While property prices have increased in other parts of the world, Australia is seeing the cost of property decrease in the first two quarters of 2022. Sydney has seen the most significant decline in Australia.
Sydney’s Falling Property Prices
After unprecedented property price increases of 30% over the last year, housing prices have fallen by over 1% monthly for a 3.5% loss in the last quarter. July alone saw prices fall by 2.2 percent, creating the most significant price loss since January 1991.
Property prices in Sydney began falling prior to the first interest rate hike, with the price fall hitting Canberra in May and Brisbane’s prices following in July. The current decline is the fastest price decrease seen in Sydney in over forty years, as buyers are pulling homes off the housing market, and high-interest rates are generating the increasing decline.
Property Prices in Numbers
After a loss in value of nearly $36,000, the estimated value of an average home in Sydney is $1.3 million. Similarly, the average unit price has fallen by $15,000 in the last thirty days, leaving the average unit price at $806,000. The worry now is that property prices in Sydney will continue falling till the end of the year by another -20%.
Despite the 25% jump in housing prices in Sydney’s most affluent suburbs, prices have also declined in the last year by $8,000. Australia saw an estimated $9,983.4 billion drop in residential property values in June after being $1.624 billion higher in March. Property values have not been this low since June 2020.
How This Effects Home Buyers
While many think that the decrease in property prices results from financially distressed home buyers, a reduction in the ability to borrow is to blame. If we look at the cost of an average house in Sydney in 1981, borrowers paid 5x their earnings, with the average home priced at $78,900. Now the same dwelling is 14x the average salary at $1.31million!
Despite the higher cost of living, anyone getting a loan will pay a high-interest rate, and property prices may once again decline as the amounts borrowed will be less too! The fear of a housing increase coupled with high-interest rates has discouraged consumers from purchasing homes.
In this economy, people worrying about pay raises and job security will not borrow a loan for a property that will decrease in value with this market.
The increase in mortgage rates has driven loans up by $726 on a 1 million dollar loan. Mortgage rates are a big reason why borrowers stay where they are. This issue is seen all over Australia, not exclusively in Sydney.
The Effect on Property Sellers
June through August saw a decrease in home sales of 35% from June -August of 2021.
So the next few quarters may be bleak for property sellers, leading to a discouraging year for real estate agents. The continuing price decrease has led sellers to make extensive compromises to sell their property. Sydney was the first to see property prices decrease after showing the increase in property prices.
While one out of every four sellers in Sydney will pull their home from auction, fearing a lesser price for property due to the rise in interest. Despite the increase in interest, the cost of property in Sydney is still 20% higher than it was before Covid.
The Future of Sydney’s Property Prices
According to economists, the current property price downslide may continue for eighteen more months due to people’s ability to borrow a loan. For property prices to increase in the future, three main things will have to happen. The ratio of property prices to income level will need to improve. Borrowers will need to reduce their household debt, and interest rates will need to improve.
Those in fear of a “crash” in the property market must understand that most sellers would need to be forced to sell their homes, with no one buying houses. This scenario would force sellers to give away their homes at an incredibly low price. People need somewhere to live, so if they are selling a home, they are also buying one. So unless they can’t pay their mortgage, most people will not sell that house.
It has also been forecast that with an increase in wages and the interest rate decreasing slightly, Sydney could see a 6% raise in property prices from $68,728 to $1,214,198 in 2024.
If you are considering selling or purchasing property in Sydney and the surrounding areas, Murray Property can take you through the process. We are a call away from you and a new home!