Home prices in New South Wales are finally starting to slow after a record run of growth that saw values surge 40 per cent between June 2020 and March 2022.
Domain’s inaugural NSW Spotlight Report has found the recent price growth led to the fastest and sharpest equity boost on record for homeowners and, while prices are easing, they are unlikely to dip below pre-pandemic levels.
“House prices across all Sydney suburbs experienced an increase in price over the past year, ranging from 6 per cent to almost 58 per cent, widening the wealth divide between home owners and non-homeowners, and stretching the ability of others to upsize,” Dr Powell said.
“It’s pretty easy to find a million-dollar suburb in Sydney, with many regions having none below that price.”
Dr Powell said even if interest rates continue to rise, she doesn’t expect home prices to fall back to levels seen before the recent boom.
“Historically, downturns have been shorter and less severe compared to the preceding upswing,” she said.
“We are expecting the slowdown in price growth to continue and purchasing conditions to improve for buyers but it is unlikely we will see a return to pre-pandemic prices.”
The last significant downturn was during 2017-19 when Sydney house prices fell 13.8 per cent from peak to trough.
Interest rates weren’t rising at the time but it became harder to get a loan and less credit was available for borrowers, plus a banking royal commission added to the jitters, according to Dr Powell.
“This time, interest rates are rising, increasing the cost of a home loan and reducing borrowing capacity at a time when living costs are soaring,” she said.
“The speed and scale at which Sydney prices soften depend upon many factors, however the downturn will be largely shaped by how high and quickly interest rates go up, and how high inflation reaches.”
Falling interest rates have been a key driver of rising house prices in Australia and across the world with the RBA finding that a percentage-point cut in interest rates boosts dwelling prices by 8 per cent after two years.
Broad-based price growth
Throughout the recent boom, some homeowners in areas such as Terrigal on the Central Coast and Palm Beach on the Northern Beaches saw prices rise by over 50 per cent over the past 12 months alone.
Across regional NSW, one suburb that has witnessed exponential growth was Mollymook Beach, on the NSW South Coast, up by 62 per cent annually and 106 per cent over the past five years, making it the strongest rate of annual house price growth across all Australian suburbs
Units in Byron Bay and Jindabyne struck the top two spots for the highest annual growth across Australian suburbs.
This speaks to the demand and value of properties within close proximity to lifestyle factors, whether that be the ocean or snowfields, according to Dr Powell.
Approximately, 62 per cent of suburbs in Sydney now have a median house price above $1 million compared to only 44 per cent five years ago.
Baulkham Hills and Hawkesbury, City and Inner South, Eastern Suburbs, Inner South West, Inner West, North Sydney and Hornsby, Northern Beaches, Ryde and Sutherland are areas where all suburbs have a median house price above $1 million.
Meanwhile, 16 per cent of suburbs in regional NSW have a median house price above $1 million compared to only 1 per cent five years ago.
Buyer preferences driving demand
Dr Powell said the supply-demand dynamics have been shifting in 2022, as buyers are getting back into the driver’s seat.
This changing balance is slowly rippling across Sydney, with sellers needing to be more realistic with pricing due to an increase in the supply of homes, she noted.
“The most bought property type in Sydney are houses (52 per cent), followed by units (42 per cent) and townhouses (7 per cent),” she said.
“While houses are the preferred property type in Sydney by a small margin, there’s a more even split of sales between houses and units in comparison to regional counterparts.
“This more even sales ratio between houses to units ratio can be pinned to the affordability issues of living in a pricey city.”
Breaking down the drivers of demand for Sydneysiders further, analysis of Domain’s keyword search shows being by the water is top of mind as ‘waterfront’, ‘view’, ‘river’ and ‘beach’ all rank in the top keyword searches
The priority placed on outdoor space continues to shape the ideal Sydney home, with a ‘garden’, ‘courtyard’ and ‘balcony’ high on a Sydney buyer’s wish lists.
Interestingly, outdoor space does not feature in the top 10 keywords for regional NSW buyers.
A dedicated workspace in the home is key for Sydneysiders, with the search for ‘study’ being the second most used keyword in Sydney, alongside keywords on outdoor space and other lifestyle features.
“There are crystal-clear differences between Sydney and regional NSW buyer preferences,” DR Powell said.
“With more people making the regional move, it has refocused people’s attention on the type and surrounding area of their new home.
“Whereas, the laser focus on being by the water is clear for Sydney preferences – with suburbs such as Kurraba Point, Whale Beach, Lavender Bay, Clontarf, Canada Bay, Patonga being Sydney’s most desired spots.”
Dr Powell said affordability continues to play a significant role in home searches including looking for terms such as ‘duplex’ or ‘dual’.
“This is happening across Sydney and regional areas, particularly as people are being drawn out of the city,” she said.
“This suggests that rapidly rising house prices and slow wage growth have constrained affordability, and they’re now looking for an affordable alternative such as a split block.”