After peaking early this year, Sydney’s house values taken the brunt of rising rates and declining buyer sentiment, posting a double-digit decline by the end of September.

According to CoreLogic, house values in Sydney declined 10.1% or by $116,500 in September since their peak in February 2022.

This decline can be attributed to the successive rate hikes, which slowed down Sydney’s price surge — home values in Sydney increased by 27.9% or roughly $252,900 from the lowest during the pandemic to the recent peak.

CoreLogic research director Tim Lawless said Sydney was leading the capitals in the current downturn given its susceptibility — it is the most expensive market for houses, making it more vulnerable to interest rate hikes.

“Although Sydney’s housing values were already in decline when the rate hiking cycle began, the pace of decline accelerated sharply following the first interest rate increase in May,” he said.

Since the first rate hike in May, Sydney’s house values have already declined by 9.5%.

Mr Lawless said despite the decline in Sydney prices, the city still has more room to decline before wiping out the capital gains accrued over the recent growth cycle.

“Home values would need to fall a further 11.4% to get back to the levels seen at the onset of COVID,” he said.

“The good news for Sydney homeowners is that the rate of decline has continued to moderate through October, improving from a 2.2% decline over the four-week period ending 3 September to 1.3% over the most recent four-week period ending 23 October.”

Rental crisis still gripping Sydney

On the rental market side, Sydney seems to have continued to reel under crisis, with its vacancy rates dropping to a nine-year low.

In September, the city’s vacancy rate hit 1.6%, with all regions dropping over the month, according to the Real Estate Institute of New South Wales (REINSW).

REINSW CEO Tim McKibbin said the decline in vacancy rates in September came after a brief hiatus in the previous month when rates seemed to have levelled out.

“Vacancies in Sydney really are at a historical low — not since November 2013, almost nine years ago, have we seen the residential vacancy rate for Sydney overall as low as 1.6%,” he said.

Mr McKibbin said conditions are also tight outside Sydney.

“Vacancy rates in the Hunter region and Wollongong remained stable at 1.4% and 1.1% respectively, and regional areas across the state continue to be extremely tight — these latest results show that there’s no denying that a rental crisis continues to grip New South Wales,” he said.

As cost-of-living pressures and rate hikes continue to impact tenants and landlords, rents will undoubtedly increase while rental supply depletes.

“Undoubtedly, many tenants would embrace the opportunity to secure a more affordable rental property. However, despite rent increases, they’re choosing to stay put because they’re just not confident that they’ll be able to secure another property,” Mr McKibbin said.

“Supply continues to be the key problem. In short, there is simply not enough housing to cope with demand and this is putting tremendous pressure on the rental market.”

Photo by Tourism Australia on Canva.