Sydney property FOMO is back as house prices boom $77,000 in three months
Sydney’s property market has picked up pace, with house prices jumping $77,626 in the three months to June despite the fastest interest rate hiking cycle in a generation.
Sydney’s median house price reached $1,538,017 after it rose 5.3 per cent in the June quarter, four times faster than the previous quarter, Domain’s latest House Price Report, released on Thursday, showed.
That figure is just 3.4 per cent below the price peak of March 2022 as the city’s property market has now recouped about two-thirds of the value lost during last year’s downturn.
Unrelenting demand from buyers competing for the few homes for sale and trying to escape the ultra-tight rental market, as well as stronger-than-expected immigration, drove the surprise growth.
Some buyers are cashed up and less sensitive to rising rates such as first-timers who have help from the bank of mum and dad or government schemes, or older homeowners who have built up equity in their homes. Upgraders looking for more space to work from home also drove demand.
But the bullish run is not expected to last for the remainder of the year as experts say homeowners are beginning to feel the impact of fast-rising rates, more homes are coming to market and fewer are selling at auction.
The median unit price also rose 2.6 per cent in the June quarter to $773,752, double the rate of growth of the March quarter.
It comes as inflation eased to 6 per cent in the June quarter, reducing the chance the Reserve Bank will need to lift the cash rate much higher.
Domain chief of research and economics Dr Nicola Powell said the growth, which has been underpinned by the lack of homes for sale, would not continue at this pace.
“When you see a 5.3 per cent quarterly growth, it rings a boom time scenario. That pace of growth will slow down. It’s not sustainable against the backdrop of affordability, against the backdrop of rate hikes and new supply increasing,” Powell said.
“Headwinds are there, but it has been overshadowed by positive impacts such as undersupply [of homes] and population growth. Affordability issues are still there, servicing debt, these are all heavy weights on the housing market,” she said.
AMP chief economist Dr Shane Oliver said there was another round of fear of missing out when prices did not cool off as expected.
“The demand and supply balance has overwhelmed the negative impact of still rising interest rates,” Oliver said. “We’ve got a very tight rental market, we have immigration levels double what they were projected in the budget late last year. There was all the talk about supply shortage that led to another round of FOMO.
“I suspect a lot of buyers have been able to rely on the bank of mum and dad.”
But he said there were significant headwinds ahead.
“We’re yet to see the fallout of the fixed rate roll-off. As we go through the next year, unemployment will rise and there will be more distressed selling. Clearance rates seem to be slowing down a little bit and we’ve also seen an unseasonable rise in listings,” he said.
Pina Panebianco and her family sold their apartment and moved back in with family in the hopes of upgrading and already have a real fear of missing out.
Pina Panebianco is hoping to buy a house as an investment while her family lives at her in-laws in the meantime.Credit: Flavio Brancaleone.
“We are looking to invest purely because we won’t be able to afford straight up to move in, just to help with the repayments,” Panebianco said. “We’re going to rent it out to knock off some of the mortgage [and move in] when it’s affordable.”
Panebianco has been looking to invest in suburbs like Gladesville in the Ryde region where house prices have jumped 6.9 per cent to a median of $2.3 million.
“It’s tricky, the good houses are still holding … there are not many bargains around at the moment,” she said. “We don’t want things to get out of control, and we don’t want to miss that boat.“
But Westpac senior economist Matthew Hassan questioned the longevity of Sydney’s property market rally.
“This rally has really short legs and will be difficult to sustain,” he said. “The big test will be as we see more sellers come into the market. It will test the depth of the demand from buyers, and see if people can continue to stretch to afford a [more expensive] house.”
Hassan said he believed Sydney’s price rally would peter out and prices moderate as more houses hit the market.
BresicWhitney chief executive and auctioneer Thomas McGlynn said conditions have already shifted on the ground with more listings expected to hit the market.
“There definitely has been a change. We’ve listed three times more property this year than the same period last year [of June and July].”