Sydney Housing Market Insights: April 2022

The Urban Developer’s latest Sydney housing market insights reveals the city’s median house price is now more than $1.4 million. But the breakneck pace of growth has abated as the market cools and Sydney house prices drop for the first time in 18 months.

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 - March 2022

Following years of record-breaking price growth, Sydney has recorded its first contraction in prices over February and March across both houses and units.

House prices dropped fractionally by 0.1 per cent, but the median house price has continued its upward trajectory growing 20 per cent over the past 12 months to a median value of $1.4 million.

Sydney’s monthly rate of growth has 3.9 per cent since its high of 3.7 per cent this time last year—the fastest four week increase the city has experienced in over three decades.

House price growth was at zero in February and March recorded the first house price contraction since September 2020, while unit prices have been dropping since December last year.

Corelogic head of research Tim Lawless said Sydney’s growth rate had seen the most significant slowdown in the country, falling from a peak of 9.3 per cent in the three months to May 2021 to 0.3 per cent in the first quarter of 2022.

“Virtually every capital city and major rest-of-state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” Lawless said.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.”

Lawless said the annual growth trend would fall sharply over the next few months as strong gains recorded in early 2021 drop out of the 12-month calculation.

Housing turnover is also slowing down with preliminary transaction estimates for March quarter down 14.3 per cent on the same period last year. But Lawless said this was still 12.2 per cent above the previous five-year average.

“Nationally, the volume of housing sales is coming off record highs but there is some diversity across the capital cities in these figures as well,” he said.

“Our estimate of sales activity through the March quarter is 39 per cent lower than a year ago in Sydney, and 27 per cent lower in Melbourne.”
The average house in Sydney is now selling for $1.4million and units for $833,815.

The gap between the median house and unit value in Sydney continues to grow and is now more than $560,000.

Rodd Point in Sydney’s inner west is the top performer in Sydney for house price growth, jumping 35 per cent in the past 12 months to a median value of $3.33 million. 

Sydney’s housing market: policy updates and trends

Developer Contributions ‘Inflating New House Prices’

Developer contributions are having an inflationary effect on housing affordability and impeding supply, according to new research.

The National Housing Finance and Investment Corporation’s research report on developer contributions has found that the infrastructure charges are increasingly acting like a “tax on new housing”.

House Price Growth Three Times Faster than Wages

The price of a typical house in Sydney has multiplied by 17 times in the past 40 years, almost three times faster than wages.

The median house price in Sydney in 1981 was $78,900, five times the national full-time average annual earnings of $15,800. In 2021, the city’s median house price was $1.31 million, 14 times the average income.

Rising Interest Rates, Affordability Bites

Housing affordability across Sydney has collapsed to its lowest level in at least a decade as the benefits of record low interest rates are overwhelmed by soaring property prices and stagnant wages growth.

Sydney’s median house price, now at $1.3 million, means a household with an annual income of $135,000 will spend more than 45 per cent of it servicing their new mortgage.

What the experts are saying about Sydney’s housing market

Tim Lawless
Head of Research

“The number of homes available to purchase in Sydney has virtually normalised to be 7.5 per cent higher than a year ago and only 2.6 per cent below the five-year average.

“Higher stock levels across these markets can be explained by an above average flow of new listings coming on the market in combination
with a drop in buyer demand.

“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price.”

Shane Oliver
Chief Economist
AMP Capital

“The near-term uncertainty caused by the Ukraine crisis may take the edge off central bank monetary tightening in the short-term. 

“But ultimately the hit to economic activity globally and in Australia is likely to be limited and the upwards pressure it adds to commodity prices and the risk of higher inflation for longer will reinforce the case for monetary tightening, and see higher interest rates and bond yields over the medium-term.

“Implications: higher inflation, interest rates and bond yields will
constrain longer-term returns from shares and property
compared to what we have seen over the last 30 years.”

Nicola Powell
Chief of Research and Economics

“The weakness is going to be centred in Sydney and Melbourne where we are seeing an increase in supply, helping ease competition between buyers.

“Affordability, amidst the context of rising living costs and low wage growth will also impact the strength in the market that we saw in 2021.

Louis Christopher
Managing director
SQM Research

“When I consider the current election stances for the major and minor parties, there is a dearth of specific policy in addressing the issues surrounding housing affordability.

“Clearly, we are not going to resolve this overnight, but I do hope the various state and territory governments will ramp up their rental assistance packages in order to cushion the rental accommodation emergency we have here and now.”

Sydney housing market forecasts

ANZ economists are forecasting larger house price falls across the capitals during 2023 as rising mortgage rates start to bite into household budgets. 

Commonwealth Bank head of Australian economist Gareth Aird said CBA had updated its outlook on house prices. The bank had forecast a 7 per cent uptick in 2022 before falling 10 per cent next year. It has now updated its advice to forecast a flattening of house prices in 2022 with an 8 per cent decline forecast for 2023. 

NAB has brought forward its forecast for a rates hike, and is now predicting the turning point for property prices to occur in the second half of 2022. It is forecasting a flatter outcome in 2022 and a slightly larger fall in 2023. Overall, NAB said dwelling prices would rise around 3 per cent in 2022 before a decline of around 10 per cent in 2023. 

Westpac Westpac expects property prices to post a net gain of two per cent this year before falling seven per cent in 2023, and a further five per cent in 2024.

Sydney auction clearance rates

WeekClearance rateTotal Auctions
Week ending 5 March 2022    69%    714
Week ending 12 March 2022   65% 728
Week ending 19 March 2022   65%710
Week ending 27 March 202266% 783

^Source: Domain - March 2022

Auction clearance rates have stabilised in Sydney as more properties are listed and bidders have more opportunities to get into the market. 
Flooding across Sydney did not seem to impact the auction results with the auction withdrawal rate rising only moderately to 16 per cent ahead of March 12.

The last week in March was the second busiest auction weekend of the year so far across the country with more than 3000 properties listed for auction. It was up by more than 1000 properties compared to the previous week nationally, and up by more than 300 properties on the same weekend last year.

Clearance rates are expected to trend lower amid softer housing value growth according to Corelogic head of research Tim Lawless.

Lawless said the increasing affordability crunch in concert with the increased lending buffers enforced by the Australian Prudential Regulation Authority earlier in 2021 was leading to more wary buyers in the market.  But Australia’s love affair with the auction format looks likely to continue.

Domain chief of research and economics Dr Nicola Powell said she expected to see a “growing number of auction hammers to be falling in the years to come”.

“And this trend is not isolated to just one city, we’re seeing it across Australia and spreading from the higher-priced suburbs into the middle and outer suburbs,” Powell said.

“Buyers and sellers are embracing the transparency and efficiency that auctions can often provide, and the fact that all cities have a higher median price at auction compared to private treat.”

Sydney’s market is very auction-centric but Powell said midweek auctions were outperforming weekend auctions by up to 11 per cent. 

Sydney residential rental vacancy rate

CityVacancy rateMonthly changeVacanciesNet change
Sydney1.6%0.4%▼ 12,748▼    2397▼

^Source: SQM Research - March 2022

Rental vacancy rates have continued their downward trend in Sydney across February and March with flooding and the return of international migration putting pressure on supply. 

The rental crisis is deepening with Sydney’s vacancy rate tightening further to 1.6 per cent, down from 2 per cent last month. Nationally it dipped to 1.2 per cent, a 16-year low.

SQM Research managing director Louis Christopher said the flooding in March may have impacted the availability of rental accommodation in Sydney as he forecast ongoing vacancy and affordability issues for the capital city. 

“The flooding may exacerbate the shortage of rental accommodation in NSW and Queensland in coming weeks,” Christopher said.

“And the new surge in international students and other overseas arrivals will continue to create shortages in our inner-city regions.

“Some slight relief may be at hand as the current seasonal tightening we have seen at this time of year generally comes to an end over April.”

Sydney rent prices

TypeRentMonthly % changeAnnual % change

^Source: SQM Research - March 2022

Sydney was the only capital city in Australia not to record a rise in rent prices according to Domain.

In Sydney, house rents remained steady at their high of $600 a week, after the steepest annual increase in 13 years, at 9.1 per cent annually. 

As restrictions ease and international borders open, Sydney’s quarterly unit rent price growth is outpacing houses for the first time since pre-pandemic.

Contributing to this is affordability constraints on house rents and growing demand for units in the city where after a two year hiatus, employees are returning to CBD offices and looking for centrally located rentals.

Following the about face falls in rental vacancy rates for the CBD locations, inner city rents for units have significantly jumped. Sydney CBD unit asking rents have lifted 5.5 per cent.

SQM Research managing director Louis Christopher said recent monthly data suggested we are still not at the worst point of the crisis. 

“We were thinking at least regional Australia may have started to have some relief as people return back to the cities. But that has not happened as yet. Many localities and townships are recording zero vacancy rates,” Christopher said. 

“Given a dramatic tightening in vacancy rates, we are seeing an ongoing acceleration in weekly market rents across the capital cities. This situation now represents a significant rental crisis across the country.

"We can expect capital city rents to rise by over 10 per cent in 2022.  As it stands, the current rent rises represent the largest increase since the 1970s and so there are major near term ramifications for inflation.” 

NSW building approvals

DwellingApprovedMonthly % change
Units554350% ▲

^Source: Australian Bureau of Statistics - February 2022

Total dwelling approvals in NSW were up 48.8 per cent in February compared to the previous month, with apartment approvals making up the lion's share of this. 

The NSW building approvals rate was higher than the national rate of 43.5 per cent.

According to the latest HIA-CoreLogic residential land report land prices in Sydney have jumped by 27.1 per cent in the past 12 months to June, with further rises expected in the next two years as demand for new houses and scarce supply inflates values by more than twice the cost of building materials.

Sydney is currently the most expensive capital city in the country to buy land, with the median lot price rising to $546,500—an 11 per cent increase during the June quarter.

NSW home loan lending indicators

TypeSep 2021 ($bn)Monthly % change
New loan commitments for owner occupier housing$6.93210.6%▼
New loan commitments for investor housing$4.2915.6%▼

^Source: Australian Bureau of Statistics - February 2022

While the price growth has slowed down over the first quarter of 2022 Sydney’s median house price is expected to hit the $1.5 million mark this year.

At current medians the average house price is over 14 times higher than the nation’s average full-time salary of $90,300.

In order to raise a 20 per cent deposit, the typical Sydney house buyer now needs around $262,300 while the average new mortgage across NSW is now $769,459, which has increased more than $30,000 in the past month.

The RBA has warned of “falls in housing prices”, and estimated house prices could be 15 per cent lower than expected over the next two years, in real terms, due to rising interest rates.

The central bank is warning homeowners to be ready for an interest rate hike, which could inflate mortgage repayments significantly. 

AMP has projected house prices will fall between 10 and 15 per cent over the next two years, as a result of deteriorating affordability and rising interest rates.

Average home prices are tipped to grow 1 per cent during 2022, before a 5 to 10 per cent decline in 2023 and a further a 10 to 15 per cent dive in 2024, which would take average prices back to the levels of March or April 2021.

Meanwhile, the Reserve Bank is expected to start hiking rates in June, with AMP estimating the move will push up variable mortgage rates up by nearly 1 per cent by the end of the year and by 1.5 per cent mid-2023.

NSW interstate migration

StateArivalsDeparturesNet change

^Source: Australian Bureau of Statistics - March 2021

Victoria and New South Wales lost thousands of residents in the first three months of the year as they moved to other parts of Australia, with Queensland emerging as the preferred destination.

There were 104,100 people who moved interstate during the first three months of the year, with Queensland experiencing a net migration increase of 7035, followed by Western Australia on 1639, South Australia on 648, Tasmania on 277 and the ACT on 138.

Victoria suffered a net migration loss of almost 5,000 people between January and March this year as departures outstripped arrivals.

There were 18,907 people who moved to Victoria during the three-month period, but 23,771 residents who left.

NSW experienced the next biggest fall in interstate migration, with 30,684 departures compared to 26,221 arrivals.

While immigration is not the only factor influencing house prices, it adds to the already strong demand for housing.

If Australia's annual immigration intake lifts, beyond federal budget forecasts, to reach about 250,000 people in 2023, that would turn predictions of house price falls into price gains.


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Article originally posted at: https://www.theurbandeveloper.com/articles/sydney-housing-market-update