Sydney property cooling but some market segments still booming

In Sydney’s high demand suburbs, signs are emerging that buyers are getting increasingly anxious about being priced out altogether and in turn they are supporting the rising prices in the country’s priciest real estate market.

A shift in market preference to townhouses and apartments in response to affordability constraints is underway, while there has been a slight cooling in the upper end of the market with luxury houses days experiencing more days on market.

The most profound trend is the lift in the apartment sector.

In August, house prices rose another 0.3 per cent to a median price of $1.47 million. High demand suburbs like Bondi saw the median house prices exceed $3.8 million, while at the lower end of the market Blacktown saw median prices hit $900,000.

This was the 19th consecutive month of house price increases, which is a direct reflection of the demand in the market and lack of supply. It is usually the winter months that we see market activity quieten with an uptick occurring in spring.

Units were the top performers, increasing by 0.5 per cent in the month to a median price just under $1 million, rising to $859,000.

So far in 2024, CoreLogic figures show Sydney dwelling values have risen 3.2 per cent.

Despite Sydney's modest pace of capital growth at the moment when compared to the likes of Perth and Adelaide, there is still strong growth in many areas. Canterbury is up more than 13 per cent over 12 months, with Fairfield, Mount Druitt and Campbelltown also recording double-digit dwelling value increases.

Some experts expect house prices in some suburbs to plateau, however, prices have already reached record levels in some suburbs.

It is important to remember that Sydney is not just one market, but has a lot of markets that move independently across suburbs and there will be fluctuations within each suburb depending on the type of properties on offer.

Despite this, Sydney’s property markets have always shown a lot of resilience, which has been the case throughout 2024.

Due to uncertainty around interest rates as well as economic uncertainties nationally and globally in the first half of 2024, it wasn’t until June that Sydney markets became relatively stable.

Once the Reserve Bank of Australia (RBA) decided to maintain interest rates at 4.10 per cent, property buyers and sellers gained some confidence in navigating Sydney’s property markets.

Why are apartments gaining traction?

After the Covid lockdowns, there was a surge in buyers moving away from townhouses and apartments because they felt so cramped in the midst of the growing trend of working from home. Buyers opted for larger spaces and were happy to sacrifice location for more “leg room”.

Workers are returning to the office.

Sydney sky-high property prices and cost of living pressures are now forcing buyers to reconsider the benefits of apartment and townhouse

This is particularly the case in suburbs and close to the CBD. There is now a shift in buyer preference towards living in their favourite suburbs, even if it means sacrificing space.

Investors are also favouring apartments because of better rental yields compared to houses, strong rental demand, and the ability to buy in those popular suburbs.

Sydney property outlook

As we move into the back end of 2024, most Sydney property markets are expected to continue this pattern of moderate growth.

Prices appear likely to rise in spring when we see more buyers enter the market and then a cooling of the market as we approach the end of the year.

With interest rate unlikely to move this year, a major jolt to the market seems unlikely.

SQM Research data reveal property stock is selling quickly, with total listings at the lowest point since 2019.

While ANZ predicts housing price growth in Sydney this year will be a relatively modest 4.2 per cent (moderating after last year’s 11.5 per cent), it predicts a quickening in 2025 to 6 per cent and then 6.6 per cent in 2026. The other big banks are sitting in the middle with NAB forecasting 5 per cent and Westpac at 6 per cent.

The ongoing shortage in housing supply will continue to support property prices.

This is evident with the level of new dwelling approvals declining in a market that has such strong demand and rising rental prices.

This shortage will also boost investors’ confidence, particularly overseas buyers who favour the strength and resilience that Sydney’s property markets provide in tandem with the city’s rental markets remaining exceptionally tight.