‘It will hurt buyers’: Suburbs where homes are now overvalued

From outer suburbs that boomed during the pandemic to popular coastal areas, homes in parts of Sydney are now considered overvalued. See the FULL LIST

Property values in a string of popular Sydney suburbs have soared so high above neighbouring areas that they may have become “overvalued” and likely to fall, new research shows.

The exclusive modelling by DSR Data showed many of the most overvalued units and houses were in the city’s east or outer west and some were areas that boomed during Covid lockdowns in 2021.

They included Edgecliff units, which were considered the city’s most “overvalued” properties.

Western markets considered overvalued were units in Wakeley, near Fairfield, houses in Hills District suburb Glenhaven and houses in Penrith enclave Emu Plains.

MORE: Sydney’s most undervalued suburbs

Other suburbs where the houses were deemed overvalued were in the southwest, including Glenfield, Camden South, Moorebank and Harrington Park.

DSR categorised suburbs as “overvalued” if prices had risen dramatically over a sustained period and were now well above the cost of similar homes in nearby areas.

Another feature was that the supply of properties available for sale within the local market was beginning to outweigh demand, suggesting impending price falls.

DSR Data analyst Jeremy Sheppard said “overvalued” markets were often areas where buyers could no longer justify paying the inflated prices on offer because they could get better value in nearby areas.

“Nothing knocks demand out of the market more than when prices become too high. And that’s clearly happened in many areas,” he said.

“There was extraordinary growth in some suburbs and people can no longer accept the values sellers are asking.”

Mr Sheppard added that overvalued suburbs were riskier markets for some new buyers.

“If you purchase in these areas and you’re able to hold onto the property for the long-term it shouldn’t be a problem,” he said.

A unit in this Edgecliff building recently sold for nearly $3m.

“But who it will hurt are buyers who run into tough times soon after purchasing as they may struggle to cover their transaction costs if they need to sell.”

It comes as PropTrack figures showed most home seekers have much smaller budgets than they did last year due to the fastest cumulative interest rate rises in 30 years.

PropTrack economist Angus Moore said the maximum borrowing capacity of buyers was about 30 per cent lower than it was a year ago.

“Those who are in an earlier life stage and don’t have substantial equity from a previous property to help buy their next property will find those credit constraints really matter,” Mr Moore said.

Mr Sheppard said the process that led some suburbs to become undervalued and others overvalued was complex, but overvalued areas had generally come off a boom period.

“When we first went into Covid there was this low interest rate environment and, when it’s much easier to get finance, there’s less scrutiny from buyers,” he said.

“As rates go up, more people start to have a reality check. That caution and scepticism about prices, when combined with higher interest rates, knocks demand out of the market.”

Edgecliff units were considered the most overvalued because current demand for housing was weak compared with supply. There was also a smaller gap between unit and house prices, while units in some nearby areas were generally cheaper but had similar amenities. Unit prices had also grown over a long period and were showing signs of peaking, according to DSR Data.

Originally published as ‘It will hurt buyers’: Suburbs where homes are now overvalued