and 79 unit markets, a number that grew by  25.4 per cent in the year to May 2021. 

The top 5 new million-dollar markets in Sydney were all located in the Central Coast, namely North Avoca, Copacabana, Bensville, Wamberal and St. Huberts Island.  North Avoca saw the highest rate of growth, with median house prices surging from $991,507 to $1,466,568 in just 12 months. 

Avalon Beach had the most dramatic rise for units, where the $979,690 value of 2020 has led to a current median of $1,198,022.

In regional NSW, 30 markets have pushed past the million-dollar mark, indicating a  267 per cent annual increase.

Outlook

So, what lies ahead for Sydney’s property market in the coming months?

While the housing markets are still growing strongly, Mr Lawless said that the rate of appreciation is now slowing down. He noted that the easing in the rate of growth is not surprising, as affordability becomes an issue for most homebuyers.  The withdrawal of the government stimulus will also affect affordability constraints and will lock out more people from the market, he added. 

As for whether the latest snap lockdown measures in NSW and other parts of the country will derail the level of price growth, both Mr Lawless and Ms Owen voiced their doubts that they will have any significant impact.

Mr Lawless said the most recent lockdowns were unlikely to have much effect on values, noting previous lockdowns had resulted in short, steep declines in sales and listings, which put a ceiling on price declines, and were followed by a swift recovery in sales activity.

“It all comes back to the duration of the lockdown, though,” he said.  “The wildcard this time around [if we do move to an extended lockdown] is the absence of any major fiscal support … I think that would be very important if we were to move through another period of extended disruption.”

“Throughout lockdowns in the past 15 months, basically what CoreLogic data has shown is that you get a drop off in demand, you get a drop off in sales, but you also get a drop off in supply, because people know it's not an ideal time to sell," Ms Owen observed.

However, she said that if lockdowns weighed down major markets, then the sentiment of banks to mortgage repayment deferrals would be crucial to the property market, as it was in 2020. 

As of writing, most major banks have informed customers that they will consider repayment relief for those negatively affected by lockdowns.