03.22.2023 Property Trends

5 Factors That Impact Property Prices Other Than Interest Rates

5 Factors That Impact Property Prices Other Than Interest Rates

Interest rates aren’t the only factor that impacts property prices…

While a lot has been written and said about the effect rising interest rates are having on our city’s real estate market, they’re not the only thing that drives property values. We look at five other factors that can also determine whether prices rise or fall here in Sydney’s eastern suburbs.

1. Exchange rates

Sydney’s eastern suburbs attract a lot of overseas buyers. Some of these buyers are foreign investors, others are ex-pats looking for a base or investment back home. For these buyers, virtually nothing matters as much as the relative value of the Australian Dollar – which means prices in this segment operate more or less independently of interest rates.

Take, for instance, a Sydney property that is worth $4.5 million at current exchange rates, that’s equivalent to around US$2.95 million. However, using the exchange rates of a decade ago, when the Australian dollar was worth closer to $US1.05, that same home would be worth US$4.725 million.

Given the over-representation of overseas buyers at the top-end of the market, today’s low Australian dollar goes some way to explaining why prestige sales have continued to perform well.

2. Global uncertainty

Political and economic uncertainty, such as trade disputes and geopolitical tensions, can have a real impact on all markets from the ASX to bond prices, and from the price of oil to the price of agricultural commodities.

It can also impact the local property market too.

When people are worried about how events will pan out – and what it means for factors such as inflation and recession – they’ll also usually become more cautious about spending money on anything. With fewer buyers in the market, sellers often also hold off and listings tend to dry up. That’s why political and economic instability is often accompanied by less property market activity.

Interestingly, when vendors withdraw from the market altogether, it can actually have a positive impact on home values because it reduces supply in line with demand, and helps cushion potential price falls.

3. Demographic shifts

Unfortunately, time doesn’t stand still. Each day we grow older; our life patterns and desires change; and the property we want changes with them. Right now, one of the biggest trends we’re seeing is the retirement of the Baby Boomer generation.

The Baby Boomers, which the ABS says includes anyone born between 1946 and 1965 make up 21.5% of our population and are now aged between 57 and 77.

As they consider moving out of the family home, we’re also seeing tremendous demand for downsizer properties close to the city, beaches or parks. This is driving a new wave of high-end developments across the city, and pushing the price of premium apartments upwards, even in a flat market.

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.

Throughout most of the eastern suburbs, it’s now Gen X that is the predominant group of home owners (now aged between 42 and 57), while Gen Y dominates in areas such as Randwick, Kensington and Maroubra. As these buyers enter different stages of life, their property expectations are also likely to change too.

4. Population growth

With the exception of the pandemic years, Sydney’s population has been growing rapidly over the past couple of decades. At the time of the 2000 Olympics (which doesn’t seem that long ago for many of us), our city had 3.7 million residents. Today it has closer to 5.2 million residents; and by 2030 more than 5.6 million people are expected to call Sydney home.

One of Sydney’s defining features is that it is ‘hemmed in’ by the ocean here in the East, the mountains to the West and the national parks to the North and South. As more people move here, we’ll need more homes built – especially more medium density homes – and we’ll also see increasing competition for properties.

Cities and countries with growing populations also tend to experience property price growth, while those that don’t see little movement (or even falls). For instance, dwelling prices in Japan – where the population has been falling – are actually now lower than they were in 1990. That’s’ at the same time prices in our city have grown by an average of close to 600%, and those in some suburbs, such as Bronte, have grown by more than 1,500%.

5. Pandemics

Finally, and as we all know too well, a major shock such as a pandemic can have a profound impact on the property market.

At first, the COVID-19 pandemic had a negative impact on the market, with borders closing, fear taking hold and people choosing to stay where they were rather than moving home. As it progressed, however, we saw more people choosing to invest time and money in their home.

Property prices took off – especially when it came to family homes and lifestyle properties – and the market played out in a way that virtually no one anticipated.

And that’s perhaps the most important factor to take from all of this. While external factors can have a real impact on property prices, no one knows exactly what will happen. You’re better off focusing on the long term, which shows that quality property in Sydney’s Eastern Suburbs always tends to be a sound investment.

Want more?

If you’re interested in buying or selling a home in Sydney’s Eastern suburbs get in touch.