The Urban Developer’s latest Sydney housing market insights reveal the city’s property values retreated 1.2 per cent in the month of January, dragging the median for the NSW capital below $1 million.

This resource, updated periodically, will collate and examine the economic levers pushing and pulling Sydney’s housing market.

Combining market research, rolling indices, and expert market opinion, this evolving hub will act as a pulse check for those wanting to take a closer look at the movements across the market.

Sydney median property prices % change

^{_{^Source: Corelogic - January 2023}}

Sydney’s falling home prices crossed a milestone mark in January when the median dwelling price sank below $1 million for the first time in nearly two years.

The Sydney median home price retreated 1.2 per cent in January to $999,278, according to the Corelogic Home Value Index.

Buckling under pressure from the Reserve Bank’s sustained campaign to raise the cost of borrowing, Sydney home values gave up 3.9 per cent for the three months to January.

Year on year, Sydney homes commanded 13.8 per cent less than in January 2022, which was also when their record high was set.

Nevertheless, Sydney maintained its position as the most expensive capital city in Australia for land cost, with a price tag of $2466 a square metre, followed by Melbourne at $1811 and Canberra at $1517, Domain research found.

All of the top 10 suburbs in Australia with the highest price a square metre were in Sydney.

Forecast

PropTrack’s biannual Property Market Value Report tipped Sydney, Brisbane and Canberra home values to sink 8 to 11 per cent in 2023.

“With borrowing costs continuing to rise and the subsequent reduction in borrowing capacities, property price falls are likely to continue and accelerate in 2023,” PropTrack director of economic research Cameron Kusher was reported as saying.

“Thereafter, we expect rates to remain on hold, with the potential for them to be reduced in late 2023 or early 2024.”

AMP Bank research found that 70 per cent of Australian homeowners were concerned about meeting their mortgage payments if interest rates continued to climb, marking a 5 per cent rise compared to October 2022.

Sales volume

Meanwhile, CoreLogic found home sales volume in Sydney fell 29.2 per cent for the year to January, worse than the national result (-19.1) and the combined capital cities (-18.2).

Homes were taking longer to sell too. The median time on market for Sydney rose to 41 days for the three months to January from 26 days for the previous corresponding period, according to CoreLogic.

The median also was up nationally—37 days compared with 23, and for the combined capitals—34 days from 23.

Vendor discounts

Sydney sellers were also settling for less to meet the tough market. The median vendor discount—how much the sale price was below the asking price at listing—rose to 4.8 per cent for the three months, compared with the same period in the previous year.

Domain data showed that the expensive eastern Sydney suburbs led the discounting.

Houses there were sold at a discount of 11.8 per cent on average from their advertised price, an increase from 5 per cent in the previous year.

This meant that a house that was first listed at the median house price of $3.13 million in that region could have changed hands for a discount of almost $370,000.

The northern beaches and the Ryde followed closely, with both areas having an average discount of 10 per cent, up from 6.5 per cent and 7.4 per cent respectively in the previous year.

Sydney’s housing market: policy updates and trends

What the experts are saying about Sydney’s housing market

“It does look like rental supply is going to remain very low at a time when demand is rising from overseas migration.

“The by-product, of course, is going to be further upward pressure on rents.

“There's a lot of negative social outcomes around increased homelessness, more couch surfing, more people moving back in with their parents.”

“Over the very long-term, residential property adjusted for costs has similar returns to Australian shares. So, there is a role for it in investors’ portfolios.

“However, now remains a time for caution regarding housing as an investment destination—particularly in Sydney and Melbourne where it remains expensive, prices are likely to fall further and it offers very low rental yields.

“Best to look at other cities and regional areas that offer much better value.”

“When you look across the combined capitals, there was a record price gap [between units and houses] achieved in early 2022.

“What we’ve started to see now is that price gap is narrowing.”

Sydney auction clearance rates

^{_{^Source: Domain - December 2022 - January 2023}}

Sydney residential rental vacancy rate

^{_{^Source: SQM Research - January 2022. Monthly change based on vacancies and net change.}}

Sydney rent prices

^{_{^Source: SQM Research - to January 28, 2023}}

Sydney’s rental market hit the brakes in the December quarter, with the steepest growth in house rents since 2008 coming to an abrupt halt, Domain’s “December 2022 Rental Report” found.

This has slowed the pace of annual growth for the first time in 18 months but rents remained at a record high.

The gross rental yields for houses have hit their highest point since early 2021, following the biggest quarterly surge on record.

Meanwhile, unit rents reached a record high, rising for the sixth consecutive quarter. This marked the longest stretch of continuous rental price rises in the city’s history, Domain said.

Although the pace of quarterly growth has eased marginally, the annual growth rate was the steepest on record for units, and they continued to outpace growth in house rents.

For the first time since September 2020, Sydney has reclaimed its position as the most expensive city in which to rent a unit.

Gross rental yields for units are now at their highest point since 2015, following their biggest quarterly and annual surge on record, indicating an attractive investment opportunity for property investors.

Sydney’s median house rent was $650 a week for the December 2022 quarter, up 12.1 per cent year-on-year. Units were $575 a week, up 18.6 per cent in 12 months.

House yields were 2.87 per cent and for units it was 4.1 per cent.

NSW building approvals

^{_{^Source: Australian Bureau of Statistics - December 2022}}

The Reserve Bank’s nine-month run of rate rises had yet to fully impact building approvals and overall residential construction, the Housing Industry Association said.

Despite the increased cost of borrowing from the cash-rate hikes, the total number of homes approved in December 2022 increased 18.5 per cent, following a fall of 8.8 per cent in the previous month, the Australian Bureau of Statistics reported.

A sharp rise in apartment approvals led the growth. They surged by 56.6 per cent over the month, with NSW and Victoria witnessing significant growth.

However, approvals for detached houses continued to trend downwards, dipping 2.3 per cent. Over the year, there were 115,358 new houses approved for construction, representing a decline of 21.8 per cent from the 147,552 approved in 2021.

The building industry’s strength was in the apartment sector, HIA said. And as the recent interest rate increases were expected to have a stronger impact on the market in the coming months, the HIA called for policymakers to support the industry’s recovery.

Bureau head of construction statistics Daniel Rossi said the increase in the total number of dwellings approved in December was led by a sharp rise in approvals for private sector dwellings excluding houses (+56.6 per cent).

“The result was driven by a number of large apartment developments approved in New South Wales and Victoria,” Rossi said.

NSW home loan lending indicators

^{_{^Source: Australian Bureau of Statistics - December 2022}}

The value of new loan commitments for owner-occupier housing fell 4.2 per cent in NSW, the Australian Bureau of Statistics figures for December show.

The total came in at $4.799 billion, down from $5.012 billion in November and $7.480 billion in the previous December.

Loan commitments for NSW investors fell 5.9 per cent to $2.864 billion in the prior month. The result was a considerable drop on the December 2021 figure of $4.327 billion.

The average loan size for NSW was $758,864 compared with a national average of $604,346.

Loans to first-home buyers in the state rose to $1.742 billion from $1.710 billion in November.

The number of new loans to first-home buyers nationally fell to 7646 from 7979 in November.

Ray White chief economist Nerida Conisbee was reported as saying that first-home buyers had been scared off purchasing by the prospect of further Reserve Bank interest rate rises and the uncertainty they brought.