Sydney home prices ‘set for downward spiral’

Skyrocketing interest rates could finally take their toll on Sydney home prices next year, with a market correction predicted to send values falling.

Skyrocketing interest rates could finally take their toll on Sydney home prices next year, with a market correction predicted to send values spiralling downward.

And while that spells potential bad news for homeowners, there’s likely little for most homeseekers to celebrate.

According to new data from SQM Research, the RBA’s 13 cash rate rises since May last year will begin to bite hard into the market in early 2024.

In combination with several other factors including record population growth, continued inflation and rising unemployment, the Reserve Bank of Australia’s concerted rate rise push, could lead to a fall of up to 6 per cent in Sydney home prices next year.

According to SQM Research’s Housing Boom and Bust report 2024: “The rise in interest rates over 2022 and 2023, and possibly into 2024 will start to bite homeowners and would-be home buyers alike.

Skyrocketing interest rates could finally take their toll on Sydney home prices in 2024. Picture: Julian Andrews.

“SQM Research expects a rise in distressed selling activity over next year and only the most cashed up willing to enter the market.”

Cash rate rises above 5 per cent, unemployment above 6 per cent, population growth slowing back to 460,000 or less and inflation growing again towards 7 per cent on the back of a Middle East oil embargo could create a worrying fall of between 2 and 6 per cent in home prices.

That’s according to Louis Christopher, Managing Director of SQM Research.

A more moderate, “base” scenario of a cash rate between 4.1 per cent and 5 per cent, population growth of 460,00 or less and unemployment between 4.5 per cent and 5.5 per cent could lead to a fall in prices anywhere up to 4 per cent.

Very strong population growth greater than 500,000 would lead to a scenario, according to Christopher’s research, of changes in Sydney home values from minus 1 per cent to plus 3 per cent.

“Sydney’s housing market is expected to record a moderate fall in dwelling prices of between minus 4 to 0 per cent,” Christopher said.

“It is expected Sydney’s middle to outer rings for free standing houses will record a greater correction. Sydney units are expected to outperform, and Sydney’s inner ring is still expected to record price rises as top end property remains in demand from foreign investors.

“If I am wrong and the housing market has another strong year, it will be because employment growth has continued to be firm and/or migration has once again grown more quickly than expected and homeowners once again have managed to withstand the higher lending rate environment.”

Thus far, the RBA’s unprecedented rate rises, including another 25 basis point rise to 4.35 per cent earlier this month, have failed to dampen the growth in Sydney property prices. According to PropTrack, Sydney home values have risen 7.51 per cent to a median home price of $1.07m over the past 12 months.

Tim McKibbin, CEO of the Real Estate Institute of NSW said he expected home prices to grow between 3 and 5 per cent next year.

“The current data suggests prices are continuing to rise and the fundamentals have not changed,” he said.

“Purchasers have factored in the latest rate rise and even if there is another one, which seems to be the view, I don’t think that on its own will be enough to turn the market around.”

Mr McKibbin said population growth, a slow approvals process, the cost of, and struggle to get building materials were all contributing to a market where demand was outstripping supply and would continue to do so.