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Expensive property markets leading the downturn but end could be in sight

The country’s most expensive property markets have been bearing the brunt of higher interest rates, however, 2023 could mark a slowing in the rate of declines according to a new report.

CoreLogic’s annual Best of the Best Report for 2022, found that Sydney has been hit hardest by rising borrowing costs along with other higher-priced housing markets.

CoreLogic Head of Research Eliza Owen said there have been two clear trends emerging over the course of 2022.

“More expensive markets tended to see sharper declines, while the more affordable segment of the market where buyers typically do not have to extend themselves as much to buy into, saw greater resilience to increases in interest rates,” Ms Owen said. 

“The second trend is the pace of decline has been slowing on a broad basis since September. 

“While this may be seen as a positive by some, there is still risk of the decline re-accelerating in the year ahead.”

CoreLogic Economist, Kaytlin Ezzy, said suburbs in Sydney’s City and Inner South, Northern beaches and Eastern suburbs regions dominated 2022’s list for largest house and unit value declines. 

“Houses in Narrabeen, Surry Hills, and Redfern recorded the most significant falls in value over the year, down more than 25 per cent, while unit values in Centennial Park and Mona Vale fell by 23.1 per cent and 20.8 per cent respectively,” Ms Ezzy said.

“At the other end of the scale, Adelaide suburbs dominated the list for strongest annual appreciation in value across both property types, with house values across Davoren Park rising by 34.7 per cent, and unit values in Seacliff Park 41.4 per cent above the levels recorded this time last year. 

“Adelaide’s resilience has been a consistent feature of the housing market in 2022. 

“While down 0.9 per cent from the July peak, dwelling values across the city are still 13.4 per cent above the level recorded this time last year. 

“Adelaide’s relative affordability and persistently low advertised stock levels have helped insulate it from the worst impacts of rising interest rates.”

According to the report, regional property has also started to see declines as borrowing costs continue to rise.

Although a number of regional suburbs recorded strong annual growth, including house values in the New England NSW township of Bingara (36.2 per cent) and unit values at Laguna Quays on Queensland’s Coral Coast (30.9 per cent), the majority of regional SA4 markets have moved past their cyclical peak, and are now recording declining values according to the report.

Suburbs across NSW’s Richmond – Tweed region, which were impacted by both rising interest rates and damaging flood events, dominated the list for largest annual house value declines while decreasing unit values across Queensland’s Townsville also featured heavily. 

Popular lifestyle markets such as the Southern Highlands and Shoalhaven, and the Illawarra, south of Sydney as well as south east Queensland’s Sunshine and Gold Coasts recorded some of the strongest peak-to-trough declines in value. 

Source: CoreLogic

Ms Ezzy said despite the declines, it was unlikely these markets would fall below the levels recorded at the beginning of COVID, given that dwellings across these regions are on average still 38 per cent higher than where they were prior to the pandemic.

According to Ms Owen, although declines have been slowing, further rate rises are anticipated in the early months of 2023, which could cause the rate of decline to pick up speed once more. 

“As we move into 2023, there continues to be a mix of headwinds and tailwinds for housing market performance,” she said. 

“With expectations that the bulk of the rate tightening cycle occurred in 2022, housing value declines could find a floor in the new year. 

“However, the extent of the floor in values could be further weighed down by mortgage serviceability risks, particularly for those rolling out of record-low fixed mortgage rates through the second half of the year.”

Ms Owen said there are still a number of fundamental factors that will help prop up property values.

“But unemployment levels remain at historic lows, which plays a role in serviceability, helping to keep a lid on mortgage arrears,” she said.

“On top of that, strong rental markets and improving affordability from the point of falling values may entice investors and first home buyers into the market, underpinning a recovery in buyer activity in the second half of 2023, when the cash rate stabilises.”

National House Highlights

  • Most expensive suburb: Vaucluse (NSW) $7,943,965
  • Most affordable suburb: Kambalda East (WA) $118,525
  • Strongest 12-month growth in values: Bingara (NSW) 36.2 per cent
  • Largest 12- month decline in values: Narrabeen (NSW) -26.8 per cent
  • Strongest 12-month growth in rents: Clovelly (NSW) 25.1 per cent
  • Highest gross rental yields: Kambalda East (WA) 15.9 per cent

National Unit Highlights

  • Most expensive suburb: Point Piper (NSW) $2,895,563
  • Most affordable suburb: Laguna Quays (QLD) $72,076
  • Strongest 12-month growth in values: Seacliff Park (SA) 41.4 per cent
  • Largest 12-month decline in values: Centennial Park (NSW) -23.1 per cent
  • Strongest 12-month growth in rents: Melbourne (VIC) 38.2 per cent
  • Highest gross rental yields: Kalgoorlie (WA) 11.8 per cent

National Top Sale Highlights

  • Top sale price: 38A Wentworth Road, Vaucluse NSW $62,750,000
  • Total value of top 10 sales: $386.3 million

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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