House prices are cheaper than a year ago in some of Sydney’s most sought-after suburbs as higher interest rates slash the borrowing capacity of buyers seeking large mortgages.
Prices have also fallen in some ultra-wealthy areas where many buyers may not rely on finance to purchase.
The median house price in Neutral Bay fell 14.5 per cent over the 12 months to December, to $2,415,000, the latest Domain House Price Report, released this week, shows.
Prices also fell in Haberfield (down 9.2 per cent to $2,725,000), Surry Hills (down 6.6 per cent to $2,125,000), Glebe (down 5.3 per cent to $2.5 million) and Cronulla (down 5 per cent to $2,825,000).
Domain chief of research and economics Dr Nicola Powell said affluent and premium suburbs tend to rise first in a boom and soften first in a downturn.
“They lead price cycles,” she said. “They tend to see greater rates of growth during an upswing, which means they do see weakness [in a downturn].”
Many buyers cannot borrow enough money to buy the home they want and are waiting for interest rate cuts, Powell said.
Prices also fell in prestige suburbs Bellevue Hill, down 12.7 per cent to $8.51 million, Vaucluse, down 8.1 per cent to $7,445,000 and Woollahra, down 6 per cent to $4.23 million.
At the upper end, Powell noted asset-rich families are less influenced by the level of interest rates, compared to buyers in the $2 million to $3 million market who take out large home loans.
Price falls can be due to compositional change, when wealthy potential sellers can afford to delay their decisions until the market improves, but owners of less expensive homes need to sell more urgently. A higher proportion of lower-value sales pushes down median prices.
“People are not going to sell their home for less than they paid for it and particularly if you’re looking at an area like Vaucluse, if you’re talking a median price of over $7 million, these are high net-worth people, they are less impacted by changes in the cash rate and they will be more influenced by market dynamics and how much they can achieve for their home,” she said.
“If you’re in that privileged position where you don’t have to sell your home, you start to hold off.”
Parramatta was an outlier, recorded the steepest drop of 15.3 per cent in 12 months to a lower median house price of $1,242,000.
Mortgage broker Anthony Landahl, managing director of Equilibria Finance, has noticed buyers turning away from high-priced neighbourhoods.
“We’re definitely seeing a slowdown in activity around the less affordable suburbs like Bellevue Hill, the eastern suburbs and northern beaches,” he said. “Vendors are still hoping to catch those high prices but buyers are not willing to pay it.
“There are less buyers able to pay some of those crazy prices so people are not even trying to get into the market.”
He had seen potential buyers considering commuter-belt areas such as the Central Coast, Blue Mountains or Wollongong, or Sydney’s southwest and Parramatta, especially if they are looking for a detached house.
Commonwealth Bank head of Australian economics Gareth Aird thought the Sydney market was likely to remain weak in the near term.
Potential home buyers seeking large loans may not be able to access them while interest rates remain high, he said.
“The banks will apply a serviceability buffer,” he said, “And then they need to look at your income and expenses to work out how much you can borrow. So clearly borrowing capacity is reduced when rates are elevated.”
He tips interest rates to fall as soon as February but thought there might be some lag before measured home prices start to move higher.
Despite the price falls, detached houses are still too expensive across much of Sydney for first home hopeful Seamus Lough.
The self-employed plumber started looking to buy a home in Sydney 11 years ago when he was 26, but after just falling short on a two-bedroom apartment, ended up priced out.
“I’ve been catching up ever since, saving more and more every year, but the property prices keep on getting away from me,” he said.
“I had to get over the mental barrier of borrowing close to $1 million for a two-bedroom apartment in Sydney.”
He hopes for a unit in an older building on the north shore.
“I’m definitely priced out of getting any land in Sydney. If I wanted land I’d probably have to look outside of Sydney or go down to the southwest,” he said.
“I don’t do well in traffic … I don’t mind getting the worst apartment in Sydney because I have the ability to do it up, but I just don’t want to waste my life travelling to and from, six days a week.”