Real Estate Australia: Where to buy and not to buy in western Sydney, headwinds threaten recovery

New housing in western Sydney is ‘a good long term bet’ according to a new report, but not everywhere is expected to enjoy strong home price growth in coming years.

Western Sydney new housing was “a good long term bet” due to all its planned infrastructure, according to the latest report from the valuation firm, Herron Todd White.

But buyer due diligence was “paramount in 2023” to ensure buyers did not spend more on the land and construction than the homes will be worth as a completed product.

The long-term support arising from Western Sydney International Airport and its rail infrastructure will make Western Sydney a more accessible and desirable place to live, HTW noted.

Currently the safest bet for purchasing was on the outskirts of western and northwestern Sydney, including the Blue Mountains, Hawkesbury and outskirts of The Hills. Its recent price drops had been cushioned by much less supply.

Areas such as Marsden Park could see ‘tougher market conditions’ the Herron Todd White report said.

Larger price drops have been experienced especially in the higher density and more populated locations of the west. The HTW report warned some of the larger planned housing estates in Western Sydney such as Jordan Springs, Marsden Park and Box Hill – by their nature with more supply amid periods of weakened demand – have the potential to see “tougher market conditions” than surrounding areas.

“This may also create opportunity for those looking to invest,” but the report noted these areas may take longer to come out of the slump in the housing market.

By contrast the report noted the council area of Penrith has largely run out of vacant land stock.

“For well over a decade now there has been a steady supply of vacant land rolled out in wider Penrith in the form of planned housing estates.

“There is still the odd parcel of land floating around and there will be some more further down the track but for the early part of 2023, there are not a lot of options to buy a vacant land parcel and build your dream home.

“This may see increased demand in the first half of 2023 for completed homes built to a good standard.” it forecast.

Family-friendly suburbs such as Edmondson Park will ‘continue to fetch considerable prices’.

At South West Sydney HTW predicted the first half of 2023 will see a continuation of patchy conditions with secondary locations such as Claymore, Eagle Vale, Eschol Park and St Andrews experiencing longer selling times and increasing discounts.

It noted good quality family-oriented neighbourhoods such as Harrington Park, Abbotsbury, Edmondson Park and Denham Court should “continue to fetch considerable prices” due to affordability, proximity to services and the appealing family lifestyle on offer.

Its valuers have been watching for any “post-Christmas hangover in the first quarter of 2023” arising from the impact of mortgage stress and increased cost of living expenses.

“We predict the growth witnessed in the vacant land market in the past two years will come to a grinding halt because of the overall softening of the market and increase in building costs.”

It forecasts developers will be offering more rebates or incentives to entice buyers.

SERIOUS HEADWINDS THREATEN SYDNEY REAL ESTATE RECOVERY

Dramatic property price cycles and the headlines they generate come and go. And these days with increased regularity.

There have been four significant house price cycles in the eight years since 2015 – contrasted with five cycles during the two decade-plus period from the late 1980s to 2010.

Most economists had envisaged continued price deterioration this year that would exceed last year’s decline.

A small number of market observers had over the past few months thought we’d reached the bottom of the cycle.

Several significant factors are dragging down the property market recovery, as it struggles to gain momentum. Picture: Julian Andrews.

Their insights weren’t accompanied by forecasts of rising prices, but rather a price plateau or consolidation – presumably based on past cycles when after the rise and dips came lengthy periods where prices went sideways.

It has now emerged national home prices bounced a little in February amid limited supply and continued strong demand, said PropTrack.

Home prices were up 0.18 per cent in February, with all capitals aside from Hobart seeing prices rebound. Adelaide (up 0.44 per cent), Sydney (up 0.36 per cent) and Melbourne (up 0.18 per cent) displayed signs of the bounce-back.

The latest revival – which has come amid clearance rates edging close to the 70s – potentially could be the start of yet another rising cycle.

But the current turnaround is not guaranteed to gather momentum as there are several forces at work.

For starters the market outside of Sydney remains weak.

The Sydney market remains positively impacted by buyer demand after recent NSW Government tax changes that allow first home buyers the choice of skipping stamp duty.

But the first homebuyer scheme will be scrapped should Labor win government, so we are likely witnessing a pull-forward factor.

The anticipated return of investors lured by rising rents has yet to occur, according to the latest ABS data.

The next few weeks will likely see Sydney auction supply build up to its traditional pre-Easter peak. It will be a test as to the depth of buying interest and capability. The envisaged late March/early April listings spike coincides with still frustrated buyers who’ve been looking since last year, along with those who’ve entered the market this year.

Similarly the market consists of old and fresh property listings. SQM calculated February saw 12,000 new listings across Sydney on top of the nearly 7000 that came in January.

The new listings were down 20 per cent on the same months in 2022.

All up Sydney currently has around 27,000 listings for sale.

The big potential pain point is elevated mortgage rates especially after borrowers come out of their record low fixed rate loans.

Just how many distressed listings emerge will be absorbing. I expect they will come in delayed waves over coming months, which might be orderly or a mess depending on the levels of supply.

Rising unemployment will be a factor. Old-timers recall employment is the key determinant in retaining home ownership during economic tumult. But so far unemployment growth remains subdued.

Originally published as Real Estate Australia: Where to buy and not to buy in western Sydney, headwinds threaten recovery