After three years of soaring property prices in Sydney, house prices have fallen by the largest quarterly drop on record.
Sydney’s median house price dropped 3.1% over the December quarter 2015, the first drop since June 2012, the Domain House Price Report released on Thursday shows.
Median house prices are likely to recede below the million-dollar benchmark by mid-year, Domain Group senior economist Andrew Wilson said.
“This is quite a sobering, startling result. The rollercoaster of house price growth Sydney has been on has clearly crashed,” Dr Wilson said.
The cause of the decline was sentiment-driven, partially due to banks increasing interest rates for both investors and home buyers in October, he said.
“But the underlying dynamics are still quite strong in the housing market, this is not a correction driven by the fundamentals,” he said.
Apartment prices fell 2.8% over the December quarter – the first fall since March 2013.
This slowdown could have implications for the NSW Government, putting a dampener on the stamp duty cash cow that had been forecast to grow to $8.6 billion by 2018/2019.
Rising mortgage rates, restrictions placed on investor lending, a surge of new apartments and a slowdown of Chinese buyers in the Sydney market were all behind the sluggish result, AMP Capital chief economist Shane Oliver said.
“The December quarter was a bit unusual in that a lot of negative things came together in a perfect storm,” Dr Oliver said.
The winners and losers
But this fall “exaggerates the weakness in the market” as it has to be viewed in the context of the huge growth Sydney already experienced, he said.
Over the past three years, Sydney house prices are up 52.6% or $349,183, Domain data shows, with house prices up 14.8% over 2015.
Across Sydney, all areas saw house price declines apart from the west, which increased 1.8%, and the south-west, which remained flat.
The biggest losses were recorded in Canterbury-Bankstown, down 5.3% and the south, down 4.3%.
“It shows the fragility of the mid-price range change over buyers,” Dr Wilson said.
“The west held its own, which suggests affordable suburbs will continue to find buyers,” he said.
The city and east also recorded sobering results for house prices, down 4.1% over the quarter.
1st City Double Bay’s Brad Caldwell-Eyles said there had clearly been a shift in sentiment, with auction rates falling to the 55% mark by the end of 2015.
“This [the east] is a sentiment-driven area and buyers are sophisticated, when they smell blood they hit hard in the negotiations,” Mr Caldwell-Eyles said.
“Last year we sold three apartments in the same building in Double Bay, at an average of $4.35 million. We just traded one now for $4 million. It’s much the same as the other apartments,” he said.
The median apartment price fell in all regions across Sydney, apart from the lower north, which remained flat.
The inner west was the worst performer, with the median apartment price dropping 4.6%.
Cobden and Hayson’s Peter Gordon said the heat “definitely went out of the market after September”.
“Auction clearance rates were slowing, there was more stock on the market and there was some negative press, so it became a self-fulfilling prophecy,” Mr Gordon said.
“On the flipside, the market now in the early part of the year is strong. We have had three times as many people through open homes than we had in November or December,” he said.
This article originally appeared on Domain. See the original here.