Navigating through change: an in-depth analysis of the NSW property market in 2023

Navigating through change: an in-depth analysis of the NSW property market in 2023

December 7, 2023 | by Dean Mackie

Throughout 2023, the NSW property market has been shaped by a confluence of local and global forces, with interest rate hikes, cost of living pressures and significant geopolitical events impacting consumer confidence and the wider economic climate of our country. In a year marked by a unique blend of challenges and opportunities, property markets across NSW exhibited a resilience and dynamism that defied many initial forecasts, particularly in high-demand areas like Sydney, where the interplay of supply constraints, economic policies, and international investments crafted a distinctive market narrative. As we look towards 2024, understanding the nuances of this past year can help us discern the possible trajectory of the NSW property markets. In this article, I dissect the year’s key influences and explore how they might shape the residential property landscape in the coming months.

Two distinct phases in 2023

The year 2023 in NSW was characterised by distinct phases, each marked by varying market dynamics. The initial months continued the trends of 2022, with a notable scarcity of new listings. This shortage was particularly pronounced in Sydney, where the demand for housing consistently outstripped supply. As a result, competitive bidding and escalating prices became the norm, with the median house prices in Sydney reaching unprecedented levels. However, the latter half of the year saw a shift in this trend. Seller confidence gradually returned, influenced by stabilising interest rates and a clearer economic outlook. This resurgence of listings led to an increase in market activity, albeit with a more balanced dynamic between buyers and sellers. New listings in Sydney, for instance, recorded a significant upsurge by August, deviating from traditional seasonal patterns. This shift also reflected the broader economic sentiment, where homeowners, buoyed by equity gains and a sense of market stability, were more inclined to list their properties. The end of 2023 has witnessed a balanced interplay of supply and demand, setting a nuanced stage for the property market in 2024.

Where we stand today

The latest CoreLogic data is indicative of the subtle yet telling shifts that characterise our diverse regions.

On the Central Coast, while recent figures point to a slight cooling with dips in the median sale price over 12 months in Avoca Beach and Terrigal, the substantial three-year growth in the same area suggests a market that’s correcting rather than declining. This is accompanied by a drop in the number of sales and stock on the market, indicating a slowing but potentially stabilising market. Meanwhile, in the Eastern Suburbs, we are still seeing robust median sale prices, indicating a resilient market that remains attractive despite a short-term softening. This resilience is further reflected in a Woollahra’s growing number of sales and increased stock, showing a market that is holding steady despite broader economic trends. The Hills District continues to defy wider trends, as evidenced by Castle Hill showing a positive swing of 2.40% over the past year, bolstered by a significant 37.60% growth over three years, underscoring a region that’s growing in appeal. This is despite a -10.30% shift in the number of sales and a -5.30% change in stock on the market, suggesting that while fewer transactions are occurring, the value of property in the area continues to rise. Down in the Illawarra, Wollongong has seen a 12.30% pullback this year, yet the 33.80% expansion over the last three years suggests a longer-term confidence in the area’s property market. This is matched by a minimal -1.60% shift in sales volume and a -6.80% change in stock, indicating a market that’s experiencing a slight slowdown in activity but maintains its overall growth trajectory. The Lower North Shore, with Mosman experiencing a modest 2.00% growth in the past year alongside a 14.90% increase over three years, continues to be perceived as a stronghold of value and a safe bet for investors. This area has also seen an increase in sales and offerings, suggesting a growing market that’s attracting both sellers and buyers. The Northern Beaches and the Northern Suburbs reflect a more complex picture. Mona Vale’s prices have dipped by 5.70%, yet there’s a clear surge in demand as evidenced by a 15.30% increase in sales activity, along with an 8.70% rise in stock, indicating a market that’s dynamic and active. Wahroonga, despite a slight 1.60% drop in prices, has seen a 30.50% appreciation over the last three years, along with a significant boost in the number of sales and available stock, pointing to a dynamic, growing market. The Southern Highlands and Sutherland Shire both tell stories of resilience and growth. Bowral’s year-on-year softening of 10.30% is set against a strong three-year performance of 36.50%, suggesting a market where values are rising even as the number of transactions decreases. Remarkable Cronulla has remained steady over the past year, with a three-year growth of 43.50%, accompanied by a significant 15.10% rise in stock and a 6.90% increase in sales, reflecting a vibrant and expanding market. Overall, these variances underline a market that, while facing short-term pressures, maintains a solid trajectory of growth and desirability across the board, reflecting the enduring appeal of the regions within the DiJones portfolio.

Economic factors and geopolitical influences

Throughout 2023, the Australian housing market experienced significant growth, with national housing values rising by 7.2% and rent values jumping by 6.0%1. Adding to this dynamic, the cost of borrowing has escalated, evidenced by the year’s 125-basis point hike in the cash rate, which has continued to shape the financial landscape for both property owners and investors. Meanwhile, the global geopolitical landscape in 2023 has contributed to ongoing worldwide inflationary pressures and increased living costs, affecting consumer sentiment, spending habits and borrowing capacity. Simultaneously, we have seen a resurgence in Chinese investment in Australian real estate, with enquiries from China for Australian properties soaring, especially in Sydney’s luxury housing market2. This renewed interest, which comes despite (or perhaps as a consequence of) the economic challenges faced by China, added a layer of complexity to the Sydney market. The city saw increased activity in high-end real estate transactions, underscoring its international appeal. The combination of these geopolitical and economic factors has created a unique market environment, where local dynamics intersect with global economic trends, resulting in a property landscape that has been both challenging and full of opportunities.

What has been driving prices up in 2023?

In 2023, the NSW property market grappled with the repercussions of inflation and rising interest rates, affecting various groups in distinct ways. Lower-income households, including many renters and some mortgagors, felt the brunt of inflation most acutely due to their higher expenditure on housing and essentials. Several factors have influenced our markets and driven prices both upwards and downwards over the course of the year, key amongst which was the significant post-COVID population growth, which led to increased demand for housing. This was particularly evident in Sydney, where the population influx, coupled with a shortfall in housing supply, exerted substantial upward pressure on prices. The market also grappled with a slowed pace of new housing developments, exacerbating the supply-demand imbalance. Another critical factor has been a perceived stabilisation in the economy and an underlying expectation that lending restrictions may ease as the interest rate hiking cycle slowly grinds to a much-hoped-for halt. Considering a continuing moderation in inflation, the RBA did hold the cash rate steady in December3. However, APRA has opted to maintain its serviceability buffer at 3% for the time being4.

And the downward drivers?

On the flip side, the market has faced downward pressures from stretched affordability. The gap between wage growth and home prices, especially in Sydney, has presented a significant challenge, potentially slowing demand and exerting downward pressure on prices. The RBA’s projection of rising unemployment5 further compounded this, suggesting greater market uncertainty and potentially fewer loan approvals. Renters and investors have also had their share of challenges this year, as low vacancy rates and high demand have driven rental prices up, significantly straining the budgets of many tenants. At the same time, investors have grappled with the financial strain of rising mortgage costs due to interest rate hikes, complicating their ability to sustain investments and meet the needs of their tenants. This dual pressure has created a challenging environment, underscoring the need for a balanced approach that considers the hardships faced by both parties in the property market. Despite the RBA’s December decision to keep the cash rate at 4.35%, sustained inflation could lead to prolonged high interest rates, pushing more mortgage holders into financial stress and creating a complex and dynamic market environment for homeowners and renters as we head into 2024.

Housing affordability tightens

The ANZ-CoreLogic Housing Affordability Report 20236 indicates that in 20236, Australia’s housing affordability worsened due to rising housing values, rents, and interest rates. The time to save a 20% deposit extended to 10 years nationally, and the income needed to service a new home loan jumped to 46.2%. The affordable dwelling value for median income fell short of the actual median dwelling value by over $200,000. Rent affordability also declined, requiring 31.0% of income. The affordability gap between houses and units widened, with units remaining more aligned with median incomes than houses. In regional markets, the time for a 20% deposit increased to 9.7 years, and the income needed for a new mortgage rose to 44.7%, reflecting a convergence with capital city market affordability.

Projections and considerations for 2024

As 2024 approaches, the NSW property market is poised for continued evolution, influenced by a mix of domestic and international factors. This year is expected to unfold under the shadow of ongoing global economic conditions, government policy responses, and interest rate trends, each playing a significant role in shaping the market’s direction. Global economic landscape The international economic landscape will also be instrumental in determining the market’s health. A global economic rebound could enhance consumer confidence and invigorate investment, bolstering the property sector. However, persistent global challenges could temper investor enthusiasm and affect the flow of foreign investments, which have been a significant contributor to the NSW market’s dynamics. Government strategy A critical area of focus coming into 2024 will be the government’s strategies to address housing affordability and supply. Initiatives to boost affordable housing stock could relieve some of the pressure driving up property prices. Additionally, targeted investment in infrastructure, particularly in Sydney’s outer suburbs and regional NSW, promises to diversify housing options, potentially leading to a more equitable distribution of demand. Interest rates Interest rates, a decisive factor in 2023, will continue to be pivotal. While predictions suggest a stabilisation of rate hikes, any further increases by the RBA to manage inflation could cool the market. The effectiveness of such measures will largely depend on parallel developments in wages and the general cost of living.

A final word

As we enter 2024, the NSW property market is at an inflection point, with the potential for both growth and adjustment. The market’s resilience and adaptability, as evidenced in the previous year, are likely to be key assets in navigating these changes. For stakeholders, including homeowners, investors, and policymakers, a proactive and responsive approach will be essential. Keeping abreast of market trends, policy changes, and economic indicators will be crucial in making informed decisions.

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