As interest rates rise, Sydney’s house prices are falling and experts say it is a “benchmark” for what is about to happen in the rest of the country.
Key points:
- Interest rates are driving down the value of Sydney properties
- The Reserve Bank of Australia raised the cash rate to 0.85%.
- The average mortgage in NSW is $ 786,035
After hitting record highs in January, Sydney home values fell 1.5%, according to CoreLogic data.
While the cost of buying a home in Australia’s largest city remains 22.7 per cent above pre-COVID-19 levels, the fall in value increases each month, driven by the ‘rising interest rates.
Martin North of Digital Finance Analytics said Australia already had a “housing access crisis”.
“I actually think the next evolution is falling prices, there is a very significant risk of seeing significant falls,” he said.
“House prices are too high in relation to income: debt-to-income ratios of six to nine times cannot be accepted.”
Mr North said Sydney was an indicator of what would soon affect the rest of the country.
“This is not just a Sydney / Melbourne issue.
“What usually happens is that Sydney tends to react first because of the important lever there is.
“Then Melbourne follows and then other areas tend to follow maybe 12 to 18 months later.”
On Tuesday, the Reserve Bank of Australia raised its cash rate by 50 basis points or half a percentage point to 0.85%.
“If we see interest rates potentially increase by 150 or even 200 basis points, it would increase mortgage repayments by 24-25% and reduce borrowing capacity by 20%,” he said. say PropTrack economist Paul Ryan.
“It reverses all this increase in affordability that we saw during the pandemic period when interest rates fell to the lowest level ever.
“We’ve seen Sydney slow down quite dramatically, it’s the fastest slowdown in a six-month period since 1989.”
Real estate agent Mario Carbone has noticed a drop in buyer activity. (ABC News: Phoebe Bowden)
Real estate agent Mario Carbone, who works for Ray White in the west interior of Sydney, has already noticed a substantial drop in buyer activity.
“It’s gone down about 47 percent, from walking traffic to open houses, online inquiries, even phone calls, we get the day to day,” he said.
“We’ve seen buyers be more tentative and probably sit on the sidelines of an auction to see what the outcome might be.”
According to Canstar chief commentator Steve Mickenbecker, “there is a favorable aspect to falling prices.”
“Many people predict a 10% to 15% drop in house prices, which will make it easier to set up a deposit.”
However, it is unpleasant news for those who have paid the “top dollar” for the past two years and bought with a deposit of less than 20 percent.
“A lot of people will have bought well below the 20 percent deposit,” Mickenbecker said.
“People who have bought 5 or 10 percent will find themselves with negative capital.”
From eastern Sydney, where people have been “overworked,” to Campbelltown, southwest of the city, mortgage stress is worsening.
A recent Digital Finance Analytics survey found that an increasing number of households across the country spend more on basic goods and loans than they earn on income.
Buyers are asked to “buy” their mortgage. (ABC News: Daniel Irvine)
“People are already making horrible exchanges between the different things they want to do,” North said.
“We’ve seen in our polls people saying, well, you know, we have to eat, but we may not be able to buy the clothes of the children we were hoping to buy.
“Very often, people give up on dental treatment because that’s something they can slow down.”
The map shows the number of households in each zip code that are suffering from financial stress.
The data comes from a household survey where information on income and expenses is collected, excluding non-discretionary items such as holidays.
Households with a negative cash flow are considered to be in financial stress.
The average mortgage in NSW is $ 786,035, according to data released Friday by the Australian Bureau of Statistics, while the national average is $ 611,154.
In such difficult times, expert advice on what people can do is “buy” and keep up with the depreciation, if possible.
“Get a lower priced loan so you don’t notice the increases so much,” Mickenbecker said.