Property market update: Sydney, August 2021

As the NSW capital pushes on with strict stay-at-home orders put in place to stamp out the Delta variant, most market indicators suggest that house prices in the city continue to march higher.

The latest data showing solid monthly price growth in Sydney and Melbourne (which both have seen extended lockdowns in 2021), is in stark contrast to the steep declines seen in market activity during the national lockdown when the COVID-19 first hit Australia’s shores in 2020. 

Property experts say prices are underpinned by the mismatch in demand and supply, as buyers continue to compete for the declining supply of properties on the market. 

Despite the capital city markets’ resilience amid the lockdowns, some analysts observed that the nationwide property boom has been steadily losing steam after reaching peak levels in March. 

The latest figures from CoreLogic revealed that national dwelling values rose by 1.5 per cent in August. While the figures are still above average, this is the lowest monthly rise recorded since January 2021.

Mr Tim Lawless, CoreLogic’s research director attributed the loss in momentum to increasing affordability constraints, with wage growth unable to keep up with the increase in housing prices. 

 “Housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home,” he said.

Lockdown fatigue also seems to have an impact on consumer sentiment, which has led to fewer homes being listed on the market and relatively lower sales volume, he added. But he noted that the lockdowns had a lesser impact on the price growth compared to affordability constraints. 

With Sydney’s lockdown on track to surpass Melbourne's from 2020, along with other headwinds flagged by experts, there is uncertainty clouding the outlook for the NSW capital in the coming months.

Let’s see how Sydney’s property market performed at the end of the winter season in 2021. 

Property values 

In August, property values in Sydney rose by 1.8 per cent, easing from the 2 per cent increase seen in July and from the peak of 3.7 per cent seen in March 2021. This brought the median dwelling value to $1,039,514, according to data released by CoreLogic. 

On a quarterly and annual basis, the NSW capital’s growth is sitting at 6.4 per cent and 20.9 per cent, respectively. 

Sydney’s houses are continuing to record a stronger growth rate compared to units, but data shows that the gap is narrowing. 

The city’s housing market posted a 1.9 per cent monthly increase in August, leading the growth in Sydney’s property market with an annual increase of 26.0 per cent. The median value of houses in the NSW capital currently stands at $1,293,450, indicating an increase of $35,247 from the previous month. 

Meanwhile, the city’s unit market edged up by 1.4 per cent over the month, with median values at $825,514, which is $15,278 higher than in July.  This brings the total annual gain to 9.5 per cent. 

Mr Lawless believes the convergence of growth in house values and unit values could be another demonstration of affordability becoming more challenging, particularly in Sydney, which is already the country’s most expensive city. 

“The narrowing gap between house and unit value growth is most noticeable in Australia’s most expensive city, Sydney, where the monthly growth rate for houses was 2 percentage points higher than units in March. That ‘gap’ has now reduced to 0.6 percentage points in August. Based on median values, Sydney units cost almost $470,000 less than a house,” he said. 

The narrowing in the gap between units and houses can also be observed in the data released by SQM.

The research firm’s latest data showed capital city average asking prices fell by 0.4 per cent for all houses, while units rose by 4.2 per cent over the month to 31 August. Average house asking prices are now at $1,578,600 and $714,200 for units. 

Supply and demand  

One clear consequence of the recent lockdowns is a decline in property listings in Sydney as sellers lose confidence in the current conditions.

Figures released by SQM Research revealed that on a national level, listings fell by 9.6 per cent to 215,911 from 238,834 in July 2021, the lowest count of listings recorded by SQM since the start of its series in 2010.

Sydney posted one of the biggest monthly declines, with total residential property listings in the city dropping by 11.9 per cent to 22,387 in August 2021 from 25,411 in July 2021. The research firm attributed this sharp decline to the disruptions from the lockdowns. 

In an indication that older stock is clearing in the city, listings that have been on the market for over 180 days fell by 4.1 per cent from 727 in July to 3,576 in August. Over the year, listings fell by 19 per cent. Meanwhile, new listings fell by 4.1 per cent from 11,593 to 10,354. Compared to the same period last year, new listings have fallen by 42.3 per cent. 

Louis Christopher, Managing Director of SQM Research, said listing counts were predominantly impacted by lockdowns, particularly in Sydney. 

“Listing counts over August were predominantly impacted by lockdowns, particularly for Sydney whereby there was a 19.7 per cent decline in new listings,” he said. 

Commenting on the mismatch of advertised supply and demand, Mr Lawless said that the shortage of properties available for purchase will likely drive further upwards pressure on housing values, thus leading to a greater decline in affordability. 

“Lockdowns are having a clear impact on consumer sentiment; however, to date, the restrictions have resulted in falling advertised listings and, to a lesser extent, fewer home sales, with less impact on price growth momentum,” the researcher said. 

Despite the fall in sales, Mr Lawless said housing market activity remains well above average levels, as the most recent quarter saw the number of home sales remain 30 per cent above the five-year average at a time when active listings are 29 per cent below average. 

Auction rates 

The lockdowns did not deter Aussies from bidding on Sydney properties that went under the hammer in August, as auction clearance rates in the NSW capital stayed near long-term averages as buyers make the switch to online auctions.

Since June 28, two days after the city was placed in a lockdown, the auction clearance rate has averaged more than 75 per cent through to late August, according to CoreLogic. 

The number of properties that have sold per week stood at an average of 474, the highest average of weekly auctions sales for the same period since 2015, the research firm reported. 

CoreLogic Australia’s head of research Eliza Owen said the scenario unfolding in the city’s auction market is comparable to what occurred in Melbourne earlier when sales surged by 30 per cent between Victoria’s third and fourth lockdowns. 

“The fact more sellers are coming onto the market through an extensive lockdown suggests more people may be looking to move to the regions or to Queensland,” Ms Owen said.

“Off the back of extended lockdowns across Melbourne there was a 30 per cent uplift of people going from Melbourne to Queensland, when you compare the March 2021 quarter to the same quarter in 2020. It’s reasonable to say a similar trend is occurring Sydney,” she said.

LJ Hooker Group’s head of sales, Troy Malcolm, attributed the strong clearance rates in Sydney to the “seamless” transition of buyers and sellers to online platforms as of late.

“The transition to online auctions has been smoother than previous lockdowns, with increased buyer confidence and easy-to-use technology,” the sales head highlighted.

Rental market 

Asking rents in Sydney continued to hold steady in August, posting incremental declines over the month despite the latest round of lockdowns, according to figures released by SQM Research. 

Sydney asking rents are 0.1 per cent higher for houses in the month to August 28 compared to a month earlier, and down 0.3 per cent lower for units, SQM Research found. Average asking rents for houses and units now stand at $700.9 and $466.1, respectively. 

The improvement of the rental market amid COVID-19 restrictions was “somewhat perplexing”, according to Mr Christopher. But he noted that there is a lockdown effect that triggers down those who are working remotely to seek more spacious accommodation. 

“With this new lockdown, and with … the knowledge workforce working from home, people are seeking larger properties to be able to do that,” Mr Christopher said.

CoreLogic noted that while the pace of rental growth has softened over recent months, the trend in rising rents continues to be strong. On a national level, rents have risen by 8.2 per cent over the 12 months ending August, the largest rise in rents since 2008.

In another observation of the rental market, CoreLogic said that the pace of growth of unit rents continued to lag behind house rents. Data showed that the cost of renting houses has risen by more than double the pace of unit rents over the 12 months ending August. 

The stark difference in the pace of growth in house rents and unit rents was more prominent in Sydney and Melbourne, where unit markets have recorded a significantly slower growth rate.

Mr Lawless said the softer growth of unit rents in the two cities was indicative of their vulnerability to the lack of temporary overseas migrants as a source of rental tenancy, particularly foreign students who would normally drive the increase in inner city rental demand. 

“The sharp drop in demand due to closed borders has been exacerbated by high supply levels as both cities come out of an unprecedented surge in inner city apartment construction,” he added.

In terms of rental yield, Sydney is no longer the weakest link among its capital city peers. While it recorded a historically low gross rental yield of 2.7 per cent, front runners from the previous month, including Brisbane, Hobart, and Canberra also saw gross rental yields slump to new record lows in August.

Vacancy rates 

Domain data showed that Sydney’s vacancy rates were unchanged at 2.6 per cent since June this year, indicating that the recent lockdowns have had a little impact on the city’s rental market. 

Compared to the same period last year, vacancy rates in the city are down by 0.80 per cent. 

Rental supply in Sydney remained relatively stable with a slight decline that has had no significant impact on the overall vacancy rate. Domain said that the affordability constraints of buying a home in Sydney have potentially become a barrier for tenants who need to rent longer before being able to afford a house. 

The rapid increase in housing values may have resulted in a decline in rental stock, as Sydney landlords chase capital growth on their investment properties, according to Domain. 

Areas with the highest vacancy rates include Auburn (3.6 per cent), Parramatta (3.5 per cent), Canterbury (3.5 per cent), Kogarah – Rockdale (3.2 per cent), and Strathfield – Burwood – Ashfield (3.2 per cent). Meanwhile, Camden (0.4 per cent), Blue Mountains (0.5 per cent), Wollondilly (0.5 per cent), Wyong (0.5 per cent), and Campbelltown (0.5 per cent) recorded the lowest vacancy rate in August. 

Looking ahead, Domain forecasted that extended lockdowns could put upwards pressure on Sydney’s vacancy rate in the coming months, as tenants with reduced or lost income fail or struggle to pay rent. And while there is a rental moratorium put in place by the NSW Government, the uncertainty of extended lockdowns may result in some tenants moving in with family or friends to lessen their expenditures. 

The possibility of landlords shifting short-term holiday lets to longer-term rentals will also boost rental supply, Domain added. 

Outlook 

So how will Sydney fare in the coming months?

One of the major concerns among property market observers is how the current lockdown will affect Sydney’s market. 

Mr Christopher believes lockdowns being extended until the end of the year could spell disaster for the real estate market.  “I would think if Sydney were to stay in lockdown through to December, it would be bad news for the local economy and that would feed through to the housing market,” he says. 

CoreLogic analysts are more optimistic, with Mr Lawless expecting continued strength across the housing market, supported by low advertised stock levels relative to buyer demand and continuously rising housing values.

He added that the start of the spring season, which traditionally sees an increase in market activity, will also keep the property market boom train chugging along. But the expert conceded that the biggest property markets, including Sydney and Melbourne, may see a more subdued spring season this year as localised lockdowns persist. 

On a positive note, the researcher expects the housing market to bounce back quickly post-lockdown.

“Housing market activity bounced back quite quickly following previous spot lockdowns and after Melbourne’s extended lockdown late last year, and we are expecting a similar turn of events once restrictions are eventually lifted,” he said.