Sydney house prices hit record high, but cracks start to show

Sydney house prices have reached a fresh record, hitting a median of $1.66 million despite interest rates staying high for longer.

But cracks in the city’s housing market are emerging as the pace of growth has more than halved in the latest quarter and premium pockets of Sydney recorded declines.

Sydney’s median house price rose 1.9 per cent – or $21,115 – to $1,662,448 in the three months to June, Domain’s House Price Report, released on Thursday, showed. Annually, house price growth lost momentum for the first time since September.

The weakest area was the city and inner south, where house prices fell 4.4 per cent in three months to a median $1.97 million.

That was followed by the northern beaches, dropping 3 per cent to a median of $2.57 million, and the region of North Sydney and Hornsby, down 2.7 per cent to $2.92 million.

Sydney’s apartment market was even weaker, with the citywide median falling 1.7 per cent to $797,212.

Experts say upgraders who have built equity in their current homes, buyers with intergenerational wealth and the well-heeled are driving the modest house price gains, but most others are feeling the pain of higher interest rates for longer.

Domain’s chief of research and economics Dr Nicola Powell said housing affordability was very stretched for most in Sydney as higher mortgage repayments were taking a toll.

“What has been fuelling the growth is people who are already in the housing market and have leverage, or those accessing the market have the support from the bank of mum and dad,” she said.

“For first home buyers if they don’t have the bank of mum and dad, becoming a home owner is becoming unrealistic.”

Powell said it would take multiple rate cuts to jump-start the property market again as the current cash rate was undoubtedly weighing it down.

“If we don’t see a cut, the longer the cash rate stays higher the heavier that will be on the Sydney housing market, and that could mean an overall fall across Sydney’s housing market.”

Westpac senior economist Matthew Hassan expected modest price growth to continue over the coming months.

He added that price increases will continue to push the dream of homeownership in Sydney further out of reach.

“[Housing affordability is] about as bad as it’s ever been, it’s fair to say,” he said.

“Notwithstanding that rise in the quarter, the market has slowed materially in Sydney compared to last year, and I think that is an indication that affordability is becoming more of a constraint.”

Ray White NSW chief executive Tim Snell said Sydney’s unit market was falling due to hampered first home buyer budgets and investors selling out to save their family home, while more apartments were being built.

“The investor segment has certainly been impacted by the increase in interest rates. There is certainly an element of that. But there is a rising gap between houses and units, and that is only going to increase,” Snell said.

“There is a simple reality: Every time they build a block of apartments there are more apartments and fewer houses. The value of houses is only going to be increasing in margin.”

Snell said higher interest rates would weigh on the property market more broadly in coming months.

Adam and Olivia Jeffrey, with son Xavier, sold their Narrabeen apartment and an investment apartment to buy a house to live in further back from the beach.Credit: Dion Georgopoulos

“Between inflation pressures and mortgage pressures, the basic demand of buying property is certainly starting to slow down, and I would anticipate a cool in general,” he said.

Adam and Olivia Jeffrey sold their Narrabeen apartment as well as an investment property to buy a house to live in.

With three-year-old son Xavier, they moved further back from the beach in order to get extra space for their family.

“Interest rates going up meant that it was a little bit harder to buy,” said Adam, a 36-year-old engineer.

“We might not have sold the investment property in a lower rate environment. But then, we also might have paid more.”

He noticed a two-speed market – popular properties were flying well past their price guides, but less renovated homes were not selling as strongly.

Their broker, MortgageWorks director Anthony Roddy, said many home buyers had been able to take advantage of pay rises gained during the era of closed borders, or support from family.

This had helped to buoy Sydney house prices despite higher interest rates.

“We haven’t seen that liquidity exhausted. That COVID stimulus, once in a lifetime scenario where there was such a huge government and regulatory response to COVID, it’s still taking time to flow through,” he said. “I think we’re nearing the end of that.”

For example, auction clearance rates have started to ease and the unemployment rate has ticked higher, making it difficult for property prices to keep rising at the same pace.

With Elizabeth Redman