There were fewer transactions in the Sydney property market in 2022, after the boom of 2021, due to rising interest rates and reduced buyer sentiment. We noticed that many people were sitting on the sidelines, waiting for the market to turn, due to low volume levels and low buyer demand.
We explore eight factors that could help kickstart the Sydney’s eastern suburbs property market once again.
1. The end of rate rises
Market activity levels can be profoundly influenced by interest rates, especially in markets where large mortgages are commonly used, such as first-time home buyers and upsizers. As a result, we were not surprised to see market activity stall when the RBA began increasing its official cash rate in 2022.
Despite this, it isn’t necessarily correct that people can’t afford a mortgage at current rates. Often, people just can’t properly budget because of the uncertainty surrounding rising rates. A mortgage at 5.5% may be manageable, but what mortgage at 9%? Many also fear interest rates will keep rising well beyond where they are now.
The moment the RBA stops increasing interest rates – which many economists predict will happen soon – we may see more activity again.
2. Global economic stabilization
A rise in interest rates isn’t all that is keeping people away from the property market. The invasion of Ukraine by Russia, supply chain disruption, and out-of-control inflation have all contributed to keeping people away from the market. But even more so, people seem to be afraid of what is to come.
A stable global economy might set peoples’ minds at ease. Unemployment is at a record low (just 3.4% in NSW), and, in 2022, Australia saw its largest median wage increase in a decade.
There may be more people willing to enter the market and transact if events elsewhere settle down.
3. Rents are on the rise
In contrast to Sydney’s falling median price over the last few years, the city’s median rent has risen sharply. As the rental market remains strong and property prices remain low, many renters may decide that buying is the best investment. When these renters move into the sales market, this could have a cascading effect on prices.
Also, higher rents should attract investors seeking income, and these buyers are likely to compete with first-time buyers for the same properties, potentially driving up prices.
4. The top filtering down
As prices declined across Sydney in 2022, the prestige market remained strong. There simply weren’t enough properties to satisfy demand, and new suburb and street records were set throughout the eastern suburbs.
The top of the market is strong, and as more people become priced out and start looking down the chain, the rest of the eastern suburbs’ property market could improve.
In the pre-pandemic recovery of 2019, this is exactly what happened, and we may see that the premium market continues to drive prices upward and promote overall activity.
5. Population growth
While Sydney has almost always been growing, that trend slowed during the pandemic. International arrivals slowed to a trickle (apart from returning expats), and many Sydneysiders either returned to their homes overseas or fled. Census data indicates the city’s population declined for the first time in nearly a century in FY2021.
Earlier this year, the Albanese government announced that Australia’s permanent migration cap would be raised to 195,000. According to data, 87% of these new arrivals will live in Sydney or Melbourne. Each of these people will need to find a place to live.
This could lead to increase activity in the market and place pressure on both rents and property prices.
6. More listings
There is a common misconception that low listings lead to rising prices, but a lesser-considered factor is that a higher number of listings can lead to more activity in the market. The lack of supply happens because people don’t have a choice when it comes to properties. Therefore, they hold off on listing their own homes, which further exacerbates the shortage.
The more properties on the market, the more likely people are to find somewhere they want to live and then list their own home for sale, creating a continuing cycle.
7. Rising construction costs
It is common for people to compare the cost of moving and staying put when they need more space to move. Many eastern suburbs properties are subject to high stamp duty rates (a $5 million home costs over $288,000 in stamp duty) and therefore owners may prefer staying put and renovating heavily.
It has recently become more difficult to get a trade because of the increase in construction costs and the lengthy wait times. Residential construction costs rose 11% from September to September – one of the highest growth rates on record.
A rise in property market activity could be stimulated by encouraging more people to buy rather than staying put and renovate.
8. More appropriate stock
The availability of housing stock does not mean that it’s suitable for the people who wish to live there.
In particular, there is high demand for downsizers but fewer suitable properties. Downsizers want space, convenience, and some luxury. Well-located properties that match their criteria tend to be few and far between.
In response to this, we’re seeing more properties come to market that meet the expectations of downsizers, as more developers and homeowners realize this. As this continues to happen, we’ll likely see greater turnover in the family home market as downsizers sell up to move somewhere they’d prefer to live.
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