Sydney property prices to fall in 2024 as owners struggle

House prices in one Australian state are set to fall fast in 2024 and one group of owners is particularly at risk.

Sydney housing prices are set to drop in 2024, due to a predicted increased in distressed sales.

SQM Research managing director Louis Christopher said in his annual Housing Boom and Bust Report: “Distressed selling activity is expected to jump, especially in NSW where we are already starting to see a new trend upwards in that data set.”

Distressed listings in NSW have seen a significant increase, jumping 78 per cent since last year.

This surge indicates that more homeowners are struggling to keep up with their mortgage payments, a trend that is expected to continue as interest rates climb.

Mr Christopher said the risk of distressed sales is particularly acute for those who purchased properties in the past two years.

Sydney housing prices are set to drop in 2024. Picture NCA Newswire/ Gaye Gerard

But, despite a predicted decrease in Sydney’s housing prices of up to four per cent next year, the dream of home ownership will remain elusive for many, as increasing interest rates continue to impact the affordability of mortgages.

SQM latest Housing Boom and Bust report anticipates a challenging period ahead for the Sydney housing market.

The 4.25 per cent increase in interest rates since last May, coupled with additional hikes that may be yet to come will continue to impose significant stress on both potential and current homeowners.

“The interest rate rises of 2022, 2023 and possibly 2024 will finally start to bite homeowners and would-be homebuyers alike,” Mr Christopher said.

Rising interest rates and economic challenges continue to hinder home ownership prospects in cities such as Sydney and Melbourne. Picture: Lisa Maree Williams/Getty Images.

Rising interest rates are not the only factor contributing to the predicted drop in house prices.

An expected slowdown in the economy is likely to hit Sydney and Melbourne harder than other capital cities, making their housing markets more vulnerable to downturns.

However, the report stops short of forecasting a crash, citing severe housing shortages and strong population growth as buffers against a double-digit correction in housing prices.

“We’re not forecasting any type of crash by any means because the severe housing shortage and still fairly strong population growth are going to create a buffer to stop any type of double double-digit housing price correction for next year,” Mr Christopher said.

For prospective home buyers, the dream of owning a property in Sydney continues to dim. The combination of dwindling affordability and the prospect of higher mortgage repayments due to rising interest rates creates a formidable barrier.

Despite a predicted decrease in Sydney’s housing prices by up to 4 per cent next year, interest rates are predicted to increase. Photo: Supplied.

The report outlined multiple scenarios, with the base case assuming that interest rates will cap at five per cent, population growth will slow, and unemployment will rise to 5.5 per cent.

In this scenario, Sydney, along with Melbourne, Canberra, Hobart, and Darwin, are expected to see a fall in housing prices, contributing to a nationwide decline forecast at one per cent.

“For much of the rest of Australia, the sharp deterioration of housing affordability, driven by ongoing interest rate rises which are now (in SQM’s opinion) at restrictive levels, plus an anticipated slower economy, will see a modest to moderate correction in dwelling prices take place in Sydney, Melbourne, Canberra and Hobart,” Mr Christopher said.

Judo Bank economic adviser Warren Hogan warns of a potential broader economic slowdown, which could see house prices fall by around 10 per cent due to high valuations.

For sale signs may become more common if distressed sales continue to take hold. Photo: Supplied.

CoreLogic research director, Tim Lawless, also noted a clear risk of prices trending lower in Sydney.

“Sydney’s preliminary clearance rate from the weekend at 68.7 per cent was the lowest since mid-February, suggesting a market that is swinging back in favour of buyers as stock levels rise,” Mr Lawless told The Australian Financial Review.

In a stark contrast, Perth and Brisbane are expected to witness gains in their housing markets, driven by a recovering Chinese economy and strong demand for commodities.

“The cities of Perth and Brisbane are the only cities expected to record price rises with each respective market driven by a tailwind of a recovering Chinese economy which is anticipated to see strong demand for base commodities such as iron ore,” Mr Christopher said.