Sydney’s Housing Market Thrives Amidst Economic Pressure

Sydney’s housing market is showing the strongest growth since the last boom, defying expectations in the face of rising interest rates and cautious economic sentiment. Despite a series of rate hikes and an increasing number of sellers, the market continues to thrive, triggering intense auction competition and rapid price increases unseen since 2021. As noted by property reporter, Kate Burke, Sydney property values lifted 1.8 per cent in May, the highest monthly gain since September 2021, with auction clearance rates reaching their highest level in over 18 months.

Eliza Owen, head of research at CoreLogic Australia, suggested the market has quickly pivoted in response to easing inflation and interest rates. “The gains showed how quickly the market had turned on the whiff of easing inflation and interest rates, to recuperate about 30 per cent of its peak-to-trough losses,” she told Burke.

However, the state of the market may be temporary. Experts, including Owen, suggest an upturn in rate hikes and an increasing number of sellers are poised to curtail price growth. Larry Schlesinger concurs in his article, quoting Ray White NSW chief auctioneer Alex Pattaro as saying, “Looking ahead we anticipate more stock reaching the market…The buyer pool is very strong and deep”.

Auction clearance rates remain robust despite the threat of higher interest rates. Nationally, clearance rates have held above 70% for the seventh straight week. Sydney’s auction clearance rate, according to CoreLogic, is 74.5 per cent.

Despite such positive numbers, there is a degree of nervousness among homeowners. PPD Real Estate partner Alexander Phillips told Burke, “A lot more people are more nervous about the market coming off, but also people are nervous of needing to sell with high costs of living and mortgage repayments”.

While concerns about mortgage stress are on the rise, there are other factors that are keeping the market strong. Thomas McGlynn, CEO of BresicWhitney, suggested that a large proportion of buyers are less exposed to rising rates due to the support of equity or family. “It doesn’t affect a lot of people out there buying at the moment. They have generally been in the market for quite some time, or have family members who have been, and that’s where we’ve seen the rise of the Bank of Mum and Dad,” he said.

There’s a collective expectation that the market will slow down, particularly with successive rate hikes on the horizon1. NAB chief economist Alan Oster told Burke that “the pace of price growth had been surprising”, adding that the Reserve Bank’s decision to increase the cash rate has been a significant factor.

Despite the strength of the market, the looming threat of financial stress and rate hikes could spell a slowdown. However, as long as unemployment rates remain low, forced sales will be limited.

The future of Sydney’s property market hangs in the balance, with a robust buyer pool and the potential for more sellers coming to the market. Only time will tell if the city can maintain its current momentum amidst rising economic pressures.

References:

Sydney’s property market is the best since the boom. But will it last? by Kate Burke  https://www.smh.com.au/property/news/sydney-s-property-market-is-the-best-since-the-boom-but-will-it-last-20230614-p5dgfo.html 

[‘Strong and deep’: Home buyers ignore rate rises] https://www.afr.com/property/residential/strong-and-deep-home-buyers-ignore-rate-rises-20230618-p5dhex