NEWS

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.

"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]."

Sydney’s property market ended 2023 strongly, but signs of softer market conditions as the pace of price growth and clearance rates eased through the end of 2023 divides the experts on their 2024 forecasts.

Here are some of the most recent forecasts:

• ANZ Bank forecasts Sydney property values could rise 6-7% in 2024

• CBA forecast Sydney property values could rise 4% in 2024

• NAB forecast Sydney property values could rise 5% in 2024

• Westpac forecast Sydney property values could rise 6% in 2024

• SQM forecasts Sydney property values could fall up to 4% in 2024

• PropTrack forecast Sydney property values could rise 5% in 2024

As buyers and sellers realise that we have reached a peak of interest rates and that inflation is coming under control and consumer confidence returns, buyer and seller activity will pick up.

So I currently see a window of opportunity to get into the property market before the crowd does.

If you look back at previous cycles, when the market turned property prices surged rapidly – look at what happened in the post-Covid property rebound in 2020 or in 2019 when the market suddenly turned after the Federal election.

Of course, those who acted then and purchased quality investment-grade properties are possibly of thousands of dollars ahead and have set themselves up for financial security.

The media are catching on to what’s happening and reporting more good news property stories.

This means the window of opportunity will close sooner rather than later as more homebuyers and investors into the market.

What we do know though, as I mentioned above, is that the flight to quality will continue so investment-grade properties in A-grade Sydney locations will remain in strong demand and are likely to outperform in the medium term.

Are you wondering what’s ahead for the Sydney property market in 2024?

Well…Sydney’s home values will continue to increase, although a little more slowly than they did in 2023.

The surge in properties for sale in Sydney hasn’t yet slowed demand, with prices rising 0.5% in February and 10.6% over the past year.

Both buyer and seller confidence has increased with the thought that potential rate cuts could boost borrowing capacity, giving buyers more money to spend.

Although Sydney’s housing market has clearly turned a corner in early 2023 with prices rising steadily month-on-month, Sydney’s home values have yet to return to their peak.

According to CoreLogic, Sydney dwelling prices rose 24.8% from the onset of COVID-19 to their cyclical peak in January 2022 before suffering a 13.8% fall through to the January 2023 trough.

The latest data shows prices are only -1.9% below their previous peak… so a new records will be set soon.

Of course, there is no "one" Sydney housing market and some areas are strongly outperforming others.

It's a bit like having one hand in a bucket of hot water and the other in a bucket of cold water and saying: On average I'm feeling comfortable.

Sydney’s listings and clearance rates are low

While Sydney property buyers are back in force, they are currently being cautious - their pockets are shallower and borrowing capacity significantly reduced.

But more investors are getting into the Sydney market now recognising that there is a current window of opportunity and that in 12 months’ time, the properties they purchased today will look like a bargain.

However, despite the overall caution, buyer demand is still strong which will continue to push Sydney’s property market through its revival.

Sellers are also coming back to the market wit total property listings for Sydney are marginally higher than in the same month last year, although the stock of older listings is slimmer so overall supply remains constrained.