Rimas Veselis - 19 Jun, 2021

Meteoric property growth leads to Sydney house prices rising at record speeds

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Sydney house prices are continuing to shock buyers and sellers as the harbour city experiences record levels of property growth.

A combination of unlikely events has created the perfect storm for prices in the New South Wales capital to nearly double in shorter timeframes than ever, with some properties taking around five years to reach this well-known adage compared to the healthy 10 years of decades past.


According to Domain’s latest House Price Report, The Sydney suburbs that have experienced the largest price growth over the last year are in the highly sought-after North Shore, Manly, and Eastern Suburbs areas.

The median price in Mosman has increased an eye-watering $879,000 to be $4.38 million, while Northbridge on the lower north shore isn’t too far behind with an $875,000 increase. Riverview and Drummoyne also make the top five with 26.5% and 25.5% gains in just a year.

Let’s look at the factors causing Sydney suburbs to begin doubling in price faster than ever.

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Record Low Rates

The COVID-19 pandemic will have a lasting impact on Australia in many ways, including the real estate market.

When the Reserve Bank of Australia (RBA) lowered interest rates to a record low of 0.1%, borrowing costs also were significantly reduced.

The result: record low-interest rates that made borrowing cheaper than ever.

The “A Model of the Australian Housing Market” research paper published by the RBA contains modeling that shows reducing mortgage rates by just one point can lead to a 28% price increase over time.

With variable rates in 2021 at around 2.5% compared to 5% in 2015, it’s easy to see how this considerable rate reduction has boosted Sydney prices so quickly.

RBA Governor Philip Lowe has further instilled confidence in rates staying low by stating that there are no immediate plans to lift them.

“The board will not increase the cash rate until actual inflation is sustainably within the 2-3% target range,” Lowe said.

“The board does not expect these conditions to be met until 2024 at the earliest.”

The Rise of Work From Home

Over the past year and a half, most Australians have spent more time than ever inside their homes instead of traveling to their office.

Working from home has become the new normal, so it’s only natural that people want to buy their first home or upgrade now that they are spending significantly more time there.

The Australian Bureau of Statistics February Household Impacts of COVID-19 Survey showed that 41% of employed Australians were able to work from home at least once a week in February 2021, compared to only 24% in March 2020.

ABS Head of Household Surveys, David Zago, said the survey also showed that most people believe they can continue working from home in some capacity permanently.

“Employed Australians expected work from home arrangements to continue throughout the year,” Mr. Zago said.

“In the next six months, 47% of employed Australians expected the amount of work from home to remain the same, 11% expected a decrease and 8% expected an increase.”

With the consensus being that work from home is here to stay, the stability of buying is even more enticing.

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Saving Rates Increasing

With the lack of overseas holiday opportunities and many expats returning home, potential homebuyers are choosing to save their money for property purchases rather than spend it elsewhere.

In the June 2020 quarter, the household savings ratio skyrocketed to 19.8%, equating to nearly one-fifth of total income during this period being saved instead of spent.

While savings rates have cooled off in the March 2021 quarter to 11.6%, these 2020 numbers demonstrate that buyers continue to come to the market ready to spend since they have been saving at higher levels than during pre-pandemic times.

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Limited Supply and Increased Pre-Auction Sales

While supply levels are forecasted to increase over the next few months, more people are trying to buy in Sydney than there are selling.

CoreLogic’s Asia Pacific Head of research, Tim Lawless, believes that low supply is one of the main driving factors behind Sydney’s record growth.

“The low number of listings against such a high level of market activity has created a sense of urgency amongst buyers, which is another factor placing upwards pressure on housing prices. This ‘fear of missing out,’ or FOMO, means buyers are making their purchase decisions in near-record time and not negotiating very much at all on price,” Lawless said.

Pre-auction sales are also at record levels and are proving popular for both buyers and sellers.

By purchasing pre-auction, Buyers can secure the property they want and not experience the emotional toil that auctions can bring.

At the same time, sellers are often rewarded with a price that can be well over their expectations.

In the final week of May, CoreLogic reports show that 389 properties in Sydney sold pre-auction while 387 sold at auction.

These figures are a stark contrast to 2018 levels where only 2% of properties in Australia’s capital cities sold pre-auction.

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Future Outlook

There may be some good news for buyers struggling to enter the Sydney market sooner rather than later. 

“Worsening affordability will gradually impact on buyer activity. Additionally, new housing supply is ramping up with house approvals moving through record highs,” Lawless said, adding that the country’s borders remaining closed — and the consequently lower migration rates — will have an impact on relieving the demand for housing. 

Until then, following the age-old advice of not buying what you can’t afford will allow you to enter the market at a comfortable level when growth levels slow and prices correct.  

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Words by Rimas Veselis

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