Property market update: Sydney, September 2022

CoreLogic’s research director Tim Lawless said Sydney had experienced the biggest drop in prices of any region by recording a 9 per cent fall since the market peaked in January — the equivalent of more than $100,000 off the median sale price.

Moving in step with the NSW capital is Melbourne, where prices have fallen by 5.6 per cent since they hit their peak level in February — the equivalent of median house values falling by $63,000. 

While Mr Lawless pointed to the Reserve Bank of Australia’s (RBA) monetary policy tightening as the main reason behind the steep pullback in prices in Sydney and Melbourne, he noted that there are other factors weighing on the two biggest cities. 

“Both of these cities also had a demographic headwind — a lot more people have been leaving, and interstate migration has been well and truly negative,” the expert stated. 

However, the start of spring selling season managed to bring a small reprieve to the NSW capital, with Mr Lawless noting that the declines are “starting to ease”. 

While the country’s price correction marked its fifth consecutive month in September, data from CoreLogic showed that values are now reducing at a slower rate than they were in August. 

“It’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market, and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes,” Mr Lawless commented.  

The expert pointed there were some signs that the rate of price falls was slowing — but he cautioned that it could pick up again if the RBA continues to hike rates aggressively.

Notably, RBA has indicated that it is now looking to reduce its firepower in its fight against surging inflation. While the RBA retained its hawkish stance during its latest policy meeting, it has raised that several options are now on the table aside — indicating that it may begin to scale back its rate increases. 

“At some point, we won’t need to increase rates by 50 bps at each meeting, and we’re getting closer to that point,” RBA governor Philip Lowe told the House of Representatives standing committee on economics on 16 September.

At the end of its October meeting, the RBA announced that the new cash rate would be 2.60 per cent, a lift of 25 basis points from the previous 2.35 per cent.

The latest rate hike represents an easing from the five-month consecutive months of 50 bps rate increases and could be an indication that the upcycle is nearing its end.

Most experts agree that a further deceleration in the interest rate hikes could continue to help the market settle. 

Is the worst really over for Sydney’s property market? Or are there more headwinds that property investors should brace for in the coming months?

For now, let’s see how the city performed in September 2022. 

Property values 

CoreLogic’s data showed that dwelling values in Sydney fell 1.8 per cent in September, easing from the 2.3 per cent decline seen in the previous month. 

Despite the softer blow on housing values on a monthly basis, quarterly figures painted a grim picture for the harbour city’s market.

Over the last three-month period to September, the city saw a 6.1 per cent in property prices — a further drop from the 5.9 per cent decline seen in the previous rolling quarter. 

Median dwelling values fell by 6 per cent compared to September last year, with the average price of a property in the city currently at $1,053,131. The figures indicate a month-on-month drop of $13,000 in average dwelling costs. 

Looking deeper into the city’s property market, Sydney’s housing sector saw a 2.1 per cent drop in median values. The figures indicate an easing from the 2.6 per cent in August. 

Over the year, median house prices in Sydney are now down by 6.4 per cent, with the average price tag of a house in the city estimated to be at $1,283,502. On a monthly basis, the figures indicate a decline of almost $20,000 in median prices. 

The NSW capital’s unit sector performed relatively better compared to its counterpart, posting a 1 per cent decline over the month. In August, the city recorded a 1.5 per cent drop in monthly values. 

Compared to the same period last year, the average price of a unit or apartment in the city is now down by 4.8 per cent to $793,000 — indicating a decline of around $6,000 month-on-month. 

Mr Lawless said that despite the decline in Sydney prices, the harbour city still has more buffer before the capital gains it accrued over the recent growth cycle are completely wiped out or reversed.

“Home values would need to fall a further 11.4 per cent to get back to the levels seen at the onset of COVID,” the expert stated. 

Supply and demand

The spring selling season typically sees a surge in fresh housing stock, but data showed that a rise in old listings caused a supply glut in Sydney’s market. 

Data from SQM Research showed that total residential listings in the city rose by 5.3 per cent over the month, from 30,077 in August to 31,674 in September. 

Compared to the same period last year, listings in the city are up by 36.2 per cent. 

In another sign that sellers are not keen on staging open houses during the spring selling season, new listings (or properties that have been on the market less than 30 days) fell by 2.4 per cent month-on-month from 12,076 in August to 12,443 in September. 

On an annual basis, new listings in the city are down by 2.4 per cent. 

Meanwhile, old listings or property listings over 180 days jumped by a staggering 15.7 per cent from 3,892 in August to 4,502 in September. Over the 12-month period, old listings are up by 26.4 per cent.

Managing director of SQM Research Louis Christopher said that older property listings are accumulating as a direct result of the market downturn, which persists despite the observed stability in weekly auction clearance rates and asking prices.

“It is due to the fact there are currently more sellers than buyers in the national housing market,” Mr Christopher said.

Separate data from CoreLogic painted the same picture in terms of supply. 

Data showed that the “spring selling season” is off to a slow start, with the number of new listings added to capital city housing markets over the four weeks ending 25 September was 12 per cent lower than the same period a year ago and 10 per cent below the previous five-year average.  

“It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions,” Mr Lawless commented. 

But while the flow of new listings is seasonally low, the total advertised inventory is rising in weaker cities such as Sydney. 

Total advertised stock levels in the city have risen by 1.1 per cent above the previous five-year average. 

According to CoreLogic, the higher-than-average total stock levels are an indication of weaker demand rather than too much supply being added to the market. On a quarterly basis, the quarter volume of sales in the city was lower than the previous five-year average.

Despite the grim selling prospects, Mr Lawless noted that there’s no indication that vendors are desperate to sell. “We haven’t seen any evidence of distressed sales or panicked selling through the downturn to date. 

“In fact, it has been the opposite, with the trend in newly listed properties continuing to diminish at a time when freshly advertised stock levels would normally be moving through a seasonal ramp-up.”

He added that reduced flow of new listings to the market could be a key factor helping to keep a floor under larger price falls, supporting the modest easing in the rate of decline through September.

Auction market 

Things are looking up for Sydney’s auction scene, as clearance rates in the city rose in September. 

Data from Domain showed that the city’s clearance rate rose by 5.9 percentage points over the month to 58.5 per cent at the end of September — the greatest monthly growth since February and the second consecutive month the city posted an increase. 

According to Domain, the improved figures indicate that sellers are adjusting their expectations to meet the market.

“This tells us that buyers are becoming more familiar with the new market conditions as well as the current interest rate environment,” Domain’s chief of economics and research Dr Nicola Powell said. 

Over the year, the city’s clearance rate is still down by 15.4 per cent, making it the second-biggest annual decliner among the capitals, behind only Canberra. 

House clearance rates are higher than units over the month. On a monthly basis, house clearance rates rose by 7.5 per cent to 60.4 per cent, while units rose by 2.6 per cent to 53.7 per cent.  

On an annual basis, house and unit clearance rates are down by 18.7 per cent and 22.4 per cent, respectively.

Data also showed that Sydney continued to have the largest proportion of sold prior and withdrawn auctions among capital markets.

According to Domain, the trend is to be expected, given the market slowdown is hitting the NSW capital the hardest. 

Out of the 3,172 scheduled auctions in the city throughout the month, data showed that 28 per cent were sold prior to being on the slate, while 22.8 per cent didn’t even get to go under the auction block. 

In terms of auction prices, Sydney posted positive monthly growth for houses but remains down annually, consistent with the broader downturn in the property market.

The median auction price for houses in the city stood at $1,810,000 at the end of September, representing a 2.6 per cent rise in average house price tags over the month. However, the figures are down by 8.9 per cent compared to the same period last year. 

For units, the average median price stood at 1,054,258 at the end of the month, representing a monthly decline of 1.1 per cent in median values. Over the year, the figures are down by 8.4 per cent. 

Separate data from CoreLogic showed that out of 2,966 auctioned in Sydney throughout the month, 58.55 per cent resulted in a sale. 

The figures mark an improvement from the 2,513 auctions held across the city in August, out of which 55.47 per cent resulted in a sale. 

Vacancy rates 

Sydney’s rental market continued to tighten in September, with the number of available rental listings in the city falling to a record low. 

Domain’s latest data showed that the city’s vacancy rate has fallen by 10 basis points to 1.1 per cent during the latest month.  

Available rentals in the city also continued to decline for the third straight month, sitting at a record low of 6,355. The figures are down by 6.3 per cent month-on-month and down 54.8 per cent compared to the same period last year. 

According to Dr Powell, the “misalignment between supply and demand” is resulting in a highly competitive environment for prospective tenants and exacerbating the rental crisis.

“Demand pressures have been caused by a combination of factors, including the lack of affordable home ownership, changing household formation and the return of skilled migrants and international students,” the expert commented. 

“On the supply side, we have seen delays in building completions due to supply chain issues, weaker investment activity and the conversion to short-term rentals as tourists return.” 

The areas with the highest vacancy rates across the city were Rouse Hill – McGraths Hill (3.6 per cent), Ku-ring-gai (3 per cent), Blacktown – north (2.5 per cent), Pittwater (2.1 per cent), and Hawkesbury (1.7 per cent). 

Meanwhile, the areas with the lowest vacancy rates were eastern suburbs – south (0.5 per cent), Bankstown (0.5 per cent), Sutherland – Menai – Heathcote (0.5 per cent), Mount Druitt (0.5 per cent), Campbelltown (NSW) (0.6 per cent).

SQM Research’s latest report showed that Sydney’s vacancy rate was unchanged at 1.3 per cent over the month. 

Despite the figures holding stable, data showed that the number of vacancies in the city still fell from 10,502 in August to 10,322 in September.

Commenting on the figures, Mr Christopher said that the rental market remains “extraordinarily tight”. 

“Going forward, history tells us when we reach the late spring, early summer period, we could see a seasonal increase in vacancies. However, there remains a structural issue with the rental market for which increases in construction of new dwellings will only resolve,” the expert stated. 

Rental market 

SQM’s data showed that the low number of available listings in Sydney has resulted in another month of asking rent increases. 

In the 30 days to 12 October, SQM’s data showed that the average weekly rental price for a dwelling in Sydney stood at $679, representing a 2.6 per cent gain over the month and a staggering 25.9 per cent annual increase. 

Meanwhile, CoreLogic’s latest quarterly data showed that Sydney’s dwelling rents rose by 2.9 per cent over the three months to September. 

CoreLogic research analyst and report author Kaytlin Ezzy said the upward trend in the harbour city’s rental prices was largely owed to the return of overseas migrants, who typically choose to rent in high-density markets of Sydney and Melbourne upon arrival.

With an average weekly rental price of $665, the NSW capital is now the second-most expensive capital city rental market, second only to Canberra with a median weekly rental value of $682. 

“With Sydney recording strong rental growth at a time when rents are declining across Canberra, the gap between Australia’s two most expensive rental markets has narrowed to just $17 per week,” Ms Ezzy said.

“Given international migration is expected to continue to support rental demand across Sydney while affordability is expected to hamper Canberra’s rental growth, it’s likely we’ll see Sydney overtake Canberra as Australia’s most expensive capital city rental market in the coming months.”

What’s next for Sydney’s property market? 

While Sydney is still in the midst of a downturn, there are signs that the city’s market activity is coming out of a hibernation. 

“Auction clearance rates also trended upwards, albeit subtly, in September and consumer sentiment nudged a little higher as well on the back of strong labour market conditions,” Mr Lawless said. 

With the rate of declines easing and other market indicators improving, is the worst phase of the correction over for Sydney? 

Mr Lawless said that once the cash rate stabilises, property prices may level off. 

“We will be watching for any signs of market distress as the dual impact of higher interest rates and high inflation impact household budgets,” Mr Lawless said.  

But he cautioned that if interest rates are ramped up, or double rate rises are on the table for the RBA once again, Sydney could see the rate of decline in housing values accelerate once more. 

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