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The huge price growth of the property boom has been erased in many Sydney suburbs as rising interest rates cut buyer borrowing power, pushing values back to pre-pandemic levels.
Unit values in almost 50 per cent of analysed Sydney suburbs, and house values in about 10 per cent are back to or below their March 2020 median, new figures from CoreLogic show, and more suburbs are expected to follow suit as the downturn continues.
Sydney unit values in January were just 0.2 per cent higher than in early 2020, having dropped 10.5 per cent from their November 2021 peak. House values were 10.6 per cent higher after falling 15 per cent from their January 2022 peak.
CoreLogic research director Tim Lawless said unit prices had less growth than house values in the pandemic market boom, as buyer preferences shifted away from higher density living. As such, they dropped to pre-pandemic levels sooner, despite milder declines.
He said it was unlikely, but not impossible, that the massive surge in Sydney’s median house value would be erased, given the larger buffer.
“We are expecting prices to fall further but it looks like the worst is behind us,” he said. Buyers had adjusted to the initial shock of rising rates, while lower listing levels were limiting price falls, he said.
Dimitri and Sonia Plastiras are among the buyers searching for a new home as property prices fall.Credit:Edwina Pickles
Unit losses were more widespread, but the steepest declines were for inner-city houses. Values in Surry Hills and Darlinghurst were almost 17 per cent — or more than $350,000 — lower than in March 2020, while values in Redfern, Alexandria and Newtown were down more than 10 per cent.
Suburbs such as Collaroy and Manly, where prices had previously surged more than 30 per cent, were just below pre-pandemic levels. In Manly, the median had dropped more than $1.28 million since its October 2021 peak.
Only suburbs with a minimum of 20 sales over the year were included in the analysis.
Lawless said the upper end of the market had peaked first, and the more affordable end had been better insulated in the downturn, as reduced borrowing power pushed more buyers to lower price points.
Some of the biggest declines were also in lifestyle suburbs, which became extremely popular during the pandemic and probably “overshot the mark”, he said.
Units were more of a mixed bag. Values in Epping and Lakemba were down more than 10 per cent, but they had had virtually no growth in the boom. However, large gains in suburbs like Centennial Park and Bronte were undone.
NAB senior economist Gareth Spence was not surprised to see COVID-era gains erased.
“We’ve got [a] national forecast [for an] 18 per cent peak-to-trough decline, and we’ve seen about 9 per cent of that already,” he said.
“What’s driving the forecast is the reduction of borrowing power.”
Spence said affordability had deteriorated, despite price falls, and it would continue to do so as rates climbed, as borrowing power had reduced more than prices. He expects the cash rate will reach 4.1 per cent by at least May.
However, he said the strong labour and rental markets, and population growth, could limit price falls.
Buyers Dimitri and Sonia Plastiras hope price declines will make it easier to upsize. They have sold in Annandale, where house values have dropped 24.3 per cent since late 2021 and are 6.4 per cent below early 2020 levels.
Dimitri and Sonia Plastiras sold their Annandale home in September last year, and are hoping to upsize in the area or nearby suburbs.Credit:Edwina Pickles
“We thought it was probably a good time to upsize,” Plastiras said. “If you take a bit of a hit on your smaller property, like 10 per cent, and then theoretically you’re buying a large place that’s 10 per cent less, you’re making that differential.”
Plastiras was glad to have sold last year, noting similar homes had taken a larger hit since, but said low supply levels were proving challenging, and appeared to be propping up prices.
They are not in a huge rush to buy, as they have a conservative pre-approval which has been so far unaffected by rising rates.
“We’re not holding out for the bottom [of the market] but time is on our side,” Plastiras said.
Their mortgage broker James Keillor, from Loan Market Ryde, said upsizing clients who had been looking to purchase well within their borrowing capacity were well-placed to take advantage of lower prices.
“They’re getting a better quality property for the same money,” he said.
Keilor was also seeing good demand from first home buyers looking to take advantage of stamp duty changes and the First Home Guarantee.
BresicWhitney chief executive Thomas McGlynn said inner city and more expensive suburbs tended to lead upswings and downturns, as buyers were quick to react to potential risks or opportunities.
Though prices were back to pre-pandemic levels, most buyers were worse off, McGlynn said. Drops in borrowing power, higher mortgage rates and living costs, and sluggish wage growth were all weighing on sentiment. There were also fewer quality properties for sale, putting further downward pressure on medians.
McGlynn said: “At the market peak, there was a lot more quality A-grade property that you don’t get the chance to buy every year. I think people recognised this and were prepared to pay stronger prices to secure them.”
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