Market comment: UP UP & AWAY

Tue, 31 Oct 2023

Market comment: UP UP & AWAYSydney’s property rebound surges ahead as more rises forecast

The rebound in housing prices across Australia has brought joy to homeowners but caused some problems for newly-installed RBA governor Michele Bullock. Along with the $336 billion resurgence in prices calculated by the Australian Bureau of Statistics has come more threats of inflation, and that’s been a driver of cash rate increases in previous months when the Bank raised its prime rate as a counter-inflationary measure.

However, this month at its October meeting the RBA kept the official interest rate at 4.1 per cent for the fourth straight month – a rate below that set by central banks in many other developed nations. Although the rate of inflation is still beyond what the Bank would like to see, the annual rate of growth for core inflation continued to slow a little and mortgage holders got a reprieve from any rate increase.

There’s more good news for property owners from CoreLogic statistics, and that’s because the month of September became the eighth consecutive month of increases in the values of houses and land, and the median house value of a house in Sydney rose one per cent to just under $1.4 million. Meanwhile, the median value of a unit in Sydney increased to $828,000 and is almost at its previous record high. 

18 Sydney suburbs have already reached their all-time high property prices. Glenhaven, Breakfast Point and Strathfield are three of the areas where values have already exceeded their boom-time prices with values expected to continue rising. 

The median dwelling value in Glenhaven is 4.7 per cent higher than its previous peak, while values are up 4.1 per cent in Breakfast Point and 3.3 per cent in Strathfield and North St Marys, according to CoreLogic data that includes houses and units.

Values in western and south-west suburbs like Dean Park, Pemulwuy, Punchbowl and Claymore reached new highs in September with each up at least 2 per cent on their previous peak. Rushcutters Bay, Pymble, Belfield, Burwood and Mortlake are among the others that have gone above their former highs.

CoreLogic’s head of research, Tim Lawless, said that nationally home values were just 1.3 per cent below the record reached in April last year, and that he thought a new record price will be reached by the end of November.

CoreLogic’s Eliza Owens said this was an unusual year:  "Through the start of 2023 values started to rise and that comes in spite of four rate rises through the start of the year. It's probably a reflection of the extraordinary mismatch of supply and demand in Australia's housing market."

The Daily Telegraph’s Fiona Killman commented on PropTrack’s figures from September showing Sydney’s prices have almost fully recovered from their 2022 downturn: “The latest rise has come despite more properties coming to market in the first few weeks of Spring, with buyer demand at an all-time high.

“PropTrack’s Home Price Index for September has revealed that Sydney home prices climbed for the 10th straight month…and are up more than 7 per cent from this time last year.”

PropTrack senior economist Eleanor Creagh told Ms Killman: “Prices are now up 7.43 per cent from their low point recorded in November 2022; the Northern Beaches, North Shore, southwest Sydney, Parramatta, inner west and the Eastern Suburbs led the way over the third quarter, with price growth over 2 per cent.

“Home price growth has been driven by record levels of net overseas migration, tight rental markets and a housing shortage. Looking ahead, interest rates have likely peaked and population growth is rebounding strongly. Together with a shortage of new home builds, prices are expected to rise,” she said.

PRD chief economist Dr Diaswati Mardiasmo told ABC News she too believes property prices will increase further: "Dwelling supply, especially for houses, has dwindled significantly," Dr Mardiasmo said.

"The number of loans issued for the construction or purchase of new homes are at their lowest since the GFC in 2008. This means that the supply of new houses is very little, and unless people are happy to switch from buying a house to an apartment, the competition for houses will continue to increase, and thus their prices.” 

Commonwealth Bank chief economist Stephen Halmarick told the Herald’s Kate Burke that he also expects Australian property prices to reach new highs next year, predicting an increase of seven per cent this year and another five per cent in 2024.

“It’s a simple matter of demand versus supply, we haven’t been building enough new residences, and we’re now in this post-COVID surge back in net migration,” he said.

“Even though mortgage payments as share of income are very high and likely to go higher, the demand and supply equation just keeps putting upward pressure on prices. By around this time next year [prices will be] back to an all-time high, the outlook beyond that depends on labour market... as well as the amount of supply coming on.”

A new report from accounting firm KPMG says house prices will surge over the next 18 months, due mostly to a shortage of supply while demand continues to grow. The details in the forecast show a national rise of 4.9 per cent, followed by an increase of 9.4 per cent in the year to June 2025.

And the anticipated surge will not be limited to suburbs near the CBD according to PropTrack senior economist Angus Moore: “Well-located suburbs with spacious properties have experienced strong growth recently with many home buyers valuing lifestyle factors over proximity to the CBDs of Australia’s largest capitals.

"One of the things we have seen throughout the pandemic is a bit of a premium placed on larger homes and homes close to amenities like beaches and national parks," he said.

While there were suburbs where prices grew by more than half a million dollars in every state except Tasmania and the Northern Territory, houses in suburbs in NSW made up more than half of those on the list.

Unit prices will also grow although at a slightly lower rate of 3.1 per cent by June 2024, then another six per cent in the next twelve months. The report also forecasts interest rate cuts by the next financial year.

But the latest news on interest rates indicates quite a lag before they actually begin to decline.  The Australian Financial Review surveyed 42 economists and only five predicted rate cuts will start moving down in 2024.

Late in 2022 the statistical midpoint of when these same economists thought rates might start to fall was February 2024. It then became May 2024 and is now August 2024. Half of these economists are forecasting another 0.25 per cent increase before the end of 2023 which would raise the official cash rate to 4.35 per cent.

Rent rises slowing

CoreLogic figures show that national rents are up by 8.4 per cent over the past year while rents for units in Sydney have increased by 14.3 per cent. Vacancy rates are down to one per cent across all capital cities, compared to a rate of over three per cent before the pandemic.

Vacancy rates fell to 1 per cent across all capitals, while in regional areas the vacancy rate dropped to a record low of 1.2 per cent. Before the pandemic, the long-term capital city vacancy rate was 3.1 per cent.

It’s interesting to note, however, that the pace of rent increases has slowed despite the record vacancy rate. Tim Lawless explains: “The slowdown in rental growth may seem counterintuitive at a time when vacancy rates are tightening. 

“However, this is probably a signal that rental affordability constraints are forcing a structural change in household formation as group rental households reform and renters seek to maximise their tenancies in an effort to spread rental costs across a larger household,” he told the Herald’s Shane Wright.

CoreLogic’s latest housing affordability report showed that the share of household income required to rent a median price dwelling rose to 31.4 per cent nationally in the June quarter, up from 30.8 per cent in the March quarter.

KPMG Chief Economist Brendan Rynne said he expects strong rent growth to continue: “Based on our projections for new dwelling completions and the Treasury’s population forecasts, we estimate that annual rent growth will be 5.6 per cent over the next two years – which is 2.5 per cent higher than the long-term average of 3.1 per cent”.

Some unit values go in reverse

Looking back over the past five years, Elizabeth Redman and Melissa Heagney-Bayliss from Domain found a few Sydney suburbs where unit prices have, as they put it, ‘lost ground’ and median prices are actually less than they were five years ago.

As you’d expect, these suburbs are mostly in neighbourhoods where the construction of new apartments has exceeded demand and this has put downward pressure on prices. In some other areas where sales of smaller, entry level units have dominated the calculations, average prices have been pulled down

Domain uses Rushcutters Bay as an example: “The steepest fall was in Rushcutters Bay, where the median unit price over the year to June was $690,000, down 19.4 per cent from five years earlier. The harbourfront neighbourhood includes a significant stock of smaller, studio or one-bedroom units, and their growth prospects can be limited.”

Richardson & Wrench Elizabeth Bay Potts Point’s Angelo Bouras said that Rushcutters Bay had a significant difference between the prices of studios and newer high-end residences: “A lot of those higher-end apartments have not been trading and what we’ve seen is a lot of turnover with the investor stock, circa $500,000, $700,000 – that’s been trading a lot more,” he said.

He added that about five years ago there were a significant number of transactions in higher-end new builds that boosted the suburb’s average price at that time. Newer unit stock built largely for investors sold for much lower prices.

Other areas that have seen median unit prices fall over the past five years included Chippendale (down 19.2 per cent, Blacktown (down 18.9 per cent), and Eastgardens, Harris Park, Eastwood, Rosehill, Wiley Park and Rosebery, all of which recorded falls of 16 per cent or more.

CoreLogic’s Pain and Gain report shows that about one in four sellers who had held their property for six years of longer in some of Sydney’s unit-heavy council areas made a loss on the sale of their property in the June quarter. The highest percentages of loss-making sales were in Strathfield (29.9 per cent), Parramatta (27.4 per cent) and Ryde (25.8 per cent). 

Quantify Strategic Insights principal Angie Zigomanis said higher interest rates and higher mortgage repayments were impacting prices at the more affordable end of the unit market, but that he expects unit prices to rise as houses become even more expensive: “I think to some extent there will be a pick-up in unit prices – people are being priced out of certain markets and they’ll look to a unit instead,” he told Domain.

Houses, meanwhile, fared pretty well while some units were struggling. In the June quarter, 97.8 per cent of Sydney house owners resold for a profit, making a median of $560,000. In comparison, 84.4 per cent of Sydney unit owners resold for a profit, making a median of $205,000.

Affordability challenges

Leith van Onselen, Chief Economist at the MB Fund and MB Super, has highlighted the challenges faced by homebuyers trying to buy a home and by those looking to rent one. 

He analysed figures from CoreLogic and found that the time necessary to save a 20 per cent deposit on the median priced home in Sydney in the September quarter has increased to 12.3 years, up from 11.8 years in the March quarter. He also found that the share of household income required to rent a median priced dwelling rose to 31.4 per cent nationally in the June quarter, up from 30.8 per cent in March.

Mr van Onselen quoted KPMG chief economist Brendan Rynne who forecasts strong property price and rental growth over the next 18 months, driven by strong levels of net overseas migration:

“The supply issue will combine with several other factors to push asset prices up – higher demand due to heavier migration, anticipated rate cuts moving into financial year 2025 and potentially relaxed lending conditions”.

“Based on our projections for new dwelling completions and the Treasury’s population forecasts, we estimate that annual rent growth will be 5.6 per cent over the next two years – which is 2.5 per cent higher than the long-term average of 3.1 per cent”.

An attempt to make housing more affordable was revealed in the latest NSW budget with Treasurer Daniel Mookhey incorporating measures to boost supply, provide aid to renters and additional support for first-home buyers.

Gone is the former government’s property tax scheme for first-home buyers which allowed them to pay an annual levy instead of what would have been stamp duty on the transaction. About 4800 housing purchasers had elected to pay the annual levy before the scheme ended.

Under the new Minns government’s reforms for properties priced between $650,000 to $800,000, more than 1000 first-home buyers have paid no stamp duty on their purchase, and 650 first-home buyers have had a stamp duty concession for homes between $800,000 and $1 million.

Mortgage cliff still there

The need to refinance low-interest loans made during the pandemic has stimulated a round of negotiations between homebuyers and their financial institutions that appears to have avoided the worst fears of those who foresaw a ‘mortgage cliff’ causing forced sales and putting unbearable pressures on mortgagees.

The latest RBA data shows that the majority of Australians have already moved from cheaper fixed-rate home loans to more expensive variable rates. About one million Australians are now paying a more expensive variable rate on their mortgages. 

Another 520,000 loans are expected to roll onto higher interest rates in the second half of 2023, followed by a further 450,000 loans in 2024 so the cliff’s not exactly behind us yet. However, the relative ease with which the first million mortgagees have transitioned to higher rates offers hope that the majority of remaining low-interest loans will be refinanced without forced sales or defaults.

"About 70 per cent of these borrowers have sufficient savings in their offset and redraw accounts to finance their cash flow shortfalls for at least six months, assuming interest rates remain around current levels," the RBA said.

"However, the remaining 30 per cent of these borrowers (or around 1.5 per cent of all variable-rate owner-occupier borrowers) are at risk of depleting their buffers within six months – and so are at higher risk of falling into arrears on their housing loan,” the Bank cautioned, saying these were mostly lower-income borrowers.

Meanwhile,’s Alex Turner-Cohen reports that secret RBA briefings have revealed a surge in the number of middle-class Australians on six-figure salaries seeking financial support. 

In July members of the RBA’s Financial Stability division met with representatives from the National Debt Helpline (NDH). Notes from the briefing, sent as a confidential internal memo to analysts at the Reserve Bank, revealed the NDH has seen a “significant increase in hardship requests” in recent months.

“The NDH is experiencing an increasing volume of calls from people who have not experienced financial hardship or drawn on social services previously. Many callers were gainfully employed. Examples were given of mortgagees on six figure salaries residing in prosperous suburbs of Sydney,” the memo reads.

"This new cohort of 'solid middle to upper income' callers was on top of the more familiar cohort at the lower end of the income distribution who had more often required (or been close to requiring) the help of financial counsellors and social service," the RBA email said.

Federal Treasurer Jim Chalmers said the success of the transitions to date was “welcome news” but acknowledged that many households were still facing a cost of living strain:  “We know that higher interest rates are putting pressure on family budgets, but this data shows that more people have transitioned off fixed rates in the last year than will in the year ahead and that’s welcome news,” Chalmers said.

EY chief economist Cherelle Murphy told the Herald’s Lisa Visinten that while many people were facing mortgage stress, households had also put record amounts into savings and offset accounts and redraw facilities during the pandemic era, which had served as a buffer against the hiking cycle when the pandemic had ended.

“They’ve been planning for it and they have been saving a lot during the Covid years, so they are in as good a position probably as they ever could have been to cope with [these] sharply higher repayments all at once,” she said.

Developers up to speed

NSW developers are hoping for rapid reform to the state’s planning systems to speed up building approvals and make it possible to put more dwellings in a given area – apartments, detached houses or medium density housing, all with the intention of meeting the national Housing Accord target of 378,000 new homes across the state.

This means NSW needs to construct 76,000 new homes each year for the next five years – twice as many as the state is forecast to deliver, and more than has ever been built, if this state is to meet the federal government’s housing target 

The Urban Development Institute of Australia (UDIA) chief executive Steve Mann said the scale of the challenge should determine the scope of the reforms necessary: “The NSW government has a short window of opportunity to deliver a comprehensive suite of policy initiatives that must start delivering change on the ground from next year if we are going to deliver 378,000 new homes in NSW by 2029,” he said.

He called for extending Transport Oriented Development – building high-density housing around new train stations across the city’s railway network as a way to boost supply and create greater connectivity in Sydney.

Urban Taskforce chief executive Tom Forrest said Victoria’s four-month approval time for developments is light years faster than in NSW and called on the NSW government to manage the currently extensive waiting times slowing the state’s planning system: “We have a housing supply crisis; we can’t afford to appease every local council or community group. The consequence of failure is people who will be unable to put a roof over their head.

“The government is saying all the right things. The planning system, though, gives too great an emphasis to residents who are too often ageing Boomers who don’t want to see change. That’s where boldness is required, and that’s where there is a bit of political risk,” he said.

Community or social housing is an area that’s especially concerning for governments across Australia. Scott Langford, chief executive of NSW’s largest community housing provider SGCH, believes the government is about to release a draft investment mandate giving the National Housing Finance and Investment Corporation (NHFIC) directions about the type and location of projects that can be funded.

Langford said the delay in getting the bills through federal parliament meant community housing providers, investors and the housing corporation have been able to do preparatory work and many projects are ready to go.

“We’ve got a series of projects we’d want to put forward in the initial rounds, which could support up to 570 homes, and we’ve got others that would support up to 1000 homes in 12 to 18 months,” he said.


‘Experts predict interest rates may not start to fall until 2025,’ Michelle Bowes,, 3 October 2023
‘RBA interest rates to be paused at 4.1%, economists predict for October meeting,’ Alex Turner-Cohen,, 3 October 2023
‘Reserve Bank to keep interest rates on hold but many more Australians to soon hit breaking point,’ Nassim Khadem, ABC News online, 3 October 2023
‘The 207 suburbs where house prices shot up $500,000 or more – is yours on the list?,’ Daniel Butkovich,,  5 October 2023
‘Property values are tipped to reach a new high. Here's how much prices have risen in each capital city,’ Hanan Dervisevic, ABC News online, 5 October 2023
‘The RBA is betting against the world on interest rates,’ John Kehoe, Australian Financial Review, 11 October 2023
‘More borrowers coming under financial stress as RBA issues grim six-month warning for group of mortgage holders,’ Daniel Jeffrey, Channel 9 News, 7 October 2023
‘Reserve Bank to keep interest rates on hold but many more Australians to soon hit breaking point,’ Nassim Khadem, ABC News online, 3 October 2023
‘RBA interest rates to be paused at 4.1%, economists predict for October meeting,’ Alex Turner-Cohen,, 3 October 2023
‘Australian housing affordability collapses,’ Leith van Onselen, Macrobusiness, 26 September 2023
‘House values almost back to peak, adding to RBA’s inflation fears,’ Shane Wright, Sydney Morning Herald, 2 October 2023
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‘Sydney home prices close in on surprising new peak’, Fiona Killman, Daily Telegraph, 1 October 2023
‘The Sydney suburbs where property prices have lost ground over five years,’ Elizabeth Redman and Melissa Heagney-Bayliss, Domain, 30 September 2023
‘The Sydney suburbs where owners are selling property at a loss,’ Tawar Razaghi, Domain, 21 September 2023
‘Housing affordability targeted in $13b budget makeover,’ Alexandra Smith and Matt Wade, Sydney Morning Herald, 19 September 2023
‘Australia passes the halfway point of the mortgage cliff. But the pain’s not over,’ Lisa Visentin, Sydney Morning Herald, 16 September 2023
‘Struggling to buy a home? This graph shows why you’re not alone,’ Jim Malo, Sydney Morning Herald, 20 September 2023
‘Aussie house prices ‘set to soar 15 per cent’: KPMG,’ Taylor Troeth, The Daily Telegraph, 27 September 2023