Before the impact of the war in the Middle East began feeding through to impact the confidence of Australians and, by extension, the nation’s property market, auction clearance rates in Sydney were already very weak.
On the week ending the 1st of March, the harbour city’s auction clearance rate, according to SQM Research, was 45.9%, compared with an average of 52.9% in the four post-pandemic years prior.
According to seasonally adjusted data from Cotality, the rolling monthly rate of housing price growth had already turned negative.
Source: Antipodean Macro
Shortly before this, Cotality reported that housing price growth in Sydney and Melbourne was being driven heavily by the parts of the market under the price caps of the Albanese government’s 5% deposit scheme.
In recent months, this trend has continued to evolve, with prices in the top quartile now falling at a quarterly rate of 2.7% in Sydney and 2.9% in Melbourne.
And Then Things Got Worse
Since the start of the war in the Middle East, clearance rates have continued to deteriorate in Sydney, hitting a new cycle low after a new cycle low (excluding public holidays and the Christmas season).
But the result of the most recent weekend has taken that deterioration and turned it up to 11.
Compared with the prior week’s results, clearance rates fell by a very sizable 5.8 percentage points.
If we take a step back and broaden our view to a longer timeline, they have now fallen by 14.8 percentage points since the final non-war-impacted result.
With just 31.1% of auctions resulting in a sale, there is only one other data point (excluding holidays and the Christmas season) that produced a worse result since SQM’s records began in 2020.
That data point came on the 19th of April 2020, during the absolute height of the pandemic’s impact.
That was a time of cancelled auctions and a swift shift in the market from robust growth to tanking prices.
As one might imagine, this is bad news for the path forward for Sydney housing prices.
In the words of SQM Managing Director Louis Christopher in a recent post on X (formerly known as Twitter):
“Presuming Sydney continues to record auction clearance rates in the 30-35 percentile bracket over the next two months, housing prices could expect to fall greater than the revised estimate of 6% for calendar year 2026”.
“Now our revised forecast did not take into account property taxation changes at the time of writing as these were not flagged by the government at the time”.
The Takeaway
Before the war and the Albanese government’s changes to negative gearing and capital gains tax, the Sydney housing market was not in an especially favourable place.
Prices were falling on a seasonally adjusted basis, and stock levels were finally beginning to robustly rise after trending down for the best part of 6 years.
Now it has to contend with a dramatically changed tax landscape and the potential implications of a major global inflationary crisis stemming from the conflict in the Middle East.
As the nation’s most expensive housing market and with the worst gross rental yields in the country, Sydney’s vulnerability to the challenges to come is even greater than that of the rest of the country.
