Current Market Insights
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Current Market Insights
Talking Property - Second Half of 2025 Sydney Property Market Previewed
SQM Research’s Managing Director Louis Christopher recently joined us to outline provide his view on how the Sydney Property Market will perform heading toward Christmas.
Louis discusses:
- Why both the Sydney and National property market are likely to rise in the next 12 months
- The impact of falling interest rates and rising immigration numbers
- Benefits infrastructure brings to the suburbs and locations close to the new roads, Metro Stations and Airports
- First home buyers entering the market and fuelling the bottom end of the market
- The best performing segments of the market
- Why home sellers and buyers should care about the ACCC’s investigation into REA Group and
- Much more…
This is a deep dive on the factors that will determine the market’s direction in the near term.
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 SQM Research's Managing Director, Louis Christopher, as we preview the second half of the Sydney property market. Louis, thanks as always for joining us. Good to be with you once again. Louis, what are you predicting for the second half of the 2025 market in Sydney?
Speaker 2:I believe we'll see a rally in the Sydney housing market. I think that's already been happening, albeit on a slower rate, but I think the rate's going to accelerate, based on a rate cut in July, more certainty for the economy going forward as well, given the fact the federal election's well and truly out of the way. So, yeah, the expectation is we'll see a rally which will be fairly wide across the Sydney market, but I think for the outer ring of Sydney in particular, it's going to be a fairly strong rally.
Speaker 1:Let's go straight to the rate cut on the 8th of July. Some people will be watching this after the 8th of July. Some people will be watching this after the 8th of July and the fact will be known. But do you think it'll be 0.25 or will they go more aggressively?
Speaker 2:It'll be at least 0.25. It could be 0.5 depending on what equity markets do at the time. Into the lead up, as we know, we've got a lot of geopolitical uncertainty that it'll be at least 0.25.
Speaker 1:Louis, when I read the statements from the RBA this year and I'll bring up our first slide for today's discussion. The RBA have many messages succinctly articulated in these statements, but something that I noticed in the last three is this constant preparedness for major global events that could impact on the Australian economy, as outlined in our slide here. What do you make of these comments from the RBA in their statements?
Speaker 2:Oh, no doubt they're becoming increasingly dovish for the outlook of interest rate cuts and they see interest rate cuts as a way to create a buffer for the Australian economy if the economic geopolitical turbulence we're seeing gets worse. Their fear would be that with the rise of tariffs and the rise of more and more conflict, that is going to see a slowdown in economic growth, driven by a slowdown in global confidence towards a global economy. And so they believe the response to that will be to cut rates now, sooner rather than later, to create that buffer for the Australian economy.
Speaker 1:Now, at the time of recording, trump has sidestepped Albo at the G7 and headed back to Washington to deal with the Middle East crisis, and Albo was going to take Trump on about the tariffs on Australia. You would suspect and look for relief in that meeting. If tariffs, as they're proposed by the US government, land on the Australian economy, what does that look like for Australians?
Speaker 2:My understanding of what's and it has been a fluid situation, but my understanding is that Australia would have a 10% broad tariff rate applied across its goods and services. That is considerably less compared to what the US was applying towards, say, for example, europe towards China, towards most other countries. So, relatively speaking, it shouldn't hit us directly that hard. The real potential impact is the indirect effects of a global economic slowdown due to other countries being hit hard by tariffs.
Speaker 1:So we're thinking, when you say the property market's going to rally in the second half of the year, we're thinking the housing market will be immune from those factors and that home buyers won't be caught up in them and they will respond very favourably, provided employment holds, to rate cuts.
Speaker 2:That's a key assumption, peter. Yes. So if we were to see a scenario where we had an absolute economic route worldwide, creating rapid increases in unemployment, we would not be immune to that wave. So, assuming that unemployment doesn't rise rapidly, I think the combination of rate cuts plus very strong population growth will drive housing prices up, not just in Sydney, but in most capital cities for the second half of 2025.
Speaker 1:When we come to the Sydney market, the prestige end of the market through this rate hiking cycle was clearly the strongest. Will that continue to perform well and be the best performer in the market, or will we see more life at the bottom end of the market? I believe we'll see more life at the bottom end in the market, or will we see more life at the bottom end of the market?
Speaker 2:I believe we'll see more life at the bottom end of the market. We will see more first home buyers enter into the market. Let's keep in mind that we're still in a rental crisis. Rents are still very elevated, so there's a lot of incentive for renters to turn themselves into first home buyers and, given the incentives driven by the federal government out there for renters to do just that, combined with the rate cuts, I think we'll see a wave of first-home buyers entering into the Sydney market. And, of course, for many first-home buyers, their first property will be a property which will have to be a very affordable property. So it may well be a unit, a one or two bedroom unit, perhaps in the middle to outer ring of Sydney. And it's one of the reasons why we think the outer ring of Sydney is going to be the outperforming area or the outperforming ring for the second half of 2025 and into 2026.
Speaker 1:So affordable housing with still relatively easily accessible back into the city for work, etc. Correct, yeah, and in percentage terms, what would you expect that segment of the market to move by Louis?
Speaker 2:I think for this current calendar year. Let's keep in mind we do our forecasts for calendar year by calendar year. So we have for our forecast for this calendar year housing prices overall to rise by up to about 6% in terms of the year and year change. I think Sydney's outer west is likely to do more than that. I don't think it'll hit double digits for this year, but I think the probabilities of a double digit increase are increasing for 2026. So good times ahead. Good times are ahead, provided the Middle East doesn't blow up to the point where the whole world goes down with it.
Speaker 1:Okay, well, let's come to that. Our next slide is about the Middle East. David Taylor is an ABC journalist too. I follow his commentary and it's pretty reasonable. Like all of us, he has a slant. That's okay, reasonable. You know, like all of us, he has a slant, that's OK. But he put this post out when the Iran-Israel conflict really escalated. What would you make of this view that Taylor's taken here?
Speaker 2:Yeah, look, it was one of the fears that I had, which we actually wrote up about in our 2024 report. Yes, About this scenario where Iran blocks the Straits of Homs, which means that oil supply is severely constrained worldwide, which pushes up oil prices, petrol prices, energy prices overall and creates this stagflationary event worldwide. It is definitely a risk. I think the US will do all in their power to stop something like that from happening.
Speaker 1:This scenario that he's outlined here is essentially a rerun of what happened in the 70s, wasn't it?
Speaker 2:That is correct. Now, keep in mind, in the 1970s, it wasn't just Iran that was creating this shortage of oil, it was OPEC overall. So we're just talking about the country of Iran. Now Iran, of course, is a major, major, major oil supplier, so they can certainly have an impact upon the market and they can certainly have an impact in terms of the oil tankers that run in and out of the Straits of Homs, which basically import oil not just from Iran but from other countries around the area, including, for example, saudi Arabia. So, no question, it is a risk. I think the United States would foresee this risk and I think that's when they would bring in their military power to stop such an event taking place.
Speaker 1:Because of the havoc it would create on the global economy if they didn't.
Speaker 2:That's exactly right. So, for example, they could run their naval convoys through the strait and keep it open that way, right? So I think that there are measures that can occur which perhaps might not be able to stop it immediately, but might be able to stop it within a couple of weeks if Iran were to take that action.
Speaker 1:Okay. So, moving on from the Middle East, that's a big story and it's very, very difficult, as you say, at this fluid stage to work out where it's going to. I do want to talk historical interest rates, louis, and I accept your point that the RBA cutting rates will be good for the property market. I feel that on a day-to-day basis as a real estate agent. But I do want to go back in time.
Speaker 1:People somehow believe that the reduction in interest rates during COVID caused the property boom. People are actually shocked when you tell them that how low the cash rate was before COVID was even a thing. And if we look at our slide here, in February 2020, the cash rate was at 0.75%. It was already at emergency levels. It was a decent property market then, but it was by no means booming to the degree that it went on to boom in 2021.
Speaker 1:And when I look at this again now, five years after, the fact tells me that, yes, okay, we've got a 0.65 reduction in the cash rate, but the true catalyst for that wild boom in 2021 was all the free money that government pumped into the economy. Um, because, at the end of the day, the the cash rate only moved from 0.75 to 0.1. The rba didn't have scope at that time to aggressively cut rates to see us through covert. So what's your thoughts now that when we bring up our next slide, we come to um may 2025, we've got a cash rate of 3.85, down from a high of point four, point three, five in this cycle and we might go to you know, we might go to what three point six on July 8. Why is that having such a big impact on property prices?
Speaker 2:hmm well, if we wind ourselves back to 2019, we must remember back then migration rates were not as strong.
Speaker 2:The population growth rate of Australia was considerably lower than what we have now, so underlying demand for accommodation, while it was growing, was just not growing at such a great clip that we have now.
Speaker 2:So that's one thing to keep in mind. Second, the inflation rate that we had at the time was a lot lower than what we've been experiencing in recent years, so the RBA was struggling to try and create some type of inflation. The concern was deflation at the time, hence the reason why interest rates were so low. So the real interest rate that was running at the time was actually quite it was still positive, but we were still running real positive interest rates, and that was putting a little bit of a drag on the economy. And when you have a bit of a drag on the economy combined with, say, lower migration levels, housing prices struggle in that environment. Keeping in mind, though, in the second half of 2019 we did start to see a recovery in the housing yes, we did after that federal election, after that federal election let's remember that federal election housing was very much front and centre.
Speaker 2:What was on the election was negative gearing. Yes, it was on the block. It was on the block and that created a lot of uncertainty in the housing market in the lead up to that election, so that also created a bit of a slowdown in the market as well. And, to your point, what this shows is that interest rates are not the be-all and end-all in the housing market, and I think that's the point you're trying to make. Moving forward to today, yes, we've got a high cash rate but, as mentioned, we've had higher inflationary rates as well, combined with the fact we've got very strong migration and a real shortage of properties on the supply side. And these are the reasons why I believe a combination of a rate cut plus strong population growth is going to drive dwelling prices up, despite the fact that, in absolute terms, we've got a higher interest, nominal interest rate than what we had back in 2019.
Speaker 1:Yeah, great answer, louis. Thank you's. You know explaining a lot in one go there, but that's a great outline, thank you.
Speaker 2:You're welcome.
Speaker 1:What would you say? Percentage terms? Wages are up by the same period as well, because they're obviously higher than they were in 2020.
Speaker 2:Yes, so back in 2019, wages were essentially running ahead of inflation at the time, but just only by a little bit. We've actually been in a period where wages has been falling behind inflation Up until fairly recently. There's been a couple of wage announcements which suggest that real wages might actually start picking up again. Maybe might actually start picking up again, maybe. But yeah, back then we had a situation where real wages were moving forward a little bit more than what we've had of late.
Speaker 1:So coming out of COVID, I don't like to keep going back to COVID, but it is good to look at history to help people understand how the market works. Clearly, inflation was well above the cash rate.
Speaker 2:Yes, that's right.
Speaker 1:Where now we've got a cash rate of 3.85%, which is comfortably above the cash rate. Yes, that's right we're now we've got a cash rate of 3.85%, which is comfortably above the inflation rate, both underlying and the headline rate. So what role does that play in the RBA's thinking on things?
Speaker 2:So when you have a real positive interest rate, like what we have now, where the cash rates are higher than inflation, that puts a bit of a dampener on the economy, you're actually trying to slow the economy down. In that scenario, what the RBA now wants to do is they want to loosen the economy up a bit, and so this is the reason why they're dropping the cash rate, and I believe what they'll do is try to drop the cash rate down to a level which is on par with the current inflation rate.
Speaker 1:Okay, so that's where you think it'll settle.
Speaker 2:I think it's potentially going to settle at that time. Now they may take some time. If there is significant turmoil in the global equities market, they may well move quicker. If the equity market stays stable and Yelp looks reasonably stable for the global economy, they'll do this at a more slower pace.
Speaker 1:Obviously, many people have been punished by the rate setting of the RBA and caught on the wrong side of the trade, unfortunately, as they carried too much debt into an aggressive rate hiking cycle. But notwithstanding those people that would give the RBA an F for fail, how do you think the RBA have managed the last five years?
Speaker 2:Oh, I wouldn't wanna be a central bank, and I think I've said this on your program before. I think it's one of the most difficult jobs you can possibly have, because really it's all about trying to forecast the future.
Speaker 1:Yes.
Speaker 2:And there is so much uncertainty that that's really really difficult to do. I think, on balance, the RBA has done a reasonable job. Let's think about it. We've been through the plague. We've been through significant geopolitical uncertainty and in the end, the economy has not fallen in the heap when it could have Absolutely, and that is in part credit to the RBA to being responsive to what's been occurring in the national domestic economy.
Speaker 1:Yeah, high pressure position, no doubt, but I think they've managed it admirably. Once I've agreed with everything they've done at every point, I think they probably could have started cutting late last year myself, but all in all, I think they've managed the economy pretty well.
Speaker 2:I think the biggest mistake they made was, you know, the grand announcement by Lowe of no interest rate rises. Until when was it 2024. You know, there was no way anyone could possibly predict that and yet he came out with that. I'm sure he, if he had his time again, he again, he would take those words back.
Speaker 1:Well, he tried to walk it back, but it wasn't very successful.
Speaker 2:It wasn't very successful, that's right.
Speaker 1:Louis mortgage arrears. Have we seen some relief there in the bank's books with people managing the rate cuts that have already come through? Is that an improving scenario in the data?
Speaker 2:It's really early days before we can definitively say that arrears have turned a corner, Keeping in mind they never reached alarming levels. As you know, we measure distress listings activity and we note that on our index we're seeing less properties being selling under distress conditions here in New South Wales and Victoria compared to where we were, say, about 12 months ago, and it's been falling in Queensland as well. So on that measure, I would suggest that we will see officially a level of arrears which will be falling on the bank's books.
Speaker 1:Look, I think that data there segues with what we saw as real estate agents Late last year. We saw mortgage holders or homeowners tapping the mat and walking in and saying I can't afford to continue to hang on to this property. Invariably it was investment properties being sold off. Yes, agents across the industry were reporting landlords dumping out of investment properties, taking the equity, putting it against their home loan. And what made the rental market tougher is that nine times out of 10, when you sold a rental property off your books, you sold it to an owner-occupier, shrinking the rental pool. But we started noticing the number of people, or the volume of people, who were outlining themselves as having mortgage stress started to reduce immediately when they cut rates in February. So again, it's just showing the RBA really we're in tune with the economy and not everyone will be happy with their management, but they did do it pretty well, didn't?
Speaker 2:they, I think, in the scheme of things that they've done, they've done quite well moving along now to something slightly different.
Speaker 1:The a triple c if we bring up our next slide here, the a triple c have launched an investigation into the rea group. I know that you're very deeply connected to the industry and you um get you know, take a lot of perspectives from different people within the industry and you get you know, take a lot of perspectives from different people within the industry. What, what do you make of this investigation?
Speaker 2:I think I'm glad to see the investigation. I think re I carry a lot of market dominance. When you have a situation where an end consumer home seller is paying you know what six,000 to put a listing on a website, or more, that's pretty crazy. That shows market dominance and there's no question. It's undisputed. Rea have said it themselves they're number one in the space by far and I would agree with that. So I'm glad the investigation is going ahead. I'm looking forward to seeing what the ACCC comes out with.
Speaker 1:Yeah, the Real Estate Institute of New South Wales have opened sent a link to their members asking them to pass comment straight through to the ACCC as to their experience with with the company. There's probably two points that really get under my skin about the way the company has treated us as real estate agents. The first is Australia is by far and away the most expensive market in the world to run an internet ad.
Speaker 2:Yes, it is, that's right Now.
Speaker 1:It could be argued that the website is better than some of its global peers. I accept that too to some degree, but you've just outlined some costs there which are just completely unjustifiable. The industry made a strategic mistake in the early days. They said increases from REA don't concern us, because we do vendor paid advertising here in Australia where, globally, the real estate agent advertises the house on behalf of the vendor and the vendor pays for the advertising and the commission in one go at the point of sale where agents have got this vendor paid advertising model which allows them to get the money upfront off the vendor. So when it was affordable, no one was really concerned about what these websites were up to. But fast forward 20 years and we're at a situation where they're essentially sending real estate agents broke.
Speaker 2:Well, we must look at it that we're talking about here a publicly listed company who has to, for their shareholders, record profit growth year on year on year. They need to do that. If they don't do that, the stock price falls. So there's a lot of pressure to grow revenue. Now, when you get to the point where you have such a huge market share as what REA have in the country, you cannot grow that market share any further. So how do you generate revenue growth? You lift prices and since they hold such a dominant position, they have that power to lift prices. Hence the reason why the ACCC are looking into this matter.
Speaker 1:And then the other one that I know gets under a lot of real estate agents' skin is postcode pricing, and that's the equivalent of Qantas' airfares, for example, might be far higher on routes where they're not competing with Virgin and Rex, but when they are competing with Virgin and Rex they've got much more manageable pricing scale. And the REA Group are hitting real estate agents where there's a lack of competition, namely Domain.
Speaker 2:Yes.
Speaker 1:So it can be more expensive to run an ad in Western Sydney, where domain is not as strong than it is in the inner city, where domain holds a presence and is keeping realestatecom or the REA group on an even keel to some degree. And I'm sure these are all of the things that the ACCC will be looking at.
Speaker 2:I'm sure they will be. I'm sure they will also be looking at, when we speak of postcode by postcode, whether advertising prices are high simply because a postcode's in an affluent area.
Speaker 1:Well, that's definitely going on.
Speaker 2:Well why? I mean, it doesn't make any sense. The cost of doing an ad would be the same whether it's in Double Bay or in penrith. Okay, so that's the part which I find uh dubious, to say the least oh, it's, it's, it's dubious, unfortunately.
Speaker 1:Um, the real estate industry walked themselves off the cliff on this one, yeah, and they are the ones that are squealing loudest now, and it's great, and I'm not saying the people that are taking the fight up on behalf of the real estate industry are to blame. It's great that they are taking the fight up, but there's no doubt that the real estate industry had a once in a lifetime opportunity to unhook itself from this vendor paid advertising model, being at the mercy of media companies that just keep jacking prices up. They got off the hook when we went from print to digital and then, just through nature, jumped back on the hawk, and 20 years later, the prices are unsustainable and we're in a world of pain.
Speaker 2:Correct. Look, the issue we face here and this directly feeds into our affordability issues, and this directly feeds into our affordability issues is that whenever you buy and sell a property in Australia, the transaction costs overall are quite high. That's a combination of stamp duty costs, advertising costs and so forth. What this lends itself into is property owners sitting on a property not willing to transact Empty nesters, for example, property not willing to transact empty nesters, for example, not willing to downsize because the transaction costs are huge. They'll end up spending $150,000, for example, in just doing the transaction costs, and that's real money down the drain. And so, with very high transaction costs, this creates a more illiquid marketplace, and that's what we need to try and resolve if we're going to resolve our fundamental affordability issues in this country.
Speaker 1:Well said, louis. Moving along infrastructure the new infrastructure that Sydney's experienced in the last few years is taking hold now. The metro is, you know, a mighty piece of infrastructure and Sydney siders are learning their way around the tunnels etc. Is that changing the way pricing in the city is performing, making previous difficult to access or isolated suburbs that are suddenly more conveniently accessible back into key arterial roads? Is that impacting on prices?
Speaker 2:I think it's early days, yet Sydney has shown a history of this.
Speaker 2:I'll never forget when the M2 opened up in the early 1990s and we essentially saw massive outperformance in the lead up to the opening of the M2 and post the M2 in Sydney's north west, because that was the area which directly benefited from the opening of that arterial road.
Speaker 2:I think with the expansion of Sydney's metro we will see localities which are close by be positively influenced by that. For example and this is a little bit out there and I don't recommend anyone take advantage of this, this view or this tip I think North Sydney, in Sydney's lower North Shore, may well outperform over the medium to long term because it's become quite a hub, a transport hub where you've got the normal railway line there, plus a metro, plus you've got a great bus system and I think potentially you could see some outperformance there. But we will see outperformance, I think, in Sydney's west as well, for reasons I mentioned earlier, but also because we're getting closer and closer to the opening of the second airport yes, indeed, and I think that's going to see a bit of a mini economic boom in Sydney's south, west and west.
Speaker 1:Even if you're not into public transport, the way Sydney's roads and traffic flow is at the moment, it's nearly for want of a better word it's nearly forcing you, or inspiring you, to get onto the public transport system, isn't it? Because traffic jams, you know, I had to go west one Saturday night a few weeks ago and there was four lanes of traffic from Haberfield M4 to St Clair. Wow, ok, on a Saturday night, now it was vivid. I don't do that run regularly, or very regularly at all, of a Saturday evening, but I just couldn't believe it and I'll never forget. When Chris Minns became Premier, the Friday before the election day, I was in the radio listening to a Liberal Minister talking about what great infrastructure they had left the city with and why they were deservative another term. And it just so happened that I was on the m4 heading west on that morning as well, and again it was bumper to bumper traffic from Haberfield back past the old underland there at Walgrove Road quite clearly that message didn't really come through to those or stuck on the motorway.
Speaker 2:That and I just looked at.
Speaker 1:I looked at those people heading east and said you know they would be nearly falling out of the car door listening to this message, because nothing's changed for them. They're in bumper to bumper traffic still, just with an extra lane of it Once again.
Speaker 2:I hate to harp on this. We can put in, and we have put in, great infrastructure. But if we keep growing the way we are, in terms of underlying population growth, sydney's been up at 2% per annum Okay, that infrastructure hits capacity real quick. Now I don't know if you've been taking the metro of late. I do from time to time. I can tell you first thing in the morning. All those metro trains are absolutely jam-packed. You cannot get on them.
Speaker 1:That's the point I was getting to. All the infrastructure that we've been through, the construction fatigue, all the construction that the city has experienced is for the next generation, not the last, correct, and I think people are starting to work that one out, aren't they?
Speaker 2:Indeed they are.
Speaker 1:Now, louis, just finally wrapping up today. Thanks for your wrap-up. Most importantly, we bring up our next slide here, the. The mighty Bears are back. You mentioned North Sydney, so the one forecast that everyone wants from you today is when the Bears are back in 2027, how are they going to perform?
Speaker 2:Oh, my goodness, who knows? Well, hopefully, because I am a long-term Bears supporter they're going to do really well. They're going to do really well indeed.
Speaker 1:Personally, I'd love to see more games at North Sydney Oval. The forecast is one game a year.
Speaker 2:To begin with, I think that the plan is they want to upgrade the facilities at North Sydney Oval. Personally, I don't think they need to do that. It's a great oval as it is and you it can fit an absolute capacity of about 15,000, which, if you get 15,000 to an NRL game, that's not a bad day for the caretakers. So yeah, but it's great to see them back. I've been going to the local suburban games the New South Wales Cup and there's been a good base of supporters, or bear supporters, attending those games every weekend, even though it's a reserve game.
Speaker 1:That's good grassroots support there.
Speaker 2:It's definitely the bears have still got good grassroots support. So if it doesn't work over in Western Australia I think the bears will still stick around and they will come back to North Sydney Oval. But hopefully it does work over in WA.
Speaker 1:I think it will. The rugby league's pretty strong over there.
Speaker 2:I just recall what happened back in the Super League days where it didn't work back then.
Speaker 1:Well, I think the whole game abused itself then, unfortunately for the Western Reds at the time. But no, it was great to see the Bears come back. What an iconic foundational team Indeed. So no, it was great to see the Bears come back. What an iconic foundational team.
Speaker 2:Indeed.
Speaker 1:So long live the Bears.
Speaker 2:Long live the Bears.
Speaker 1:Louis, thanks for the wrap today. We look forward to catching up at the end of the year to see how the market performs. I don't think it's any surprise to anyone that it's got some monumental challenges in the next six months, geopolitically and locally, and it'll be interesting to see how it all washes through. Absolutely, peter. I look forward to catching up in six months geopolitically and locally, and it'll be interesting to see how it all washes through.
Speaker 2:Absolutely, peter. I look forward to catching up in six months time.
Speaker 1:Good on you, thanks, louis, and thank you for joining us today on Talking Property. We look forward to catching up with you in December.
