01.11.2023 Lifestyle

What Will Happen To The Property Market In 2023?

What Will Happen To The Property Market In 2023?

We look at the five trends we think will shape Sydney’s eastern suburbs property market over 2023.

2022 was a very different year for Sydney’s property market than 2021, and 2023 is likely to be different again. We reveal the five trends we believe will impact the property market in Sydney’s eastern suburbs this year.

1. Interest rate rises to end

In many ways, interest rate rises defined 2022’s property market. The RBA lifted the official cash rate eight consecutive times between May and December, taking it from 0.1% to 3.1%. Banks followed suit, taking the average variable interest rate from around 3% at the start of the year to 5.45% by year’s end.

Given that most home buyers need some form of finance to fund their purchase, interest rate rises had a profound impact on what many people could afford. This made it the main cause of property price falls over the past 12 months.

Most economists believe the interest rate hikes will end sometime in 2023. In fact, CBA’s economists believe we’re likely to see just one more rise of 0.25%. The other big four banks take the view that there are still a few rates rises left but that they’re likely to be over soon and will peak at 3.6% to 3.85% before coming back.

Many people have been holding off buying or selling until they know where the RBA lands with the official cash rate. So when rate rises stabilise and people have greater certainty over their budgeting, we should see more activity in the property market, as well as the potential for price gains.

2. Autumn to be a bigger selling season

One of the defining factors over the past couple of years has been a lack of stock in the Sydney property market. This was one of the main factors causing prices to rise so rapidly over 2020 and 2021 – when demand far outstripped supply. A lack of listings also helped cushion potential price falls in many parts of the eastern suburbs over 2022.

We’ve spoken to many people who want to make a move but who are holding off listing due to rate rises and economic uncertainty. As interest rates stabilise, they’re likely to become more confident and enter the market. Assuming rate hikes end soon, in line with most forecasts, we expect the period between March and May to be a bigger selling season than we’ve had for some time.

We also expect that rising construction costs and longer timelines on trades will encourage more people weighing up renovating vs buying to make a move.

3. Investors to return to the market in bigger numbers

Owner/occupiers have dominated the market over the past few years, with upsizers especially driving many of the massive gains over 2020 and 2021. This was one of the key reasons we saw house price rises far outstrip apartment price rises when the market was booming.

With vacancy rates at close to all-time lows and rents and yields both rising, we expect to see more investors enter the market over the next 12 months. This should particularly influence the apartment market, which tends to have higher yields and lower entry points.

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It’s likely that investors will be joined in this price bracket by a rising number of first-home buyers, many of whom will see better value in buying vs renting, given lower apartment prices and recent rent rises.

4. The prestige market to stay strong

While most of Sydney’s property market experienced price falls over 2022, the prestige market went from strength to strength. As we’ve mentioned previously, interest rate rises simply don’t have the same impact on prestige buyers and they’re more influenced by factors such as exchange rates, the share market and the level of M&A activity.

In 2022, we recorded as many street and suburb records as ever as buyers competed strongly for Sydney’s best homes. With buyer demand as high as ever and few homes available, we expect this market segment will continue to forge ahead.

We’ve also seen something of a shift in the prestige market, with more suburbs – particularly those around the eastern beaches – making their way into the prestige bracket. We’ve especially seen a number of major renovations, and knockdown rebuilds in these suburbs that have transformed once more modest homes into genuine prestige properties.

5. Downsizers to remain a force

Another market segment that stayed strong over 2022 was downsizers. Again, this was due to the fact that there simply weren’t enough suitable properties to satisfy demand.

Downsizers are an increasingly important force in the eastern suburbs property market. As more Baby Boomers retire (someone born in 1960 will turn 63 this year) or start to reduce their working hours, they’re going to become more important still, with buyers likely to sell their homes in the suburbs for a more convenient life closer to amenities. At the same time, we’re seeing a lot of people begin to downsize much earlier in their lives – sometimes even while the kids are still at high school and they’re working full-time. And there is an emerging market of “active resizers” – those looking to resize their property dreams and focus on lifestyle instead.

As a result, large apartments and terraces have often been in much higher demand than other properties over 2022. We expect this trend to continue through 2023 and for a lot more downsizer-specific developments to happen in areas popular with downsizers, such as Double Bay, Darling Point, Rose Bay, Potts Point and the beaches.

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.