Sydney real estate, interest rates, why home prices won’t crash

The pieces of the puzzle of a challenging real estate market are slowly falling into place in favor of worried homeowners.

Declining stock levels are likely to put a floor under falling property prices during the current correction phase.

The turnover will shrink, as many prospective sellers will simply sit out the deteriorating market, waiting for the inevitable return of boomtime prices.

Despite the mortgage pain worsening, the winter hibernation has already been triggering a seasonal reduction in auction listings. Sydney started July with 750 weekly scheduled offerings. This week sees 650 auctions, according to PropTrack.

And by August it likely dips to below 600.

The traditional winter supply levels are likely to take a bigger hit this year given the heightened exodus of holidaymakers overseas.

Of course buyers will drop off too, and have less to spend given rate rises, but any dissipation in their enthusiasm won’t be as dramatic as that from sellers who can turn nonchalant after just one bad auction result in the neighborhood.

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Although A grade offerings continue to sell very well, the sentiment slump can be seen in the overall decline in clearance rates, and recent high levels of withdrawals.

Yes, there will be distressed listings, but many will be mopped up by investors, who will come out of the stock market and from low deposit banks, into property.

Still up 29.6 percent since the pandemic began, Sydney prices have only eased during the past three months to be 1.5 percent softer, according to PropTrack. Meanwhile, forecasts of further declines have been approaching scary, but not permanent levels.

Out in front NAB forecasts Sydney prices to fall 8.8 percent this year and 13.4 percent next year. The ANZ’s modeling suggests a 20 percent drop. The CBA expects an 11 percent fall this year and 7 percent next year. With the lowest figure, Westpac forecast a 3 percent dip this year; 9 percent in 2023 and 2 percent in 2024.

Westpac however has noted Sydney was “more sensitive to rate hikes due to stretched affordability.”

The RBA, which currently says house price direction is not its focus, only has the one tightening lever, and it hits all capital cities.

Just because Sydney prices likely won’t fall too far by year’s end doesn’t mean things won’t get problematic amid the reduction in listings and sales.

It will hurt estate agencies, mortgage brokerages, the big banks, furniture retailers, pest inspection businesses, removalists, florists and even sales of Aesop bathroom products given they regularly appear in home marketing photography.

With the unemployment rate at 50 year lows, and some households having built up financial buffers with an extra $250 billion saved, the circumstances of this property downturn are unlike any past events.

Then throw in the pandemic induced inflationary supply issues and the world energy crisis into the 2022 mix.

Hopefully Sydney gets through without anything like a recession.

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Originally published as Sydney real estate: why home prices won’t crash

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