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The Sydney regions which have reached their price peak - featured image
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The Sydney regions which have reached their price peak

Soaring house prices in New South Wales in recent years have provided homeowners and investors with the quickest and sharpest equity boost in history.

A year ago, house prices were rising 46 times the current pace, and at the same time unit prices were also increasing – this indicates that Sydney’s steepest upswing on record has ended, swinging power back towards buyers.

Sydney house prices rose 40% from the trough in June 2020 through to March 2022, providing the steepest upswing on record, Domain’s inaugural NSW Spotlight report reveals.

Chart01

That’s an enormous increase in a very short period of time and equates to a $708 daily increase throughout the pandemic.

Usually, in an upswing, we’d see greater rates of house price growth over a longer period of time.

But the report also reveals that there are signs of reprieve for buyers on the horizon, with Sydney’s price growth rate experiencing one of the most significant slowdowns of all capital cities, due to flattened house prices and declining unit prices.

Syd

Sydney’s housing market is now technically entering into a downturn with many market indicators weakening despite overall house prices pushing marginally higher during the first quarter of 2022.

And the report explains that as per historical standards, the premium price-point is leading the price cycle direction as 6.5% was shaved from house prices over the first quarter of 2022.

The report says:

“It’s clearly evident in the most expensive areas of Sydney with the median house price falling 8.5% in the Eastern Suburbs since its peak in June-2021, and it was the first Sydney region to hit a price peak.”

Chart02

This has wiped $315,000 off of the median house price but this is still nothing compared to the $927,000 gained in the 12 months leading up to its price peak.

And it’s not just the Eastern Suburbs which has reached their peak or started falling from it.

Sutherland, Ryde, and Parramatta all also reached their house price peak in December last year, having since fallen 5.5%, 4.9%, and 4.25 respectively.

The City & Inner South and Northern Beaches also look to have peaked in December 2021, falling 2% and 0.5% respectively since.

Meanwhile, the data shows that house prices have peaked in Baulkham Hills & Hawkesbury, Blacktown, Central Coast, Inner South West, Inner West, North Sydney & Hornsby, Outer South West, Outer West & Blue Mountains, and the South-West regions.

Prices have peaked, now what?

The last significant downturn was during 2017-19 when Sydney house prices fell 13.8% from peak to trough, Domain’s NSW Spotlight Report points out.

Interest rates weren’t rising at the time but it became harder to get a loan and less credit was available for borrowers.

But this time around things are different - interest rates are rising, putting pressure on housing affordability at a time when the cost of living is soaring.

The report explains:

“The speed and scale at which Sydney prices soften depend upon many factors, however the downturn will be largely shaped by how high and quickly interest rates go up, and how high inflation reaches.”

And although interest rates are important, they are not the only factor influencing housing prices.

Tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand all play their part.

And the higher level of debt in the current market means that the RBA won’t need to increase rates as much as it has in the past in order to cool inflation.

Sydney

The bottom line

While timing the property market is important to some extent, it is definitely not the key to investment success.

There’s a saying in property circles that goes:

“When was the best time to buy property?

20 years ago!

When is the second best time – today!”

In other words, whether prices have peaked or not, you buy when you can afford to and when you are ready to.

It’s important to recognise that times like this create tremendous opportunities, a window of opportunity is opening up now that smart property buyers can take advantage of.

Now is the time to buy quality assets and remember there are markets within markets – “A-grade” properties are likely to hold their values well.

A few more tips:

  • Be prepared to take a borderless approach to find quality properties and don’t do it alone.
  • Be prepared to invest in your future and pay for strategic property and buying advice but be careful to ensure your advisors and independent, unbiased, and paid only by you.
  • Make all your decisions based on numbers and facts and in line with a long-term strategic property plan, rather than based on emotion.

Your Plan should contain the following components:

  • An asset accumulation strategy
  • A manufacturing capital growth strategy
  • A rental growth strategy
  • An asset protection and tax minimisation strategy
  • A finance strategy including long-term debt reduction and…
  • A living off your property portfolio strategy

Why not let our team at Metropole help you build this plan – find out more here.

About Kate Forbes is the National Director of Property Strategy at Metropole. She has 22 years of investment experience in financial markets on two continents, is qualified in multiple disciplines, and is also a Chartered Financial Analyst (CFA).
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