sydney opera house during sunset

Sydney’s Blue-Chip Property Continues To Hold Up

After six months of price declines across Sydney, the signs are now starting to look a lot more promising, particularly in the upper end of the property market.

The latest data from CoreLogic shows that over the month of February, property prices in Sydney increased by 0.3 per cent. This is on the back of values falling 13.4 per cent on an annual basis. 

Sydney has been the best-performed capital city market over the past few months and was the only location to see values increase in February.

Notably, the growth has been most evident in the upper end of the market, which is something that I have been talking about right the way through the latest cycle.

According to CoreLogic, Sydney’s upper quartile recorded a 0.7 per cent rise in values over the month, compared with a 0.2 per cent fall in values across the lower quartile of the market. 

Upper-quartile housing values have led the downturn to date, dropping 13.5 per cent in value across the combined capital cities over the past 12 months, compared with a 1.7 per cent rise in values across the lower quartile. Previous cycles have seen a similar trend, where the upper quartile tends to lead both the upswing and the downturn.

Graph of Australian dwelling values
   Source: CoreLogic

The main driver of the increase in the upper end of the market has most likely been because of the low stock levels. In most areas, stock levels are still quite depressed and that has been creating a lot of competition among buyers.

There’s still been very strong competition for properties at the ultra-high-end of the market as there has been all the way along. That’s not likely to change anytime soon. There are also a lot of people who are looking for a home in that $2-3 million price bracket and they are still struggling to find anything and if they do, they are forced to pay up for it.

On top of that, there is also the possibility that some of the smart money is starting to look at the possibility of interest rate hikes coming to an end. We’ve already seen the Bank of Canada begin to slow things down and they have a very similar resource-based economy to Australia.

At the same time, interest rate markets have quickly wound back their expectations for further interest rate increases in the US, on the back of the collapse of Silicon Valley Bank and the subsequent risk to the banking sector.

Locally, interest rate markets have also been reducing the odds of more rate hikes, but the latest job figures that showed another 64,000 jobs added last month and record-low unemployment, might still give the RBA enough room for another hike.

Personally, I wouldn’t be surprised if the RBA kept rates on hold next month and we then see a peak of 3.85% before mid-year.

However, there is still pressure on house prices, particularly in light of the high number of fixed-rate loans that are set to roll off in the coming months. Even with a pause from the RBA, there will still be a large portion of borrowers who will be getting hit with interest rates that are 2-3 times what they are currently paying.

That said, I think that the next three months are likely to give us all the information we need to see how things are going to go for the next 18 months.

I still firmly believe that the following six months are going to be a pretty good time to buy into the Sydney market if your asset choice is well-researched and managed.

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