How Sydney compares to the steepest property downturn in a generation

Sydney’s property market downturn is set to be shorter than previous downturns after this week’s cut to interest rates, experts said.

Property prices have been falling since October, but the Reserve Bank’s cut to the cash rate to 4.1 per cent on Tuesday will let buyers borrow more money, boost confidence and stabilise the market, leaving Sydney house prices unaffordable.

Sydney house prices will remain unaffordable to many amid a shallow downturn, experts warn.Credit: Monique Westermann

Some forecasters had been expecting four rate cuts this year, but RBA governor Michele Bullock cautioned there was no guarantee of this.

To date, Sydney dwelling values in 2024-25 have declined by 1.7 per cent in four months from the peak, on CoreLogic data. So far, this is a faster pace than the more gradual 2017 to 2019 downturn, in which values had declined 13 per cent by 23 months after their peak.

The 2022 to 2023 downturn was sharper than both – the steepest in a generation – with a decline of 12.4 per cent in only 12 months from its peak.

Sydney’s median house value of $1,470,625 is now almost double the median unit price of $859,963.

CoreLogic Australia economist Kaytlin Ezzy expects the decline to be shallow.

“It’s likely to be fairly short and sharp, and given [this week’s] rate cut, I expect to see a stabilisation or even a modest return to growth,” she said.

Ezzy said the 2017 to 2019 downturn was gradual, as the bank regulator clamped down on lending to property investors, along with an increase to overall housing stock with the apartment boom.

She said the 2022 to 2023 downturn happened during one of the sharpest increases in interest rates in a long time, alongside housing affordability challenges.

Ezzy believes one rate cut will offer some relief to homeowners and those looking to get into the market.

“Some have been on the sidelines because they haven’t been able to get that borrowing capacity to get over the line,” she said.

“We could see more demand and people start to compete for those properties that could help rebalance the scales in favour of sellers.”

ANZ economist Madeline Dunk agreed the downturn will likely be shallow.

“I think it’s going to be a story of softness continuing in the first half of the year before things start to improve at a very modest pace in the second half of the year.”

ANZ anticipates one more rate cut in August.

“It was clear from the RBA [this week] they’re in no rush to cut rates again,” Dunk said. “I believe it’s going to be a very shallow cycle compared to history.

“If you look at 2008 or 2011, when the RBA was easing rates and house prices were declining, it took four or five months before you actually started to see house prices lift, so I think there will be a bit of a lag.”

MortgageWorks director Anthony Roddy has been inundated with calls this week from clients wanting to know how the rate cut will affect them.

“Our pre-approvals are strong, so it’s likely the demand will be there, the question is whether supply will match,” he said.

Roddy said most buyers have already priced in a rate cut, but it could assist in quality of life.

“It could be the difference between putting your daughter in ballet lessons or not skipping a meal. People are living on a very tight budget.”

Buyer’s agent and founder of Aus Property Professionals Lloyd Edge predicts townhouses and apartments will see a faster return to growth than houses due to affordability.

“First-home buyers will have more of a chance when they’re paying around $1.3 million to $1.5 million for a townhouse,” he said. “As the market picks up, we’ll see that stretch to more suburbs and houses.”

Edge suggested buyers speak to their bank or mortgage broker about how their borrowing capacity might have changed. “There might be a bit of light at the end of the tunnel.”

Software engineer Nakul Bhargava and his wife Vaishali relocated to Sydney from Kansas City in the United States last year, and are house hunting while they rent a three-bedroom townhouse in Parramatta for $880 a week.

Nakul Bhargava and his wife Vaishali find little relief in Tuesday’s rate cut.Credit: Janie Barrett

Bhargava said the one rate cut announced this week provides little relief. “I’m hoping that over one year or so they cut more than 1 per cent. That would be a great relief.

“The challenge in house hunting is infrastructure and affordability. Am I getting the amenities that I’m paying for? We are literally questioning our decision. Did we make the right move in relocating to Australia?”

The couple were priced out of the northern beaches and eastern suburbs and are now considering areas of western Sydney such as Parramatta, Schofields and Marsden Park.

Bhargava has cut back on eating out and orders one drink with meals. He asked, “Am I poor now?”