Sydney Housing Market Insights: December 2021

The Urban Developer’s latest Sydney housing market insights reveals the city’s median house price, $1.37 million, will, on current trends, soon breach the $1.5-million mark while house rents have also surged.

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 - December 2021

As Australia’s capital cities recover from Covid-19 lockdowns and restrictions, Sydney’s property prices continue on their seemingly never-ending upward trajectory, if a little slower than the breakneck pace of the past two years.

Sydney’s eye-watering house prices have increased by a staggering 29.6 per cent in the past year, with the median price now $1.375 million, following a peak-to-trough fall in values of -2.9 per cent between April and September 2020.

Things have begun to slow, however—Sydney’s monthly rate of growth has more than halved since the highs seen in March this year, when dwelling prices reached a monthly growth rate of 3.7 per cent—the fastest four week increase the city has experienced in over three decades.

December’s bump in dwelling prices was a modest dip from the previous month, when dwelling values grew at a rate of 0.9 per cent.

House price growth was underwhelming at just 0.4 per cent, while unit prices contracted 0.2 per cent.

But Corelogic reports momentum has slowed quite sharply in Melbourne and Sydney dwelling markets, with both cities recording the softest monthly reading since October 2020.

This softening seems to have been led by the upper end of town according to Corelogic head of research Tim Lawless.

Lawless said across the capital cities the upper quartile dwelling values were up 2.6 per cent in the December quarter, compared to a 3.7 per cent increase across the lower quartile and broad middle markets.

“We have seen this trend in previous growth cycles, where more expensive housing markets have shown greater levels of volatility; housing values tend to rise more through the upswing but record a larger decline through the down phase of the cycle,” Lawless said.

The average house in Sydney is now selling for $1.375 million and units for $835,104.

The gap between the median house and unit value in Sydney is now close to $539,896.

Growth in Sydney’s apartment market has been more subdued, with median unit prices in about 30 per cent of suburbs still down year-on-year.

Bronte, in Sydney’s eastern beaches has experienced the biggest jump by far in 2021, with the median house price climbing a whopping $1.9 million, or 55 per cent, over the year to September to reach $5.35 million—an increase of about $5200 per day.

Nearby South Coogee, Manly and Palm Beach on the northern beaches, and Killara on the upper north shore, also saw median house prices climb by more than $1 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

Tim Lawless
Head of Research

“While higher advertised stock levels are one factor contributing to softer growth conditions, worsening housing affordability has been a central factor conspiring to slow the Sydney market.

“Over the past year, Sydney house values were up by approximately $315,000 while unit values were approximately $110,000 higher. The surge in values has occurred against a backdrop of minimal income growth which has created more substantial barriers to entry for those that don’t yet own a home.

“While we expect housing values will rise over the coming quarter and year, it’s likely the trend rate of growth will be substantially less than what was recorded through 2021.”

Shane Oliver

Shane Oliver
Chief Economist
AMP Capital

“The continuing surge in housing finance commitments to investors in November indicates that the Australian property market is becoming more speculative and maintains pressure on APRA for further measures to slow housing lending.

“Australian home price gains are likely to slow with prices falling later in the year as poor affordability, rising fixed rates, higher interest rate serviceability buffers, reduced home buyer incentives and rising listings impact.

“Assuming the Omicron wave impact is relatively short we continue to see the RBA starting to raise interest rates from November. There is also the risk that supply chain disruptions flowing from the Omicron wave accelerate the rise in inflation in Australia much as they have been doing in other countries over the last year.”

Nicola Powell

Nicola Powell
Senior Research Analyst

“Weaker investment activity interrupted the flow of rental properties [in Sydney] however, investors are back with the share of home loan values for investment reaching the highest since 2019.

“This will boost supply and is likely to have helped to slow rental price growth over the December quarter.

“Competition to secure a rental will escalate once borders reopen and international students, new migrants, and expats action a relocation. Further strained by demand from COVID escapees as they return from sea and tree change areas.”

Anthony Ishac, SQM Research

Anthony Ishac
General Manager
SQM Research

“It is clear rental markets rebounded over 2021 across the country compared to this time last year, with every capital city market reporting a tightening of rental vacancies and rises in asking rents.

“Despite the challenges of Covid-19 restrictions, demand for rentals increased over the year and coupled with a decline in available rental stock has placed upward pressure on asking rents.

“Inner city and CBD rentals have continued to improve from the vacancy highs reported in 2020 and follow the same national trends.”

Sydney housing market forecasts

ANZ economists are forecasting national property prices to moderate to 6 per cent in 2022 before dropping by 4 per cent in 2023.

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.

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 house prices to rise by 27 per cent this year, and 6 per cent in 2022 before correcting and dropping by -6 per cent in 2023.

Sydney auction clearance rates

WeekClearance rateTotal Auctions
Week ending 5 December 202167.3%1467
Week ending 12 December 202163.6%1797
Week ending 19 December 202160.8%1631
Week ending 27 December 2021N/AN/A

^Source: Corelogic - December 2021

Sydney broke records in December for the busiest Auction weekend on record, knocking off a 7-year record with a whopping 1,797 properties going under the hammer.

This did, however, also coincide with one of the softest auction clearance rates for the year. Over the course of December about 60 per cent of properties cleared auction, in stark contrast to the same period last year where auction clearance rates were up at 72 per cent despite low stock.

Traditionally activity tapers off in December as market activity slows in the lead up to Christmas, but the second week of December was an anomaly for its surge in listings. Nationally it was the second busiest auction week since CoreLogic records began in 2008.

Corelogic research director Tim Lawless said the surge in listings had spurred a softening in the market.

“The softer conditions towards the end of the year were accompanied by a surge in new listings, which helped to ease some of the competitive tensions amongst buyers,” Lawless said.

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.

New figures show bidder numbers at auctions have dropped to their lowest level in a year in Sydney, as an increase in homes for sale gives buyers more choice.

Auction competition was holding stronger in Sydney’s more affordable middle and outer ring, said auctioneer Michael Garofalo, of Cooley Auctions, noting shifts in activity tended to start in the inner city and east.

New listings have surged across Sydney’s more affordable suburbs such as Campbelltown, with more stock expected in the weeks ahead as vendors’ fear of missing out gains momentum.

Sydney residential rental vacancy rate

CityVacancy rateMonthly changeVacanciesNet change

^Source: SQM Research - December 2021

Rental vacancy rates plateaued in Sydney across November and December and remained steady as the city continues to emerge from lockdown.

It follows a decrease in October, with vacancy rates now at their lowest point since May 2018, falling from 27 per cent to now be 2.6 per cent in November.

More people are returning to Sydney’s CBD as lockdowns end and business returns to the country’s engine room. Sydney CBD vacancy rates were down to 5.7 per cent, a big shift from the peak of 16.2 per cent in March 2020.

There are more than 20,000 properties lying vacant across Sydney currently as more stock enters the market, but significantly less than the May 2020 peak of more than 29,000 properties.

In Sydney’s middle-ring suburbs, vacancies fell to 3.1 per cent for the month, down -0.8 per cent overall, and in the outer rings, it fell to 1.8 per cent for the month, -0.4 per cent overall.

Sydney rent prices

TypeRentMonthly % changeAnnual % change

^Source: SQM Research - December 2021

Domain reported Sydney house rents jumped $20 over the quarter to hit a new record high, the steepest annual increase in house rents since 2009, at 9.1 per cent or $50.

Unit rents have increased by $5 over the quarter to $490 a week. It is the first time in almost four years that unit rents have posted positive annual growth, at 4.3 per cent or $20. However, they remain $60 lower than the mid-2018 record high according to Domain senior research analyst Nicola Powell.

“A sharp turnaround in Sydney’s rental market saw asking rents jump over the second half of 2021, closing the year with the steepest annual increase since 2009 for houses and the first annual increase in almost four years for units,” Powell said.

“It has been a race for additional space for tenants as working from home and lockdowns have placed greater importance on the configuration and size of our homes.”

A shortage of stock and high demand for property is behind jump in rents, with the typical dwelling 7.2 per cent more expensive to rent than this time last year.

The September quarter marked the first time since the pandemic started last year that rental values for both apartments and houses in Sydney have increased at the same rate.

SQM Research general manager Anthony Ishac said he expected rental markets to remain tight until affordability pressures ease.

“Inner city and CBD rentals have continued to improve from the vacancy highs reported in 2020 and follow the same national trends,” Ishac said.

“The ongoing move towards regional living has seen rental markets tighten even further in non city markets where in some major towns finding a rental home is no longer an option. The outlook for 2022 is for rental markets to continue to remain tight until the anticipated easing in property prices takes effect providing some relief for renters.”

In the past 12 months house rents have increased more than $100 while unit rents have increased about $36.

Overall, unit rents have risen at a slower pace than house rents since the onset of Covid in March last year due to a preference shift towards lower density housing options and lack of overseas migration interrupting tenancy demand around key unit precincts.

NSW building approvals

DwellingApprovedMonthly % change
All dwellings3526-18.4%▲

^Source: Australian Bureau of Statistics - November 2021

Total dwelling approvals are up over 3.6 per cent in November but taking a broader view, they are down 7.7 per cent year-on-year according to the Australian Bureau of Statistics’ most recent figures.

In NSW, approvals for new houses increased 5.4 per cent after dropping by -13.9 per cent over the month of September.

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

TypeNov 2021 ($bn)Monthly % change
New loan commitments for owner occupier housing $7.2879.6%▲
New loan commitments for investor housing $4.0967.8%▲

^Source: Australian Bureau of Statistics - November 2021

Sydney’s median house price will soon home in on the $1.5 million mark.

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.

In September, the Reserve Bank governor, Phil Lowe, ruled out using interest rates “to cool the property market”, meaning low rates were likely to stay until 2024.

Lowe said the cash rate would stay on hold until “actual inflation is sustainably within the 2–3 per cent target range”, likely not until 2024 due to low wage growth despite a tightening labour market.

Lowe acknowledged that young people were “paying a heavy price” during the Covid pandemic due to lockdowns and public health measures, citing increasing incidence of mental health issues and calls to support services.

The latest ANZ-Property Council quarterly survey shows industry players expect a tightening in credit conditions over the next 12 months.

Growth in investor lending is positive after more than doubling in the year to May.

AMP Capital’s chief economist Shane Oliver said he expected house prices to fall later in the year as higher interest rate serviceability buffers bit into nest eggs of house hunters.

“Australian home price gains are likely to slow with prices falling later in the year as poor affordability, rising fixed rates, higher interest rate serviceability buffers, reduced home buyer incentives and rising listings impact,” Oliver said.

“Assuming the Omicron wave impact is relatively short we continue to see the RBA starting to raise interest rates from November.”

NSW interstate migration

StateArivalsDeparturesNet change

^Source: Australian Bureau of Statistics - March 2021 (series paused due to Medicare data issues)

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