The Sydney suburbs where you should have bought a house

Dozens of suburbs below Sydney’s latte line are no longer affordable to the average buyer.

The double whammy of rising prices and interest rates has rendered large swathes of western Sydney unaffordable compared to two years ago, CoreLogic analysis shows.

No longer is having double incomes and moving further away from Sydney’s CBD enough of a compromise to buy a typical house further out in the city.

Median house values in 109 suburbs, mostly in the inner and outer south-west, Sutherland, Parramatta and Blacktown regions, fell out of reach for a couple on average incomes in the past two years to April 2024. That’s an almost 70 per cent drop.

Unit buyers have 71 fewer suburbs to choose from even when median values declined and are priced out of Northbridge, Paddington and Cronulla, which all recorded falls of 10 per cent or more in the past two years as they still exceed $1,075,000.

That is the maximum a couple, on an average combined income of $196,436, can now afford to spend, assuming a 20 per cent deposit of $215,000. Buyers also need average conveyancing fees of up to $2500 as well as $43,110 for stamp duty.

Two years ago, that same couple could afford to buy a home valued at $1.56 million in April 2022 before rates began to rise, assuming they would have spent $312,000 on their 20 deposit.

Buyers with a smaller deposit may need to access the federal government’s Home Guarantee Scheme, which allows low-deposit purchases under income and purchase price caps, or pay lender’s mortgage insurance, which varies but can add about 3 per cent to the loan cost.

CoreLogic head of research Eliza Owen said fewer Sydney suburbs are within reach of the average buyer as rising interest rates have compounded affordability, even when prices have declined.

“There are 55 markets analysed here where prices have fallen, but they’ve become unattainable for double-income earners off the back of interest rate rises,” Owen said.

But more suburbs have recorded growth despite rising interest rates, which has exacerbated housing unaffordability, Owen said.

“You’ve got markets with the added challenge of price increases, which the highest was Menangle Park houses in Campbelltown. House values are up 32 per cent when rates started to rise.

“Canterbury is also one of those suburbs where houses have increased in value quite substantially. It might have been thought of as a relatively affordable pocket of Sydney. Even that seems out of reach for double-income couples.”

She said once affordable parts of Sydney are now out of reach for dual-income households willing to compromise on location.

“A higher interest rate environment creates less opportunity for people with lower deposits and lower incomes, and it drives disparity in the market.”

AMP chief economist Dr Shane Oliver said the average buyer can afford even fewer suburbs because of the double whammy of rising prices and mortgage rates that are now threefold higher than two years ago.

“Your capacity to pay has fallen by about 30 per cent, so the amount of money you’ve got with your 20 per cent deposit you can’t borrow anywhere near as much - combined with the rise of house prices means simply more suburbs have gone out of the affordable bracket for the average buyer,” Oliver said.

He said the past two years of rising rates have further eroded the number of affordable suburbs for the average buyer.

“Within the western suburbs there are less and less areas that are less affordable, it’s being pushed further and further away from the city.”

Oliver said unless a buyer today was cashed up or had access to inheritance or the bank of mum and dad, it was harder to enter Sydney’s property market.

“The basic problem here is we already had giant swathes of Sydney unaffordable to the average buyer. That proportion is diminishing.”

He said it was a concerning development as it fuels inequity in Sydney and social tensions if housing affordability was left unaddressed.

“It’s concerning from an equity point of view. What was available to buyers is no longer available. It adds to the divide you see in Sydney,” Oliver said. “Those who have houses in well-off areas and those who don’t. That has the potential to create social tensions over time if they’re not addressed.”

He said it was redrawing the latte line, which is the socioeconomic divide between the city’s east and west.

“What’s happening is the latte line is moving further and further south. There were pockets of the north-west that were quite affordable,” Oliver said. “What will happen is the latte line will have to be redrawn in a depressing fashion.”

Sharran Sreekant, 36, this year sold his Kellyville townhouse and bought a four-bedroom house with a small backyard in Kellyville Ridge. He recently married, and he and his wife were looking for an upgrade from his bachelor pad.

Eshmee Sharran and Sharran Sreekant have sold their townhouse and bought a house, but high interest rates made it a challenge.Credit: Dion Georgopoulos

However, high interest rates made it challenging to find a house within their budget in the same suburb, so they compromised by moving to a suburb further out.

“The goal was to keep this townhouse, rent it out and buy another property for us to live in and I thought I had sufficient funds and borrowing capacity,” the technology worker said. “We realised that the numbers just weren’t working.”

“Three years ago, I could have bought a really nice house in the same suburb.”

His mortgage broker, Narender Saharan, said some of his clients have been looking for a home but left it for too long, and the interest rate environment has changed.

“Most people aren’t able to get the same amount of lending as what they were in 2021, 2022. Specifically after 2022, the borrowing has only dropped,” the principal broker at Kandid Loans said.

Some of his potential buyers who could have borrowed about $1.7 million to $1.8 million previously could now only access $1.1 million to $1.2 million, he said.

Clients are looking for smaller properties, looking at different suburbs or asking for help from parents, he said.