Sydney Housing Market Insights: September 2021

The Urban Developer’s latest Sydney housing market insights, looking at the month for August, reveal that despite a slowdown in price growth the city has a further 8 per cent to grow in next 12 months.

This resource, updated monthly, 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 - August 2021

Despite the city being in lockdown for more than two months, housing values have continued to grow in Sydney, albeit at a slower pace.

The rate of price growth has continued to moderate after reaching a peak in March this year, when values rose 3.7 per cent in a single month—the fastest pace in the city in 32 years.

August’s bump in dwelling prices was a modest slowdown from July, when dwelling values climbed at a rate of 2 per cent, 2.1 per cent for houses and 1.6 per cent for units.

Further growth is expected in the coming months as strong demand from buyers outpaces the falling volume of listings.

The latest Corelogic figures reveal property values rose 1.8 per cent in August and are now up 20.9 per cent over the year.

This follows a peak-to-trough fall in Sydney values of -2.9 per cent between April and September 2020.

The current median value for dwellings surpassed $1 million in June, and has further advanced an additional $24,000 over the month of August.

The average house in Sydney is now selling for $1.29 million and units for $825,000.

A typical Sydney house is now about $150,000 more expensive than it was at the end of January this year, while units have experienced a gain of $90,000.

Sydney’s housing market: policy updates

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”.

Sydney Restarts Construction Work at Half Capacity

In mid-August the New South Wales deputy premier said the state’s construction industry would restart construction with work on unoccupied sites to resume, albeit with new worksite capacity limits.

The construction industry had been urging the state government to overturn its shutdown of the construction sites amid warnings of a $2-billion blow to the economy as builders across greater Sydney scramble to deal with fallout from the ban.

Soaring Housing Debt a Financial risk

The Reserve Bank of Australia has cautioned the nation’s soaring property prices and spiralling household debt could become a risk to the nation’s financial system and the RBA is now constantly assessing whether to tighten commercial lending standards.

Official interest rates have been cut to a record-low 0.1 per cent by the RBA, which has argued they are unlikely to be increased before 2024 due to ongoing subdued wages growth and inflation.

What the experts are saying about Sydney’s housing market

Eliza Owen, Head of Research, Corelogic

Eliza Owen
Head of Residential Research

“Social distancing restrictions don’t have as much of an impact on prices as they do on transaction activity.

“It’s more tied to affordability constraints and that is evidenced in the narrowing gap of houses and units.

“There are definitely signs there that there are demands for housing, and buyers are potentially looking for more affordable pockets of the market and that includes units.”

Dr Nicola Powell

Nicola Powell
Senior Research Analyst

“[Auction clearance results] are phenomenal. For some buyers, lockdowns aren’t deterring.

“The fact is, lockdowns or not, some people still need to buy; they could be in between houses, they could have missed out earlier in the year, and now they’re ploughing ahead and making a strong offer.”

“Sydney’s strong clearance rate had largely been supported by having fewer homes on the market but a high level of demand from buyers.

“Buyers unable to secure a home earlier in the year due to extremely fierce competition are utilising lockdown periods to purchase their homes.”

Louis Christopher

Louis Christopher
Managing Director
SQM Research

“Property asking prices in Sydney have fallen for several weeks in a row.

“There are signs banks’ lending criteria are tighter than last year, when they were happy to accept JobKeeper payments as a form of income.

“I would think if Sydney were to stay in lockdown through to December, it would be bad news for the local economy and that would feed through to the housing market.”

nerida conisbee

Nerida Conisbee
Chief Economist
Ray White

“Prices have accelerated far more quickly through Covid-19 than they otherwise would have, driven by a combination of exceptionally high savings rates partly as a result of huge government stimulus and record low finance.

“But sellers have become more hesitant over lockdown and this has also impacted the number of auctions proceeding with many moving to private sale or selling prior.

“While sellers are holding out, we have not seen a similar hit on buyer demand.

“With fewer auctions taking place, the average number of active bidders was at 5.25 per property last week and at its second highest level recorded.”

Sydney housing market forecasts

ANZ economists are forecasting national property prices to rise by more than 20 per cent in 2021, regardless of the latest round of lockdowns. They have pencilled-in a rise in Sydney prices of 23 per cent during this calendar year.

NAB has predicted Sydney’s house prices will rise by 17.5 per cent over 2021, while Commbank is predicting a rise of 16 per cent.

Westpac has upgraded its price growth forecast for Sydney to 22 per cent this year, and 4 per cent in 2022.

Commonwealth Bank has upgraded its property price forecast for calendar 2021 following an “acceleration” in property prices earlier this year predicting a 10 per cent increase for this year and next year.

Sydney auction clearance rates

WeekClearance rateTotal Auctions
Week ending 2 August 202180.8%685
Week ending 9 August 202180.4%576
Week ending 16 August 202182.9%562
Week ending 30 August 202182.7%598

^Source: Corelogic - August 2021

Property prices have continued to rise despite a sharp fall in the number of properties advertised for sale.

Corelogic noted that in August, the number of new property listings fell 5.8 per cent below the five-year average.

In New South Wales, private inspections are permitted by appointment but are limited to one real estate agent and one buyer at a time, while in-person auctions and open homes are banned during the lockdown period.

Auction clearance rates are usually a leading indicator of house prices, yet there still appears to be plenty of demand from buyers.

In Sydney, sellers are still out in numbers, albeit with about 12 per cent of planned auctions pulled from the market in the last week of August. The city, nevertheless, produced a strong clearance rate of almost 83 per cent.

Auction volumes in Sydney are poised to fall by more half or more in the weeks ahead as vendors postpone their sales or strike deals before the event amid uncertainty over the duration of the Covid-19 lockdown.

Corelogic’s Eliza Owen said the lower auction volume would help stabilise prices.

“I think during periods of lockdowns, we see a fall in demand but there’s also a drop in supply, so the net effect is a stable market,” Owen said.

“The housing market was showing a more steady dynamic this time around.

“It seems like the housing market could follow the same resilient trends as 2020, if not more so given that demand is still quite elevated.”

Sydney residential rental vacancy rate

CityVacancy rateMonthly changeVacanciesNet change

^Source: SQM Research - August 2021

Sydney vacancy rates dropped to 2.6 per cent from 2.7 per cent a month earlier as affordability constraints of buying in Sydney now causing tenants to rent for longer, as rising prices leads to a further reduction in rental stock.

In a sign that harsher capital city lockdowns are affecting the rental market, many regions in NSW recorded falls in rental vacancy rates such as the Blue Mountains and NSW North Coast which recorded falls in vacancies over August to 0.6 per cent and 0.7 per cent respectively.

Rents for houses have increased by 7.2 per cent in Sydney this year while units have lifted by just 0.9 per cent.

According to Domain, Rouse Hill - Mcgraths Hill, Hurstville and Botany were among some of the top suburbs in the country to experience the biggest drops in vacancy across August.

Sydney rent prices

TypeRentMonthly % changeAnnual % change

^Source: SQM Research - August 2021

SQM managing director Louis Christopher said extended lockdowns could now put upwards pressure on Sydney’s vacancy rate, as tenants impacted by lockdown struggle to pay rent.

“Given the ongoing international border closures and still relatively high completions, the national rental market should be at least more balanced,” Christopher said.

“That may well still happen if lockdowns persist through to summer as it is likely many people living in Sydney and Melbourne may attempt to move elsewhere.

“It is also possible that long-term leasing is becoming very challenging for landlords due to rental moratoriums.

“We believe instead that landlords may increasingly be using short -erm accommodation websites such as Airbnb and Stayz whereby they have a greater say on who occupies their property and the length of time they stay.”

NSW building approvals

DwellingApprovedMonthly % change

^Source: Australian Bureau of Statistics - July 2021

Housing affordability is under pressure with low building approval rates affecting the delivery of housing targets in New South Wales.

NSW Property Council executive director Luke Achterstraat said the Australian Bureau of Statistics data showed an almost 10 per cent downturn in building approvals across the state.

“Since the unwinding of stimulus measures and the return of lockdowns across parts of NSW and Victoria, approvals for private houses have fallen 24.4 per cent from the record high in April,” Achterstraat said.

“In the year to March 2021, NSW delivered 29,500 new homes, well short of the 42,000 outlined by the Greater Sydney Commission [to meet population demand].

“A reduction of nearly 10 per cent in dwelling approvals in NSW is a concern when we are already not meeting housing targets across the state, and have a 50,000 dwelling shortfall to make up from previous years.”

Housing Industry Association economist Angela Lillicrap said the latest date indicated most HomeBuilder projects had been approved and would start construction in the coming months.

Corelogic research director Tim Lawless said the surge in dwelling approvals over the past 12 months, meant NSW’s residential construction sector is working through the early stages of what is set to be an extended period of heightened construction activity.

“The substantial pipeline of residential construction work is likely to keep both building materials and trades in short supply for an extended period of time,” Lawless said.

“I think we can expect housing construction costs to rise more significantly over the coming year as supply chains grapple with ongoing shortages. Higher construction costs will inevitably flow through to higher costs for new homes and renovations.”

NSW home loan lending indicators

TypeJul 2021 ($bn)Monthly % change
New loan commitments for owner occupier housing $7.966.7%▲
New loan commitments for investor housing $3.866.0%▲
New loan commitments to first home buyers $3.24-6.3%▼

^Source: Australian Bureau of Statistics - July 2021

Housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home.

According to comparison website Canstar, the time it would take for the average Sydney first-home buyer to save a 20 per cent house deposit has increased by five years to 14 years and 10 months since 2006.

According to the Australian Prudential Regulation Authority, in the last few quarters, new lending to highly-indebted borrowers has also been on the rise.

Mortgage refinancing hit a record high in August, surpassing the record set in June 2020 when the Reserve Bank of Australia’s double rate cut impacted activity.

APRA said the share of new loans where the customer was borrowing more than six times their income jumped from 19.1 per cent to 21.9 per cent in the June quarter, the highest level since it started collecting this data in 2019.

A year ago, the share of new lending in this category was only 16 per cent.

Another risk on the horizon is that the many borrowers who have piled into fixed rate home loans will almost certainly face higher interest rates when their fixed terms end.

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.

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