Home owners told no need for ‘panicking’ amid Sydney property slump

Sydney has been leading a national property market slump, with home values in the city falling 0.9 per cent in May, according to Cotality data released this week.

Homes in areas most affected dropped in value between 1.4 and 2.6 per cent, with the median value for Sydney homes — including units — sitting at $1.28 million.

It followed a months-long cool down topped off by multiple interest rate hikes and changes to negative gearing and capital gains tax announced as part of the federal budget.

Industry experts suggest the trend could continue, but should home owners be worried about engaging with the market?

No need for 'panicking'

Based in Sydney's inner west, Ray White Annandale licensee Tina O'Connor said there had been an obvious "softening" in home prices in recent months.

"I don't think we can deny that, particularly in some of the higher price brackets," she said.

"Prices have been pretty resilient compared to some areas because the inner west is pretty buoyant … but we have seen buyers become a bit more selective."

Ms O'Connor said some homes were taking longer to clear, but assured prospective sellers there was still movement in the market.

"I don't think we should be panicking … because well-presented homes that are correctly priced from the beginning are still selling," she said.

"I'd expect the market to stay as is for a little while, maybe a little bit flat, but there's still transactions happening and still people buying and selling."

Buyer budgets tighten

True Property managing director Michael Catalano said there was a noticeable drop in buyer confidence in the wake of the federal budget.

"I'm hearing from buyers on the ground that their budget to purchase a property has reduced around about 10 to 15 per cent, just due to the banks tightening their belts since the budget announcement," he said.

"Before the federal budget announcement, days [homes were listed] on market was about 28 days. Now it's about 40 days.

"Open-home attendance, that's down approximately 5 per cent."

Mr Catalano said in recent weeks he had attempted to reassure anxious buyers about their recent purchases.

"History shows that these pockets of Sydney never crashes. Yes, it may come down a little or plateau out, but it never crashes," he said.

Mr Catalano said he expected the market to continue to transition from an "aggressive growth market into a more cautious and price-sensitive environment".

"Buyers are definitely still active, but they're a lot more selective due to the interest rates, affordability, and uncertainty following the budget."

The trend has also been seen at auction, with Cotality data showing the preliminary clearance rate across Sydney for the last week of May was 51.8 per cent.

It was Sydney's second-weakest preliminary clearance result for the year so far, behind the 49.2 per cent clearance rate recorded during federal budget week.

Those clearance rates had previously not been seen in the city since April 2020.

'Whiplash' in the industry

Based in Sydney's south-west, First National Narellan real estate agent Andrew Valciukas said the reaction to the federal budget had prompted "the fastest change in market sentiment" since the COVID pandemic.

"I'm suffering with a little bit of whiplash at the moment, to be perfectly frank," he said.

"I have no doubt whatsoever that there will be further interest rate rises in the tail end of this year and potentially into next, which is going to have devastating impacts on the local real estate market."

Mr Valciukas said it was an uncertain time for those working in the property sales industry.

"There are a lot of self-employed, commission-only real estate agents who will be incredibly concerned right now because their only income is based on transactions. So when transaction volume dries up, then so does their income," he said.

"I think that if things continue the way that they are looking like they are going to that you will see a lot of [real estate] offices either disappear if they don't have a rent roll to rely on, or at the very minimum, start to shed their wages expense relatively dramatically.

"So the writing is on the wall for a significant shake-up for the industry and restructure, without a doubt."

Past Cotality research showed combined capital city home values had fallen by no more than 8.2 per cent over the past four decades, while individual capitals have recorded larger falls.

In 2022, Sydney's annual values were down 12.1 per cent after interest rates started rising following the COVID pandemic.

Cotality research director Tim Lawless said it would not be unusual to see national values continue to shrink to upwards of 8 to 10 per cent.

"I think we're probably at the very early stages of what could be a more pronounced down cycle for Australian housing," he told the ABC's AM.