A monthly values slip but still a quarterly rise

Sydney’s median house price has reached a record $1.65 million, but there has also been a noteworthy slowdown in growth rates in the latest quarter as high interest rates and affordability pressures take their toll. 

Data from CoreLogic found Sydney house values dropped by 0.1 per cent in October. This was the first monthly fall since the start of 2023. CoreLogic also showed there were 13.7 per cent more homes for sale in Sydney in October than the five-year average.

However, the latest Domain House Price Report shows the median house price rose for the seventh consecutive quarter, increasing 0.6 per cent – or about $9000 – in the September quarter. The pace of growth halved from the previous quarter, marking the weakest performance since the decline in December 2022.

Despite the drop, the median value of a Sydney home – including houses and units, remains at a solid $1.48 million, up 3.9 per cent over the past year. The northern beaches led the way, recording the strongest house price growth, up 4.1 per cent to a median $2,665,000 in the three months to September.

Sydney’s median unit price rose 0.9 per cent – or $7000 – in the same period, reaching $815,258. The city’s median unit price is $6500 higher than the previous peak recorded in December 2021.

Unit growth was driven by some of the more affordable pockets of the city. Sydney’s outer south-west topped the chart, jumping 12.5 per cent to a median $587,500 in the September quarter.

AMP chief economist Dr Shane Oliver told Domain that higher interest rates had begun to make what he called “a material impact” on Sydney property prices.

“Higher interest rates have begun to drag on the market as the price growth has hastened. Part of the housing market has been pushed into units. If rates stay higher, it’s quite conceivable that Sydney house prices could dip into negative territory,” Oliver said. “There’s a pick-up in listings. It’s more than the spring bounce. It looks like there’s a bit of distressed selling occurring.”

Even when the interest rate cuts we’re waiting for finally arrive, they may not mean lasting relief for first-home buyers. The ABC’s economist Ian Verrender says housing affordability has already reached an all-time low and history tells us that cheaper housing finance will only help push up the cost of housing even higher.

“There's no doubt the economy is slowing and it is inevitable that Australian interest rates will be cut — it is simply a question of when,” says Mr Verrender.

“Once the RBA does cut, housing loan repayments will drop, which will make it marginally cheaper to borrow and hence temporarily improve affordability. Unfortunately, that could be enough to lure in more buyers, which will push prices higher and smash any hopes first home buyers may have — unless, of course, they have parents willing to stump up an early inheritance.”

Mr Verrender says would-be homebuyers face a ‘brutal’ combination of factors that include wage growth lagging behind inflation, the costs of borrowing soaring, and the hammering now being felt by household disposable incomes.

He points out how the rate hikes of 2022 and 2023 initially caused housing prices to fall, bur then again rose sharply as population growth outpaced housing supply. Even with the rate cuts we expect to come, as we’re not building enough dwellings real estate is likely to continue rising. 


Data from the Australian Bureau of Statistics show average mortgages continue to climb. The average mortgage in NSW reached $779,239 in September, an increase of 3 per cent or $22,418 over the past year. 

Seeing spikes

In a housing market as diverse as Sydney there are bound to be some suburbs that rise (or fall) in price more than others.  Over the year to September, Sydney’s biggest rise was in Gymea in the Sutherland Shire, where the median house price soared 29 per cent to a median $1.6 million. Other notable risers included popular suburbs Glebe (up 22.3 per cent to $2.69 million) and Coogee (up 20.1 per cent to $4.19 million).

In some western Sydney suburbs including Cabramatta, Fairfield, Claremont Meadows, Rosemeadow and Wentworthville prices spiked by more than 20 per cent. These suburbs all have a median house price of $1.2 million or less.

Domain chief of research and economics Dr Nicola Powell said the faster price growth in cheaper Sydney suburbs highlighted the growing demand for affordable options as the cash rate stays higher for longer and homebuyers face increasing cost-of-living pressure.

“It showcases the pressure Sydneysiders are under in terms of trying to find something affordable. They’re going to those outer areas with reduced borrowing capacity,” she said. “Some of those affordable areas might not even see a dip in price because of their affordability. Affordable areas are highly sought-after, they’re competitive; people want their own home.”

Some of the suburbs that didn’t make the list of top achievers included Vaucluse (down 12.8 per cent to a median $7.5 million), Surry Hills (down 8.2 per cent to $2.1 million), Cronulla (down 6.7 per cent to $2.8 million) and Woollahra (down 4.1 per cent to $4,075,000).

Anthony Landahl, managing director of Sydney-based Equilibria Finance, said rising interest rates had reduced the amount of money buyers could borrow by up to 40 per cent. This in turn affected the type of property and location they could consider:

“Previously, if someone was borrowing $800,000, they might now only be able to borrow $500,000 or $600,000,” Landahl said.  “This was all while there was a growing market. The cost of houses was going up, and the amount people could borrow was falling.”

“Buyers are changing the type of property they are able to purchase; they’re looking at a townhouse or a unit instead of a house,” Landahl said. “Buyers might be looking at different areas, they might be trying to upgrade from a unit to a house and the gap is too big in terms of prices, so they have to look three, or four, or five suburbs away or even further away,” he said.

“The price gap between houses and units has really widened and that’s making the challenge of upgrading in the same area even more difficult.”

Research conducted by Great Southern Bank found that 64 per cent of Australian homebuyers would choose an apartment in order to afford to live in their preferred location. Families were most likely to compromise on a standalone dwelling to buy in their preferred location (72 per cent), followed by first home buyers (65 per cent) and downsizers (55 per cent).

The McGrath Report 2025 has looked at trends pointing into next year and picked the markets expected to perform well, noting that higher interest rates and a lack of supply is driving Australian homebuyers into areas and property types they can better afford to acquire and live in.

CEO John McGrath nominated the neighbouring suburbs of Summer Hill and Dulwich Hill as his top picks in Sydney, saying that the inner west is getting “groovier”, while it also benefits from better access to the CBD via the light rail.

Where to for prices?

The Financial Review’s Bonnie Campbell foresees Sydney prices falling as auction clearance rates slide and values flatline, giving the upper hand to buyers after a busy spring sales period. 

She says that in one week in late October early clearance rates slumped from 70.5 per cent the week before to 64.5 per cent, prompting CoreLogic’s Tim Lawless to say the Sydney property market was experiencing a slow decline rather than a precipitous drop.

“A fade is the best description,” he said. “It’s not like clearance rates are tumbling.”

Ms Campbell also quoted SQM Research’s Louis Christopher who said the weak results indicated Sydney prices would follow clearance rates on a downward trajectory. He said high spring volumes – with more than 3076 properties sent to auction over a recent week – combined with consumer uncertainty were driving the tapering clearance rates.

“At the start of this year there was a great expectation interest rates will be cut – they were not cut and there is still a lot of uncertainty about when that will happen,” Mr Christopher said. “We still have a fundamental underlying shortness of supply,” he said, “but we do think the market is now falling.”

Gains in the first half of the year had been wiped in the Sydney market, he said: “We’ve been recording falls from August. Sydney property prices will be slightly down for the full year and could decline by 5 per cent before a rate cut hits.”

The Herald’s Shane Wright says that a slowdown in population growth and a jump in properties on the market finally put the brakes on ever-increasing prices as was demonstrated by the recent monthly fall in Sydney house values.

“It was the first monthly fall in Sydney house values since the start of 2023. Despite the drop, the median value of a Sydney home remains out of the reach of most at $1.48 million, up 3.9 per cent over the past year,” he wrote.

Domain’s quarterly House Price Report shows house prices nationally posted their weakest growth since March 2023.

“The overarching narrative for the quarter reflects a slowdown in the aggressive price increases witnessed over the past two years, a trend evident across most cities,” says Domain chief of research and economics Dr Nicola Powell. “That momentum loss means the brakes are on.

“This deceleration can be attributed to affordability constraints. As prices continue to climb, the buyer pool becomes increasingly limited. As purchasing power diminishes, buyers find it more challenging to remain competitive, leading to a further slowdown in activity.”

But the weak outcome has not yet equated to falling prices in most capital cities. While the rate of house price growth has weakened, many cities have still hit new price records and the national median house price is now $1,155,683.

Buy well to sell well

A recent analysis of sales struck in the June quarter shows that owning a property for a substantial period of time isn't always the way ensure a profit when it’s eventually sold. The Herald’s Shona Hendley outlined the way this counter-intuitive finding was developed:

“Among sales struck in the June quarter, profit-making resales had a median hold period of 8.9 years, CoreLogic research shows, while vendors who made a loss held on to their properties for a median 8.0 years – only slightly less.

“For units, ‘hold period’ made little difference. Unit resellers who made money owned their properties for a median 8.7 years, while unit resellers who lost money held them for 8.5 years.”

Naturally, although some short-term owners were caught by rising interest rates, properties also risked losing value if they were of low quality or if they were owned by an investor who may be less affected by selling at a loss than an owner-occupier.

“Even so, property owners who held for decades were more likely to make more money. The median gain by those who flipped in two years or less was $100,000, while those who held for more than three decades made almost $800,000,” she said.

“Longer-term housing values have trended higher over time because of population increase outstripping the development of new homes, and I think just generally Australian housing being a pretty attractive investment over time has helped to push prices higher.

“Long term, you are likely to get better returns from houses rather than units based on my data – there’s probably going to be more volatility in unit prices,” she concluded.

Age impacts

Younger Australians are finding it harder to purchase property than it was for their elders, as shown by statistics from the 2023 Intergenerational Report compiled by the Australian Treasury. These numbers tell us that in 1981 around 55 per cent of Australians aged 25 to 29 owned a home. In 2023 this percentage had fallen to just 35 per cent.

First home buyers are getting older. Data from mortgage broker Lendi shows over the past four years, the proportion of first-home buyers over 37 years old, increased 16 per cent.

At the other end of the age spectrum, ABC News reports that more people are facing their retirement years with mortgage debt, according to census data. Over the past 20 years, the number of Australians aged 55 to 64 who owned their homes outright had almost halved.

A survey by Digital Finance Analytics found about three-quarters of retirees with a mortgage owe more than they have in superannuation. The trend is expected to continue, as the age of first home buyers is on the rise, which experts warn could see more people use their superannuation to pay down their home loans and rely on the age pension.

Interestingly, for those aged more than 70 years the proportion of Australians owning their home is about the same now as it was in 1981. This is largely because those now over 70 mostly bought property in the 1980s and 1990s, when it was relatively affordable and the huge boom in real estate hadn’t yet got underway.

Workers exit Sydney

One consequence of Sydney’s rising housing prices over the past decade is that millions of workers have found themselves financially worse off, causing a flight of key employees from the city. The average mortgage has reached a new high, having climbed by $43,000 over the past 12 months, and research from independent think tank e61 shows that young people, particularly those in their 30s, are being priced out of the nation’s largest cities.

The Herald’s Shane Wright says that if it weren’t for immigration Sydney would be de-populating as a result of the exodus of workers, including truck drivers, childcare workers, doctors and accountants:

“Compared to those in regional areas, city-based workers enjoy what e61 describes as an ‘urban wage premium’ worth about $8000 annually. A common phenomenon around the world, this boost to the wages of city residents is due to a range of factors including the productivity benefits of people with high skills living in major centres.

“The higher wages help deal with the higher costs that many city residents face, such as housing. But e61, using long-term data on individuals’ incomes and their homes, has revealed the wage benefit of living in Australia’s largest cities has now been overwhelmed by the lift in prices, forcing vital workers out of Sydney and Melbourne,” he wrote.

“Research by e61 found that industrial workers, such as truck drivers and labourers, have been the worst hit. Their average wages were already $1000 a year lower than their regional counterparts, but after the surge in house prices, they are now $10,000 worse off every year.

“Low-paid workers in the care and service sectors have also been hard hit by climbing house prices. These people earn on average $2620 more in capital cities but after housing costs are taken into account, they are $8250 worse off every year.”

Construction sector crunch

Sydney now has a growing construction bottleneck with the number of new homes that have been approved but not started reaching a five-year high. This backlog of unstarted dwellings rose by 18 per cent to more than 12,000 in the year to June. Analysis by KPMG shows that nearly 10,000 of these stalled homes are townhouses and apartments.

Elevated construction costs, labour shortages, higher interest rates and business insolvencies have all hindered starts, and KPMG urban economist Terry Rawnsley says the high number of apartments approved but not started underscores the financial challenges facing high-density developments in Sydney.

“The construction sector crunch in NSW has been more acute than any other state, driven largely by construction costs increases and rising interest rates,” he said.

“The Sydney market is much more geared towards higher density housing, but that’s the sector where many major developments don’t stack up at the moment,” Rawnsley said. “So we’ve got this pool of zombie projects just waiting.”

He noted that Sydney has much more multi-unit housing than the other Australian capital cities with 45 per cent of dwellings being townhouses or apartments, compared with about 30 per cent in Melbourne.

Although the Minns government has introduced a range of changes to the planning system, including high-density development zones in designated transport precincts, NSW continues to lag the rest of the nation in the number of new homes green-lighted by councils and planning decision-makers.

In June, NSW recorded the lowest number of new housing approvals since January 2013.

Adding to the problem is that only 45 per cent of the 895 development applications for Sydney projects with at least 19 new dwellings approved in 2021 and 2022 have received a construction certificate –needed before building can commence.

Meanwhile, in the 12 months to June, the state recorded only five new dwellings completed per 1000 people – the lowest rate in the country and well below what is required to meet ambitious National Housing Accord targets.

Not helping is the cost of building a new home surging 41 per cent to $465,000 in the four years to December 2023, analysis by Oxford Economics Australia found. In the same period, land costs jumped 34 per cent to $410,000.

The cost of building a typical new home grew 1 per cent in the September quarter – up from 0.5 per cent in the previous quarter and the strongest three-month growth since December 2022, CoreLogic’s latest Cordell Construction Cost Index found.

Oxford Economics head of property and building forecasting Timothy Hibbert said home building costs were not expected to fall back to pre-pandemic levels despite price growth cooling in the past year.

“When prices of land and build costs for houses go up, they will hold where they are,” Hibbert said. “It typically never happens that prices of materials or labour costs fall, especially when inflation in the broader economy is still present.

“There was a huge surge in demand for land at the time of the pandemic, and supply was limited with subdivisions being held back, shortages of workers to level the land and put in infrastructure, and more notice being taken of flood zones and biological concerns.

Another serious problem is that the supply of tradespeople, architects and other building professionals will fail to meet projected demand well into the 2030s, a major building report has found.

Build Skills Australia – a jobs and skills council established by Labor to address workforce planning and training needs – has released its workforce plan, which warns that the government’s ambitious housing target of 1.2 million new homes over five years will face supply constraints.

The report estimates that next year’s building-sector labour demand will be more than 2 million workers, but there will be supply shortfall of almost 200,000.

By 2030, the report predicts, the sector will need 2.44 million workers to satisfy demand, but fall short by 370,000 workers. By 2035, the gap will still be significant, at 267,000 workers.

Compounding the steep increase in construction costs was also the blow-out in delivery times – up by as much as 140 per cent in the four years to December 2023.

The Urban Development Institute of Australia estimates annual apartment starts in NSW are now 72 per cent lower than at the last peak in 2016.

Figures from the Australian Bureau of Statistics suggest a lift in new housing supply could be on its way if the construction bottleneck can be removed. Approvals for private homes rose by 4.4 per cent in September to their highest level since August 2022.

Over the past year, approvals for houses have grown by 16.7 per cent. Approvals for units increased by 4.7 per cent during the month but are down 12.2 per cent over the past 12 months.

Sources:

‘Downward pressure’: Sydney suburbs where home owners are selling now,’ Kristy Johnson, Sydney Morning Herald, 12 November 2024
‘How nearly 50,000 homes are getting stuck in Sydney’s planning pipeline,’ Max Maddison, Sydney Morning Herald, 12 November 2024
‘Asking for too much’: More property owners are failing to sell,’ Tawar Razaghi, Domain, 7 November 2024
‘Australia is getting serious about the housing crisis,’ John Kehoe, Financial Review, 24 October 2024
‘Auction market hardens amid flood of listings,’ Macrobusiness, Leith van Onselen, 21 October 2024
‘Australian home prices hit record high during spring rush but Sydney records small slip,’ Cait Kelly, 1 November 2024
‘Decade-long shortfall of tradies tipped to undermine nation’s housing push,’ Olivia Ireland, Sydney Morning Herald, 2 November 2024
‘Downsizing the Australian dream: why families are trading houses with backyards for apartments,’ Benita Kolovos, The Guardian, 4 November 2024
‘House prices are still rising, but CoreLogic data shows the property market is cooling off,’ Kate Ainsworth, ABC News online, 1 November 2024
‘Aussie suburbs set to boom in 2025,’ Tim McIntyre, News.com.au, 22 October 2024
‘Minns weighs new powers to bypass councils on major housing approvals,’ Michael McGowan, Sydney Morning Herald, 19 October 2024
‘More Australians are reaching retirement with a mortgage as first home buyers get older,’ Rachel Clayton, ABC News online, 24 October 2024
‘New home build costs may be moderating, but they won’t fall back to pre-pandemic prices,’ Sue Williams, Sydney Morning Herald, 16 October 2024 ‘Price growth across Australia stalls: some cities drop in house prices, others still rising,’ Maria Gil, Domain, 29 October 2024
‘Priced out and fleeing to the regions: House prices hitting capitals,’ Shane Wright, Sydney Morning Herald, 4 November 2024
‘So owning a home long term is always lucrative? It’s not,’ Shona Hendley, Sydney Morning Herald, 22 October 2024
‘Sydney house prices drop for first time in almost two years,’ Shane Wright, Sydney Morning Herald, 1 November 2024
‘Sydney house prices set to fall as clearance rates drop,’ Bonnie Campbell, Financial Review, 28 October 2024
‘Sydney suburbs where house prices rose – and fell – most,’ Kristy Johnson and Elizabeth Redman, Domain, 3 November 2024
‘The charts that reveal the extent of Sydney’s construction bottleneck,’ Matt Wade, Sydney Morning Herald, 22 October 2024
‘When the RBA cuts interest rates, housing affordability relief may only be temporary for first home buyers, Ian Verrender, ABC News online, 15 October 2024