‘Storm clouds gathering’ for Sydney and Melbourne property markets

Melbourne house prices and Sydney apartment values eased at the end of the biggest boom year in three decades, prompting economists to warn a downswing has begun in these two major property markets.

Sydney house prices increased 0.4 per cent in December to a median $1,374,970, while apartment values declined 0.2 per cent to $835,104, data released by property research company CoreLogic shows. In Melbourne, house prices fell 0.2 per cent to a median $997,928 and apartment prices lifted 0.3 per cent to $627,047.

Home values have started to slip.Credit:Peter Rae

Property prices fell in Melbourne’s inner east and inner south, as well as Sydney’s city, inner south and eastern suburbs.

Despite the falls, Sydney and Melbourne median house prices finished the year 29.1 per cent and 18.1 per cent higher than they started, respectively. Median apartment prices increased 15.3 per cent in Sydney and 8.4 per cent in Melbourne over the past 12 months.

AMP Capital chief economist Shane Oliver said a “cyclical property downswing” was now under way. Dr Oliver forecasts national prices to rise 5 per cent in 2022, followed by a 5 to 10 per cent fall in 2023.

“Storm clouds are gathering for the property boom,” Dr Oliver said. “We expect a further slowing in national home price gains ahead of a peak and then price falls from later this year and in 2023.”

Buyers being priced out of the market, higher mortgage interest rates, a “50:50” chance of regulators stepping in more to slow borrowing and a rise in construction and listings along with zero immigration would be among the factors weighing on the market, he said.

“This is likely to mask a wide divergence though: Melbourne prices may have already peaked; Sydney prices are likely to peak by mid-year; but laggard cities like Brisbane and Adelaide and possibly Perth and Darwin … are likely to be relatively stronger this year.”

A resurgence in immigration after the federal election to make up for the coronavirus border lockdown could help push up prices in the longer term, but Dr Oliver said surging capital city markets would come under pressure in future due to rising mortgage rates and more people working from home.

CoreLogic research director Tim Lawless said a surge in properties listed for sale as the year ended helped take the heat out of the Sydney and Melbourne markets, in addition to affordability limits and people leaving the states during the pandemic.

“Cities where advertised stock levels are above average or close to normal, such as Melbourne and Sydney, have shown a more obvious slowdown relative to cities with persistently low advertised supply, like Brisbane and Adelaide,” Mr Lawless said.

“As stock levels normalise and affordability constraints along with tighter credit conditions drag down demand, it’s reasonable to expect growth conditions will be more subdued in 2022.”

The most expensive quarter of homes across all the capital cities increased 2.6 per cent over the final three months of the year, compared to 3.7 per cent at the bottom and middle of the market.

SQM Research managing director Louis Christopher said total listings nationally were down over the month though Sydney recorded an increase when adjusting for seasonality.

“Overall, there remains a shortage of listings at the national level. As a result, vendors are in no panic at this point. Indeed, they lifted their asking prices for the month,” Mr Christopher said. “Unless we have a surge in listings for the start of the property season in February it is looking like a very soft landing for the housing market in 2022.”

Canberra house prices increased 0.6 per cent in December to $1,015,900, with apartments up 2.1 per cent to $584,100. The strongest performer was Brisbane, where the median house price jumped 3.1 per cent to $782,967 and apartments appreciated 1.6 per cent to $386,420.

The regions surged again in December, with NSW houses up 2.5 per cent and Victoria up 1.7 per cent.

Propertyology head of research Simon Pressley said businesses struggling during the pandemic and the loss of people from Sydney and Melbourne to the country or interstate represented a “huge challenge ahead”.

“I’m absolutely certain that work-from-home is a permanent structural change and the pursuit of an idyllic regional lifestyle will accelerate indefinitely,” Mr Pressley said.

“Within Australia’s biggest cities, there will always be demand for apartments, but that demand it is now far less driven by the thirst for inner-city living and CBD jobs … Apartments are fast becoming the more affordable dwelling of last resort.”

CommSec chief economist Craig James said dwelling price growth would continue to moderate, rising 7 per cent next year on Commonwealth Bank forecasts and falling 10 per cent in 2023.

“A pick-up in listings, affordability constraints, rising fixed mortgage interest rates and new regulatory measures to tighten serviceability requirements for new mortgages are all conspiring to slow price momentum,” he said.

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