Sydney home prices to take $110k hit as interest rate hikes continue

Sydney home prices are set to fall even further as new rate hikes take effect, dragging city prices to a level that hasn’t been seen in years.

Sydney home prices will plummet by up to $110,000 this year following further interest rate hikes and a slowdown in the economy, new modelling has revealed.

The research, released in PropTrack’s latest Property Market Outlook report, forecast Sydney property prices would fall 8-11 per cent over the course of 2023.

This would drag the city median to around $900,000, or just below it, for the first time in years, down from $981,000 currently.

Sydney’s median property price, based on sales of units, townhouses and freestanding houses, had been over $1m in 2022, just before the Reserve Bank of Australia began aggressively hiking rates.

A recent auction in Bellevue Hill. Numbers at open homes have increased, but it has yet to translate into higher bidder numbers. Picture: Julian Andrews

Report author and PropTrack head of economic research Cameron Kusher said the primary impetus for further price falls would come from rising rates and the resulting decline in borrowing capacity.

Mr Kusher added that additional falls in prices would continue a trend of gradual monthly declines observed over 2022 and early 2023.

Sydney’s median price dropped by less than a per cent every month following the first rate hike in May, according to PropTrack. Last month the drop was just 0.06 per cent.

Among the reasons for the smaller, gradual declines was that little housing stock was coming onto the market for sale, which was keeping a floor under prices.

Unemployment also remained low, preventing an avalanche of forced sales at heavily discounted prices, Mr Kusher said.

PropTrack’s price forecast assumed the RBA increased rates by 25 basis points at its next board meeting, followed by another 25 basis point rise in March.

PropTrack’s Cameron Kusher said further price declines would be gradual.

Mr Kusher said it was hard to envisage the RBA raising the cash rate further than that as it would risk plunging the economy into a recession.

PropTrack’s rate expectations are roughly in line with the big four banks. NAB predicted there will be only two more rate rises, while ANZ and Westpac both forecast the cash rate would peak in May.

“After delivering so many rate rises, at some point the RBA will have to pause,” Mr Kusher said. “They won’t be as aggressive knowing things are starting to drift slower and heat is coming out of economy.”

Conservative lending practices relative to overseas suggested a US-style housing crash like the one seen in 2008 was off the cards, Mr Kusher said.

“Few people have borrowed to their absolute maximum capacity. Lending has been a lot more regulated here (than in the US) … we see prices continuing to tick lower over time until they come down to borrowing capacities or rates drop.”

Sydney home prices fell about 7 per cent over 2022. A further decline of 11 per cent would mean prices dropping 18 per cent below their early 2022 peak.

Banks have released similar predictions. Commonwealth Bank forecast peak to trough falls of 15 per cent, while ANZ released a prediction of an 11 per cent fall in prices over 2023.

My Housing Market economist Andrew Wilson said the Sydney market was too “undersupplied” with housing for a major correction in prices and that gradual decreases were more likely.

Growth may return to the market if rates get cut but it was unlikely the return to growth would be anything bordering on the levels seen in 2021, when prices ballooned by nearly 20 per cent, Mr Wilson said. Soaring rents and rising migration may also been an incentive for more buyers to get into the market even with higher interest rates.