01.11.2022 Suburb Spotlight

2022: What Will The Eastern Suburbs Property Market Look Like?

2022: What Will The Eastern Suburbs Property Market Look Like?

2021 was a record year for our local property market but can we expect the same thing from 2022?

2021 was an incredible year for the Sydney property market. Over 12 months, the median property price rose 25.3%, according to CoreLogic. The median Sydney house price rose even more dramatically, lifting an incredible 29.6%

So can we expect the same growth over 2022?

Slowing growth due to increased supply

Although price growth in the Sydney property market was nothing short of spectacular last year, it’s fair to say that towards the end of the year the pace of that growth had started to slow. In fact, the median Sydney property price rose just 0.3% over December and 2.7% over the final quarter. This compared to growth of 8.8% over the April quarter, 8.2% over the June quarter and 5.7% over the September quarter.

In any market, price growth is always the direct result of demand outstripping supply and buyers were out in force over the past 12 months, especially ex-pats and upsizers, who were driving the value of family homes to dizzying heights.

But while the number of buyers remained strong through the year, what we did notice was a huge increase in supply over the tail end of 2021.

A lot of this was the result of the natural rhythm of the Sydney property market – Spring is always the biggest selling season. However, over 2021 the trend was exacerbated by people holding off listing during the lockdown and then bringing their property to market the moment it lifted.

This is reflected in the SQM data which showed that listing across Sydney bottomed out in August last year and then peaked in November when there were 35% more properties on the market. We then experienced a much busier December than usual, with listings barely coming down from that peak.

If this continues, we expect the balance between buyer and seller to be more even over 2022 than it was last year – although sellers will still be locking in the gains they made over the last year.

A splintered market

We often point out that our local property market doesn’t act in unison. There are markets within markets, with some suburbs and property types experiencing much higher levels of demand than others.

Over 2021, we saw unprecedented interest in lifestyle and prestige properties. Houses in beachside suburbs such as Bronte (58.4%), Tamarama (68.2%) and South Coogee (49.5%) far outperformed most other parts of our city. As there is still enormous interest in these properties, we expect this trend to continue over 2022. We also expect to see strong interest in larger properties in prestige parkside areas such as Paddington, Woollahra and Centennial Park.

At the other end of the spectrum, apartments – particularly smaller, entry-level and mass-market apartments – didn’t fare as well over 2021. With COVID-19 driving less demand for high-density living, lower investor activity in the market and fewer overseas arrivals renting inner-city properties, this market may continue to struggle over 2022, especially as it is more susceptible to interest rate rises.

Speaking of which…

Interest rate rises on the cards

Over 2020 and 2021, record low-interest rates have been encouraging buyers to borrow more and bid more. After all, the difference in the cost of servicing a $1 million mortgage is more than $500 less a month when a home loan interest rate are 2.5% compared with 3.5%.

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While the RBA once said it doesn’t intend to raise the official cash rate until 2024, that looks increasingly unlikely. Some economists now believe the RBA will be forced to lift the official rate at least once this year.

Even if it doesn’t, banks are likely to increase home loan rates independently, especially as their cost of funding is increasing. Most have already lifted rates on their fixed home loans.

On top of this, there have been calls for banks to tighten their lending criteria and placing greater restrictions on the amount they’ll lend.

If this happens, it’s likely to restrict buyers’ capacity to offer and therefore curb price growth over the next year.

The ongoing saga of Omicron

Of course, it’s impossible to mention 2022 without mentioning the Omicron variant of COVID-19.

At the time of writing, Omicron cases are skyrocketing. We may not have seen the same rate of death and serious illness as we did with the Delta strain in 2021, and to date the government has pledged there will be no more lockdowns. However, if cases continue to rise and the wave continues for some time, we could see a loss of confidence in the economy more generally.

Again, this too could have an effect on property prices – although previous COVID waves seem to have actually encouraged price rises rather than hinder them.

A fresh federal election

Finally, it’s worth noting that there will be a federal election this year – most likely in May. Elections always impact the property market. For instance, in the lead up to the 2019 federal election, the likelihood of a Shorten-led Labor government taking office was driving substantial buyer and seller uncertainty, especially as the ALP had a stated policy of abolishing both negative gearing and the capital gains tax (CGT) discount.

When the Morrison government was returned there was almost immediately a sense of greater optimism in the market and better results soon followed.

This time around, Labor is again the frontrunner although the Albanese-led federal party has not yet announced any similar policies to curb property price growth. Still, the uncertainty of an election often causes buyers and sellers to hold off, regardless of who they’d like to see win.

In short…

2021 was a once-in-30 year market for Sydney property and it’s unlikely that we’ll see the same growth over the coming 12 months. However, we still believe that there will be growth and that a more balanced market will make it a good time to buy and sell.

Want more?

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