Apartment price falls signal end to Sydney’s pandemic property boom

Sydney’s runaway property sector has been reined in by a significant market slowdown, with sales having their weakest results since early stages of the pandemic.

Sydney unit prices dipped 1.2 per cent to a median of $796,524 in the March quarter, the latest Domain House Price Report shows, while house prices rose a marginal 0.2 per cent to a median of almost $1,591,000 — the weakest performance for both since the June quarter of 2020.

Domain chief of research and economics Dr Nicola Powell said the market shift was driven by an increase in homes for sale, giving buyers greater choice and reducing competition on properties.

The number of homes hitting the market reached its highest level for the March quarter since 2014 and was 15 per cent above the five-year average.

Affordability constraints were weighing on buyer demand, which could be further affected by the prospect of rising interest rates.

“Sellers have become motivated and are strategically timing a sale while prices are at, or close to a peak, and prior to a tightening rate cycle that will impact borrowing capacity and the cost of a mortgage,” Powell said.

While Sydney’s unit median had fallen first, houses were expected to follow, with Powell noting the momentum of the housing market, which had far greater growth throughout the pandemic, would take longer to slow.

The report comes as headline inflation reached its highest pace in two decades, official figures on Wednesday showed. Rising consumer prices could give the Reserve Bank confidence that the economy is recovering strongly enough to start lifting interest rates from their emergency-era low levels, and economists expect the first hike as early as May or June.

Barrenjoey chief economist Jo Masters said the increased supply of homes for sale and rising fixed mortgage rates had cooled Sydney’s market.

“One of the lessons from the pandemic is how powerful interest rates are … population growth collapsed and yet house prices soared off the back of interest rate cuts,” Masters said.

Market forecasts centred on a 10 per cent decline from peak to trough, with prices unlikely to fall further as first-home buyer activity historically picks up and provides support for the market once prices eased, she added

“It sounds big, but in the context of the rise we’ve had in the past 18 months, it’s not that significant [a decline].”

HSBC chief economist for Australia and New Zealand Paul Bloxham said key drivers of the slowdown included the prospect of rising interest rates and last year’s move by the bank regulator to reduce maximum borrowing capacity.

“Fixed rate mortgages are already rising and there is an expectation that variable interest rates are also going to rise because the market is expecting the Reserve Bank will start lifting interest rates soon,” he said.

Lucas Collins recently accepted a good offer for his Mount Annan home after the first inspection.Credit: Wolter Peeters

Across Sydney, unit prices fell or held steady over the quarter in most regions, except the Central Coast and outer south west. Prices were down annually in half a dozen areas, with Blacktown and Ryde recording the largest drop. Citywide, the unit median was still up 4.8 per cent year on year.

House prices were up 21 per cent for the year, marking a 12-month low for the annual growth rate despite the large price gain. However, quarterly price declines were recorded in six regions, including in the eastern suburbs and Sutherland Shire, where the median fell more than 5 per cent.

Despite the pullback in buyer turnout, quality homes are still attracting strong interest and prices.

Lucas Collins recently accepted a good offer for his Mount Annan home after the first inspection and hopes to purchase a house in Kurnell in coming days.

“Selling was effortless, but buying is very hard and frustrating,” he said.

After missing out on other homes in recent months, Collins said he had to increase his budget and suburb search before engaging the help of a buyer’s agent.

“It’s [still] not the best time to buy. I kind of wish I could wait until things cool off a bit more but having said that ... I’m selling and buying in the same market,” he said.

“I got good dollars for [my home] but I’m also going to be paying good dollars.”

Collins’ buyer’s agent, John Soliman of Shire Buyer, said it was a tale of two markets. Agents were struggling to sell lower quality homes, such as those on main roads or in need of work. A-grade homes were still doing well, but were seeing less competition than last year and trading for closer to the advertised price.

Buyers were also more prepared to walk away from homes if they felt the vendor’s expectations were too high, knowing they had more supply to chose from, Soliman added.

Domain uses a stratified median to calculate prices, this uses real time sales data and is frequently updated as more sales information is collected.