CoreLogic says Sydney’s median home value has risen twice in a row despite predictions of continued declines.
A rapid boom in Sydney’s property market occurred between late 2020 and the end of 2021, with the city’s median property price rising 27.7% in just 15 months. It was followed by a rapid fall in the median dwelling price, with the median dwelling price in January 2022 falling -13.8% as compared to January 2023.
As interest rates began to rise and the cost of living began to impact family budgets, many commentators believed that this may just have been a beginning of a severe market correction. According to some analysts, Sydney’s median price will drop by as much as 30% from its peak this year, with another double-digit drop forecast for this year.
However, over the past two months, a different picture has emerged of Sydney’s median dwelling price. Sydney’s median dwelling price has started climbing once again, having increased a total of 1.7% over the past two months.
In this article, we explore the reasons why this is happening in Sydney’s eastern suburbs and why the property market has actually performed better than even what we expected it to.
1. There aren’t enough homes for sale
There is no doubt that property values are determined by the dynamics of supply and demand. Even though demand is not as strong as it was in 2021, the supply curve has shrunk to meet the demand that is left in the market right now. In the end, there simply aren’t enough homes for sale at the moment to meet the level of demand that remains.
Since the outbreak of the pandemic, low stock levels have affected our market and have also been a major factor behind the rapid rise in prices that we experienced during the boom. It has been reported by SQM Research that in February 2023, there will be 10,292 (or almost 29%) fewer properties available for sale across Sydney than in February 2021, which is a reduction of nearly 29 percent.
2. There is a shortage of homes, period.
Having said that, there isn’t only a shortage of houses for sale in Sydney right now, but as the population of Sydney grows, there will be a shortage of homes in Sydney, full stop. This is especially true in parts of the city such as the eastern suburbs, where so many jobs are located.
This lack of affordable housing is well documented, but it cuts across the entire market, with a lack of affordable homes available at all price levels. There is no doubt that Sydney’s housing shortage will continue to worsen as time goes on, with the reopening of borders, the return of foreign students, and the rise of permanent immigrants.
All things being equal, Sydney will remain a high-demand/low-supply market for the foreseeable future. In other words, the prices will keep on rising, as long as the chronic shortage of housing is not addressed.
3. Rents are extremely tight
In 2022, as median property values declined, Sydney’s median rent increased sharply. According to SQM Research, Sydney’s median rent shot up 23.1% last year to $714. This year it has shot up 9.1% to $779.
As a result of lower prices, Sydney property is producing a much higher yield than a year ago. CoreLogic estimates that apartments now return a median yield of 4.1%, compared to 3.0% at the beginning of 2022.
This makes owning a property more appealing to investors and tenants on the fence.
4. Possible end to interest rate shock
The median property value of Sydney started to fall before the Reserve Bank of Australia started to raise interest rates. However, there is no doubt that the ten consecutive rate increases we had between May 2022 and March 2023 significantly impacted borrowing and servicing mortgage repayment power.
When the RBA decided to not lift them in April, we saw people who had been putting off their search begin to emerge from hiding out. In fact, even before that, it seemed as though people were becoming increasingly confident that the rate hikes would be over soon and that certainty would return. Even if the RBA lifts the rates again in 2022, most buyers seem to be better prepared now than they could have been in 2022.
5. There was no slowdown in the market’s top
The rising interest rates have not slowed down the strong buyer interest at the top of the market, as several records have already been broken and a few properties have even been sold before they even hit the market.
There’s a great deal of demand from downsizers for luxury oversized apartments. However, there’s just not enough available to meet demand.
6. The cost of construction is skyrocketing
People who want more space often choose between renovating their homes or buying new ones. Over the past two years, construction work has become increasingly expensive as the cost of labour and COVID-19 disrupt global supply chains. ABS data shows timber and joinery prices rose 5.4% in the December 2022 quarter, resulting in a 3.1% rise in construction inputs.
The availability of tradespeople has also become increasingly difficult to book, with one analysis finding that homeowners are now having to wait for up to two years to be able to secure the skilled labour needed for a full-scale renovation.
7. The drops last year may have been overreacted.
Lastly, you should bear in mind the old adage that markets often overreact. In times of good times, buyers tend to think that things are much better than they really are; in times of bad times, buyers tend to think that things are much worse than they actually are.
There is a possibility that the market is just reacting to the rate hikes, cost of living pressures, high inflation, and economic uncertainty that have been causing the heat to escape.
As long as Sydney’s real estate market remains strong, buying now at 10% less than a year ago is an attractive option.
Want to learn more?
Get in touch if you’re thinking of buying or selling in Sydney’s eastern suburbs