- Sydney home prices are now underperforming the national average, reversing the trend seen over much of the past decade.
- Data from REA Group reveals interest in Sydney property listings has fallen sharply over the past year.
- From a national perspective, the group says the prospect of higher interest rates and tighter lending restrictions will have a big impact on prices in 2018.
A seachange is underway across Australia’s housing market.
After years of strong price growth in Sydney, far outpacing price movements in other capital cities, the tables have turned over the past few months.
Rather than being the price leader, Australia’s largest and most expensive property market has suddenly become a price laggard.
Prices are falling, in contrast to what’s being seen in most other parts of the country.
Affordability constraints, tighter lending standards, reduced interest from local and foreign investors, along with increased supply hitting the Sydney market, have all contributed to what has been a sharp reversal of the trends of recent years.
It’s not just prices that are starting to fall.
Interest in properties listed in Sydney, be it for buyers or renters, is also starting to soften.
Just take a look at the map below from real estate website realestate.com.au for evidence.
It calculates the number of property views on the groups website in the past three months against the average number of property listings, comparing the percentage change compared to a year earlier.
While from a national perspective views per advertisement increased by 5.1%, those in Sydney plummeted by 25.4%, indicating that interest in Australia’s most expensive housing market has fallen dramatically, helping to explain why prices are going backwards.
“There is no city more challenged than Sydney right now,” says Nerida Conisbee, Chief Economist at REA Group.
“Across all measures we are seeing declines in activity, including demand from buyers, renters and those offshore, as well as in house and apartment prices.”
Conisbee says that elevated prices across the city likely explain the sudden drop in interest.
“High prices are the main driver for the changes in the market,” she said.
“At a suburb level, buyer activity tends to pull back once a suburb hits a very high median. For Sydney, it is now happening at a city level.”
Realestate.com.au reported that interest in the city, based off views per average advertisement, fell heavily for both houses and apartments, dropping by 25.1% and 26.1% respectively from the March quarter last year.
And, like most other forecasters, the group says this hints that recent price trends “will not turn around any time soon”.
“That’s not great news for people looking to sell, but it could mean good news for first home buyers and upgraders who could find it easier to buy in a rapidly slowing market, one they’ve previously been locked out of,” Conisbee says.
Such has been the drop in interest in the Sydney market, Conisbee said it has been akin to the slump in interest in the Perth property market at the end of the mining boom.
However, unlike what was seen in Perth in recent years, she doesn’t expect a price slump anywhere near the same magnitude.
“While the decline in demand may be similar to what we saw in Perth at the end of the mining boom, we shouldn’t expect to see a similar crash in our biggest city,” Conisbee says.
“The Sydney economy is performing well, and people aren’t losing their jobs, so any drops in price won’t be as significant as what the West experienced.”
However, reflecting recent price trends across the country, the level of interest in properties listed in other capitals fared significantly better.
Over the year, and aside from Adelaide where views fell by 1.6%, average views per property ranged from flat in Brisbane to a 48.1% increase in Hobart.
The latter is currently the hottest housing market in Australia, based off recent data from CoreLogic.
“Hobart is experiencing the strongest increases in buyer demand on the back of a changing Tasmanian economy” says Conisbee. “This will continue to flow through to price growth in the city in 2018.”
Unsurprisingly, Conisbee said five of the top 10 most in demand suburbs in Australia over the past three months were located in the Tasmanian capital.
Of the remaining markets, Conisbee said that Canberra is also experiencing very high demand, especially for apartments.
And despite relatively slow growth in viewings per property over the year, she said several Melbourne suburbs are also in high demand in the city’s northeast.
Looking ahead, Conisbee says the prospect of higher interest rates and even tighter lending restrictions will likely keep price growth from a broader national perspective muted.
“The days of low interest rates will soon be over and the Financial Services Royal Commission will likely result in further restrictions on lending. The flow of money into residential property is slowing which is going to have a big impact on prices in 2018,” she says.
“As ever, conditions remain highly variable across each capital city.”