Wed, 27 Apr 2022


As we’ve seen, 2021 was quite a year for Australian house prices. The Australian Bureau of Statistics (ABS) released its year end residential property prices report which shows that Australia’s residential property prices surged 23.7 per cent and the total value of Australia’s 10.8 million homes grew by $2 trillion to $9.9 trillion last year. 

The report also shows that Sydney house prices were up by an amazing 32.9 per cent and Sydney unit prices up by 15.5 per cent over the calendar year, and the price rise in just the last quarter of 2021 for a home in New South Wales was $47,700.

At the peak of the pandemic-inspired property boom, most Sydney homes were selling at auction for prices well above their reserves. Buyers were plentiful and stock on offer was limited. But now we’re seeing clearance rates at lower figures and prices aren’t rising skywards as they were six months ago.

The property market views a clearance rate of 70 per cent as an indication of a balance between buyers and sellers. Recent weeks have seen clearance rates fall into the 60’s and stay there, so on that measure the latest boom is well and truly over and buyers are back in the competition.

Nicola Powell, Domain’s chief of research and economics, said that these declines in clearance rates show the market is returning to normal: “Clearance rates are definitely showing we’re edging into a normal or more even playing ground when you pair that with an influx of listings. The market is normalising from those crazy conditions of last year,” Dr Powell told Domain.

Damien Cooley, auctioneer and managing director of Cooley Auctions, says that more homes are selling prior to auction, and the average price achieved in March is now $60,000 over reserve: “That’s an indication that vendors are a little bit more realistic about their reserves and are willing to meet the market,” Mr Cooley said. 

“In February, the average price over reserve was $23,000. That tells me more properties were selling under reserves, vendors’ expectations were high and buyers weren’t willing to pay those expectations.”

Another trend showing up in market statistics is that the median time on market for houses is up more than two thirds year-on-year in many parts of Sydney, although apartments in most regions are now selling faster year-on-year as investor activity rises and those who’ve been priced out of the detached housing market seek better value.

Sydney wide, houses took a median of 30 days to sell over summer, up from 26 days the previous year, while apartments sold in 35 days, ten days faster than a year earlier, data from property analysts CoreLogic shows.

Another sign that Australia’s property boom is ending comes from a slight fall in Sydney house values for the second consecutive month detected by CoreLogic whose March home value index shows that prices in Sydney fell by 0.2 per cent after a 0.1 per cent drop in February, and the growth rates for Sydney and Melbourne in the March quarter were lagging behind the other capital cities.

"It does look like the boom is over in both of those cities," CoreLogic’s research director, Tim Lawless, told the ABC. “In fact, we are now seeing those markets either right at the top of their cycle and about to start to move into a consistent downturn, or potentially already moving into a downturn.

"We are seeing less demand in the market but, of course, there [are] other factors around rising interest rates. Affordability is still very challenging in both of those cities as well."
Commonwealth Bank head of Australian economics Gareth Aird said prices had simply reached a point to where buyer’s budgets couldn’t stretch: “The evidence is pretty clear. Prices have peaked in the two biggest capital cities. Affordability has become stretched because prices have gone up so much. There is a limit to how high they can go,” he said.

“You can’t continue to grow indefinitely and that affordability picture has kicked in earlier in Sydney and Melbourne.”

Domain data shows that more than one in ten homes in the NSW capital have been sold at a discounted price because of changes in the property market that have made it a more level playing field. Figures from Domain released in late March shows the average proportion of listings where sellers discounted the price in Sydney jumped from 5.9 per cent in July, during the city’s second major lock down, to 10.5 per cent in February once the property market returned to normal operation.

Predictions for the future

The Nobel-prizewinning Danish physicist, Niels Bohr, gave us one of the most meaningful statements ever made about predictions: “Prediction is very difficult, especially if it’s about the future.” Predicting the Sydney property market is always difficult, proving Dr Bohr’s point, but we still give it a try and sometimes even get it right.

So, let’s look at a few predictions from market-watchers who can reflect on the recent property boom and tell us what they think will happen in the coming years. First, we hear from one of our favourite economists, Shane Oliver, Chief Economist at AMP Capital who says that the sharp rises in house prices in the past two years combined with higher interest rates will make it difficult for values to double again within the next decade.

“If you’ve bought in the midst of the pandemic, or in 2017 after the market peaked, you’ve already seen a sharp rise in prices, so even if they come back by 10 per cent during this downturn, there’s a greater chance you’ll see a doubling in value within a 10-year horizon,” Dr Oliver told the Australian Financial Review’s Nila Sweeny.

“But if you bought just recently, it’s going to be a bit harder because you’re starting from a much higher level with prices being up by 25 per cent compared to the pandemic low point. When you buy high, it takes longer to get a doubling in prices.”

Nerida Conisbee, Ray White chief economist, said current Sydney buyers in particular were unlikely to see a doubling in value over the next decade because of slower growth: “We know that we are in for probably at least 12 months of fairly flat price growth, so it is perhaps less likely to double your money now than if you bought in April 2020, so timing is a big factor,” she said.

Tim Lawless, CoreLogic’s research director, shares this opinion and says: “During the previous growth cycle that ran between early 2012 and mid-2017, Sydney housing values increased by roughly 75 per cent, but it was not until August last year that Sydney housing values had recorded growth of at least 100 per cent,” he said.

“In other words, it took approximately 9.6 years across two growth cycles for Sydney housing values to double. Arguably, achieving a doubling of housing values in already expensive markets like Sydney will take a longer time than the average historically.”

Data scientist Kent Lardner, director of NSW-based research firm Suburbtrends, says affordability is the key driver for a large sector of the housing market: “With interest rate rises expected in the coming months, it is hard to see double-digit annual growth being the norm in the coming years,” he said. 

“Select markets will still have solid growth, but higher interest rates may drive a ‘soft landing’ for most markets with flat or marginal growth rates in the coming years.”

Westpac senior economist Matthew Hassan said the fall in values in Sydney and Melbourne indicated these markets were responding to changed lending conditions, vendors’ high price expectations, and an increase in the number of properties on offer: “The wider housing market will move into a correction phase later this year,” Mr Hassan said.

“The correction will continue in 2023 and 2024,” he added, saying the drop in values will spread to other capital cities once they also become too expensive for buyers.

And for a recent forecast that makes a prediction about the rest of 2022, CoreLogic's head of Australian research Eliza Owen says it is likely property prices will start to decline later this year: "Arguably, there are more headwinds than tailwinds now stacked against continued growth in the property market, with the potential for sooner-than-expected cash rate increases, affordability constraints and weakening consumer sentiment slowing demand," she told Gareth Hutchens of ABC News.

"While some structural shifts through the pandemic, such as remote work, may sustain demand in regional Australia long term, it is likely that housing values will start to decline on a fairly broad basis later this year."

Even the RBA is getting into the act with a somewhat surprising forecast of its own. The Bank said in April that, if there were no major economic shocks, a 2 percentage point increase in interest rates could lower real housing prices by 15 per cent over a two-year period.

Help for first-home buyers

About one-third of all households in NSW are occupied by tenants who rent the property in which they live. With rents rising at nearly ten per cent annually, and with house prices slowing from their previous frenetic pace, first-home buyers are once again thinking about purchasing a home rather than renting one.

But it has become extremely challenging for first-home buyers to save a deposit in the rising market, according to Domain’s chief of research and economics Nicola Powell: “First-home buyers are facing a growing financial hurdle when it comes to saving a deposit, and this is becoming more daunting in the context of rising living costs, low wage growth, weak saving rates and the rapid rise in property prices,” Dr Powell said. 

ANZ senior economist Felicity Emmett says that, with home values rising almost ten times faster than wages last year, there has been a material lift in the time taken to save for a deposit: “[Dwelling] prices have gone up so much it would take a really significant decline in prices or an enormous increase in incomes to bring those sorts of ratios, in terms of deposit affordability, back to something close to the long-run average,” she said.

Both the NSW and federal governments have introduced schemes intended to help first-home buyers fulfil their dreams of home ownership. There’s the First Home Loan Deposit Scheme (FHLDS) that allows first-time buyers to put down a deposit of just 5 per cent which still has places available if applied for before 30 June.

There’s also the Family Home Guarantee (FHG) that has already helped more than 2300 single parents to buy a home. Under the FHG, the government acts as guarantor for the mortgage, with a limit of $800,000 on the cost of the home. This means that buyers only need a deposit of 5 per cent instead of the usual 20 per cent required to avoid expensive lenders’ mortgage insurance. 5,000 FHG places per year will allow eligible single parents to put down a deposit of just two per cent.

Then there’s the First Home Super Saver Scheme (FHSS) that permits first-home buyers to save money for a deposit via their superannuation. From July 1, the amount that can be held inside super for a home purchase under the FHSS will rise to $50,000, from $30,000, on the proviso that the amount of super contributions that can be applied to a home deposit is capped at $15,000 per annum.

And there’s the New Home Guarantee (NHG), which was allocated 10,000 places for use before June 30. It was designed to stimulate housing construction and allows first-home buyers to secure a mortgage with a deposit of 5 per cent, providing they are buying a newly built dwelling.

Finally, the federal government has included in its 2022-23 budget a new scheme to be established called the Regional Home Guarantee (RHG) that will encourage more construction outside of capital cities. It will be available to first home buyers, to people who have not owned a property in the past five years, and who are permanent residents, which the government intends will encourage migrants to settle in regional areas. Applicants must either build or purchase a newly built home and there will be 10,000 places per year available from October 1.

Michelle May, of Michelle May Buyers Agents, said that in these times it’s not unusual for first-home buyers to get help when they finally make their purchase: “The increase in pay is lagging far behind the increase in house prices, you can’t make that kind of money at the rate at which house prices have gone up,” Ms May said.

She told the Herald’s Kate Burke that compromising on their desired property type or location, or sometimes both, was the key for first-home buyers, and many first-home buyers relied on financial support from their parents.

“About 30 to 40 per cent [of my first-home buyer clients] get help in some capacity, whether that is cash money or via a guarantor loan … or where my services have been paid for by the bank of mum and dad,” she said.

What affordability?

Not long ago, in June 2020, first-home buyer activity began to surge following the introduction of the federal government's HomeBuilder scheme, as well as with various state-based grants and stamp duty concessions. However, after peaking in January 2021 first-home buyer activity quickly diminished. This fall in activity was a reflection of high barriers to entry as skyrocketing house prices substantially outpaced incomes.

Demographia World Urban Areas is the only regularly published worldwide compendium of urban population, land area and density data of urban areas with populations of 500,000 or more. The 2022 edition of Demographia’s ‘International Housing Affordability’ report revealed that Sydney was the second least affordable city in the world in which to buy a house, with the median price 15 times more than the average household income in 2021.

Data from Domain confirms that incomes have not kept pace with house price rises. Domain’s figures show that Sydney has seen its median house price jump by 33.1 per cent over 2021. More significant is that even if house prices were to fall by ten to fifteen per cent over the next 18 months they would still be at historically high levels.

A recent federal government inquiry into housing affordability and supply in Australia, chaired by Liberal MP for Mackellar Jason Falinski, has recommended increasing the supply of new homes to improve housing affordability. The inquiry’s findings included that a young couple on the average income who could save 20 per cent of their after-tax earnings towards an entry-level house in Sydney would need to save for more than eight years just to accumulate a deposit.

Another finding was that falling rates of home ownership risk deepening divisions in our society and could increase the burden on taxpayers to support retired renters who cash out their super, buy a modest home, then draw the age pension. 

Grattan Institute economic policy program director Brendan Coates backed the supply side recommendations, saying that that building an extra 50,000 homes a year for a decade could result in house prices and rents being up to 20 per cent lower than they would have been otherwise: “The work showing supply is a problem is pretty robust,” he said. “It’s arguably the biggest constraint on housing affordability.”

But not everyone agrees with the inquiry’s conclusions. “While there are things that can usefully be done in that area, trying to solve the housing affordability problem solely from the supply side is like being in a boxing match with one hand tied behind your back,” Saul Eslake, the principal of Corinna Economic Advisory said.

“Government policies which have served to inflate demand have also contributed to the deterioration in housing affordability [by stimulating prices] and the decline in home ownership.”

The Australia Institute’s senior economist, Matt Grudnoff, says there are two ways to make housing more affordable: “You can decrease demand or increase supply. Giving more money to first-home buyers increases demand, meaning they can borrow more, they will show up to the auction with more money and the price goes higher. It shuffles around who gets to buy a house but ultimately increases the price of housing.”

Developers have their own ideas about how to solve the problems of home affordability. Property Council of Australia president David Harrison said there was a perception higher density was driven by “greedy developers” but “more and more, both sides of politics are understanding that we are in tune with voters”.

Mr Harrison, who is also chief executive of property investment group Charter Hall, said the “bloody simple” thing governments could do to improve housing affordability was to boost supply by rezoning more land for residential development: “Governments also need to get fair dinkum about where our people want to live. They’re not all wanting to live in the outer suburbs ... so we are going to need more medium density,” he said.

Mr Harrison told the Herald that the younger “device generation” wanted medium density, inner-city living, as did most migrants who would soon start arriving in Australia again now that borders have reopened.

Interest rates – latest

Inflation is a global problem. The central banks of most of the world’s economies have responded to inflationary surges by raising their prime interest rates. The US Federal Reserve has announced that it will raise interest rates by 25 basis points, with fixed mortgaged costs in the US now exceeding four per cent. The Bank of England, anticipating inflation of ten per cent this year, has raised rates to 0.75 per cent. These rates seem miniscule when compared to Turkey’s interest rate of 14 per cent and Brazil’s 10.75 per cent.

Crikey’s columnist Adam Schwab writes that our own Reserve Bank of Australia (RBA) hasn’t yet responded to the inflationary forces within Australia, keeping interest rates at an all-time low of 0.10 per cent at its April meeting: “This is despite near record-low unemployment levels and the inflation genie being well out the bottle, given existing demand-side pressures coupled with supply shortages caused by Russia’s invasion of Ukraine.”

After eleven years without an interest rate rise, an increase in Australia’s prime rate is certainly on the cards. In his statement after the bank’s April meeting, RBA governor Philip Lowe said the bank would now focus on new data on inflation and labour costs that would provide “important additional evidence” to the board over the coming months.

“Higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters, with an updated set of forecasts to be published in May,” Dr Lowe said. 

Any major moves by the RBA aren’t likely to be made just before the upcoming May 21 federal election, so it looks as if June will be the month when around one million mortgage holders who’ve never experienced a rate rise will start looking for some extra funds as they deal with higher repayments. Fixed-rate mortgage interest rates have already been rising since November and both NAB and ANZ raised their fixed rates by 0.4 percentage points at the end of March.

Brodie Haupt, co-founder and chief executive of digital lending and payments provider WLTH, predicts that the first rate increase will see the cash rate go up from 0.10 per cent to 0.25 per cent and then to a maximum of 1.25 per cent by mid-2023: “We’re seeing wages rising in construction and the tech sector because of shortages of skills, and then those will spread slowly to the rest of the economy,” he told Domain’s Sue Williams. 

Westpac’s chief economist Bill Evans has his own schedule for five rate rises before the end of 2022: "Now we expect a much shorter tightening cycle with consecutive rate hikes in June (15 basis points); July (25bps); and August (25bps). Further hikes are now expected in October (25bps) and November (25bps) reaching 1.25 per cent by year's end."

In October 2009, when the RBA raised the cash rate from 3 to 3.25 per cent, the average owner-occupier mortgage in Sydney wase $359,000 in Sydney.  In February this year the average home loan for all borrowers in NSW is $804,675.

There’s no agreement among economists in Australia’s major banking institutions about just how high the cash rate will go before it tops out. The Commonwealth Bank and UBS think the cash rate will stop rising when it gets to around 1.25 or 1.5 per cent; ANZ's economists, see the cash rate going to 2 per cent by the end of 2023, possibly above 3 per cent sometime thereafter; and Westpac expects the cash rate to peak around 2 per cent before the end of 2023.

Australia’s financial markets are currently pricing in a cash rate of 1.75 per cent by the end of this year, and a rate of 3 per cent by August next year. A rise in the RBA’s prime rate of 1.75 per cent would increase the repayments on a current $800,000 mortgage by almost $1400 a month, or $16,800 a year.

While a year ago you could get a three-year fixed rate loan at about 2 per cent, now it’s more like 3.7 per cent. Perhaps not surprisingly, the total borrowed by owner-occupiers for home loans eased in February to $32.3 billion, down from January’s record high of $33.5 billion, according to ABS figures.

In the RBA’s April statement, RBA governor Philip Lowe issued a note of caution for borrowers: "With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers." The first experience of a rate rise for millions of Australians is most likely on its way.


‘The difference a year makes: Last year’s property market versus this year’s market,’ Ellen Lutton, Domain, 12 April 2022
‘Rate rise could wipe 15 per cent from home prices: RBA,’ Shane Wright, Sydney Morning Herald, 10 April 2022
‘Foreign investment in Australian homes falls to 15-year low,’ Lucy Macken, Sydney Morning Herald, 8 April 2022
‘When will interest rates rise and how high will they go? Westpac the latest bank to tip June lift-off,’ Michael Janda, ABC News online, 8 April 2022
‘Reserve bank rate hike will hit recent home buyers, hospitality industry,’ Rachel Clun, Sydney Morning Herald, 6 April 2022
‘Patient wait is over: RBA prepares for a June rate rise,’ Shane Wright and Rachel Clun, Sydney Morning Herald, 5 April 2022
‘April interest rate announcement: RBA holds rates as experts predict post election hike,’ Sue Williams, Domain, 5 April 2022
‘With inflation back, the rest of the world is hiking up interest rates. Why not Australia?,’ Adam Schwab, Crikey, 4 April 2022
‘Why are property prices falling sooner than expected?,’ Tawar Razaghi, Domain, 4 April 2022
‘Sydney entry-level house prices soar, widening the deposit gap,’ Tawar Razaghi, Domain, 3 April 2022
‘Rising mortgage interest rates, cost of living pressure will flatten home prices: economists,’ Rachel Clun, Sydney Morning Herald, 2 April 2022
‘Perfect storm’ for apartments as vacancies plummet and borders reopen, Michael Koziol, Sydney Morning Herald, 1 April 2022
‘Soft auction clearance rates offer homebuyer relief,’ Sarah Webb, Domain, 29 March 2022
‘First home buyers to receive help in federal budget, more money for roads and car parks to be announced,’ Stephanie Borys, ABC News online, 28 March 2022
‘One in 10 Sydney homes for sale in February were discounts,’ Tawar Razaghi, Domain, 21 March 2022
‘Property market continues to cool as clearance rates soften,’ Sarah Webb, Sydney Morning Herald, 21 March 2022
‘Massive sign that property market is finally slowing down,’ Alex Turner-Cohen,, 22 March 2022
‘Sydney first-home buyers need more than eight years to save a house deposit,’ Kate Burke and Elizabeth Redman, Domain, 23 March 2022
‘Act urgently now’: Why sky-high house prices are a problem for everyone,’ Elizabeth Redman, Domain, 26 March 2022
‘Here's how Australia's housing market was reshaped by the pandemic,’ Gareth Hutchens, ABC News online, 25 March 2022
‘Sydney, Melbourne among top five least affordable cities to buy a home,’ Melissa Heagney, Domain, 17 March 2022
‘Interest rate rise threatens Australia’s booming housing market,’ Nick Fildes, Australian Financial Review, 25 March 2022
‘Property boom over in Sydney and Melbourne — but prices still rising elsewhere,’ Emilia Terzon and Samuel Yang, ABC News online, 1 April 2022
‘House values unlikely to double in the next 10 years,’ Nila Sweeny, Australian Financial Review, 17 March 2022
‘Still plenty of incentives to become a first-home buyer,’ John Collett, Sydney Morning Herald, 15 March 2022
‘Australia records strongest yearly growth in home prices,’ Rachel Clun, Sydney Morning Herald, 15 March 2022
‘Property prices heading for ‘break even’ point as clearance rates fall,’ Tawar Razaghi, Domain, 15 March 2022

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