Property market update: Sydney, September 2021

According to the latest edition of the Demographia International Housing Affordability Ratings, the NSW capital is now one of the most expensive places in the world to live in, sitting just behind Hong Kong and Vancouver. 

The only other Aussie city that made it to the list was Melbourne, which took the 5th spot. 

Sydney’s new status comes as the biggest property markets across the country continued to be red hot in September. According to CoreLogic, property values soared 17.6 per cent over the first nine months of 2021, a neck-breaking pace not seen since June 1989.

Over the past year, Sydney’s median house price has jumped almost $300,000 to surpass $1.3 million for the first time, notwithstanding the latest series of lockdowns brought on by the Delta outbreak. 

And despite September notching the slowest price growth in eight months, the slowdown is mostly attributed to first-time buyers finding it difficult to get into the market. 

CoreLogic’s research director Tim Lawless said Sydney is a prime example of where home buyers will face higher barriers in order to secure a property.

“With housing values rising substantially faster than household incomes, raising a deposit has become more challenging for most cohorts of the market, especially first home buyers,” the expert said. 

To put things in perspective, he highlighted that the typical Sydney house buyer would need around $262,300 to pay up the average 20 per cent deposit. 

He highlighted that the slowdown in first-time buyers is evident in the lending data. “[The] number of owner-occupier first home buyer loans has fallen by 20.5 per cent between January and July.” 

“Over the same period, the number of first home buyers taking out an investment housing loan has increased, albeit from a low base, by 45 per cent, suggesting more first home buyers are choosing to ‘rent vest’ as a way of getting their foot in the door,” Mr Lawless continued. 

For that reason, alarm bells are again going off over housing affordability and the risks to the stability of the system if this potential property bubble bursts. 

Calls for action to cool the markets have come from different groups, including major lenders, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the RBA in the last few weeks.  

As the debate around lending and ever-increasing property prices continue to grow and as financial regulators begin to take steps to intervene, there are now questions whether the current dynamic will continue in the following months. 

For now, let’s see how segments of Sydney’s property market performed in September 2021. 

Property values 

According to CoreLogic, property values in Sydney rose by 1.9 per cent over the month of September, slightly accelerating from the 1.8 per cent seen in August and below the 3.7 per cent peak observed in March 2021. 

The NSW capital was also one of the frontrunners in terms of annual capital growth. Sydney posted a year-on-year increase of 23.6 per cent, following Hobart with 26.8 per cent and Canberra with 24.4 per cent. 

The average price of properties in the city now sits at $1,056,093. It is currently the only Australian capital city in the million-dollar club in terms of median dwelling prices.

Throughout the 2021 boom, we’ve seen a common theme of houses recording stronger growth compared to units. This trend persisted in Sydney’s market in September, with house prices becoming more unreachable for first-time home buyers. 

The city’s housing market posted a 2 per cent monthly increase in September, accelerating from the previous month’s 1.9 per cent. Houses continue to be the primary driver of growth in Sydney’s property market, with an annual increase of 28.9 per cent.

The median value of houses in the city currently stands at $1,311,641, marking a new record high. 

Meanwhile, the city’s unit market edged up to 1.5 per cent over the month, with median values at $824,860, up from the $825,514 average price in August. Over the year, the unit market has seen growth of 11.6 per cent. 

Supply and demand  

It’s been a recurring trend throughout the 2021 boom, but a shortage of housing stock and insatiable buyer appetite continues to put upward pressure on prices despite lockdowns in some of Australia’s biggest markets.

In Sydney, the latest data showed that while listing rose, demand is still outpacing supply. The city’s total residential property listings increased in September 2021 by 3.9 per cent to 23,250 from 22,387 in the previous month. The monthly gain is attributed to sellers becoming more confident as a result of the near end of lockdowns. 

Over the year, property listings in the city are still trending downwards. The high rate of buyer demand (pent up due to the lockdowns), will trigger a shortage of properties on the market during the first month of spring, the research firm noted. 

With the Sydney lockdown end in sight, SQM expects that listings will rise leading up to Christmas. However, it is not likely to disrupt the current market trends. 

Louis Christopher, managing director of SQM Research, said: “The expected rise in listings is unlikely to create a housing slowdown prior to Christmas as low-interest rates continue to stimulate the housing market, and the expected economic uplift following the end of lockdown will also likely create stimulus for housing.”

According to CoreLogic, while new listings are ramping up, the trend in total active listings remains extremely low. This indicates the strong absorption rates in the market. On a national level, total advertised supply levels are -28.1 per cent below the five-year average, and every capital city is recording a below-average amount of advertised supply. 

Adding to the trend of strong demand, CoreLogic reported sales are still 25.5 per cent higher than the five-year average and 41. 9 per cent higher over the year at the end of September. 

According to Mr Lawless, the low levels of available supply along with high demand is keeping selling conditions more favourable towards vendors.

On that note, the figures from REA Insights’ latest Housing Market Indicators Report showed that home buyers looking to buy in NSW are not being discouraged by the high prices.

The report showed that buyer demand has reached record levels while listings remain heavily limited even as spring begins. Home sales in NSW in the year to August 2021 were up a staggering 38.9 per cent annually, and looking longer-term, they’re also up 26.7 per cent on the ten-year average. 

Auction rates 

Home buyers’ unabating appetite for a slice of the Sydney property market pie resulted in the city recording the highest September clearance rate on record. 

Sydney auctioneers were busy throughout the month despite the lockdowns. The city recorded a weekend clearance rate of 85.3 per cent in September, which was higher than the 83.9 per cent reported over August and significantly higher than the 71.4 per cent recorded over the same period last year, according to property market intelligence My Housing Market.  

Canterbury Bankstown reported the highest weekend clearance rate over September at 91.7 per cent. This was followed by the Upper North Shore 90.8 per cent and the Northern Beaches 88.7 per cent.

Commenting on the figures, Dr Andrew Wilson, the chief economist at My Housing Market, said: “Auction numbers have risen sharply over recent weekends with listings set to surge by at least 50 percent over the remainder of spring – and higher if outdoor auctions are allowed again.” 

CoreLogic’s weekly auction records mirror the firm’s results, as clearance rates in the NSW capital stayed in the 80 per cent mark while reporting steady auction volumes throughout the month. 

NSW chief auctioneer at Ray White Alex Pattaro said he doesn’t expect the traditional trend of auction market activity slowing down leading up to December to pan out this year. 

“Auctions typically dry up early December, but we anticipate auctions to run all the way to Christmas,” he said. 

The auctioneer also expressed his optimism that the lift in lockdowns and border closures will fuel further demand and continue to prop up property markets, as expats return home and international and domestic movements become active again.  

Rental market 

Sydney tenants saw no major movement in their weekly rents, posting incremental declines over September despite the latest round of lockdowns, according to figures released by SQM Research. 

Rents for both houses and units fell by 0.1 per cent over the month to October 4, SQM research found. Average asking rents for houses and units now stand at $701.2 and $465.5, respectively.

CoreLogic noted that at a national level, rental prices continued to rise in September, albeit at a slower pace. On an annual basis, house rents in Sydney rose by 9.1 per cent while units rose 4.2 per cent.

The slowdown of rental growth was mostly attributed by the research firm to a softening of house rents in the latest quarter. According to CoreLogic, the pace has eased from 3.5 per cent in the March quarter to 1.9 per cent in the September quarter.

At the same time, growth in unit rents appears to have stabilised around 1.9 per cent quarter-on-quarter, down from a recent peak of 2.5 per cent in the March quarter. 

With the growth in housing values continuing to outpace growth in rents, rental yields have reached new record lows across most capital cities, with Sydney as the weakest link. Gross rental yields in Sydney stood at 2.5 per cent in September, the lowest among its capital city peers. 

Vacancy rates 

Domain data showed that Sydney’s vacancy rates continued to track sideways in September, sitting unchanged at 2.4 per cent on a monthly basis. Compared to the same period last year, vacancy rates in the city are down by 0.80 per cent. 

Domain’s chief of research and economics Nicola Powell said rental support packages rolled in several states – including in NSW – had helped to lower the number of tenants forced to vacate properties when they lost a source of income due to the latest restrictions, which kept vacancy rates lower than in previous lockdowns.

Dr Powell added that as Australia navigated its way out of lockdown, vacancy rates (which are already at record-low levels in some cities) were likely to fall further.

She also expected Melbourne and Sydney’s rental market to spring out of lockdown, as the reopening of borders and returns of overseas migration and international students is likely to drive up demand and prices. 

“I do think we will see additional pressure on rental markets in Melbourne and Sydney once overseas migration goes back to normal,” said Dr Powell.

“We know that the majority of people arriving from overseas choose Sydney or Melbourne as their destination; we have seen those rental markets have a greater disruption because of a lack of overseas migrants.”

McGrath’s head of network property management, Michael Conolly, said that while capital city vacancy rates remain low, inner-city apartment markets are still not out of the woods. He echoed Dr Powell’s statement that it was due to the restrictions that the city was currently under. 

“Already though, there are discussions about bringing international students back. That will start to have an effect on those CBD apartments and properties in the inner ring and in suburbs closer to universities. They’ll start to pick up as students return,” Mr Conolly said. McGrath’s rental portfolio is spread across Sydney, Melbourne, Brisbane, and Canberra. 

The shift to lifestyle and regional locations off the back of remote working had also dampened demand for inner-city units, he said. 

And while the reopening of cities would draw people back to city centres, there would still be a proportion who will no longer prioritise proximity to the CBD and would remain in lifestyle locations, where demand had already driven up rents, particularly for houses, he added. 

Looking ahead

As Australia navigates its way out of lockdown, what lies ahead for Sydney’s property market? 

Since the start of the 2021 boom, market commentators have been keeping an eye on the potential risk of tighter credit conditions. 

The last week of September saw the federal treasurer call for tighter credit policies for home lending. This narrative is in line with previous commentary from the Reserve Bank and APRA that they will be focusing on the quality of lending standards and trends in household debt. 

During that time, CoreLogic pointed out that any new credit restrictions will focus on minimising further accrual in household debt (specifically the housing component of household debt) and/or lifting the minimum interest rate serviceability assessment. 

At the start of October, the research firm’s forecast was right on the money. 

APRA recently announced that it has bumped up the serviceability buffer in response to concerns around overall household debts. 

The move by the financial regulator may mean that the days of the super-sized mortgage (particularly in Sydney and Melbourne) may be numbered, as prospective home buyers will have tens of thousands of dollars cut off from the amount they can borrow. 

Learn more about how APRA’s intervention can affect the property market.   

Another growing debate among market observers is when the RBA will take its monetary policy in a new direction; namely, when it will lift cash rates. 

The cash rate remained unchanged in October, as the RBA held the cash rate steady at 0.10 per cent for the 10th straight month. But while the regulator does not forecast a rate rise until 2024, many economists predict it could rise sooner than this.

Commonwealth Bank (CBA) economists expect the first hike to come into effect in November 2022, “well ahead” of the RBA’s 2024 timeline. Additionally, ANZ economists have predicted that the official cash rate could see a lift to 0.50 per cent in 2023, with wage growth and inflation forecast to sustainably hit the 2-3 per cent band by late 2022. 

For now, Corelogic highlighted that monetary policy remains accommodative of high housing demand and the market trends in Sydney remain supportive of price growth.