‘FOOP’ sees buyers abandon Sydney housing

The 180-degree reversal underway across Sydney’s housing market is extraordinary.

Just over a year ago, Sydney dwelling values were growing at the absurd rate of more than 9% a quarter – the fastest pace of growth experienced anywhere since 1988:

Quarterly dwelling value growth

Sydney led the boom and is now leading the bust.

A year on and Sydney dwelling values are now falling fast, with quarterly growth sinking to -2.1% as at 20 June.

The pace of price falls has also accelerated since the Reserve Bank of Australia (RBA) commenced its rate tightening cycle at the beginning of May, with values plunging 2.0% since that decision:

Sydney home values

Sydney house prices have plunged following consecutive rate rises.

Market analysts believe the ‘Fear of Overpaying’ (FOOP) has overtaken ‘Fear of Missing Out’ (FOMO), with Sydney buyers now content to sit on the sidelines until prices have fallen further:

[AMP capital’s Shane Oliver] expects the [Sydney clearance] rate to go down to the low 40s and then spend time bouncing around the bottom over the next 12 to 18 months before a recovery finally begins.

He blames “poor affordability, rising fixed and now variable mortgage rates, along with weak buyer confidence”…

Di Henneberry, a Sydney buyers agent, said the most common response from her clients was: “I’ll wait a few months until the market dips further.”

Sydney is by far Australia’s most expensive housing market with the most indebted households. Therefore, it stands to reason that it would experience the sharpest boom when rates fall, but also the biggest bust when rates are tightened.

It also means that Sydney is likely to lead the nation’s housing bust as the RBA aggressively hikes rates. According to the futures market’s latest forecast, the official cash rate will soar to 4.4% by May 2023, which infers an average discount mortgage rate of 7.7% – more than double the pandemic low of 3.45%:

Discount variable mortgage rate

“Financial markets: Variable mortgage rates to double”.

Under the RBA’s own modelling, such a rate rise infers a national real house price decline of around 30%. But the downturn would be greater in Sydney, owing to its higher sensitivity to interest rates.

Even if the RBA doesn’t tighten that far, Sydney is facing the biggest house price bust in generations. Grab the popcorn!

Unconventional Economist

Comments

    • Strange EconomicsMEMBER

      to 2000 before the madness begins.
      Thanks to Costello.s Capital Gains tax discount then, socialized the NG losses and privatised the profits.

      The most common comment from talking to people who have sold 400k investment apartments for 800K and 400 K profit, “Im so sad, I have to pay tax” and only left with 300K profit.

  1. Just saw one of those silly articles about higher interest rates increase affordability, so some quick calculations
    $1M Loan P&I Total repayments on 30years $1.7M at 4% (current rate at westpac)
    Say RBA increases a further 2% resulting in a drop of 20% in value
    $800K Loan, Total repayments $1.7M at 6%
    Can easily see a fall of 20% in Syd and Mel and it still makes no difference, so predicting falls of between 25-35%.

    • Your not accounting for the interest only investor market. Higher interest rates reduces their ability and desire to compete, while people saving for a deposit can get some interest. Of course a declining market prevents equity from being used for further purchases. Higher interest rate reduce demand lowering prices.

  2. idk about these growth rates, here in Burleigh, prices went 150% higher mid 2020 – now. seriously 700k house is now ~1.5M. My moms place went 500% from 500k (2012) to 2.5M (now) it’s on the ‘water’ (ie. muddy ditch)..

  3. At least Shane is admitting how structurally broken the market is. Prices based on the capacity of people to pay and behavioral signals like confidence rather than value or needs.

  4. MathiasMEMBER

    Brilliant ;p

    So Immigration turns Emmigration … People leaving to go where the next money goes.

    All the drug dealers packing there bags and going to the next place to conquer ;p

    No more Treasury Casino… Mafia Crime Lords… Motorcycle Gangs… Foreign Agents.

    Fairfax Media going nuts… Screaming Rent-a-Business model hasnt got enough people to exploit to pay all its offshore Bills.

    No more Gladys Berejiklians opportunists taking aggressive pot shots at Queenslanders simply because they want to grab more cash for themselves… eventually ending up investigated for Corruption, ties to Chinese Agents and being forced to step down before the investigators actually found something that might actually be incriminating.

    Sounds like NSW might actually have to earn some money that doesnt involve Stealing Taxes, Renting something, Slavery or Crime.

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