Current Market Insights
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Current Market Insights
Talking Property - The 2024 Sydney Property Market Reviewed
In this insightful discussion, we discuss:
- the strong performance of Sydney apartments in 2024
- population trends across the country and the role they play in property prices
- the annual growth of Sydney compared with other capital cities
- the risks and opportunities posed by the market conditions heading into 2025
- the subtle decline in rental prices
- the moderation in the performance of prestige real estate
- plus much more....
Tune in now to get the best available market insights backed by compelling data and commentary by Australia's best property analyst Louis Christopher. Proudly bought to you by Harris Partners Real Estate
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
Welcome to Talking Property. Today, I'm joined by Australia's best property analyst, louis Christopher, as we dissect and review the 2024 Sydney property market. Louis, thanks for joining us.
Speaker 2:G'day, peter, nice to be with you once again.
Speaker 1:Louis, we caught up mid-year and the Sydney market was actually outperforming expectations at that stage. We were both very surprised at how well the market was travelling, but it's looking like it was a year of two halves where the market really changed around August, didn't it?
Speaker 2:Yes, it did. So I think from the start of the spring selling season we noticed a real decline in auction clearance rates. As to a real decline in auction clearance rates and, over and above that, stock on market or listings started to accumulate based on a rise in older listings. So when you start seeing a rise in older listings, it generally is a big sign that the market's slowing down.
Speaker 1:Yeah, so just confirming the spring selling season actually starts in August, because that's when the auction clearance rates on your numbers dip below 50%.
Speaker 2:Essentially, that's when you start to see more listings in the marketplace ahead of September, but there is actually a high number of scheduled activity that actually occurs in August.
Speaker 1:Yeah, so I was following the auction clearance rates that you put out each Tuesday and correct me if I'm wrong, but I think we only cracked higher than 50% twice since early August. Is that your understanding of the clearance?
Speaker 2:rate. I think you may well be right. Importantly, the trend's been very obvious. The trend has been weakening and weakening auction clearance rates for Sydney, notwithstanding that the very last weeks of the spring selling season, in December, we did notice a slight pickup in the auction clearance rate, not to go over 50% though. So I think, as the year has ended, while I think there's perhaps been some buyers have come in and potentially seen an opportunity, it's been a weak market. It's been increasingly a buyer's market.
Speaker 1:And as those properties didn't move and failed that auction, did they sell after the auction or did they go to the sideline? Have we got any sort of sense of what happened there?
Speaker 2:They're mainly going to private treaty. So they're being re-advertised as private treaty or they're being withdrawn for the property season. That's mainly what's happening. Yes, you do have some that sell after the event, no doubt about that, but the bulk of the properties have been re-advertised as private treaty.
Speaker 1:And the ones that are withdrawn? Do we expect to see higher listings going into 2025 as a result of new year stock competing with last year's stock?
Speaker 2:I think we will. So more often than not you see these properties get withdrawn over the Christmas New Year period. Vendors then take stock in terms of what they really wish to achieve with their property and then a fairly high percentage of those withdraw and you start to see come back into the market in the March quarter.
Speaker 1:Great Look. Let's bring up this slide here, which is recapping your 2024 predictions.
Speaker 2:Yes.
Speaker 1:For the Sydney market specifically, which, would you say, turned out to be the most accurate? Louis?
Speaker 2:Definitely our scenario three. I mean, as you know, we like to hang our hat on our base case scenario, but scenario three is the one that's generally come in and that was one where we forecasted stronger population growth than our base case and that's what we believe fundamentally has happened. The population in 2024 has expanded once again nationwide by north of 500,000 people.
Speaker 1:So the government made a big announcement very early in the year that they were pulling back on the number of people they let into the country. Did they break that promise?
Speaker 2:I think they have. When you look at the net overseas arrival data, which is more timely data than the overall net immigration data, it's showing there's been no major slowdown. There's been a slight slowdown over 2023, but not a material slowdown and far less of a slowdown than what federal budget actually anticipated, what the government suggested would happen and what our own forecast suggests would happen. So, yeah, it's been a stronger than expected year on the population front. Would happen.
Speaker 1:So yeah, it's been a stronger than expected year on the population front. Louis, these are dwelling predictions. They're not apartments or houses dwelling price predictions. So where did we come in for houses and apartments respectively, in 2024?
Speaker 2:So at the national level, overall dwelling price increases are coming in at about 4% and that's been predominantly driven by big rises in Perth, Brisbane and Adelaide as well. And now the split between houses and units it's been actually very close and I would actually argue that houses have just outperformed units. But it depends on which capital city we actually discuss.
Speaker 1:Yeah, and Sydney specifically.
Speaker 2:Sydney on our numbers, units have done a little bit better than houses.
Speaker 1:Okay, when was the last time apartments outperformed houses in Sydney?
Speaker 2:2018.
Speaker 1:Yeah, so quite some time.
Speaker 2:Yeah, we're noticing that on cyclical downturns in Sydney and it is the case for Melbourne cyclical downturns in Sydney and it is the case for Melbourne that units tend to be a pretty good defensive play in downturns, whereas in upturns houses beat units, and is that because they're cheaper?
Speaker 2:I think they're cheaper. Yes, it is an affordability factor. Now, when we speak of units, we're talking about existing units, the off-the-plan stock no way that always underperforms, but existing units during downturns we're noticing in more recent times it's outperforming. So it is an affordability factor. It's also a supply factor relative to underlying demand increases.
Speaker 1:So inflation's been running at about 3%, dropping in very recent times but averaged around that during the year. Sydney house prices have put on a little bit more than 3%, would you say.
Speaker 2:So for the course of 2024, sydney house prices will look. They look like it'll finish the year at about plus 3%.
Speaker 1:So it's kept pace with inflation, but overall not done much better than that.
Speaker 2:Yeah, and I think we need to look at, as you spoke of earlier, a tale of two halves. So the first half of the year is where most of the gains in Sydney occurred, but really, on our numbers, from about September onwards we've been recording housing price falls in Sydney.
Speaker 1:Louis, I'll just bring up the next slide and I'll just show our audience today what has happened here with the auction clearance rate, and you can see here that the trend line is down and the volumes really picked up on properties going to market in the second half of the year, didn't it?
Speaker 2:Yes, absolutely. That's exactly what's happened. So volumes are up in terms of auction volumes in Sydney by about 11, 12% on the previous year, 2023.
Speaker 1:in Sydney by about 11-12% on the previous year, 2023. And at what point in the auction clearance rate do we start to see price falls versus price rises? What's trigger points.
Speaker 2:Yeah, look on our numbers. It is generally at the 50% mark. So when you see clearance rates are continually below the 50% mark and trending down, you start to see housing price falls. And that's what exactly we've seen in Sydney from September onwards. It is a trend that's important. So you can see the reverse where, if the market is already in a downturn, you start to see a pickup in clearance rates from, say, 40% up to say 47%, 48%. In that scenario you might actually start to see housing prices stop falling and you start to see a bit of a recovery of sorts. So it's not just the absolute number that counts, it's the actual direction that counts too.
Speaker 1:Now I'll bring up our next slide here, which covers off migration numbers. Yes, these slides, by the way, are from your 2025 boom and bust report, which I encourage everybody to get a copy of it. It's excellent every year, but this year I thought it was an outstanding report, louis, and this year, I thought, captured some really, really interesting trends. If you just want to walk us through the first population slide there and let us know what we're seeing here, yeah, sure.
Speaker 2:So the first slide there looks at total population growth split by natural increases, so that's births over deaths plus net overseas migration being the orange line there, and, as you can see, there was a huge rise in the population growth rate following the end of COVID and the opening of the borders. Now, since then, we've had a little bit of a slowdown, but nowhere as much as anticipated, and so the reality is that for 2024, it looks like the year will finish with at least an expansion of 500,000 plus people across Australia.
Speaker 1:So correct me if I'm wrong, but what I'm reading here from this graph, in theory, is, if we didn't let anyone into the country, our population would be going backwards.
Speaker 2:It would be, it would almost be going backwards. That is correct. So we've got a natural increase occurring Australia wide of some 100,000 people. So there was no net migration at all, although it was net neutral. We'd be expanding by 100,000 people. So there was no net migration at all. Although it was net neutral, we'd be expanding by 100,000 people.
Speaker 1:Right, which is just not enough, is it?
Speaker 2:Well, that all depends what you're trying to achieve with the economy. For me personally, I believe we have too many coming into the country now relative to our building, so we're simply not building enough relative to the population expansion.
Speaker 1:Yeah, we'll come to construction in a moment. Can I bring up your next population slide here? And I want to highlight this one here in New South Wales, which is negative net interstate migration. That's right, louis, is this people bailing on Sydney due to cost of living?
Speaker 2:Well, it's fundamentally bailing on New South Wales, but, yes, it would be bailing on Sydney, and I think that's an affordability issue, yes, so the question is, where are they bailing to? And when you look at this chart, you can see that there are states such as Western Australia, such as Queensland, where there's positive interstate migration flows. So then you've got to say, well, where are those positive net interstate migration flows coming from? Because fundamentally, it's a bit of a zero-sum game and, as you can see, it's predominantly coming from New South Wales.
Speaker 1:They do this in politics all the time is just pick your Mr and Mrs average and sort of target them if you like and if you think of Mr and Mrs average and sort of target them if you like and if you think of Mr and Mrs average in Sydney if you have a job which has largely fixed earnings, regardless of where you live in the country. But on CoreLogic's numbers, not yours, the median house price in Sydney is 1.45 million. The next most expensive capital city in Australia is still under a million dollars. Yes, so people are paying a 45, 50% premium to live in Sydney.
Speaker 2:Yeah, that's right. And then when you think about how this works for essential service workers you know your ambulance workers your healthcare workers you know, can they afford the average house in sydney?
Speaker 1:well, they can't and their lifestyle would be better if they bail.
Speaker 2:Exactly which is captured here isn't it and this is a problem for the city in the long term. We need essential service workers in this city yes, indeed, we can't all be bankers, lawyers we certainly cannot real estate agents.
Speaker 1:we don't need more real estate agents, so it's one thing everyone will agree on today. Moving along here, louis, to your dwelling forecast for rentals, you've picked up some changes in the rental market and you forecast some changes in 2025 for the rental market. Could you walk us through those?
Speaker 2:Yeah, sure. So for 2024, it looks like we'll finish a year with rents up these are advertised rents up across the nation by about 4.3%, which is just above the inflation rate. Now, let's keep in mind, back in 2023, that number was towards 10%, with some cities recording nearly 20% rental increases. But what's been going on over the course of 2024 is a lot of the bad news in the rental crisis has been priced into the rental market, in our view. So, yes, we still have a rental crisis overall across the city, but has it actually been getting materially worse and worse and worse? Well, the numbers would suggest no.
Speaker 2:We still have a rental crisis, let's be clear about that. But has it deteriorated even further? And the answer to that is not really. Not really Depends on which city we're discussing, but overall, not really. So as a result of that, looking at more of our leading indicators as well, we've been forecasting for 2025, more subdued rental growth. We've been forecasting for 2025, more subdued rental growth. We've still got a situation where there's more tenants than dwellings, but how people have been responding, particularly in these hard times, is that they've been grouping together more to share the burden of the rent.
Speaker 1:And the RBA wanted to see that, didn't they?
Speaker 2:They did indeed, and it has been happening.
Speaker 1:Yeah. So let's talk about the RBA. All along we've been hearing about headline inflation. We've got to get into the target range between 2% and 3%. We slipped into the target range 2.8% and then 2.1%, and then this new dialogue emerged from the RBA new as far as I'm concerned, anyway where it wasn't about the headline inflation number, it was about the underlying inflation number, and that's still stubbornly high at 3.5% and creeping up. That's why rates won't be cut. Louis, did the RBA move the goalposts on us?
Speaker 2:Look, I don't believe so, Peter. To be fair to the Reserve Bank, they've always had a word or two about underlying inflation. It's something that they like to follow more closely because it trends a bit more. It takes into account things such as government subsidies that we've been seeing in the marketplace, whereas the headline number doesn't really adjust for these government subsidies. So I understand why the RBA has been stating what they've been stating Now. That said, we're all aware that the economy has been slowing down fundamentally and on a per person basis, it's been going backwards for a number of quarters. Now that will certainly be playing on the RBA's mind. What else will be playing on the RBA's mind is the fact that we're seeing an increasing number of central banks overseas cutting interest rates. So the ECB, for example, has been cutting interest rate. The Federal Reserve in the United States has been cutting interest rates, and so that potentially has been putting pressure on the RBA to do a similar cut.
Speaker 1:Yeah, the RBA does have a higher cash rate lower cash rate setting, I should say, than all of those central banks coming into this cycle though, didn't it?
Speaker 2:They didn't go up as high. So their argument is we shouldn't go down as low. And there's a case to say well, let's keep interest rates on a more neutral setting, or the current setting for longer.
Speaker 1:Louis, do you think the current interest rate setting is correct? Are they right to have left it on hold all year, or should they have thrown in a cut late in the year to throw some relief?
Speaker 2:Oh, that's a good question, and I'm glad I'm not a central banker, peter, because they're dealing with a lot of factors that are out there, a lot of varying forces. They would be conscious that potentially cutting interest rates could reignite the housing market in Sydney and Melbourne, and I don't think they want to actually see that.
Speaker 1:Well, most of our audience are not Melbourne related, but that market is really taking a battering at the moment, isn't it?
Speaker 2:In Melbourne. Yes, yes, I mean, look to be clear. There's no crash in Melbourne occurring. Housing prices are off for the year by about 3% and, like Sydney, auction clearance rates in Melbourne have been weakening as we get towards the end of 2024. There are also other issues at play in Melbourne which we're not seeing so much of in city. So, for example, we've recorded a essentially a new high on dist distress listings activity in Melbourne. So when we've talked about distress listings in the past with you, peter, we've always qualified the point that, ok, hang on. Yes, there might be a bit of a rise in distress listings, but we're still well below the pre-COVID levels. So it's still relatively benign situation, but not in Melbourne anymore. So Melbourne has recorded a new high. It's higher than pre-COVID, and so that's telling us that there is more financial distress in the Victorian community.
Speaker 1:The state budget, the land tax, the anti-landlord position the state government's taken there is all impacting on this, isn't it? I believe so yeah, existing landlords selling out. There's a lack of confidence for incoming landlords.
Speaker 2:Plus an overall slowdown in the Victorian economy I believe is also occurring.
Speaker 1:Yeah, it was, you would suspect being. Is it Australia's most populated city now? Oh, it's Limeball we've seen right now. Yeah, so you would expect that its pricing would not be too dissimilar. But again, on CoreLogic's numbers, tell me if you've seen something different. But on CoreLogic's numbers, tell me if you've seen something different. But it's now the fourth or fifth most expensive capital city in the country, where certainly Brisbane, canberra and I think it might be one other city, perth might be challenging it in terms of its median house price value.
Speaker 2:Yeah, that's true and that may well present a longer term opportunity in Victoria and in Melbourne once the economy stabilises and changes are made politically, potentially.
Speaker 1:And those essential workers in New South Wales that are being asked to pay a median house price $1.45 million. If they can earn the same in Melbourne, why wouldn't you go to Melbourne for lifestyle purposes? There's a lot of change between $1.45 and $9.50.
Speaker 2:Absolutely. And going back to that interstate migration flows, you will see that in Victoria there's no major negative interstate outflow In fact I think it's now slightly positive whereas, as we can see, in New South Wales it's a major interstate outflow.
Speaker 1:Louis, right through this interest rate hiking cycle that we've been undertaking, the prestige market has been impervious to higher interest rates. It's just been performing. It's just continued its bull run from the COVID era. Did you detect any changes in your data as to how the prestige market was performing on the back end of the year?
Speaker 2:in your data as to how the prestige market was performing on the back end of the year. We have noticed some weakness in the inner rings of Sydney. When we look at Sydney's east, sydney's inner west, sydney's lower North Shore and Sydney's upper North Shore, we now are recording rises in stock, including freestanding houses. I think the very top end of the market is still fairly solid.
Speaker 1:So what's top end?
Speaker 2:Fifteen plus Fifteen million, plus It'd be 10 million plus in our view.
Speaker 1:So Prestige would be five to ten in.
Speaker 2:Yeah, yeah, five to ten, and I think we're seeing some weakness between the two and a half to about $6 million range. So that is a point where you still see basically buyers who are taking out loans to buy those homes, whereas when you get to $10 million plus, it's generally cash buyers.
Speaker 1:In the middle of the year when we caught up, you felt the geopolitical issues could dominate where the market goes in the short term. Probably hasn't spilt over into the economy and the property market yet, but it's pretty pretty willing. Once you leave australia, you know um. The assad regime fell over the weekend. Like there's major plays happening.
Speaker 2:Oh yeah, it's a brave new world once again in the middle east. Yes, uh, yeah, look out. One of the fears we had uh, for 2024, well, was that the Middle East would seriously blow up and look, it's been boiling. There's no question about that. It didn't get to the point, though, where we saw Iran try to block oil supply, and that was our concern that it could get to that level, and, essentially throughout the course of the year, iran blinked, they blinked, they decided they were not ready for an outright war with Israel, and so that was an interesting move to see them blink like that. So that was one of the primary reasons why we just did not see oil reignite. So our concern was that you'd see a reignition of inflation around the world because of a major blow up in the Middle East. And gee, we came close, but it didn't actually happen.
Speaker 1:And the fall of the Assad regime in Syria doesn't actually help Iran's cause, does it? It sort of weakens them further.
Speaker 2:Well look, I'm not a geopolitical expert.
Speaker 1:I'm just a housing expert.
Speaker 2:You know. So I do not know what to make of this regime change. I've read multiple stories about it. I don't think there are a few people who really are fully aware.
Speaker 1:It's a wait and see.
Speaker 2:It is a wait and see game. That's correct, but it is interesting that Iran has blinked.
Speaker 1:So I think they're in a position where they're saying we're not ready for war right now. Let's hope they're never ready, lou, let's come back to housing, where you are an expert. We all know that listing volumes were up. Whether you follow the property market or you don't, you knew listing volumes were up because as you drove around your local suburb, there were a lot more signboards this year than there has been in previous years. Yes, what I'm really keen to know is, whilst there was an increase in listings, what about sales volumes? Because the auction clearance rate captures only those people or properties that go to auction. Many people transact off market buy negotiation. So when we look at overall sales volumes for the year, how are they comparing year on year with 2023?
Speaker 2:So for Sydney, the fall in auction clearance rates has been offset by a rise in volumes scheduled activity. The fall in auction clearance rates is off by about five to six percentage points compared to where we were this time last year. Overall, that would imply that in Sydney there's been a rise in sold activity for the spring selling season. I put that at about three to about six percent rise compared to 2023.
Speaker 1:Anecdotally not the data precision that you would have access to I did notice in the last quarter an increasing occurrence where people were selling their property for less than they paid.
Speaker 2:Yes, and that's been happening particularly with off the plan developments. We're seeing it in Sydney's CBD, we're seeing it in Sydney's Parramatta, we're seeing it in Sydney's Cullingford in particular. So areas where there's been a lot of off the plan activity with high density dwellings yeah, and we were actually seeing it in the housing market.
Speaker 1:It wasn't a dominant trend, but I can tell you it was there prestige real estate people buying for, you know, 4.4 and going back out for 4.2 million 3-, four years later. The other consistency, if I can say, between a lot of those properties is they purchased in 2021.
Speaker 2:Yes, yes. Well, the issue with the top end of the market is that you've got less comparable sales to work out. Fair valuation these are very unique properties. Sales to work out fair value agents these are very unique properties and just because someone paid X amount of dollars in 2021 doesn't mean that that is a fair market value. Today, these things are tricky to try to come to a fair market value, whereas more standardized stock you've got a whole bunch of comparable sales to work out where the market's at. So, yeah, the further high you go in the housing market in terms of dollars paid, um, the more unique the property is.
Speaker 1:Less comparable sales the higher the chance that you could you could actually overpay because it's a far more inefficient market mid-year there was a lot of talk about offshore buying and I know that you didn't quite buy into that and you didn't think it was as dominant to the degree that some media commentators claimed it was at the time. Certainly, on the ground we felt like offshore buying sort of fell away late in the year. Did you have any sense of what might have been happening there?
Speaker 2:It's hard to get a strong sense on it because the data behind offshore purchases is severely lagged. So right now, as we speak at the end of 2024, we only have part of the data for 2023 on that front.
Speaker 1:Okay, that's very laggy.
Speaker 2:Yeah, it is indeed, so is that the same?
Speaker 1:data the government's making decisions on and policy on.
Speaker 2:Yes.
Speaker 1:Yeah right.
Speaker 2:So it's when it comes to foreign investment purchases. Because of that lag in data, you see a lot of hearsay evidence and only anecdotal evidence, and so from an analyst perspective it's really hard to make great judgments.
Speaker 1:Yeah, Louis. In summary, who got the best of it in 2024,? Sellers or buyers?
Speaker 2:Depends on which city we're discussing Sydney. So for Sydney it was a marginal seller's market in the first half of the year, but I strongly believe it swung to a buyer's market in the second half.
Speaker 1:Yeah, so we're calling it a draw.
Speaker 2:Net draw, that's right. Yeah, net draw. But as we speak right now, the market is increasingly favouring buyers.
Speaker 1:Yes, indeed, I, we speak. Right now. The market is increasingly favouring buyers. Yes, indeed, I would call it a net draw as well. But what I would point out to sellers is that, given what happened with interest rates ie, there was no relief thrown in this year and it has kept pace with inflation. They should be happy with that, because the market could have taken a bigger flesh wound this year than it did, and I think we'll talk in our next recording about what happens in 2025. But I think if the RBA don't start throwing some relief out there, the market will be under further duress.
Speaker 2:I think so. I think for the first as we finish the year and head into 2025, pretty much all our indicators leading indicators on the Sydney housing market have headed south. They're weak. So I'm a strong believer that housing prices will continue to fall into the start of 2025 and probably until we finally see that rate cut.
Speaker 1:Louis, fantastic wrap today on the 2024 Sydney property market. Thanks very much.
Speaker 2:Thank you once again.
Speaker 1:And thank you for joining us today on Talking Property. We look forward to speaking with you next time.
