Sydney real estate: Shock home price rises expected by year-end

Exclusive modelling has revealed how long Sydney’s ongoing housing market recovery will last and what it means for property values.

Sydney home prices could end 2023 up to $60,000 higher than they were at the start of the year as the ongoing housing market recovery continues, new modelling has revealed.

The PropTrack forecasts indicated more growth was expected despite crippling mortgage costs and the chance of further rate rises, with the median value of city properties expected to climb 3-6 per cent.

This would mean the average Sydney dwelling, based on sales of houses, units and townhouses, would shift from just shy of $1m at the start of the year to somewhere within range of about $1.05m.

Growth in prices was forecast to then be fairly flat over 2024 as affordability constraints and greater home sales, including from those coming off expired fixed rates, helped moderate the market.

A shortage of available housing has helped boost prices this year. Picture: Adam Yip

Sydney was also expected to be the strongest performing capital city housing market behind Perth, which has been rebounding from a decade-long slump that started when the mining boom ended.

Harbour City home prices have already climbed by about 2 per cent this year, largely because of an extreme imbalance between housing supply and demand.

This climate has been fuelled by lacklustre building activity, developer insolvencies and the reluctance of homeowners to list their properties for sale.

Skyrocketing rents have also pressured more tenants to become first homebuyers, with rampant migration creating additional demand for properties.

PropTrack director of economic research and report author Cameron Kusher said recent price growth signalled a shift in the housing market, reversing the declines of the prior six months.

Building company insolvencies have meant many housing projects that would have helped improve housing supply were never completed.

“We saw price increases despite rising interest rates and reduced borrowing capacities and anticipate moderate price increases to continue over the coming months,” he said.

“The outlook for 2024 is much less clear with a large cohort of fixed-rate borrowers’ mortgages set to expire from current interest rates of around 2 per cent and reset to around 6 per cent.”

Mr Kusher said a sudden increase in sales from homeowners unable to afford their repayments would drag down the market, but it was hard to know if and when this would occur.

“Interest rate changes act with a lag,” he said. “The possible impact of higher repayments on these borrowers won’t be seen until 2024. At this stage, we are forecasting modest price growth in 2024.”

PropTrack’s latest forecast has come on the heels of similar predictions by major banks, including NAB, which in July forecast a 6.9 per cent rise in Sydney home prices this year.

Cameron Kusher, from PropTrack, the research arm of REA Group, said growth may slow later this year as the usual spring selling season brought more listings to market.

My Housing Market economist Andrew Wilson said a dramatic rise in forced sales, the kind that would push down prices, was unlikely while unemployment remained low.

“Sydney’s economy is in decent shape too, that’s been a big factor,” he said. “We would expect most households to hold onto the family home so long as they have an income.”

Forecasts of growth this year are a major reversal of earlier predictions of largescale falls in prices over 2023. PropTrack had forecast Sydney price falls of 9-12 per cent.

The expectation had been that interest rate hikes would grind down prospective buyers’ appetite for purchasing properties and that property supply would gradually increase.

Factors not anticipated in those earlier forecasts were a record surge in migration, the Ukraine War disrupting global building supply chains and the collapse of multiple construction companies.

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“Household savings were larger than we anticipated. (Homeowners) could run down those savings as rates went higher,” Mr Kusher said.

“We also heard in Sydney and around the country that (some) feared they would have nowhere to go if they sold. It became a self-fulfilling prophecy. No one sold because no one else was selling. If there had been an uplift in sales it would have given buyers more choice and removed some of the upwards pressure on prices.”