Sydney Inner West - Autumn 2023 Property Update

This quarter has been quite the eye-opener within the Sydney real estate market, with a major shift in buyer sentiment. Buyers outweigh sellers dramatically, as people weren’t selling while rates were on the move and budgets were critically impacted. Those that chose to sell faced the difficulty of buying back into the same market where there was no stock. On the back of all of this, a rental crisis developed the likes of which we have not seen before.

Sub $1.5m in the Inner West went completely crazy. The First Home Buyers Scheme introduced by the government whereby first home buyers under the value of $1.5m don’t have to pay stamp duty up front, instead paying a yearly tax at a much lower rate, was a game changer. This became a massive incentive for buyers that weren’t necessarily ready financially to up their timeline. This presented an opportunity for vendors, and in the Inner West there were easily 20 houses that sold for $1.5m on the nose that were valued at between $1.3m-$1.4m. With the change of government confirming that this stamp duty rebate will be abolished, if these buyers decide to sell in the next year or two they will likely be in a lot of pain as their properties drop $100k.

Then there is the inevitable impact of interest rates. Homeowners with mortgages taken on within the last 7-8 years, bar the past 6-12 months, have never before experienced rates above 1.5-2%. The past two years we entered a phase where buyers borrowed beyond their capacity to enter a booming market at a 2% rate. They will soon face 5-7% mortgage rates. With close to $400b worth of fixed rates coming off this year, people are going to start hurting.

So many indicators point towards prices coming back, with so much mortgage stress and general financial upheaval, but it strangely has not translated. People have been waiting for a price dive that has never come, and it now appears that the opposite has begun to occur. Based on 600-700 properties selling across NSW, clearance rates for the past few weeks have been circa 70%. Houses are selling well above their price guides and reserves, properties are selling at or before auction, and first open homes are attracting 30-40 groups waiting to get through. Buyers have adjusted their mindset to suit the conditions. Those that were buying $3m homes previously were now purchasing $2.5m homes, and those that were buying $2.5m were now acquiring $2m homes.

The Inner West has gentrified, with its working-class population getting younger and rising earning capacities as it grows as a highly desirable location. With the current market primarily consisting of the $1.5m buyers taking advantage of the current government subsidy, and the $2.5m+ premium market largely unaffected by financial market fluctuations, the area remains strong. Joseph Karam from Cobden Hayson added, “Inner West has always been the area of opportunity, with Dulwich Hill, Hurlstone Park and Earlwood particularly showing great value at the moment. There is definitely a boost of confidence and this is evident through our inspection numbers, auction registrations, pre-auction offers and overall end results”.

While a pullback in homes for sale definitely created conditions for low stock levels and increased competition, buyer concern about further rates hikes and cuts to borrowing power injected an unexpected sense of urgency that saw prices soar well above their guide. Before this quarter there was great trepidation surrounding spending, suddenly in a complete about-face buyers were snapping up whatever they could get their hands on. FOMO may have been an intense driving force through the Covid property boom, but held zero influence over the market as recently as last quarter. This quarter it was definitely back, in a massive change that in no way fit the broader financial climate.

In this unusual climate with imminent changes in interest rates and fixed rates still to come, only time will tell which way the market will unfold. Whether or not the impact of buyers affordability and mortgage stress results in people coming to market and selling quickly to clear their debt. Added to this, the predicted influx of approximately 100k people coming back into the country within the next two years, creating housing shortages both in rentals and for purchase. With so much hesitation surrounding the market, confidence has come back. We’ve already got more buyers than sellers, as this selling pool of properties becomes even less diluted we will see FOMO worsen once again. In the meantime, the market will likely continue tracking as it is on the back of low stock levels keeping prices up.