Property market update: Sydney, July 2021

Property values across the country rose by a further 1.6 per cent in July, making for a 16.1 per cent increase over the past year, according to CoreLogic.

Despite the latest gains, the property research firm noted the slowdown in the monthly growth rate in July, weighed down by the lockdowns and prices getting out of reach of average households. 

CoreLogic's research director, Tim Lawless described the market as strong, but one that is losing steam. He said that the lower rate of growth in housing values can be attributed to several factors. 

“With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community. Along with declining home affordability, much of the earlier COVID related fiscal support (particularly fiscal support related to housing) has expired,” he said. 

For the NSW capital, the outlook seems grim for the September quarter. Aside from the rising affordability constraints,  economists predict a sharp economic contraction and a further slowdown in property market activity largely as a result of the lengthy coronavirus lockdown in greater Sydney and regional NSW areas.

But there are optimistic voices among experts, saying that like Melbourne, Sydney’s market activity will manage to bounce back after the prolonged lockdowns. 

Will Sydney’s growth remain unabated in the following months or will it finally succumb to the predictions of doom and gloom? 

For now, let’s take a closer look at how Sydney’s property market performed in July 2021. 

Property values 

Corelogic’s data showed that while the  pace of growth has slowed across all capital cities, housing values continue to rise at a rate that is well above average across most areas of the country.

Sydney recorded the sharpest slowdown in growth, as the city's monthly capital gain fell from 3.7 per cent  in March to 2.0 percent  in July. It also marked a  slowdown from the 2.6 per cent growth seen in June. 

On a quarterly basis, the NSW’s capital is up 7.7 per cent. This marks the second consecutive quarter of almost 8 per cent growth, in what Corelogic described to be a “rare growth only seen three times over the past 30 years”. 

Compared to the same period last year, Sydney dwelling values are up 18.2 per cent with the median price breaking through the $1 million threshold at  $1,017,692. 

According to Mr Lawless, “Sydney is the most expensive capital city by some margin and it has also been the city where values have risen the most over the first seven months of the year. Worsening affordability is likely a key contributing factor in the slowdown here, along with the negative impact on consumer sentiment as the city moves through an extended lockdown period.” 

The housing market posted a 2.1 per cent monthly increase in July, leading the growth in the city’s property market with an annual increase of 23.0 per cent. The median value of houses in the NSW capital currently stands at $1,258,203. 

Meanwhile, the city’s unit market recorded a 1.6 per cent increase, with median values at $810,236  at the end of July.  This brings the total annual gain to 7.6 per cent. 

Supply and demand  

The latest string of localised lockdowns have led to significant falls in property listings across affected areas, with Sydney seeing the largest monthly decline, according to SQM’s latest data.

Residential property listings in the NSW capital fell by 5.1 per cent in July to 25, 41 from 26, 788 in June. On an annual basis, the number of available properties in the city has fallen by 21 per cent from the 32, 165 recorded in July 2020. 

Over the past 30 days to 3rd August 2021, asking prices in Sydney decreased by 0.7 percent  for houses and 0.2 per cent for units.

And the demand is not only for new listings. In a sign that older stock in Sydney is clearing, property listings over 180 days fell by 3.9 per cent over the month and 39.2 per cent over the year, with the figures currently at 3, 727. 

Louis Christopher, Managing Director of SQM Research said new listings were greatly affected by the lockdowns. Sydney took the biggest impact, as  new listings in the city fell by 19.7 per cent. 

Corelogic said that with listings below average and buyer demand still strong, prospective buyers are likely being motivated by a sense of urgency due to the high level of competition in the market.

The research firm said that advertised listing numbers continued to be below average across most parts of the countries in July, despite the number of new listings added to the market trending higher than average. Corelogic said that new inventory levels are experiencing volatility, with new listings in Sydney and Melbourne posting sharp declines amid lockdowns. 

In Sydney, the monthly number of new listings added to the market has edged down by around 30 per cent since the week ending 27 June 2021, bringing the total active listing numbers  down 13.7 per cent  below the five-year average. 

“We have seen the same trend through earlier lockdowns, where both buyer activity and vendor activity reduce before recovering to pre-lockdown levels once restrictions are eased or lifted, “ Mr Lawless said.

Auction rates  

Amid a prolonged lockdown, Sydney’s auction market displayed resilience,  with volumes and clearance rate remaining relatively steady throughout July. 

In the week ending 1 August 2021, Corelogic data showed  671 Sydney homes were taken to auction. Out of the 666 auction results, a clearance rate of 76.1 per cent was recorded.  The figures were an improvement from the last week’s final results of 72.8 per cent across 585 auctions.

“With stock levels remaining tight, selling conditions have been skewed towards vendors. Auction clearance rates have remained in the low-to-mid 70 per cent  range across the major auction markets through July and private treaty sales continue to record rapid selling times and low discounting rates,” Mr Lawless said.

Data from Domain also showed that clearance rates in Sydney remained above 70 per cent throughout July. 

“People will look back on this lockdown and realise demand was still high as buyers remain strong,” Ray White NSW chief auctioneer Alex Pattaro said.

According to the auctioneer, the high number of buyers along with the low number of available stock on the market has ultimately resulted in “electrifying bidding” and an overall good time to sell, with many buyers said to be bidding well above the price feedback they stated ahead of the auction.

Rental market 

Rental markets across capital cities remained tight in June, with the annual pace of growth in national rents rising to 7.7 per cent, the fastest rate of rental appreciation since 2008. However, rental markets across the country continue to be diverse. 

While rental conditions across Darwin and Perth continue to be the tightest amongst capitals with low vacancy and high rental demand, it’s a different story for Melbourne and Sydney landlords.

Rental market conditions in Sydney continue to be weak in July. Sydney saw the highest yield compression, with a gross yield to 2.5 per cent respectively. Melbourne followed closely with a 2.8 per cent. In comparison, every other capital city recorded a gross yield at 4 per cent or higher.

While Sydney and Melbourne’s rental conditions are substantially looser than the smaller capitals, Mr Lawless expects them to stabilise soon “following a substantial reduction in rents due to high vacancy rates attributable to stalled overseas migration and a preference shift away from high density living during the pandemic”.

With mortgage rates on new investment loans averaging 2.8 per cent, gross yields outside Sydney and Melbourne could provide positive cash flow opportunities and thus bring on an increase in investment activity.

Vacancy rates 

Vacancy rates remained low across the country, with Domain’s national vacancy rates unchanged at 1.6 per cent for the second consecutive month. This is the lowest point since Domain records began in 2017.

Despite this, the impact of lockdown appears to have started to disrupt rental markets This became evident in July across some cities. 

Vacancy rates held steady in Sydney at 2.6 per cent. While the rate holds at pre-pandemic levels seen in February 2020, the current extended lockdowns may undo this.  Domain predicts that the full effect on Sydney’s rental vacancy rates is unlikely to be felt until August, as the city enters its second month of a hard lockdown to combat the alarmingly high rates of Delta community transmission.

The effect of the extended lockdowns is likely to result in an overall increase in the number of vacant rentals across the NSW capital, according to Domain. It noted that regions with a high composition of casual workers in non-essential industries are likely to feel the brunt of higher vacancy rates in the coming months. 

The report also warned that tenants could be under financial strain and uncertainty due to the lockdowns, resulting in an exodus from existing rentals and into homes of family and acquaintances to save money. 

The areas with the highest vacancy rates in July were Auburn (4 per cent), Parramatta (3.5 per cent), Canterbury (3.5 per cent), Rouse Hill – McGraths Hill (3.4 per cent), and Kogarah – Rockdale (3.3 per cent). Meanwhile, Wyong (0.5  per cent), Blue Mountains (0.5 per cent), Sutherland – Menai – Heathcote (0.6 per cent), Camden (0.6 per cent) and Richmond – Windsor (0.6 per cent) had the lowest vacancy rates. 

Meanwhile, vacancy rates in Sydney’s CBD continued to decline, indicating a shift in population back to the cities is underway or tenants are relocating to areas that have seen a decline in asking rent. It could also indicate that investors are selling up. 

Looking ahead 

What lies in store for Sydney’s property market for the rest of 2021? 

The nation’s top economists and analysts expect the housing boom to end this year, with many predicting potential regulatory action from the Reserve Bank of Australia (RBA) and coronavirus lockdowns will take some of the heat out of the property market.

Corelogic says that previous ‘circuit-breaker’ lockdowns have generally seen dwelling values remain resilient to declines, but the number of home sales and listings activity has been more significantly disrupted in the most recent lockdowns. The research firm predicts that the rate of growth will continue to taper through the second half of 2021a s affordability constraints become more pressing and housing supply gradually increases. 

Other potential headwinds also cloud Sydney’s outlook , including the possibility of tighter credit policies and an earlier than expected lift in interest rates. 

But there are some institutions still optimistic about Sydney’s growth in the coming months. A National Australian Bank report led by Alan Oster is estimating that home prices in Sydney would continue to surge this year, despite the outbreaks of coronavirus. NAB expects Sydney home prices are seen to climb to 21.6 per cent this year before slowing down to 3.1 per cent growth in 2022.