Sydney’s booming property market and skyrocketing prices have been making the headlines in recent years, as buyers found themselves in an increasingly worrying situation. Between Q3 and Q4 of 2021, median prices leapt by 4.1% in the NSW capital, translating to an astonishing year-on-year increase of 26.7%. However, this appears to be changing, as the market seems to be cooling in the city.

This is largely because of recent changes to the base interest rate by the Reserve Bank of Australia (RBA). After an extended period of rock bottom interest rates, banks were once again allowed to raise rates in a measure intended to combat high levels of inflation. As a result, buyers no longer have access to the mortgage capital they could draw upon just a few months ago, and so they cannot achieve funding for high-ticket property purchases. These shifting market dynamics are beginning to drive prices down, as high-value properties go unsold.

Shockwaves Hit the Auction Market in June

It may take some time for the effects to be truly felt in the broader property market, but auction houses across the city are providing some indication of the direction we can expect. In the second week of June 2022, almost half of the properties auctioned in Sydney failed to sell – the highest rate of failure since auction gatherings were banned due to Covid-19 restrictions in April 2020. In other words, auction success rates have slumped to their lowest levels in more than two years. While the majority of listed properties did indeed sell on the auction block, a significant proportion of these successes were pre-arranged deals – most of the properties that were actively auctioned over this period were not sold.

Around 45% of properties that failed to sell – roughly a quarter of all the listed properties – did not even make it to the auction block. These properties were withdrawn from sale ahead of time, most likely due to tepid interest from Sydney’s home buyers. Properties that did achieve a sale seemed to be held to a higher standard by buyers, who were not willing to compromise on potential red flags. A Sydney buyer’s agent reported that ‘compromised properties,’ such as those near a busy road or with an irregular floor plan, tended to be passed over at auction in favour of units that ‘ticked all of the buyer’s boxes’.

Uncertainty for the Sydney Property Market

So what does this mean for property buyers in Sydney as they seek the ideal home for themselves or for their families? And what does this mean for the market as a whole?

For buyers, the future is uncertain. Yes, falling property prices suggest more affordable homes in the future as sellers recalibrate their cost expectations, but this is not guaranteed. One reason for this is the interest rate change mentioned above – if buyer borrowing power falls alongside property prices, home affordability does not improve in real terms.

Another factor to consider is uncertainty regarding the duration of the downturn. Typically, house price downturns do not trouble the Sydney market for long. With a few exceptions – most notably in 2017 when the downturn lasted throughout the following year and into the next one – pricing declines in the NSW capital do not exceed 12 months. This means it may be unwise for property purchasers to defer their transaction in the hope of securing an even better deal next year – property prices could just as easily begin to climb again in the near future.

Careful and Considered Decision Making

It’s a little premature for buyers to rejoice at falling property prices. As mentioned above, interest rates are on the increase, which means buyer purchasing power may suffer as a result. Historical fluctuations also make deferment a risky strategy – buyers who choose to defer may find themselves caught out by rising prices in the near future and stuck with a more expensive mortgage to boot.

Here at Sydney Brokers, we can help you navigate this tricky situation. Reach out to our team and find out more about the best mortgages and home loans in Sydney for 2022 and beyond.

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