‘False dawn’ warning on Sydney home price rises

Sydney home prices have now risen for six straight months, however fears of yet another rate rise have led to a stark warning to mortgage holders.

Sydney house prices have risen for the sixth consecutive month. Picture: Dylan Coker

Sydney house prices are “gathering pace” as they rise for the sixth consecutive month, however it comes with warnings of a “false dawn” ahead of the Reserve Bank’s next decision on interest rates.

Sydney not only continues to lead the market recovery, with prices across the Harbour City have rising another 0.58 per cent in May with experts saying the Reserve Bank’s decision to lift interest has not affected the rebound.

The latest PropTrack Home Price Index report states that Sydney’s home prices are now up

3.03 per cent from their low in November 2022.

PropTrack senior economist Eleanor Creagh said Sydney continued to lead the recovery across Australia.

Auction clearance rates remain strong across Sydney with auctioneer Andrew Robinson dropping the hammer on a Woolwich knockdown-rebuild for $5.6m. Picture: Adam Yip

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“The rise in prices seen so far this year gathered pace in May, broadening and accelerating across markets,” she said.

“Sydney home prices bottomed out a month before national home prices last year. We have now seen six consecutive months of house price growth and although there is a risk interest rates will rise, strong housing demand is underpinning home prices.

“I think it will continue, a lot of indicators are consistent with the current price rebound.”

Ms Creagh said the housing demand was driven by the shortages in rental supply and strong rebound in net overseas migration, along with the continued “softness” in new listings.

“We are seeing the flow of new listings relatively soft so vendors in the market are benefiting from less competition,” she said.

PropTrack senior economist Eleanor Creagh.

“That’s helping to underpin home prices against the backdrop of housing demand.”

Sydney led the recent downturn with home prices falling 7.19 per cent from their February 2022 peak to the November 2022 low.

“The rebound in prices has gathered pace, and so far in 2023, Sydney prices are up 2.94 per cent,” Ms Creagh said.

She said home prices in Sydney were now 1.96 per cent below their May 2022 levels and 25.4 per cent above pre-pandemic levels in March 2020.

SQM Research’s managing director Louis Christopher said while the market has continued to “rally”, there was danger of it being a “false dawn”.

“I say this because of the increased probability the RBA will have to lift rates yet again,” he said.

SQM Managing Director Louis Christopher.

“We believe that if the cash rate were to cross over into 4 per cent, that really does mean trouble for many existing home borrowers and we will likely see a rise in the number of distressed listings.”

Mr Christopher said up until now, the market and community have managed to take the rate rises.

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“We are very close to the crunch point where there will be forced selling. Would be buyers need to remain cautious because the story on interest rates hasn’t been played out yet.”

Sydney house prices have risen for the sixth month in a row. Picture: Nikki Short

Ms Creagh said while interest rates could rise, the economy is expected to slow.

“These factors may weigh on home prices in the months ahead,” she said.

“However, the continued tightness in the labour market, stronger housing demand and the limited supply environment are likely to support an ongoing recovery.”

The RBA will next meet on Tuesday to discuss whether to implement another rate rise.

According to the PropTrack report, regional NSW was one of three markets across Australia to see a decline in home prices.

Prices were down 0.08 per cent across regional NSW, however Ms Creagh said the regions “made strong gains throughout the pandemic, and prices are still 46.7 per cent above pre-pandemic levels in March 2020.”