Property market update: Sydney, August 2022

The market hardest hit is bellwether Sydney, where home values have dropped almost 6 per cent in the past three months. 

Tim Lawless, CoreLogic’s research director, said that while prices were still comfortably above pre-pandemic levels, the equity buffer looked likely to be squeezed further.

“It’s hard to see housing prices stabilising until interest rates find a ceiling and consumer sentiment starts to improve,” Mr Lawless professed. 

The Reserve Bank of Australia’s rapid-fire interest-rate hikes, which were kicked off in May, have pumped up the country’s official cash rate by 175 basis points over a five-month period to currently stand at 2.35 per cent — the highest level in seven years.

Sydney has fallen into a property market rut since February, as home buyers see their borrowing capacity reduced and contemplate whether they can afford rising mortgage repayments in a high inflation and low-wages environment.

With the RBA predicted to continue frontloading its monetary policy tightening to contain surging inflation within its 2 to 3 per cent band target, Mr Lawless predicts that property prices will be further strained. 

“From current levels, interest rates are likely to increase by at least another 75 basis points and there is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values,” the expert said. 

Despite the generally bearish sentiment surrounding Sydney’s property market, there is underlying optimism among market observers that finding the bottom could also happen relatively swiftly and that net capital gains the city over the pandemic could still turn out to be substantial.

Mr Lawless said that the significance of the correction phase “will really depend on how long this lasts, and the chances are it probably will be a fairly short but sharp downturn”.

Will Sydney’s market turn over a new leaf this spring? Or will it play into the predictions of steeper declines? 

For now, let’s see how the city’s property market performed in August 2022.

Property values 

CoreLogic’s data showed that dwelling values in Sydney fell 2.3 per cent in August, further sliding from the 2.2 per cent decline seen in the previous month. 

This also marks the eighth month of consecutive declines in property values for the NSW capital. 

Over the last three-month period, the city has recorded a 5.9 per cent drop in property prices — the steepest quarterly decline among capital cities. Compared to the  4.7 per cent in the three-month period to July, the figures indicate an accelerating downward trend. 

The city’s annual growth rate also turned red in August, as median dwelling values in the city fell by 2.5 per cent compared to the same period last year. 

The average price of a Sydney property currently stands at $1,066,493, indicating a month-on-month drop of more than $20,000 in median values. 

Both the city’s unit and house sector were hit with declines during the month, with the latter taking a bigger whammy in values. 

Sydney’s house sector saw a 2.6 per cent drop in median values in August. The monthly figures follow a steep 2.5 per cent drop in median values in July and mark the fifth month of decline for the sector. 

Compared to August 2021, median house prices in Sydney are now down by 2.5 per cent, with the average price of a house in the city currently standing at $1,302,635. On a monthly basis, the median price of a house in the city has fallen by more than $43,00

The NSW capital’s unit sector performed relatively better compared to its counterpart, posting a 1.5 per cent decline over the month. In July, the city recorded a similar rate of decline on a monthly basis. 

On an annual basis, units have also veered off into the negative territory, falling by 2.5 per cent. The average cost of a unit in Sydney currently stands at $799,150, indicating a $7,160 month-on-month drop in prices. 

Supply and demand

Sydney’s listings fell over the month, a trend that defies the seasonal increase in selling activity in the lead-up to spring season. 

Data from SQM Research showed that total residential listings in Sydney declined by 4.6 per cent over the month from 31,540 in July to 30,077 in August. 

Compared to the same period last year, listings in the city are up by 34.4 per cent over the year. 

New listings (or properties that have been on the market less than 30 days) in Sydney fell by 1.1 per cent from 12,424 in June to 12,206 in July.  

Data also showed that old listings or property listings over 180 days fell by 1.2 per cent from 3,939 in July to 3,892 in August. 

Managing director of SQM Research Louis Christopher said that the monthly drop in listings was unexpected. 

“Normally August is a month when listings start to rise ahead of the spring selling season. It would suggest to me spring is going to be weaker on the activity front. Vendors are clearly cautious to sell in this environment and there is no panic selling at this stage,” Mr Christopher said.

Despite the monthly drops, Sydney’s property market continues to have a high level of supply when compared to the same period last year. Compared to August 2021, old housing stock in the NSW capital is up by 8.8 per cent, while fresh housing stock in the city is up by 16.6 per cent. 

Separate data from CoreLogic painted the same picture in terms of supply. On a national level, data showed that freshly advertised housing stock was 13.4 per cent higher than a year ago and 6.5 per cent above the previous five-year average over the four weeks ending 28 August.

“Despite the downwards trend in new listings through the colder months, the total number of capital city homes advertised for sale held reasonably firm, and there are currently 11.3 per cent more homes available for sale compared to this time last year,” Mr Lawless commented.

The expert noted that in Sydney and Melbourne, where the downturn is more advanced, total advertised stock has risen to above average levels. 

Mr Lawless reiterated that the spring selling season would be a test for the demand as listings increase. However, he predicts that activity will be more subdued this year, given the current trend in supply and demand. 

“Between winter and spring we typically see a 22 per cent rise in the number of new capital city listings based on the pre-COVID five-year average,” Mr Lawless said. 

“The flow of new listings this spring season may not be quite as active with the housing downturn dissuading some prospective vendors, but we are likely to see more listings added to the market than in winter,” he added. 

He also forecasts a slowdown in buying activity as higher interest rates and low sentiment continue to weigh on demand. Over the three months to August, Sydney’s home sales fell by 35.4 per cent.

“Should this scenario play out, the net result will be an accumulation of advertised supply that could further weigh down values,” Mr Lawless stated. 

According to Domain, the weakness in home-buying demand saw house price discounting in the city hit its highest level in almost three years, as sellers are forced to slash prices in the declining property market.

Data showed Sydney houses sold for an average discount of 6.7 per cent to their original asking price over the quarter to July. 

The figures represent a discount of around $104,000 for a house first advertised at the city’s median price of about $1.55 million.

Sydney had the biggest discount among the capital cities, and Sydney’s highest discount since September 2019, when the city was rebounding from the previous market downturn.

The largest discounts were recorded in pockets of the inner west, north shore, eastern suburbs, northern beaches and inner city, where there was more price weakness. However, Domain expects more areas to follow suit in the months to come, as price declines rippled across the city.

Domain’s chief of research and economic Dr Nicola Powell said that the rising discounting showed buyers that offers below advertised prices were commonly being accepted by sellers. 

For sellers, it highlighted the importance of accurate pricing to secure a timely sale in a market where buyer demand and spending power had been reduced by rising interest rates.

“It takes a while for some sellers to embrace the new market … there is an element still of over inflated expectations, but also the market is moving every single month,” Dr Powell said.

Auction market 

Sydney’s auction market saw a slight improvement in August, as clearance rates in the city edged up during the month.  

Data from Domain showed that the city’s clearance rate rose by 4.6 per cent over the month to 53.8 per cent at the end of August. 

This marks the fourth consecutive month Sydney’s clearance rates clocked in below 55 per cent, the weakest outcome since May 2019. 

While the portion of homes being sold under the hammer rose month-on-month, the city’s clearance rate was almost 24 percentage points lower over the year, the second-biggest annual drop among the capitals, behind only Canberra.

House clearance rates are higher than units, indicating that buyers in the city are preferring houses over apartments. However, the report noted that financial limitations and affordability issues could put pressure on the performance of the sector’s clearance rate in the future. 

Over the month, house clearance rates rose by 3.9 per cent to 54.3 per cent, while units rose by 6.1 per cent to 52.5 per cent.  

On an annual basis, house and unit clearance rates are down by 24.6 per cent and 22.2 per cent, respectively. The figures show that despite the monthly increase, the city’s auction market is now leagues away from where it was last year. 

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

Out of the 2,667 scheduled auctions in the city throughout the month, data showed that 23 per cent were sold prior to being on the slate, while 27 per cent didn’t even get to go under the auction block. 

Sydney recorded an increase in both median house and unit auction prices in August, the first monthly gain since September 2021.

The median auction price for houses in the city stood at $1,764,000 at the end of August, representing an 8 per cent rise in average house price tags over the month. However, the figures are down by 7.2 per cent compared to the same period last year. 

The average price of a unit that sold in an auction in the city stood at $1,090,000 at the end of the month, representing a monthly increase of 7.9 per cent in median values. Over the year, the figures are down by 3.5 per cent. 

Dr Powell said that as the winter selling season concludes, spring is usually equated to a surge in new listings and rising buyer activity.

However, the expert predicts conditions will be different this spring 2022, as future interest rate hikes and the ongoing impact on buyers’ borrowing power and mortgage affordability could weigh more on buyer sentiment and confidence. 

Separate data from CoreLogic showed that out of 2,513 auctioned in Sydney throughout the month, 55.47 per cent resulted in a sale. 

While auction volumes are down from the 3,297 auctions in July, the city’s average clearance rate is higher than the 51.56 per cent recorded last month. 

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 

The number of available rental listings in Sydney continued to dwindle in August, worsening an already competitive environment.

Domain’s data showed Sydney’s vacancy rate has fallen for the second consecutive month to 10 basis points over the month to a record-low vacancy rate of 1.2 per cent. 

Available rentals in the city also fell for the second month in a row, sitting at a record low of 6,783. The figures are 51.2 per cent compared to the same period last year. 

According to Domain, the supply and demand issues highlight the need to address the rental crisis, especially with the expected return of overseas migrants and international students that may further put pressure on demand.

The report noted that rental conditions are expected to stabilise with “the broader slowdown in the housing market, cooler purchasing conditions, and the introduction of new first-home buyer incentives helping current tenants eventually transition to home ownership and therefore remove an element of rental demand”.

The areas with the highest vacancy rates across the city were Rouse Hill – McGraths Hill (3.1 per cent), Ku-ring-gai (2.6 per cent), Blacktown – North (2.4 per cent), Pittwater (2.1 per cent), and Dural – Wisemans Ferry (1.9 per cent)

Meanwhile, the areas with the lowest vacancy rates were Camden (0.4 per cent), Sutherland – Menai – Heathcote (0.5 per cent), Campbelltown (NSW) (0.5 per cent), Mount Druitt (0.5 per cent), Blue Mountains (0.6 per cent). 

SQM Research’s latest report also showed that the city’s rental market further tightened over the month. 

Sydney’s vacancy rate fell from 1.5 per cent in July to 1.3 per cent in August, bringing the number of available rental listings in the city down to 10,502. Over the year, the city’s vacancy rate is down from 2.6 per cent. 

Mr Christopher said the results in August serve as proof of the further deterioration of the rental market to “unprecedented levels”. 

“Rental listings thus far recorded in September would suggest another fall in rental vacancy rates for the current month,” he said.

“I note the recent alerts and warnings issued by the various housing bodies as to what is happening on the ground and our data would concur with such concerning reports.”

Rental market 

As rental supply in Sydney continues to become scarcer, Mr Christopher warned that asking rents could also continue rising. 

“Asking rents continue to rise across the country at a red-hot pace. All capital cities are recording double digit percentage rental increases over the past 12 months,” Mr Christopher said.

Due to the declining vacancy rates, rents also increased in Sydney. In the 30 days to 13 September, SQM’s data showed that the average weekly rental price for a dwelling in Sydney stood at $661, representing a 2.9 per cent gain over the month and a staggering 22.7 per cent annual increase. 

Domain made the same observation in its latest report, noting that the lack of rentals is driving up rents and escalating competition, highlighting the need to address the rental crisis many tenants are experiencing. 

Separate data from CoreLogic showed rents continued to trend higher through August. In Sydney, house and unit rents rose by 9.8 per cent and 11.6 per cent, respectively, on an annual basis.

The figures are up from last month, when rents for houses rose by 9.8 per cent while unit rents rose by 10.4 per cent over the 12-month period to July. 

Mr Lawless said that unit rents in the city are now rising at a much faster pace than house rents due to shifting consumer sentiment, as tenants become more willing to rent in higher density situations. 

What’s next for Sydney’s property market? 

Mr Lawless anticipates the market to continue cooling for the rest of 2022 and potentially into 2023 as the housing market remains intertwined with the trajectory of interest rates. 

“Forecasts for the terminal cash rate generally range from the mid-2 per cent to the mid-3 per cent range, although financial markets are pricing in a peak cash rate of just over 4 per cent by August next year,” he stated. 

Mr Lawless said the range of forecasts for the cash rate highlights the sheer uncertainty associated with inflation, wages growth and monetary policy. 

“As borrowing power is eroded by higher interest rates and rising household expenses due to inflation, it’s reasonable to expect a further decline in consumer confidence and lower housing demand,” he added.  

Meanwhile, some economists believe that the bulk of the hikes is over and Sydney’s market rebound is on the horizon. 

AMP Capital’s Shane Oliver predicts interest rates should peak around the 2.60 per cent mark in early 2023 and are very unlikely to stretch beyond 3 per cent due to the implications that would have for the housing market and widespread mortgage stress.  

Mr Oliver, along with many other economists, is also expecting a cut to interest rates later next year, which indicates that the downturn could be a relatively limited period. 

Joining the chorus of positive outlooks is chief economist at My Housing Market Dr Andrew Wilson, who believes that Sydney’s rebound is closer than most people think. 

At the end of August, the expert told the media that there had been an uptick in buyer and seller activity more recently, indicating that Sydney’s spring market may be “a little better than expected”. 

“The time it takes to sell a property has just eased over the past month and auction clearance rates are certainly higher than they were over July,” he pointed out. He also highlighted that auction activity ticked up over August, particularly in the NSW capital. 

But Mr Lawless cautioned that in the near term, sellers might find the upcoming spring selling season a trickier one than usual. 

“There is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values,” Mr Lawless explained. 

“Sellers will need to be realistic in their pricing expectations and ensure they have a quality marketing campaign in place.”

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