Market comment: ON THE LOOKOUT

Wed, 20 Sep 2023

Market comment: ON THE LOOKOUTListings up, property prices up, interest rates steady

August was quite a month in Sydney property, and September is following the trend. First, prices of Sydney property continue to rocket ahead. CoreLogic’s figures showed Sydney’s prices rose 1.1 per cent in August while more stock has begun arriving onto the market in time for the Spring selling season. New listings jumped up eight per cent over the four weeks to August 27 and the recent rises in listings have been quickly absorbed by the existing demand.

One guaranteed way to keep the property prices pot boiling is what happened on September 5 when the RBA left its prime interest rate on hold at 4.1 per cent for the third straight month. Unless there’s some sort of unforeseen nasty economic surprise in the works, it looks like the RBA will leave its rate on hold for some time while new Bank Governor Michele Bullock settles in.

CoreLogic recently released data showing that nearly one-third (32.7 per cent) of new for-sale listings were added by investors. This is an increase from the decade average of one-quarter and is largely due to the fact that the majority of investment properties are owned by older Australians who are now cashing in their property investments. 

These older investors are also being encouraged to sell their investment properties by a rising demand from new investors. Housing finance data from the Australian Bureau of Statistics shows that investor demand in nearing the previous 2015 peak, and the share of new mortgages going to first-time investors has risen to 35.3 per cent, the highest since 2017.

REA Group economist, Angus Moore told Sky News that investor demand is growing across Sydney: “What we’re seeing at the moment is just the fact that rental markets are really attractive for investors. Vacancy rates across the country are extremely low [which] means you just have very low risk of your property sitting vacant, so that’s quite attractive to investors”.

“You’ve still got migration rising in Australia. You’ve still got the lack of building taking place. So, the equation is rents are rising, they’ll continue to rise which again will tick the odds in favour of these investors who are obviously smelling the breeze”, he said, adding that interest rates might have peaked and this also makes investing more attractive.

Lisa Calautti from says: “Interest rate rises, land tax increases and the opportunity to bank big price gains is driving a spike in landlord exits from the property market.”

She notes that figures from PropTrack show that 28 per cent of NSW properties sold in July had been listed for rent since they were purchased which was the highest share of investment home sales since late 2018.

Jim Cross, principal of a McGrath agency in Victoria, notes that a number of long-term investment properties have recently come onto the market: “Those properties require substantial capital expenditure to bring them up to the new living standards,” he said.

“Some landlords are choosing to capitalise on the equity they hold in those properties by selling them. Investors holding older properties that require maintenance are selling them and then getting back into the market to purchase new properties to access better tax benefits and lower maintenance costs.”

PropTrack senior economist Paul Ryan says the trend of landlords selling their investment properties first emerged at the start of the pandemic: “Initially, I think there was a lot of uncertainty about investors’ own jobs, and uncertainty about borders closing and demand for rental properties,” he said.

“As the pandemic progressed and the rental market got tighter - and obviously home prices increased quite significantly - I think a lot of investors themselves were moving to bigger homes and needed the equity, and prices were up significantly, so it seemed like a good time to sell property.”

He said that during the past few months there has been a higher rate of investor sales making up a larger proportion of market activity: “That may start to signal that there is some emerging financial pressures from higher interest rates,” he said, noting loan arrears still remain very low.

Finder home loans expert Richard Whitten told that a far greater number of property investors could look to exit the market this selling season with his firm’s recent survey finding the equivalent of almost 900,000 investors may have to put a property up for sale due to the rising cost of living.

“Two thirds (64 per cent) of people who own investment properties have an income under $80,000 per year, despite the assumption that property investors are high income earners,” Mr Whitten said.

“In fact, only the minority (7 per cent) earn more than $180,000 a year. While a property investor’s assets may be very valuable, they need cash to pay their mortgage each month.”

“Investors will try to pass some percentage of rising costs on to tenants but that is a delicate balance. The rental market determines what landlords can charge, and tenants can’t simply absorb all of an investor’s costs.”

Falling rates

Inflation seems to be reasonably under control, falling from a high of above seven per cent to a more tolerable level of six per cent, and the Reserve Bank has held rates steady for three successive months. Thinking optimistically, those in the property market are looking for a time when rates start falling again.

There is of course a chance that the RBA will raise interest rates again before the end of 2023. Money markets say there is still a 50 per cent chance of one more quarter-point increase to 4.35 per cent, but three of the big four banks have said interest rates have peaked, with only the NAB expecting one more rate rise

The banks’ economists have all forecast rates to move down, although not this year, down to 2.6 per cent by the end of 2025 (Westpac), to 3.1 per cent by the end of 2024 (CBA), to 3.1 per cent by early 2025 (NAB) and to have the first cut in late 2024 (ANZ).

The Herald’s Nicole Pederson-McKinnon notes that despite more than 10 of the smaller lenders increasing fixed rates by an average of 0.40 per cent in the past two weeks, moves by the larger players in term deposits and fixed-rate mortgages are reflecting longer-term expectations with rates intended to attract both borrowers and depositors. 

CBA has implemented rate cuts on one and three-year fixed rate loans, by 15 basis points and 35 basis points respectively. Macquarie Bank has cut 25 basis points on its one-to-five-year fixed-rate loans for owner-occupiers.

When it comes to term deposits, you can earn as much as 5.2 per cent a year for five or four years from Judo Bank, 5.35 per cent for three and two years from Australian Military Bank and 5.25 per cent for one year from both Great Southern Bank and ING.

Ms Pederson-McKinnon concludes: “In any case, the good news for variable mortgage holders is that we may be set for rates 1 to 1.5 percentage points lower. But we might be stuck with the current high rates for possibly a year more.”

Unit savings

For some time, there’s been a quantifiable gap between the prices of houses and units in most Sydney suburbs. Lately this gap has widened until now more than $7 million separates median house and unit prices in some suburbs like Bellevue Hill and Vaucluse. Across Sydney houses cost around double the price of a unit and this is making it harder for buyers to upsize.

Domain’s Kate Burke says that unit values in some more desirable pockets of the city are now less than a fifth of typical house values: “The widening divide is pushing more buyers to apartments, and keeping them there, as the cost of upsizing locally becomes unreachable for more Sydneysiders.”

She gives some examples from Domain’s statistics, including that units in Bronte, Mosman, Lindfield, Strathfield and Freshwater cost less than a third of each suburb’s house median, and notes that sizeable gaps are also seen in comparatively more affordable suburbs like West Ryde, Carlingford and Ashfield.

Domain’s figures also show that greater Sydney’s house median of about $1,538,000 is almost double the unit median of about $773,800. Five years ago, a typical house cost about 50 per cent more than a unit, but house values have soared since, while unit values have relatively declined.

KPMG urban economist Terry Rawnsley told Domain the biggest price gaps were in well located, often already dense areas, where blocks of land commanded the highest premiums, and apartments tended to be in older blocks.

He also said the gap was smallest, but still sizeable, in outer suburbs and regions where apartments tended to be larger, and newer and better located than median priced houses. It would be easiest to upsize in Riverstone, Terrigal and Marsden Park where houses were about 15 to 25 per cent more expensive than units, while house prices in Penrith and Campbelltown were about 45 per cent more expensive.

Finance for first-home buyers

Withdrawals from the Bank of Mum & Dad are showing up in some recent figures from the Commonwealth Bank of Australia. They show that the average first home buyer deposit rose by almost 50 per cent, from $108,400 at the start of 2020 to $159,000 in the first few months of 2023. CBA attributes this increase to funds from parents helping their children acquire a home.

The figures are from a report by the National Housing Finance and Investment Corporation (NHFIC) with the Commonwealth Bank. They also show that the average gross household income for first home buyers with the Commonwealth Bank in early 2023 was about $117,000 and the average purchase price was just under $629,000.

This becomes even more significant when PropTrack’s economic data found that Australian households on six-figure incomes can only afford around 13 per cent of homes on offer across the country, and it’s worse in Sydney where the median income can only afford seven per cent of homes currently on the market.

The Intergenerational Report released by Treasurer Jim Chalmers said the decline in home ownership across Australia has been most significant among younger age groups: “Home ownership fell by 18 percentage points from 1981 to 2021 for those aged between 30 and 34, and 17 percentage points for those aged 25 to 29,” the report says.

Saving a deposit is becoming a serious issue for many first-home buyers. Louis Christopher, the founder of SQM Research, said: “The average first-home buyer, even a couple, on the average household income, would likely take up to 10 years to save a $159,000 deposit,” he estimated.

Richard Whitten, home loans expert at comparison website Finder, says many first-home buyers cannot afford to save such large deposits: “Saving a deposit is a big barrier to getting a start on the housing market, particularly with the costs of almost everything, including rents, going up,

“Wage growth over the past few decades simply hasn’t kept up with skyrocketing property prices,” Whitten says.

A Finder survey of first home buyers found that 11 per cent had received financial help for the deposit, with the average help per person amounting to just over $56,000. Another 9 per cent said their parents were guarantors for their home loan and a further 12 per cent said they received financial assistance from their parents in other ways.

Help to Buy

A report by real estate analysts PropTrack has found housing affordability in Australia has hit a record low, with only 13 per cent of Australians that earn an average income being able to afford to buy a property. The report also concluded it's taking people longer to save for a deposit, finding the average Australian household would need to save 20 per cent of their income for more than five and a half years to buy a median-priced home. 

The Albanese Labor government recently announced details of its ‘Help to Buy’ scheme that lets those who qualify move into a home they intend to purchase with a 2 per cent deposit. It’s in fulfillment of a commitment given in the leadup to the 2022 election and gives people an "equity contribution" of up to 40 per cent of the cost of a new home, or 30 per cent for existing homes.

The bank loan component, therefore, will be 60 or 70 per cent of the purchase price. It’s what is also known as a shared equity scheme, where the government owns part of the equity in your home, which you repay over time, either when you sell it, or over the time you live in it.

The scheme will run for four years, beginning in 2024, and will eventually support 40,000 low- and middle-income families to secure a home of their own, whether it’s a house, unit or townhouse. There are, of course, conditions these buyers must meet, including having a minimum 2 per cent deposit and the ability to finance the remainder of the loan.

Other requirements include that the purchaser’s annual income must be $90,000 or less for individuals, or $120,000 or less for couples, and the purchase price caps in NSW are $950,000 in Sydney and regional cities, and $550,000 for the rest of the state. The scheme is also capped by location, so all the available places won’t be used in one area.

University of Sydney economics Professor Stephen Whelan says the scheme will only help a relatively small number of people, and these caps mean they’ll be forced to buy on the city’s fringes since Domain data shows the median house price in Sydney is $1,538,017.

“Caps in terms of the value of a home [mean] it’s not going to be in the desirable inner-city areas where prices are high and you have close access to amenities like transport, childcare and schools,” Whelan said.

Cameron Kusher, director of Economic Research at REA Group, commented: “"Taxpayer-wise, it is basically a free loan that is being given to help people get into the market."

"They only have to repay the equity on sale, with no rent component during the life of the loan," he added. "So there is a cost to the government for running the scheme, but I think it is a case of taxpayers taking one for the team to help those less fortunate in this high interest rate and high property price market," he said.

The government won’t charge any fees or interest, but it will retain a portion of the capital gain when the property is eventually sold, equivalent to the percentage of the initial purchase price when the property was first acquired.

All Australian states and territories agreed at the national cabinet meeting to pass legislation this year to enable the scheme to be implemented in early 2024. Help to Buy will only be available to residents in states and territories after they have passed legislation supporting the scheme. Places in the scheme will be allocated between states and territories on an equal per capita basis.

Since WA, NSW and Victoria already have shared equity schemes in place, and Queensland has a state Labor government with no upper chamber, and all jurisdictions have agreed to progress the legislation, there is unlikely to be any issues with getting all the necessary legislation passed.


Anglicare’s latest Rental Affordability Snapshot analysed 45,895 rental listings across the Australia and found that only 2.4 per cent of them were affordable for an ambulance worker, just 666 listings or 1.5 per cent were affordable for nurses, and a mere 504 listings or 1.1 per cent were affordable for aged care workers.

Over the time the study was conducted throughout 2018-21, Australia’s vacancy rate just 0.8 per cent of all homes. Since about one-third of all Australians rent their homes, stiff competition for any vacancy that arises is the usual case.

CoreLogic’s Rental Value Index showed that rents across Australia have risen at the fastest rate in the last fifteen years, topping ten per cent in late 2022 and early 2023 - above the 9.7 per cent rate in the GFC. Even more important is that the proportion of household income spent on housing is currently 55 per cent higher than it was in June 2005.

Domain’s figures show that asking rents across the capital cities rose 26.1 per cent for units over the year to June, well above the 3.6 per cent rise in the ABS wage price index over the 12-month period. Median asking rents for houses in the capitals rose by 11.5 per cent over the year, more than three times faster than wages.

Westpac senior economist Matthew Hassan told Domain that tenants faced a dire rental market caused by a shortage of housing.

“It’s a pretty nasty situation for renters, particularly those that are on low or fixed incomes, it’s a disaster,” he said. “There’s not many options available for people as well. It’s the pointy end of a pretty bad shortage of housing that we’re finding at the moment.”

“Across the capital cities [the vacancy rate is] sub 1 per cent,” he said. “We’re at what I call frictional vacancy rates, which only captures the properties that are vacant when people are moving across properties.”

The parallel cost of living crisis was exacerbating the issue, Hassan said, and the lower levels of building approvals and completions meant there was little hope of a supply side solution.

The Albanese government has given national cabinet a set of proposals intended to boost housing supply between 2024 and 2029 and at the same time improve renters’ rights. Under the proposed $3 billion New Home Bonus, states and territories would receive $15,000 in federal funding for every dwelling built above the earlier 1 million target, with the aim of adding another 200,000 dwellings.

Grattan’s economic policy program director Brendan Coates said if the plan was implemented in full, the 200,000 extra homes could reduce rents by 4 per cent, saving renters $8 billion by 2029. He also said that over the coming decade, the extra supply of dwellings would keep rents 8 per cent lower, which would save renters $32 billion.

There is a catch to the federal government’s funding that will dictate the location of much of any increase in housing supply produced by the plan. These new homes must be new “well-located” homes, which means “close to existing public transport connections, amenities and employment”.

As the Herald’s economist Ross Gittins describes it: “Well-located” is code for medium- and high-density housing. Most people want to live close to the centre of capital cities – or at least close to good public transport to the city – and economists now believe it’s council zoning restrictions on high-rise that’s done most to drive up home prices “where people want to live”.

But even if this means more high-rise structures close to the CBD, it might do something about the trends towards rental unaffordability in Sydney and regional capital cities. It might also encourage the premiers to reach a national agreement requiring landlords to have reasonable grounds for eviction, limiting rent increases to once a year, and phasing in minimum quality standards for rental properties.

Feeling stressed?

Kathryn Diss writing on ABC News notes that hundreds of thousands of households have already refinanced the fixed-rate home loans they acquired during the pandemic and another 450,000 of these low-interest rate loans will expire in 2024.

She tells us that Roy Morgan research found that as of July this year 1.5 million borrowers, or 29 per cent of all those with mortgages, were at risk of mortgage stress – a higher number than during the 2008 global financial crisis. The same research found that 1.5 million people, or almost a third of all mortgage holders, are spending 25 to 45 per cent of their household income on their home loan, making them considered ‘at risk’.

 The number of mortgage holders now considered “extremely at risk” of mortgage stress has also increased to just over one million. That represents more than 20 per cent of all mortgage holders, significantly above the long-term average over the last 15 years of 15.4 per cent, and the highest for more than 15 years since July 2008.

To be considered “extremely at risk”, mortgage holders have to pay a certain portion of their income on interest repayments alone.

Property entrepreneur Mark Bouris leaves no doubt about his feelings toward the conditions he foresees as hundreds of thousands of households have to refinance cheap fixed-rate home loans to higher variable rates: “This means that families right across the country will see the rate on their mortgage go from around 1.9 to 2.5 per cent to between 6 and 7 per cent.

“To put that in monetary terms, the repayment on a $750,000 mortgage set at 2 per cent would balloon from $3180 a month to $4830 a month – an increase of more than 50 per cent overnight, assuming a new rate of 6 per cent,” he says.

Mr Bouris believes the consequences of the RBA’s string of interest rate hikes won’t be fully known until Christmas this year, when some homeowners are forced to sell their homes, adding more people to an already crowded rental market.

Ratings agency S&P tracks the number of households that have fallen behind in their mortgage repayments and found over the past year it has increased in every state and territory. In NSW, Sydney's south-west that extends from Greendale in the west to Liverpool in the east recorded the highest arrears rate in the state at 2.49 per cent.

Other parts of Sydney including Blacktown, the Blue Mountains, Southern Highlands and Shoalhaven were also falling behind with an arrears rate currently around 1.8 per cent.

S&P Global Ratings analyst Erin Kitson told the ABC that even when the percentage of households missing mortgage repayments is low, it is a lagging indicator: "We certainly expect arrears to continue to rise and in terms of how long and so forth, ultimately that will depend on where interest rates head and where they finally peak. 

“At this point we expect arrears to continue to increase into the first half of next year, but really importantly when it comes to arrears, the employment story is key. Low unemployment is helping to temper arrears; we certainly haven't seen mortgage arrears peak yet, there are further arrears increases ahead of us."

Roy Morgan Research predicted that if the RBA increased interest rates by 0.25 per cent in September 2023, 81,000 more mortgage holders would be considered at risk. An increase in October would put another 108,000 mortgage holders at risk, up to a potential total of over 1.6 million.

The Roy Morgan CEO, Michele Levine, said the increases in mortgage stress were “substantial” and that any increases in unemployment, the largest factor in a household’s ability to pay the mortgage, would make things worse.

Five (maybe) fast-tracked suburbs

With the previous NSW government’s determination to build thousands of new homes, five suburbs were identified for fast-tracking of large developments as part of the Rezoning Pathways Pilot. The Pilot project intends to fast-track five developments and create about 5,800 new homes, with 30 per cent set aside for social and affordable housing. 

Projects in Schofields and Glenmore Park are among the five selected areas. Land is also to be rezoned in Warrawong in the Illawarra, Kanwal in the Central Coast and Wagga Wagga in the Riverina. No inner-city proposals have been selected under the pilot program.

"The industry-nominated state-assessed planning proposals were selected based on strict criteria outlined at the launch of the program," a Department of Planning and Environment spokesperson said, hoping to counter attacks by local councils saying the program prioritised developer interests over their communities.

Peak industry association, Local Government NSW (LGNSW), an advocacy group representing councils, said that it hoped the state government would honour its commitments to work with its members.

"Councils have to work and want to work with the state government and developers to get these projects going," President Darriea Turley said. "But you've got to understand what the local issues are and you can't override it by playing bullying tactics."

Urban Taskforce Australia, the group advocating developer interests, described the result of the pilot program as a wasted opportunity: "We are very disappointed in the extremely small number of successful projects," chief executive Tom Forrest said." All in all, the [State Assessed Planning Proposal] pathway was an expensive waste of time which actually delayed housing supply for far more than it will deliver."

The outcomes of the Rezoning Pathways Pilot are now under consideration by the Minns government and because they don’t seem in alignment with the aims of this government to “build up, not out”, it’s questionable the Pilot’s recommendations will eventually be adopted.

Premier Minns said in early September he was open to an idea proposed by lobby group Housing Now for what is called “pattern book” housing that would allow thirty Sydney suburbs to be transformed into ‘Surry Hills-type’ suburbs by adding higher density houses and medium-rise apartment buildings.

“We’re not going to deal with the housing crisis in NSW unless we get more construction going, more completions done,” Minns said.

“And part of that means that you have to have at times difficult conversations with communities about more density.”


‘Only five cities worldwide are more unaffordable than Sydney for housing, thinktank says,’ Tamsin Rose, The Guardian, 9 September 2023
‘Knock down a few, build one: in NSW that counts as a gain for councils’ housing targets,’ Tamsin Rose and Elias Visontay, The Guardian, 10 September
‘Australian property prices defy expectations as strong housing demand prevails and investors want out,’ Thierry Ng, The Property Tribune, 6 September 2023
‘Australian households on six-figure incomes can now only afford 13% of homes,’ Graham Readfearn, The Guardian, 2 September 2023
‘Australian rents are rising at the fastest rate since the GFC – and from a higher base,’ Josh Nicholas, The Guardian, 2 September 2023
‘NSW premier open to ‘pattern-book’ housing across Sydney as solution for crisis,’ Catie McLeod, The Guardian, 5 September 2023
‘The RBA’s interest rate-rising looks done – and a soft landing for the economy could be on,’ Peter Hannam, The Guardian, 6 September 2023
‘Housing affordability at lowest level in 30 years, data shows,’ Isabella Podwinski, ABC News online, 2 September 2023
‘House price recovery picks up speed with sixth straight monthly increase, as property shortage continues to squeeze market,’ Kate Ainsworth, ABC News online, 2 September 2023
‘We shouldn’t wait any longer’: Why Sydneysiders are selling their homes now,’ Kate Burke, Domain, 2 September 2023
‘Australian house prices reaccelerate in August,’ Leith van Onselen, Macrobusiness, 31 August 2023
‘A new way to avoid being the Bank of Mum and Dad? Sounds great in theory,’ Melissa Heagney-Bayliss, Domain, 31 August 2023
‘Which suburbs are recovering fastest from the downturn?,’ Maria Gil, Domain, 18 August 2023
‘Hot Sydney suburbs where home buyers can get in for less - with one compromise,’ Kate Burke, Domain, 19 August 2023
‘A disaster’: Unit rents rising more than seven times as fast as wages,’ Jim Malo, Domain, 24 August 2023
‘Why Albanese’s housing solution will help, but only a bit,’ Ross Gittins, Sydney Morning Herald, 22 August 2023
‘Record number of Australians at risk of mortgage stress as RBA interest rate rises bite,’ Mostafa Rachwani, The Guardian, 29 August 2023
‘Labor’s shared equity scheme aims to get eligible people approved for a home loan faster than they might have been without the government’s help,’ Amy Remeikis, The Guardian, 20 August 2023
‘How will the federal government's Help to Buy scheme work for people struggling to buy a house?,’Lexy Hamilton-Smith, ABC News online, 18 August 2023
‘Where landlords are selling up - and why,’ Lisa Calautti,, 18 August 2023
‘Why property investors are selling up,’ Leith van Onselen, Macrobusiness, 28 August 2023
‘Housing plan will save renters $32 billion over a decade: Grattan,’ Shane Wright, Sydney Morning Herald, 18 August 2023
‘First home deposit sizes soar as more parents step up,’ John Collett, Sydney Morning Herald, 30 August 2023
‘Banks’ background moves reveal when rates will really fall,’ Nicole Pedersen-McKinnon, Herald Money, 19 August 2023
‘Growing number of Australians in mortgage stress amid rise in home loan defaults,’ Kathryn Diss, ABC News online, 28 August 2023
‘Mark Bouris warns families will be ‘forced to sell their homes’ within months as mortgage cliff erupts,’ Mark Bouris,, 18 August 2023
‘Essential workers, including health staff, unable to afford basics like rent, data shows,’ Isabel McMillan,, 14 August 2023
‘NSW government reveals five suburbs where thousands of homes will be fast-tracked,’ Tony Ibrahim, ABC News online, 16 July 2023