07.27.2021 Local News

What’s Behind Rising Prices?

What’s Behind Rising Prices?

Sydney’s property market keeps defying expectations.

But what’s really driving real estate prices higher?

Sydney’s property market has had a stellar year so far. According to CoreLogic data in the six months to 30 June, the median dwelling price rose 15.4%, with buyers out in force despite the effects of one in-a-hundred-year pandemic still creating uncertainty.

So what has been driving property prices upwards? Where is the local market right now? And can the momentum last beyond the Sydney lockdown?

1. Low interest rates

One of the key factors driving the property market higher is record low-interest rates. When the coronavirus pandemic first struck in March 2020, the RBA cut the official rate to 0.25%. Then in November 2020, it went even further, cutting the rate to just 0.1%. The RBA has also said it doesn’t expect rates to rise again until 2024.

Borrowing money has never been cheaper. The Big Four banks all currently offer fixed-term rates of around 2%. This has an enormous impact on what people can afford to borrow. For instance, if you were to borrow $1.5 million on a 25-year principal and interest home loan when interest rates were 4%, your monthly repayments would be $7,918 a month (assuming no other charges). At 2% they’d be $6,358 a month – or $1,560 a month less.

So with more money to spend, buyers are often willing to spend more too. This is a real factor in many parts of the market – although less so at the premium end.

2. Increased desire for better lifestyle

Almost everyone has spent more time at home over the past 18 months and many of us have turned our homes into our main places of work. As a result, a lot of people found that their living quarters seemed a little cramped.

This has encouraged a lot of people to look for a bigger home in which to live. We can see that in Sydney’s renovation boom that’s going on right now, but we can also see it in the types of properties in demand.

Quite simply, the market in family homes is white hot with more buyers in the market than we’ve seen for some time. As a result, Sydney’s median house price lifted 18.5% in the first six months of the year, according to CoreLogic. Meanwhile, the median apartment price rose by a more modest, but still impressive, 8.2%.

3. Short supply

At the same time as we’re seeing more buyers in many market segments, we’re also seeing fewer properties. Falling listings has been a phenomenon that’s been going on for some time now, but it reached new heights after COVID struck.

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SQM data shows there were 25% fewer properties on the market in June 2021 than there were in 2019. In fact, there were fewer properties on the market in June before the current closedown struck than there were at the height of the first wave between March and May 2020. The shortage is particularly acute in certain market segments. For instance, properties that suit the downsizer market are in particularly short supply.

Property prices are always set by the laws of supply and demand. So, with fewer properties listed for sale at exactly the same time that there are more buyers in the market, prices naturally go upwards.

4. Buyer confidence

The COVID-19 pandemic has proven how resilient Australia’s – and Sydney’s – economy really is. Despite the worldwide recession, our GDP has been growing to record levels, as has our balance of trade. Before we went into lockdown national unemployment was below 5%, consumer and business confidence were high and the economic outlook was rosy. This has been giving people real confidence to put their best foot forward when it comes to making an offer on a new home.

5. Global factors

As we recently wrote, rising property prices are actually a global phenomenon, not just a Sydney or even Australian one. So rising property prices are part of a trend that’s taking place in many locations right now. Perhaps this is due to people wanting more stability in the face of unprecedented uncertainty. Or perhaps it is due to the fact that money is cheap everywhere, not just here.

6. Fear of missing out (FOMO)

If there’s one thing that can really drive prices higher quickly it’s FOMO, or fear of missing out. And we’ve noticed that this has been a real factor in the property market over the past year or so. After all, with fewer properties on the market and a lot of visible competition, buyers are understandably worried that, if they don’t make a strong offer, they won’t be able to find anything. This fear is turbocharging auctions and creating a real sense of competition in the marketplace.

Once FOMO sets in, it only dissipates when more properties become available or the number of buyers dries up. While the effects of the Sydney lockdown aren’t yet fully understood, those properties still on the market are selling strongly. We also have no reason to believe the market won’t swing back into action when we’re back out and about at open homes and physical auctions.

And finally…

It has been a big year to date for Sydney property. While the lockdown may put a pause on the amount of activity, we expect things to return to full swing once restrictions are lifted.

If you’re thinking about buying or selling in Sydney’s eastern suburbs contact my team today.