01.18.2023 Local News

What Will Get The Property Market Going Again?

What Will Get The Property Market Going Again?

We look at eight factors that could spur activity in the property market again.

After the boom of 2021, 2022 was a quieter year for Sydney property, with rising interest rates and reduced buyer sentiment leading to fewer transactions than usual. With low volume levels and reduced buyer demand, we noticed a lot of people tending to sit on the sidelines, waiting for the market to turn.

So what will it take to get them out into the market and transacting once again? We look at the eight factors that could help kickstart the property market here in Sydney’s eastern suburbs.

1. The end of rate rises

Interest rates can profoundly affect activity levels, especially in the market segments that tend to rely on large mortgages, such as first-home buyers and upsizers. So, when the RBA started raising the official cash rate in 2022, we weren’t surprised to see market activity stall.

That said, it’s not necessarily that people can’t afford a mortgage with interest rates at their current levels. It’s often that simply the uncertainty of rising rates means that people can’t properly budget. Many also fear interest rates keep rising and rising well beyond where they are now – a 5.5% mortgage may be manageable but what about a 9% one?

The RBA will stop raising rates – and we agree with the many economists who say they’ll stop raising them soon. The moment this happens, we could see more activity return.

2. The global economy to stabilise

It’s not just rising interest rates causing people to hold off. Global factors, including Russia’s invasion of Ukraine, supply chain disruption and out-of-control inflation, have all played their part in keeping people away from the property market. But even more, people seem to fear what happens next.

It shouldn’t all be doom and gloom. If global economic conditions stabilise, people might recognise that we’re not in too bad a place. Unemployment is at a record low (just 3.4% here in NSW), and, in 2022, Australia experienced its largest median wage rise in a decade.

If events elsewhere settle down, we may see more people willing to enter the market and transact.

3. Rising rents

While Sydney’s median price may have fallen over 2022, the city’s median rent was rapidly growing. SQM Research data shows that over 2022, it lifted 38.5% from $512 to $709. And that was on the back of 7.4% growth in 2021.

With the rental market so strong and property prices down, many renters may find buying a more attractive proposition – especially with generous first-home buyer grants still available. As they move into the sales market, this could have a flow-on effect.

Higher rents should also appeal to investors looking for income, and these buyers are likely to be competing with first-home buyers for the same properties, potentially driving prices higher.

4. The top filtering down

While the general pattern over 2022 was for price declines across Sydney, the prestige property market remained strong. There simply weren’t enough properties to satisfy demand, and new suburb and street records were set across the eastern suburbs.

The top of the market is strong right now and, as more people get priced out of it and start looking down the chain, it could lead the rest of the eastern suburbs property market into positive territory.

This is exactly what happened in the pre-pandemic recovery of 2019. If history repeats itself, we could find that the premium market begins dragging prices up and encouraging activity across the board.

Weekly Market Insight
Receive Ben Collier's Weekly Market Insight directly to your inbox.
Sign Up
  • Enter your details to receive the report
  • Enter your details to receive the report
  • Enter your details to receive the report
  • This field is for validation purposes and should be left unchanged.

5. Population growth

Sydney has almost always been a growing city, but during the pandemic, that trend stopped. We saw international arrivals slow to a trickle (except for returning expats), and many Sydneysiders either returned home overseas or left for the regions. In FY2021, the city’s population declined for virtually the first time in living memory, according to Census data.

The Albanese government has announced it will be lifting Australia’s permanent migration cap from 160,000 to 195,000 this year. Data shows us as many as 87% of these new arrivals will choose to live in either Sydney or Melbourne, and each of these people will need somewhere to live.

This could drive more activity and place pressure on both rents and property prices.

6. More listings

We often talk about how low listings encourage prices to rise, but a less considered factor is that a higher number of listings can encourage property market activity. That’s because when few properties are available, people can’t find anywhere they want to move into. So they then hold off listing their own home, adding even further to the lack of supply.

When more properties come to market, would-be buyers are more likely to find somewhere they want to move into and then list their own home for sale. This creates a virtuous cycle, where people start moving up and down the property ladder.

7. Rising construction c#osts

When people need more room to move, they’ll often compare the cost of staying put and the cost of moving on. High rates of stamp duty on many eastern suburbs properties (stamp duty on a $5 million home is over $288,000) have often tilted the balance in favour of staying put and carrying out a major renovation.

Recently, however, both the cost of construction and the wait time involved in getting a trade have blown out. Residential construction costs lifted 11% in the year to September – one of the highest rates of growth ever.

Again, this could encourage more people to buy rather than stay where they are, generating more property market activity.

8. More appropriate stock

Just because housing stock is available, that doesn’t mean it’s appropriate for the people who want to live in it.

This is most notable in the downsizer sector, where there is still high demand but few suitable properties. Downsizers want space, convenience, and even luxury. Unfortunately, well-located properties that match their criteria tend to be few and far between.

More developers and homeowners are beginning to recognise this, and we’re seeing more properties come to market that match downsizers’ expectations. As this continues to happen, we’re again likely to see greater turnover in the family homes market, too, as downsizers sell up to move somewhere they’d prefer to be.

Want more?

If you’re thinking about buying or selling property in the Eastern Suburbs, don’t hesitate to get in touch with our team today.