After two years of eye-watering gains, signs are intensifying that Sydney property prices are softening and the top end of town is leading the decline.<\/p>\n
Sydney house prices have raised the roof for the previous 12 to 20 months, with some prestige homes increasing in value almost overnight by more than $5 million dollars.<\/p>\n
CoreLogic Head of Research Eliza Owen said the change in dynamics among different value tiers is evident across Sydney.<\/p>\n
In the three months to February, the top quartile of values increased half a percent, while the middle and lower tiers of the market led growth at 1.0 per cent.<\/p>\n
\u201cThis is a pattern we\u2019ve seen in the past, where higher dwelling prices across the Sydney market tend to show more volatility, with more rapid upswings that reach a higher peak, but also greater downswings.<\/p>\n
\u201cThe slowdown in the higher end of the Sydney dwelling market is just another sign that the market is shifting further into a downswing.<\/p>\n
\u201cThe higher end of the dwelling market as a whole may be the first to see a quarterly decline in values in the months ahead,\u201d Ms Owen said.<\/p>\n
Assessment by CoreLogic\u2019s recent market preview reveals slowing buyer demand, tighter lending conditions and affordability constraints have contributed to an easing in Sydney\u2019s property market in February.<\/p>\n
\u201cAfter recording auction volumes in excess of 1,000 over the previous two weeks, Sydney\u2019s auction activity fell, with 999 auctions held last week.<\/p>\n
\u201cCompared to the week prior (1,202), Sydney\u2019s auction activity fell 16.9 per cent but is up 26.6 per cent compared to the number of auctions recorded this time last year (789),\u201d the preview published this week noted.<\/p>\n
Sydney\u2019s clearance rate continued to fall for the third consecutive week, from 72.6 per cent the week prior to 69.2 per cent last week. This time last year 82.9 per cent of auctions held were successful.<\/p>\n
Strength at lower end of market<\/strong><\/p>\n Real Estate Institute NSW (REINSW) CEO Tim McKibbin said the lower value segment driving growth is unsurprising given the impact of the pandemic and working from home on key regional markets, including in New South Wales.<\/p>\n \u201cHowever, in Sydney, though peak price growth has passed, the most likely scenario in the near-term is that prices will continue to hold relatively firm and offer value for both buyers and vendors.<\/p>\n \u201cMore recently, in the Sydney auction market, we\u2019ve seen houses slightly outperform the unit market in terms of strength of enquiry, numbers of bidders and relative prices achieved.<\/p>\n \u201cDemand remains very healthy despite an increase in the number of properties available and the seasonal supply increase is not significant enough to address the ingrained shortage of homes compared to pent-up demand, which should continue to underpin prices.<\/p>\n \u201cAs for the top end, historically we\u2019ve seen that Sydney\u2019s prestige markets are always in demand,\u201d Mr McKibbin said.<\/p>\n It\u2019s a pleasant reality faced every day by Sydney Northern Beaches real estate agent Clarke & Hummel principal Michael Clarke, who sees no softening of the premium market.<\/p>\n \u201cWhat we\u2019re finding is the more unique or sought-after the property, the stronger the market is.<\/p>\n \u201cIt\u2019s a combination of things – money remains comparatively cheap and the other thing is that the higher you go (in affluent Sydney), even with buyers who are more highly exposed to stock market instability, with everything going haywire on that front, it reinforces the clich\u00e9 \u2018safe as houses\u2019.<\/p>\n \u201cCOVID has impressed upon people the importance of not just the house they live in but also the five-kilometre radius rule, and we believe being on the Northern Beaches, that geographically there\u2019s not a more beautiful part of Australia.<\/p>\n Clarke & Hummel principal Michael Clarke<\/p>\n<\/div>\n \u201cAs a result, we\u2019ve had a real concentration of interest and desire to live in the best possible home within the best possible local government area that they can find.<\/p>\n Mr Clarke has witnessed similar consistencies in the prestige apartment market too.<\/p>\n \u201cWe\u2019ve sold half a dozen apartments over the last couple of months, which only 18 months ago were selling for $3 or $4 million dollars and we\u2019re selling them for $8.6, $9.1 and $9.3 million dollars.<\/p>\n \u201cPart of the reason that the top end is going so well for us is also because the people at the super top end are less concerned about interest rates than they are about what the world is going to bring tomorrow, so they\u2019re saying, \u2018we want our dream property, now.\u2019\u201d<\/p>\n Not everyone has a financial buffer to protect from a hike in interest rate bites, but Shore Financial CEO Theo Chambers feels even a half a percent rise keep rates overall at a manageable level.<\/p>\n \u201cWe are in a pivotal point in economic history because of the change in interest rate trends,\u201d Mr Chambers said.<\/p>\n \u201cWe\u2019re now in an upward trajectory where we\u2019ve been in a downward trajectory for two decades.<\/p>\n \u201cYes, that will put pressure on house prices, however in the next 12 to 24 months, we might see half a percent increase in rates and while that\u2019s a significant increase on interest repayments, if you look at it as a percentage of your overall repayment it\u2019s still relatively low rates.<\/p>\n \u201cEven if they go up 1 per cent, the average variable rate is 3.5 per cent, so it\u2019s still a very low rate compared to where rates have been in the last 20 years.<\/p>\n \u201cI think it\u2019s going to be a while before we see any sort of hurt or desperate vendors trying to sell properties, because mortgage arrears are at some of the lowest rates ever and defaults on mortgages are very low.\u201d<\/p>\n He also suggests any reaction to an upward interest rate trend would be delayed.<\/p>\n Shore Financial CEO Theo Chambers<\/p>\n<\/div>\n \u201cLet\u2019s say over the next year or two we see those great increases, we probably won\u2019t see the effects of that, truly, until the year after.<\/p>\n \u201cOnce people start feeling or paying the higher repayments for a year or so, and realise they don\u2019t have as much disposable income, then they\u2019ll probably be less confident about their next purchase, and less bullish on what they can afford to borrow to buy.<\/p>\n \u201cRight now, people are quite bullish and aggressive when it comes to borrowing money and buying property and I think that confidence will ease as affordability becomes a bit of an issue,\u201d he said.<\/p>\n Tim McKibbin said most people are now expecting an interest rate rise at some point this year but unless there\u2019s a drastic shift in conditions, such as an unexpectedly sharp rate rise or significant macro-prudential intervention, the Sydney market across all segments will continuing to perform at a steady rate.<\/p>\n Mr Chambers agreed.<\/p>\n \u201cI do think this is the new normal\u2026 I think there\u2019ll be affordability pressure but we won\u2019t see a massive discount or fire sale on property prices.<\/p>\n \u201cBased on just interest rate rises in the next few years, I don\u2019t see the market falling apart.\u201d<\/p>\n<\/p><\/div>\n![\"Clarke](\"https:\/\/www.apimagazine.com.au\/media\/misc\/Michael-Clarke-Clarke-and-Humel-Sydney.jpg\")
<\/p>\n![\"Shore](\"https:\/\/www.apimagazine.com.au\/media\/misc\/Shore-Financial-CEO-Theo-Chambers.jpg\")
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