Sydney home prices have bounced back 11 per cent since bottoming out in January and are on track to hit new highs by early next year as the upswing broadens despite higher interest rates and worsening affordability, CoreLogic’s September home value index shows.
The data company’s new modelling showed Sydney home values increased by 1 per cent over the month, rising at a slower pace than the 1.8 per cent growth in May, but a hefty gain considering affordability issues, said CoreLogic research director Tim Lawless.
Sydney home values dropped by 12.4 per cent peak-to-trough, which means they are just 3.1 per cent shy from regaining the losses racked up in the past year. Peter Rae
“It’s still a solid performance, especially against the backdrop of high house prices,” he said.
“As we see housing values continue to rise at around 1 per cent month-on- month, Sydney is getting pretty close to posting a nominal recovery this year.
“I wouldn’t say it’s guaranteed, especially with the rate of growth losing some further momentum as listings rebalance, but a record high is not out of the question by early next year.”
Sydney home values dropped by 12.4 per cent peak-to-trough based on the revised modelling, which means they are just 3.1 per cent shy from regaining the losses racked up during the interest rate-induced downturn in the past year.
“While stock levels are rising, they are increasing from relatively low levels and remain about 4 per cent below average for this time of the year, so there’s still a shortage of available supply in the market,” Mr Lawless said.
“We’ve also seen a lift in buyer activity relative to last year, with September quarter sales estimated to be 4.2 per cent higher than a year ago.
“Tight rental conditions are probably another factor supporting purchasing demand, with Sydney’s vacancy rate falling to 1.2 per cent in September, the lowest reading on record.”
The national index is also on the verge of reaching a new high, which may come even earlier after home values rebounded by 6.6 per cent from the peak-to-trough decline of 7.5 per cent.
“At the current rate of growth of 0.8 per cent, month-on-month, we are likely to see new nominal highs nationally in November,” Mr Lawless said.
Separate modelling by PropTrack showed that national home values have fully recovered from their 2022 declines after prices increased by 0.35 per cent month-on-month to peak levels.
CoreLogic data shows Perth and Adelaide have already hit record highs after home prices increased by 1.3 per cent and 1.7 per cent respectively during the month, fuelled by low listings.
Brisbane looks set to climb to a record high in October, with home values only 0.6 per cent below their previous peak. Over the month, prices increased by 1.3 per cent.
By contrast, Melbourne lifted by just 0.4 per cent, Canberra was up by 0.2 per cent, and Hobart declined by 0.6 per cent amid a marked increase in listings.
“Listings are quite elevated across Melbourne, with new listings rising 31 per cent above the five-year average over the past 12 months, so there’s more fresh stock coming into the market, and it’s not being absorbed as quickly,” Mr Lawless said.
Similarly, fresh stock jumped by 8.7 per cent in Hobart over the past 12 months and had been rising since June last year.
St George senior economist Pat Bustamante said the increased pressure on prices would likely continue as the broad imbalance between supply and demand persisted, but the rate of growth would moderate next year as affordability worsened.
This is already evident in the latest data which shows the premium end of the housing market rising by a slower 2.3 per cent, while the lower end accelerated to 3.2 per cent.
“We’re likely to see a moderation in house price growth next year because affordability just keeps on getting stretched even without a rate rise,” Mr Bustamante said.
“It’s going to be harder to keep borrowing higher amounts to buy properties which will slow price increases.”
AMP chief economist Shane Oliver said the supply-demand dynamics could reverse next year if the economy worsened.
“The supply shortfalls continue to dominate over high interest rates but if listings continue to rise, and demand slows, then the constraining effect of high interest rates would again take over,” he said.
“Another uncertainty is whether the Reserve Bank strikes again. I think they’ve probably finished, but there is a high risk that they might lift interest rates again, maybe in October or November, which could push some people over the edge.”
HSBC chief economist Paul Bloxham said demand was also likely to slow over the coming year as population growth eased.
“We’re not expecting to see a repeat of the pick-up we saw with migration this year so that should take some of the heat out of the housing market, and I think we’re seeing some signs of that already,” he said.
“We’re still to see some of the effects of the interest rate rises that have been delivered already so we could see more houses coming on the market as households come under a bit more strain.
“So that combination should see housing price growth slowdown to around three to six per cent increase nationally next year, which is much slower than what we’ve seen so far this year.”
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