Property prices in Sydney have fallen the most since records began as interest rates rise

“In the September quarter [there] was a shock reaction from the market. We’ve really seen the effects of aggressive rate hikes…reduced borrowing capacity and [buyers] taking into account future interest rate increases.”

Buyers have since adjusted to rising interest rates, while there has also been a pullback in homes for sale, which helped moderate the price declines, Powell said.

ANZ senior economist Felicity Emmett expected the move to higher interest rates would result in a sharp drop in consumer spending for many homeowners, rather than a surge in distressed listings, as the high employment rate should limit forced sales.

She has forecast prices in Sydney to fall further, falling 18 per cent from peak to trough, based on expectations for the cash rate to peak at 3.85 per cent and stable until rate cuts begin in late 2024 would stay.

“Once the cash rate stabilizes, we will likely start to stabilize prices and next year, if interest rates stay the same and incomes increase, we expect this to lead to moderately higher prices,” she said.

Although prices fell, affordability hasn’t improved, Emmett said, as buyers face higher mortgage costs.

“Our analysis suggests that prices would have to fall about 30 percent…to offset the impact of those higher interest rates…so it’s actually going to be tougher for buyers.”

Gareth Aird, head of Australia’s economics department at the Commonwealth Bank, said Sydney has the highest property price-to-income ratio, making it more vulnerable to rising interest rates.

“Given the fact that it’s gone up so much in dollar terms [during the boom] There’s more room for a correction,” he said.

Aird said buyer sentiment has improved and price declines have slowed as rate hikes eased late last year. The strong rental market supported prices, as did the decline in seller activity. Distressed listings remained limited.

Aird expects the Sydney cash rate to fall 19 percent from peak to trough and peak at 3.35 percent.

Citywide, Sutherland saw the largest quarterly home price drop at 6.5 percent, followed by the region of North Sydney and Hornsby (-2.7 percent) and the Outer West and Blue Mountains (-1.7 percent).

Prices rose marginally or remained stable in six regions including the Northern Beaches and City and Inner South in the most recent quarter, which have already had a large price drop.

First-time homebuyers Tristan Chan and Garland Liang will trade their rental unit in Ryde for a two-bedroom townhouse in Macquarie Park.

Rising interest rates meant the pair could borrow less than expected, but it also meant less competition for homes. They still had to borrow up to their maximum to be able to buy at their preferred location, but were careful not to overcharge it.

“We thought we could borrow more, I was a little surprised,” Chan said. “But I think it’s helped us create a more realistic budget and … rising interest rates have helped us.” [in a way]because it felt like there were fewer people out there who were seriously buying.”

Liang added, “We could either proceed with our credit power or step back and wait, but we knew that if we waited, many other people would be waiting to buy a house.”

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The couple will elect to pay property tax, which is now available to first-time home buyers, in lieu of stamp duty.

Their buyers agent, Brady Yoshia of Brady Marcs Buyers Advisory, has seen good buyer interest earlier in the year, particularly to take advantage of first-home buyer assistance programs in the less competitive market.

Despite the drop in price, buyers still have to make compromises because their creditworthiness has been falling at a faster rate, she said.

“Across all price points there are still very interested and eager buyers, but the market has only just started for the year,” she said.