Sydney property downturn: the safest and riskiest suburbs for homebuyers and investors

A cocktail of rising rates and falling prices is expected to hit various suburbs in markedly different ways, with housing trends revealing the safest and riskiest suburbs to buy a home right now.

Sydney real estate is set to become a tale of two cities – a strong market for well-connected suburbs with large, quality homes, but a plunging market for everywhere else.

New Finder.com.au analysis has revealed Sydney’s safest and riskiest suburbs for home buyers and investors during the current downturn, with lower-density inner- and middle-ring areas forecast to be top performers.

Pockets of Parramatta and high-rise construction hubs like Wolli Creek and Olympic Park were forecast to be among the worst affected by the changing market and could see bigger price falls.

It comes as the Reserve Bank made a landmark decision earlier this week to raise the cash rate by a whopping 0.5 per cent, an increase most lenders have already passed on to mortgage holders.

Both economists and banks warned more rate rises were expected throughout the rest of the year, which would push down homebuyer demand at a time when prices were already falling. CBA on Friday predicted Sydney prices will drop an average of 18 per cent in the next two years.

Jane and Marco Calvert-Hasan, with son Tobias, live in Rozelle, one of the safest suburbs. They said some people have been waiting to buy in the area for years. Picture: Sam Ruttyn

This climate was expected to have a varying impact across the city, according to the Finder.com.au Investment Index, which modelled recent sales patterns, income changes, building approvals, buyer demand and more.

The study showed lower north shore enclave Cammeray, along with Redfern in the inner south and Wahroonga on the upper north shore would be the most resilient suburbs during the downturn.

These suburbs tended to have universal appeal among buyers because of their proximity to the CBD and transport links, good schools and shortage of available housing.

They also tended to attract higher-income buyers who would not be as affected by interest rate rises and could continue paying the high costs associated with home purchases.

There was a similar situation in areas such as northern beaches suburbs Narraweena and Davidson, along with inner west suburbs such as Rozelle, Erskineville and Earlwood, which were also deemed as suburbs set to outperform the rest of the market.

The suburbs where there was a higher risk of prices falling tended to be high-rise construction hubs where there was an oversupply of apartments.

They included Wolli Creek, near the airport, Olympic Park and parts of the Greater Parramatta area such as Mays Hill, Harris Park and Rosehill.

Smaller apartments in outer fringe suburbs where most of the housing was traditionally larger houses on sizeable blocks were also deemed to be weaker performers, according to the index.

Finder.com.au head of consumer research Graham Cooke said a common theme among the suburbs set to be more resilient during the downturn was a history of gradual increases in prices.

“A sudden increase over a very short period can be a bad thing as it not always (sustainable),” he said. “The best markets usually get consistent growth … often it’s because they are central or close to transport.”

This terrace in Redfern recently sold for $1.55m.

Mr Cooke said it was unlikely the suburbs forecast to be top performers would see dramatic price increases in the short-term, because buyer demand in general terms was down.

Instead, top performers were the suburbs where prices were more likely to hold their value rather than increase, he said.

PropTrack data showed Sydney’s median home price fell 0.29 per cent over May, the second straight month of falls, and the biggest drop among capital cities.

Prices had stopped growing at the end of 2021 after previously skyrocketing. The nearly 25 per cent jump in prices over the year was the third highest annual increase in close to 150 years.

Buyer’s agent Michelle May said a key determinant in which property markets were continuing to attract strong spending from buyers was the balance of supply and demand.

“There is a shortage of quality, family houses up for sale in the best school catchments, near amenities, near public transport and where you don’t need to do a renovation,” she said.

“They are also the properties everyone wants to buy, there’s more competition and they often sell above expectation.

This home in Earlwood recently sold for $1.8m.

“If you’re buying a unit in a big building, there are usually three or four other units just like it. There is no reason for a buyer to pay a higher price.”

Rozelle resident Jane Calvert-Hasan, who is selling her home of 17 years, said it wasn’t surprising that her suburb was expected to be one of the more resilient markets considering she knew people who had been waiting years to get into the area.

“They really want to come here, they just keeping getting outbid,” she said.

Local agent Cindy Kennedy of McGrath said improving infrastructure in the region, including new train links and WestConnex, were ensuring perennial demand.

“There are some (buyers) who have been looking for two years, and they are still looking,” she said. “There has been a softening in the market, but we’re still getting 20 people or more come to our open for inspections each weekend.”