After a mixed 2022, we’re optimistic the next 12 months will be positive for property owners, especially here in Sydney’s East.
We give our view on what’s likely to happen over 2023 when it comes to the local real estate market.
Sydney’s median property price fell -12.1% over 2022, according to CoreLogic. The single biggest factor behind this was rising interest rates, with the official crash rate from 0.1% to 3.1% between May and December.
As the official rate went up, the banks allowed the following, lifting their average variable home loan rates from around 3% to 6%. This meant that someone with a $1 million principal and interest home loan could have found their mortgage repayments increasing from around $4,200 a month to almost $6,000 a month.* As people could afford to borrow less, they also had less to offer on new homes, and this put a natural cap on the market.
On top of this, the uncertainty of when interest rates would stop rising made many people more cautious about buying.
We’re hopeful there shouldn’t be too much more pain for mortgage holders and that, once interest rate rises end, we’ll also see a positive impact on the property market.
Here’s where economists from the big four see interest rates heading this year.
|Forecast cash rate peak
|Month of peak
|Forecast rate cut
Market booms and falls always create their own energy, with positive or negative emotions often taking hold to amplify gains or losses. We saw this in the boom property market of 2021, when a sense of FOMO (fear of missing out) took hold and some buyers were prepared to pay ‘whatever it took’ to secure their next home.
We saw the reverse in 2022 when some would-be buyers became spooked and withdrew from the market altogether, fearing further price falls.
We expect this situation to change across 2023 as interest rates stabilise and more buyers begin to see relative value in the local property market.
When confidence does return, it can cause prices to jump sharply. That’s exactly what happened after the last period of decline between 2017 and 2019, with Sydney house prices rising 5.7% in the final quarter of 2019 and another 2.6% in the first quarter of 2020.
While there has been a lot of media focus on Sydney’s falling sales prices, less is being said about the runway rental market. Proptrack data showed that in 2022, Sydney rents rose 10% – the fastest rate of growth on record – as demand surged and the number of listings dried up.
With rents becoming less affordable, we expect more tenants to do their sums and arrive at the conclusion that buying a home makes financial sense. We also expect to see more investors come out from the woodwork and look to add to their portfolios to take advantage of stronger yields.
As this happens, it could place pressure on prices, particularly in the entry-level and apartment markets. This could have flow-on effects through the property market.
At the end of last year, we noted that the Eastern Beaches had outperformed most other areas over the past couple of years, with house prices in suburbs such as Bronte (66.2%) and South Coogee (53.1%), seeing phenomenal growth.
This has been part of a trend towards beachside living, with people prepared to pay more for proximity to the Pacific Ocean.
We don’t see any signs of this phenomenon slowing down, with a high number of enquiries and strong demand for the Eastern Suburbs, especially here on the beaches. At the same time, geographical constraints mean there will always be limited supply.
For that reason, we expect our area will be one of the strongest performers over 2023 and beyond.
If you’d like to know more about the current market or receive a free appraisal of your home, please feel free to get in touch.
* This was calculated on a $1 million principal and interest home loan taken over 30 years with no extra charges and an interest rate of 3% and 6%.
Source: Director Auctioneer, Adrian Bo