‘Sharpest turnaround in 30 years’: Sydney home prices drop for third month in a row

Sydney home prices have dropped again in what has been billed as one of the sharpest turnarounds in the market since the 1990s – with plenty more bad news for homeowners on the way.

Sydney home prices have dropped for the third straight month as the property market braces for more interest rates rises.

PropTrack’s Home Price Index released Friday showed the median price of a city home, based on sales of houses, units and townhouses, dropped 0.4 per cent over June.

Coupled with prior price falls, it meant prices are now 1.5 per cent below what they were in February 2022.

Prices had grown at the third fastest annual rate in 150 years over 2021 and the falls in values recorded this year marked one of the sharpest turnarounds in the market since the 1990s.

PropTrack noted expected interest rate increases may be weighing more heavily on growth in Sydney, the most expensive market in the country, where the median house is still worth over $1.25 million.

Bidder numbers at Sydney auctions have been dropping. Picture: Monique Harmer

The research group, a division of realestate.com.au, reported continued price falls were expected across the country until “uncertainty” over the extent of rate rises was resolved.

The Reserve Bank of Australia is due to have its next monthly board meeting on Tuesday and is expected to increase the cash rate once again following hikes in May and June.

Sarah Hunter, senior economist from KPMG, explained in Finder’s RBA survey of economists that another rate rise was on the horizon.

“The most recent comments from Governor Lowe and the June meeting minutes make it clear that the RBA are now proceeding with rate normalisation at a rapid pace, which suggests a further 50 basis point increase in the July meeting,” Ms Hunter said.

Prices dropped across most capitals over June, but falls in Sydney, Melbourne and Canberra were the largest.

Brisbane falls were minor and Adelaide and regional prices continued to grow, reflecting what PropTrack observed was a “two-speed” national housing market.

PropTrack economist Angus Moore said rate rises were affecting buyer confidence.

PropTrack economist Angus Moore said the higher prices in Sydney meant even small interest rate rises made a significant difference in buyer demand.

This was partly why Harbour City real estate was slowing faster than other capitals, he said.

There has also been a gradual increase in listings, which meant there was less pressure on home seekers to bid up prices, Mr Moore said. A shortage of listings was one of the primary drivers of runaway growth in prices last year.

Price falls have not spread evenly across Sydney.

Some of the biggest drops in prices over recent months occurred in coastal or “lifestyle” regions that had attracted a lot of buyer interest from families wanting to capitalise on Covid work from home arrangements.

This included the Sutherland Shire, where the median price of houses dropped 5 per cent over the quarter to June, according to a market trends report by PropTrack.

The average house price drop on the northern beaches was 7 per cent over the same period, and in the Canada Bay LGA, a Harbour-side region of the inner west, the drop was 8 per cent.

Cheaper markets such as the Blue Mountains, Fairfield and Liverpool continued to see price growth, albeit at a marginal pace.

Commonwealth Bank, the nation’s largest lender, forecast in June that Sydney house prices would drop 18 per cent over two years.

This included an 11 per cent drop over 2022 and a further 7 per cent drop in 2023.

Other lenders have released similar price forecasts for Sydney, with ANZ modelling predicting a total drop of 20 per cent over two years

.

Digital Finance Analytics director Martin North said a drop of 15-20 per cent seemed the most realistic outcome for the market, but noted price falls would not be uniform across Sydney.

BFP Property Buyers director Ben Plohl explained in a note to the Property Investment Professionals of Australia that a clear transition was evident across the marketplace.

‘A-grade’ properties have still attracted strong buyer interest. Picture: David Swift

“The dropping of price guides and auctions being passed in is the new norm,” he said.

“A-grade properties are still moving and for good prices, however, we are seeing a significant slowdown in B- and C-grade stock.

“The disparity between vendor expectation and offers from buyers in some campaigns has been very interesting.

“Some auctions (are) struggling to muster up a single registered bidder, while others are seeming some 10 to 15 registered bidders. Overall, the market is quite patchy.”

More: Proptrack