Chapter 1: What are the current trends in the Sydney property market?
It's the Real Estate Podcast across every state, city and town of Australia. And welcome to another episode of the Real Estate Podcast available on iHeartRadio every morning and also on Spotify and Apple and wherever you get your podcasts from. Well, the dreaded Monday, yes, it's here. The weekend is over, but it is a brand new month, the first day of August for 2022.
September next month, so that means the slide towards Christmas is on. And are we headed for 50 basis points or 75 tomorrow as we look towards the RBA moving on the interest rates? And I said on Saturday that there's a good chance that it could be 75. It would not surprise. And I'm sure the sums, the projections have been made by you and all you've got to do now is brace for impact.
We will find out the verdict if tomorrow they decide to move or wait a week. Coming up in just a moment, we are talking with Cameron Cusha from PropTrack and discussing the possibility or probability of Sydney dropping house values by 18%. If you're celebrating your birthday today for the 1st of August, have a great Monday.
Chapter 2: How much are Sydney property prices expected to fall?
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Grab your coffee and switch on your real estate breakfast every weekday morning from 6.30. It's the main centre forecast with propertybuyer.com.au. Around Australia we go. Checking on your weather this morning. First to Sydney, a possible morning shower. Your high of 20 degrees today. Melbourne, a little bit of cloud around on your Monday.
Chapter 3: What factors are contributing to the decline in property values?
15 is your forecast high, but it should be mainly dry. Brisbane, one or two showers with 21. And in Perth, the rain is back with a possible afternoon storm and your high of 20 degrees. From first home buyers to property investors and everything in between, every morning on the Real Estate Podcast. Well, I saw that PropTrack was reporting that Sydney property is tipped to plummet by up to 18%.
Modelling from PropTrack shows the worst is yet to come, with prices likely to fall a further 3% to 6% this year. before tumbling another 9% to 12% by December 2023. So let's bring in PropTrack Executive Manager of Economic Research, Cameron Cusha. And a very good morning to you, Cameron. Welcome to the Real Estate Podcast. Thanks for having me here, Craig.
We know the property market in Sydney has been slowing down this year. You tie that to the inflation number of 6.1% and the uncertainty around the mortgage interest rates going up.
Chapter 4: Which suburbs in Sydney are experiencing the largest price drops?
People on one hand might say, look, I'm not surprised to see that we're going to have that downturn in the market. But on the other hand, you're going to have people that are going to absolutely hate seeing the number in reality on their properties. But it is the year, it would seem, of the price correction. I think that's right. Craig.
I mean, if we look historically at the Australian property market and the Sydney property market, we tend not to see large price falls. But realistically, if that was ever going to be a situation where we did see quite large price falls, it would be now. And that's because interest rates have been falling for 11 years. We've just had the lowest interest rates we've ever seen.
And we also had the Reserve Bank saying to people that they didn't expect interest rates to rise until 2024. We didn't even make it to the middle of 2022 and we started to get interest rates rising.
Chapter 5: What impact will rising interest rates have on property prices?
The Sydney housing market was slowing before these rate hikes. We've already seen over the year to date that property prices in Sydney are down 1.1%. They're down 1.5% from their peak. And we think with higher interest rates, likely that the falls in them, market are going to accelerate from here.
And it comes as real estate agents report properties in some suburbs around Sydney are already selling for anywhere between 10% and 20% less than what they would have sold a year ago. I have no doubt, Craig, that that's happening.
Even though we're only saying to date the market's fallen by 1.5% at the individual property level, you would be seeing areas where we've seen much greater declines in prices. Particularly the higher priced area of the market is one of the markets where we're seeing evidence of much greater weakness than we are more broadly across Sydney.
So that will be something to watch over the coming months as we continue to see prices decline. And just coming back to that cash rate, I think, okay, whilst the governor has said 2.5% could reach 2.5%, it may well go beyond 3% by the end of 2022, yes? There's a really strong possibility in my mind that we do see a higher cash rate.
Chapter 6: How are first home buyers affected by the current market conditions?
Inflation is still accelerating and very high. And unfortunately, the Reserve Bank doesn't have many options other than lifting interest rates to try and stave off that level of inflation that we're seeing at the moment. we believe that the cash rate will probably be somewhere between 2.5% and 3% by the end of this year.
But if you look at some of the bank forecasts, they're actually forecasting the cash rate could be in excess of 3% by the end of the year. So either way, mortgage holders are facing much steeper interest rates much sooner than they were expecting. And just coming back to the areas around Sydney, which areas have you seen the largest falls to date?
So from the peak, the biggest falls we've seen have actually been in the northern beaches. Prices there are down 6% from their peak. Rides also seen quite a large fall in prices. Prices are down 5.6% from their peak. And then the city and inner south region of Sydney, we've seen a 4.7% decline in prices. So they're the ones that are seeing the greatest level of weakness at the moment.
Chapter 7: What government incentives are available for first home buyers?
And I guess that they won't necessarily be the areas that could sustain the largest falls. Are there other areas you think could be affected? I think certainly we could see some other areas where we'll see some larger falls than that. I think the central coast.
The declines to date have been fairly moderate, but I think demand for that coastal lifestyle property, particularly as interest rates go up quickly, is likely to reduce. Plus the impetus to move to coastal locations is not as strong as it was earlier on in the pandemic now. So I think Central Coast is probably one of those markets to watch.
Also the eastern suburbs, I think we could see some larger falls there as well. And maybe even potentially some of the more lifestyle-y tree change areas as well, maybe the outer western Blue Mountains, we could see some larger price falls in that market too.
And you're reporting that those in the outer southwest like Blacktown and Blue Mountains could be maybe a little bit protected by a potential increase in first home buyer activity. That's probably the great hope in Sydney and probably is also what sets Sydney a little bit apart from other parts of the country.
Chapter 8: What is the forecast for the Sydney property market moving forward?
We know that the state government is looking at giving first home buyers the option to choose land tax as opposed to stamp duty. And that will mean that a lot of people can get into the market a lot sooner than they'd otherwise be able to. Plus they can get the federal government support as well that's available.
And the other thing that first home buyers are facing is steep increases in rental rates. Even though we're expecting property prices to fall, we're expecting rents to continue to increase. And I think at some point as prices fall and people look at all these incentives for first home buyers, they'll start to do the numbers and say, you know what, maybe I'm better off moving out of my home
that I'm renting and buying my own property and clearly first-time buyers in Sydney are pretty limited in their options in terms of what's affordable and you're looking at you know the outer southwest you're looking at places like Blacktown and you're looking at places like the outer western Blue Mountains as well.
You know, you have to feel for first home buyers who are getting into negative equity potentially with these rate rises at a risk of owning more money on their properties than what they're worth. It's certainly a challenge.
I mean, we've seen home builder over the last couple of years and, you know, state government incentives that have induced a lot of first home buyers to get into the marketplace.
typically first home buyers they do stretch themselves to get into the market they don't have previous equity in the property market as well and would tend to have less savings than people that are moving on to you know their third or fourth property as well so they're definitely facing the prospect of negative equity with these price falls and that will be a challenge
as will the fact that they're going to be having to dedicate more of their income to their mortgage sooner than they expected with these rates increasing at a fairly rapid pace at the moment. Yes, and first home buyers, of course, they've been watching as the prices are going backwards. Of course, they've got the option to take up federal government grants and not pay stamp duty.
I guess in all of this, the market will be hoping that there is some uptake by first home buyers to stimulate the market at this time. Exactly right. And I think that we will start to see that eventually. As I mentioned earlier, there's a lot of pressure in the rental market still. There's insufficient supply. There's really strong demand for rents.
Obviously, people that own rental properties are facing higher mortgage rates themselves. So they'll be looking to pass those costs on where they can to the people that are renting their properties. And we know that there's more and more stimulus from the federal and state government coming in down the pipeline.
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