Property market update: Sydney, December 2021

But while all capitals posted healthy yearly gains, the latest data indicated that Australia had entered a two-speed property market as housing markets began to diverge at the end of the previous year, according to CoreLogic. 

At one end of the spectrum, smaller and cheaper capital markets such as Brisbane and Adelaide have powered ahead, while Sydney and Melbourne’s markets are now traversing the slow lane, with predictions that growth could flatline or decline further in the near future.

Tim Lawless, CoreLogic’s research director, pointed out several factors that caused the sharp decline in momentum in the nation’s two biggest capital cities in December. 

First, he highlighted the higher number of available properties on the market, which in turn weakened the demand as buyers were presented with more options. 

“A surge in freshly advertised listings through December has been a key factor in taking some heat out of the Melbourne and Sydney housing markets,” Mr Lawless stated. 

Sydney’s growth outlook this summer season is further dimmed by the gathering of storm clouds caused by significant affordability constraints. 

Despite Sydney’s growth tapering down from peaks seen in March 2021, the NSW capital took the top spot for the highest median property price among capital cities during the year. The city’s average dwelling value now sits at more than $1 million, making it the only city to break through the seven-figures threshold.

The eye-watering figures present a difficult barrier to overcome for those who want to enter the harbour city’s market. 

According to the latest ANZ CoreLogic Housing Affordability Report, home buyers will need to save for more than 16-and-a-half years to amass a 20 per cent deposit for a property after a surge in house prices in 2021. 

And while in the 1970s, a house costs seven times the average salary, it will now set the regular Sydneysider homebuyer back by 12.5 times their median yearly income, the report showed. 

“So clearly, affordability is becoming a lot more challenging in those larger cities where affordability was already quite challenging leading into the pandemic,” Mr Lawless said.

Another factor that is seen to slow down growth in Sydney is the negative interstate migration. Mr Lawless said that the cities that would continue to post strong gains in the coming months are those that are seeing positive interstate migration, such as Adelaide and Brisbane. 

Other factors, including a new COVID strain, further tightening of lending restrictions, and rising mortgage rates, are also seen to throw a wrench in Sydney’s growth trajectory. 

Before we take a closer look at what’s in store for Sydney in 2022, let’s examine how the city performed in December 2021. 

Property values

Despite Sydney becoming the only member of the million-dollar club at the end of 2021 following strong monthly gains throughout the year, the latest data from CoreLogic indicated that the fastest price rises are likely in the rear-view mirror for the NSW capital.

CoreLogic data showed property values in the city almost stalled in December, recording a mere 0.3 per cent over the month, the slowest rate of growth since January 2021.

The monthly gains are a third of the 0.9 per cent growth seen in November and significantly lower than the 3.7 per cent record growth seen in March 2021. 

Over the year, the median price of dwellings in the city is 25.3 per cent higher compared to December 2021 at $1,098,412, representing a $222,000 jump in values. The figures also indicate a more than $8,000 increase from the previous month despite the weak pace of growth during the period. 

Sydney house prices increased 0.4 per cent in December, less than half of the 1 per cent gain in November. Compared to the same period last year, values are up by 29.6 per cent. 

Despite growth in the sector winding down last month, Sydneysider house owners still saw a more than $14,000 jump in the median house price, with the average house prices currently at $1,374,970. 

Meanwhile, the city’s unit market values declined 0.2 per cent from a month earlier, falling from the 0.7 per cent growth seen in November. Year on year, prices are still up by 15.1 per cent. 

Sydney apartments currently have a median value of $835,104, representing a $2,158 increase from the previous month. 

According to Mr Lawless, the slowing growth in the city’s dwelling values can be explained by a bigger deposit hurdle caused by higher housing prices alongside low-income growth, coupled with a recent surge in advertised listings and weak demographic trends.

Supply and demand

The traditional Christmas lull saw total residential listings in Sydney falling by 15.1 per cent in December, according to the latest data from SQM Research. 

The monthly decline brought the number of available properties in Sydney to go from 30,111 to 25,345 over the month. 

New listings (or properties that have been on the market less than 30 days) in Sydney saw a 47.4 per cent decline over the month from 18,658 to 9,813, making the NSW capital the biggest decliner among its peers during the period. Over the year, new listings in the city are still up by 17.6 per cent.  

Meanwhile, data showed that old listings or property listings over 180 days rose 3.8 per cent from 3,677 in November to 3,818 in December. Year on year, old listings have fallen by 32.9 per cent. 

Managing director of SQM Research Louis Christopher said that while the auction market was running hot over December, national total listings were down on a month-by-month and a year-by-year comparison. 

The expert highlighted that Sydney recorded a surge in new listings in December, when factors such as seasonality are taken out of the equation and the figures are compared against December 2020. At an annual rate, Sydney saw only a 2.7 per cent decline in total listings. 

Commenting on the recent listings data, Mr Christopher said the supply is still lagging behind the demand across the country. “Overall, there remains a shortage of listings at the national level and as a result, vendors are in no panic – indeed, they lifted their asking prices for the month,” he said. 

Mr Christopher added that the housing market is in for “a very soft landing” in 2022 unless a surge in listings is observed in February. 

Meanwhile, CoreLogic noted that while a shortage of listings has been a main characteristic of the property market throughout the COVID period to date (which in turn has fueled the FOMO sentiment among buyers), supply has begun to rise throughout the last quarter of the year. 

But the influx of homes hitting the market has not been evenly spread, adding evidence to the property data and analytics provider’s observation that the country’s capital markets have entered a multi-speed lane.  

According to CoreLogic, Sydney finished the year with listings only 3.9 per cent below average. This is a stark contrast to Brisbane and Adelaide’s advertised supply that stood around 35 per cent below the five-year average at the end of 2021. 

According to Mr Lawless, the number of homes available to purchase has been a key factor underlying the trend in housing values. 

“Capital cities where advertised stock levels are above average or close to normal, such as Melbourne and Sydney, have shown a more obvious slow down relative to cities with persistently low advertised supply, like Brisbane and Adelaide,” he explained. 

While stock levels have generally been low, according to CoreLogic, the total number of home sales in 2021 was approximately 40 per cent above the decade average. Data showed 653,000 house and unit settlements were conducted over the calendar year, the highest number of annual sales on record.

Mr Lawless noted that as stock levels normalise and affordability constraints along with tighter credit conditions drag down demand, it is “reasonable” to expect growth conditions will be more subdued this year.  

Auction markets

Historically, auction activity starts to taper off in the lead up to Christmas, with volumes falling dramatically after the second week of December.

However, auction volumes in Sydney remained steady, with a total of 4,891 auctions held in the first three weeks of December. 

Even during the last week of the month (when auctions are rarely held), CoreLogic data showed 164 homes were set to go under the hammer. 

According to market observers, fear and uncertainty have driven several sellers to make a desperate December dash to cash in on the still-simmering property market before 2022. Additionally, experts say that future interest rate hikes and chatter that the red-hot market could run out of steam triggered the almost unprecedented pre-Christmas sell-off. 

But despite the high number of properties up for the taking, the success rate at auctions has dropped sharply in the NSW capital. Data from CoreLogic showed that just 60.5 per cent of auction results reported so far in Sydney resulted in sales.

In its latest auction report, the research firm forecast that Sydney’s final clearance rate would fall below 60 per cent for the first time this year when the remaining results are collected.

The humdrum in auction market activity is expected to continue during the first few weeks of 2022, but agents are now reportedly bracing for an unusually active January, with thousands of Sydney home owners scheduling open homes and auctions earlier than in previous years.

Part of the reason was sellers wanting to pre-empt a surge in listings over February when the real estate industry normally comes back to life after the summer break. 

Experts said the increase in the number of available properties would give home seekers more choice and remove pressure to make snap purchasing decisions.

If you want to be in the loop about what’s happening across auction markets in the country, follow our weekly updates in our News section. 

Vacancy rates 

Domain data showed that Sydney vacancy rates rose for the second consecutive month in December, rising to 2.6 per cent from 2.3 per cent in November. 

This is the highest level that the city’s vacancy rate has been since May 2021 but at the same level recorded in March 2020, just before the COVID pandemic. Over the year, vacancy rates in Sydney are down from 3.7 per cent. 

The areas with the highest vacancy rates during the month were Ku-ring-gai (4.2 per cent), Canterbury (4 per cent), Parramatta (3.9 per cent), Rouse Hill – McGraths Hill (3.7 per cent), and Chatswood – Lane Cove (3.4 per cent).

On the one hand, tenants may have a hard time finding vacancies in Camden (0.3 per cent), Wyong (0.5 per cent), Richmond – Windsor (0.5 per cent), Gosford (0.5 per cent), and Hawkesbury (0.5 per cent). 

According to Domain, the increase in the city’s vacancy rates was driven by significant monthly increases in the number of vacant rentals. 

Data showed that there were just over 15,000 estimated vacant rental listings at the end of December in the harbour city, indicating a 13.8 per cent increase over the month. 

The surge in rental supply was expected, according to Domain, as is typical for the rental market to see a boost in supply in December. It explained that the end of the year marks the rental changeover period, with the end of leases and increased choice for tenants.  

Dr Nicola Powell, Domain’s chief of research and economics, said that Sydney’s rental market is still operating in favour of tenants. 

But she noted the tide might turn in favour of the harbour city’s landlords in January. “Early in 2022, it’s likely we’ll see decreases in the number of vacant rental properties as strong historical rental demand in January reduces the number of vacant rental listings,” she said. 

Dr Powell added that Sydney’s rental market would be under further strain as borders reopen and the flow of international students, overseas migrants and expats restarts. She added that Sydney might see greater pressure compared to other cities, as historically, the NSW capital has welcomed more overseas migrants than other cities. 

Domain also noted that as all states adjust to eased restrictions, the rental market could continue to become more competitive.  

Rental market

At an annual rate, CoreLogic data showed that rents in Sydney houses and units rose by 10.2 per cent and 7.2 per cent, respectively. 

CoreLogic noted that rental growth trends across the unit sector have generally been more subdued compared to houses, with unit rentals being “disproportionately affected” by stalled overseas migration as well as domestic rental preferences shifting away from higher-density options through the pandemic.

However, CoreLogic underscored that these trends are starting to change as rental affordability diverts demand back towards the unit sector.

Gross rental yields in Sydney continued to be the weakest among capital cities, showing the lowest rental returns of 2.4 per cent due to lower rental growth relative to a high rate of capital gain.

What lies ahead for Sydney in 2022?

After wrapping up a rollercoaster of 2021, what is in store for Sydney in 2022?

Generally, market commentators are in agreement that the city’s market won’t replicate the same pricing frenzy that it saw in 2021.

Ray White chief economist Nerida Conisbee said that while Sydney prices might still tick up slightly in the early months of 2022, the conditions would become increasingly favourable for buyers as the year progressed.

“It will be a calmer market this year,” Ms Conisbee said. “That will be good news for buyers who found it challenging to get into the market last year because things moved so quickly.”

Several factors, including worsening affordability, rising listings, an early lift in interest rates and tighter credit policies, are some of the downside risks for housing that were identified by CoreLogic. 

It also underlined that COVID remains the biggest wildcard for the market, especially given surging case numbers related to the Omicron strain. 

The property data provider warned that a return to restrictive policies due to a new outbreak, especially those that limit movements or home inspections, would result in a new phase of temporary disruption to transaction activity.

However, such a scenario may also prolong expansive monetary policy and low-interest rates, which helped sustain housing demand through 2021, CoreLogic stated. 

And while there are some headwinds building for the housing market, CoreLogic expects Sydney’s housing values will continue to rise in the short term. 

Addressing the concern around a future rate hike, CoreLogic said that even if interest rates rise earlier than expected, it is likely to be a gradual process. The cost of debt is likely to remain well below long-term averages, continuing to support housing demand for an extended period of time. 

Meanwhile, all four big banks expect Sydney prices to continue growing in 2022 before entering a correction phase in the following year. 

ANZ expects price growth in the city will moderate to 6 per cent in 2022 and decline by 4 per cent in 2023. 

Commonwealth Bank is predicting growth to slow down to 6 per cent in 2022 and to slide 12 per cent in 2023, while Westpac sees a 6 per cent growth in 2022 before correcting and dropping by 6 per cent in 2023.

National Australia Bank sees the city’s dwelling prices to rise by 5.4 per cent growth in 2022 as the impact of low-interest rates and strong income support during the pandemic begin to fade. 

To read more in-depth forecasts on what’s in the cards for the property market this year, check out our seven property predictions for 2022. Make sure to also check out our articles on which Sydney suburbs are tipped for growth in 2022 and the best suburbs for property growth in 2022.

If you need a refresher on how 2021 played out for the real estate market, check out our podcast episode where our editorial team took stock of the top property news of 2021.

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