Melbourne and Sydney’s markets are both coming off a period of record growth, which saw frenzied buyer demand and fear of missing out, push prices to unprecedented levels.
While there are significant differences between Australia’s two largest property markets, their shared macro trends provide important insight into sentiment, amid tightening economic conditions.
Veronica Morgan is a Sydney buyers agent and is principal of Good Deeds Property Buyers. She’s also a property host on the Lifestyle Channel. She caught up with Wakelin Director, Jarrod McCabe to chat through the latest trends driving Sydney’s property market.
The Sydney market is in a period of re-balancing after soaring prices and frenzied demand in 2021.
Market data shows Sydney’s property market peaked in January, after the growth rate trajectory eased off in the last half of 2021. Having said that, there was still robust market activity up until February and March, as buyers who had missed out in 2021, re-entered the market after the Christmas break.
Once it was clear that interest rates would rise, there was certainly a reduced amount of confidence within the market, which could definitely be seen on ground at a buyer level.
Having said that, there have been a couple of anomalies throughout the period. Normally when prices come off the boil, you see a marked reduction in open for inspection attendance numbers. However, this time around, across good quality properties, we have not seen that.
And even though buyers aren’t always prepared to compete as hard as they were last year, the interest is still there.
The second anomaly is that while figures show properties in the top 25th percentile have fallen the most, on the ground that hasn’t been the case from my perspective.
I have clients with good budgets in those markets and there hasn’t been a lot of softening in prices in the segment.
Sydney is seeing growing numbers of investors coming back into the market
There is definitely an increased amount of investor activity. That’s especially the case with the resurgent rental market, which is providing greater confidence in rental incomes.
It wasn’t that long ago – pre-pandemic – where investors were happy if they received a 2.5 per cent yield, which was pretty difficult in terms of cash flow.
Obviously, the capital growth was a lot higher during that same period, but it shows how far the rental market has moved.
Sydney’s apartment market remained relatively robust throughout COVID-19
The Sydney housing market boomed to such an extent, it had a ripple effect on the apartment market.
Prospective house buyers with finite budgets, had to reevaluate plans and many decided to pivot and re-focus on smaller properties instead. This definitely saw an uptick in the apartment market over the period.
Sydney hasn’t had the same general apartment oversupply issues that Melbourne and Brisbane have.
Also, given Sydney didn’t have the same level of lockdowns as Melbourne, there wasn’t such a longing for larger and spacious style homes. That kept Sydney house and apartment prices more in line.
NSW can expect the trend towards regional living to reverse
I’m not a demographic expert, but I do understand human nature. When we were filming the TV show, and travelling around Australia, it was really interesting talking to real estate agents who work in regional towns. In some areas they would say up to 50 per cent of people headed back to the city within one year.
Sure, lockdowns might have been nicer in the regions, but we’re now getting used to living with COVID-19 without shutting down. The social fabric, infrastructure and services within country areas is very different to that of the city, which definitely doesn’t suit everyone.
Buyer interest is mounting amid Sydney’s Spring market
Sydney is very seasonal and follows a similar pattern to Melbourne. Although, because our winters aren’t quite so harsh, there is a smaller drop-off in the middle of the year.
However, just like Melbourne, there is a pervasive belief that Spring is the best time to sell. Despite confidence being down, we are starting to see buyers return to the market.
In the investment grade category of the market, I think people still have the wherewithal to buy property, despite increased interest rates.
Whether that’s because they have increased equity in a property, they’re upgrading or they’re deciding to invest – there’s definitely an appetite in the market. I find that interesting, because there’s a lot of data out there to suggest that shouldn’t be the case.
While a lot of first home buyers haven’t benefited through the recent high growth period, established property owners have seen a significant uplift in value, and are in a great position to buy. That wealth effect has not necessarily made its way into the confidence data.
I’m seeing, and a lot of brokers are telling me this too, that levels of buyer inquiry is growing. At the same time, agents are seeing a lot of stock coming on, so it will be interesting to see how this plays out over Spring.
Take home message
Regardless of market conditions, investors should buy a quality asset with the long term in mind. If they have their personal finance and cash flow in order, then it’s really about finding the right property.
There’s no point trying to be a bargain hunter, but there’s a lot of buyers out there at the moment trying exactly that. At the end of the day, paying less today for an inferior asset, usually comes at the expense of far greater financial returns into the future.