The Sydney property market has seen rapid growth over the past decade, with median house prices more than doubling from 2012 to 2022. However, there are signs that the market may be turning, leading some to speculate that Sydney is headed for a housing crash.
Factors Suggesting a Price Correction
Several factors indicate the potential for a cooldown or possible correction in Sydney property prices:
Rising Interest Rates
Interest rates are on an upward trajectory, making mortgages more expensive. The RBA has increased the cash rate substantially in 2022 and further hikes are expected in 2023. This reduces borrowing power for home buyers.
Affordability Stretched
After the rapid price gains, Sydney has become one of the least affordable markets globally. Prices are now over 9 times median household income. This pressures demand.
Oversupply Risks
A surge of new unit developments and record levels of construction activity have increased supply significantly. If demand softens, oversupply issues could emerge.
Investor Exodus
With poor rental yields and falling prices, investors may look to sell out. This would increase supply if owner-occupiers do not take their place.
Factors Supporting Prices
However, there are still factors suggesting resilience in Sydney prices:
Strong Population Growth
Sydney continues to see high population growth from immigration and natural increase. This supports housing demand.
Historically Low Interest Rates
Despite recent hikes, rates remain near all-time lows by historical standards. Mortgages are still affordable for most.
Limited Stock for Sale
Inventory remains low, with total listings down 30% from the prior year. This limits choice for buyers.
Strong Economy
Low unemployment and rising wages support household budgets and serviceability. This helps cushion any downturn.
2023 Outlook
Given the crosscurrents, a moderate price decline of 5-10% is possible for Sydney in 2023 as higher rates cool demand. However, a major crash is unlikely without a trigger like rising unemployment. Prices should hold up but further growth will be limited. The market will likely flatten out as affordability constraints bite.
Key Takeaways
- Rising rates and weakening affordability point to a cooldown in Sydney’s housing market.
- A major crash is unlikely but price growth will moderate significantly from the rapid gains of recent years.
- Oversupply risks remain contained and economic fundamentals still support the market.
- Expect a flattening in prices rather than a sharp downturn over 2023.
