05.04.2022 Buying Tips

Have Property Prices Peaked?

Have Property Prices Peaked?

Sydney’s median dwelling value recorded its first quarterly fall since the beginning of the pandemic.

But can we be certain that prices have peaked?

Sydney’s median dwelling price fell -by 0.5% in the three months to April, according to CoreLogic. This represents the first quarterly fall in Sydney property prices since mid-2020. But can we see the market has definitely peaked and that we’re now on the path to falling prices?

The broader data suggests prices are going down

There are three major indicators that suggest we may have seen the property market peak.

1. Sydney’s median dwelling price has fallen

Sydney real estate prices grew most rapidly in May 2021 when the median dwelling price rose by 9.3% in just one quarter. Since then, the rate of growth has been slowing and in April we recorded the first quarter of negative growth since mid-2020. Importantly, the median price fell both for houses (-0.3%) and apartments (-1.2%) over the past three months. This indicates a general slowing of conditions, although the apartment market has been harder hit.

2. The auction clearance rate has dipped

Given most Sydney properties are sold at auction, another data point many people keep an eye on is the auction clearance rate. A high clearance rate generally means that demand is outstripping supply and prices are rising. A low auction clearance rate indicates supply is higher than demand and prices should start to decline.

Domain recorded an auction clearance rate of 63% for the weekend of Saturday 3 April. This compares to a rate of 72% for the same weekend last year, and almost 90% in early 2021.

3. Lending is down

A third data point many commentators look at to measure the state of the property market is ‘new housing commitments’, or the value of new home loans being issued.

The latest ABS data shows that this fell -3.7% nationally in February 2022, with the biggest fall (-10.7%) happening here in NSW. Lower borrowing generally means there are fewer buyers in the market, which can impact demand and affect prices negatively.

The factors at play

There are many reasons we’re seeing this poorer data come out right now. We’ve summarised some of the ones we’ve noticed below.

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  • Interest rates. There is often a strong correlation between interest rates and house prices. Even before the RBA started raising interest rates, buyers and lenders had both started factoring in the likelihood of this happening. This was having an effect on how much people were willing to spend.
  • The election. Federal elections tend to be preceded by a decline in property market activity, as people hold off to see the election result. It’s true that this year’s election hasn’t had quite the same impact as the 2019 federal election when the ALP looked to end negative gearing and reduce the CGT discount. However, it is still having some impact on the market, with many people taking a ‘wait and see’ approach.
  • General economic uncertainty. Inflation is rising at home, and events such as Russia’s invasion of Ukraine are creating uncertainty in the global economy. This is impacting buyer confidence and affecting the housing market.
  • Increased listings. Property prices are ultimately determined by the laws of supply and demand. At the height of the market last year, there were few properties for sale and a lot of people looking to buy. This has started to change, with more protein coming to market. CoreLogic reports there were 7.5% more homes for sale in March 2022 compared with March 2021.

Are things really that bad?

Despite all of these negative factors, we’re not convinced that Sydney’s property market is entirely bad. Here’s why.

Markets within markets

We’ve always said that Sydney’s market can’t be seen as an amorphous whole. Instead, it’s a series of markets with different drivers that have different effects.

For instance, the health of the prestige market is often determined by factors such as the state of the share market, the amount of business activity and the global economy. This is very different from the first home buyer market, which tends to be very affected by interest rates and government policies and incentives.

There are some market segments – such as the downsizer market – where there still simply aren’t enough properties to go around for the number of buyers. That means we’re likely to see quality apartments and townhomes close to amenities perform strongly.

A record-breaking 18 months

Next, it has to be remembered that the past year-and-a-half has been atypical, even extraordinary. Between mid-2020 and the start of 2022, the median Sydney house price rose almost 25%. In some Eastern Suburbs, it rose by significantly more – for instance, Bronte’s median price rose 52.0%, according to realestate.com.au

Anyone looking to sell will have locked in the gains of the past 18 months and should be in a strong position to move on. As more people realise this, we’re likely to see optimism return.

Auction clearance rate variable

Just as Sydney comprises many markets, it also really comprises many auction clearance rates. While Domain suggests that Sydney’s overall rate has fallen, the Wentworth Courier found that on the weekend of Saturday 23 April, 100% of properties for auction in the Eastern Suburbs sold – hardly the sign of a market in decline.

Rising rents

While property prices rose over the past year and a half, rents fell. That’s now changing, with rents going up an average of 9.1% for the year to March 2022, according to CoreLogic. This is likely to attract more investors looking for income back into the market, putting upwards pressure on prices.

What it all means…

In short, while there are signs we’re in a slowing market it isn’t all doom and gloom. Even though there’s no doubt we’re in softer conditions now than we were last year, we certainly don’t think prices will plummet. Instead, we’re likely to see different market segments perform at different speeds.

Want more?

If you’d like to find out more about the property market in Sydney’s Eastern suburbs, get in touch with our team today.