As interest rates rise, house prices in Sydney are falling and experts say this is an ‘indicator’ of what is about to happen in the rest of the country.
Key points:
- Interest rates drive down Sydney property values
- The Reserve Bank of Australia raised the cash rate to 0.85%.
- The average mortgage in New South Wales is $786,035
After hitting record highs in January, home values in Sydney have fallen 1.5%, according to data from CoreLogic.
As the cost of buying a home in Australia’s largest city remains 22.7% higher than pre-COVID levels, the fall in value is steepening month-on-month , due to rising interest rates.
Martin North of Digital Finance Analytics said Australia was already experiencing a “housing affordability crisis”.
“I actually think the next move is price declines, there’s a very significant risk of seeing significant declines,” he said.
“House prices are far too high relative to income – debt-to-income ratios of six to nine times are not acceptable.”
Mr North said Sydney was an indicator of what was soon to hit the rest of the country.
“It’s something that’s not just a Sydney/Melbourne issue.
“What tends to happen is that Sydney tends to react first because of the high leverage there is.
“Then Melbourne follows, then other areas tend to follow maybe 12 to 18 months later.”
On Tuesday, the Reserve Bank of Australia raised the cash rate by 50 basis points, or half a percentage point, to 0.85%.
“If we see interest rates potentially rising another 150 or maybe even 200 basis points, that would increase mortgage repayments by around 24-25% and reduce borrowing capacity by around 20%,” said PropTrack economist Paul Ryan.
“It really reverses all that increase in affordability that we saw throughout the pandemic period, when interest rates were lowered to their lowest level ever.
“We’ve seen Sydney slow down quite dramatically, it’s the fastest downturn in a six-month period since 1989.”
Estate agent Mario Carbone, who works for Ray White in Sydney’s mid-west, has already noticed a substantial drop in buyer activity.
“It’s down about 47%, from foot traffic to open houses, to online inquiries, even phone calls, that we get day to day,” he said.
“We’ve seen that buyers will be more hesitant and will likely sit on the sidelines of an auction to see what the outcome will be.”
According to Canstar’s chief commentator, Steve Mickenbecker, “there’s a silver lining to the price drop”.
“A lot of people are predicting a 10-15% drop in house prices, which will make it easier to build a down payment.”
However, this is grim news for those who have paid “top dollar” over the past two years and purchased with less than 20% down payment.
“A lot of people will have bought well below the 20% deposit,” Mr Mickenbecker said.
“People who bought at 5 or 10% will end up with negative equity. »
From Sydney’s east, where people have been “overstretching themselves”, to Campbelltown in the city’s southwest, mortgage stress is biting.
A recent survey by Digital Finance Analytics found that across the country, a growing number of households are spending more on basic necessities and loans than they earn from their income.
“People are already making horrible trade-offs between the different things they want to do,” Mr North said.
“We’ve seen in our polls people say, well, you know, we have to eat, but we, maybe we can’t buy the kids’ clothes anymore that we expected to buy.
“Very often people give up on dental work because it’s something they can put off.”
The map shows the number of households in each postal code that are experiencing financial hardship.
The data comes from a household survey where information on income and expenditure is collected, excluding non-discretionary items such as holidays.
Households with negative cash flow are considered financially stressed.
The average mortgage in New South Wales is $786,035, according to data released Friday by the Australian Bureau of Statistics, while the national average is $611,154.
In these tough times, expert advice on what people can do is to “shop around” and follow through on refunds, if you can.
“Get a loan at a lower price so you don’t notice the increases as much,” Mickenbecker said.
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