Is it a case of the winter chills?

Sydney's real estate market is dynamic, with prices and activity levels fluctuating throughout the year.

So, what’s happening now?

Historically, the market tends to be most active during the spring and autumn months, when the weather is mild and conducive to house hunting. Conversely, winter often sees a slowdown in market activity. But while sales and listing activity typically ease through winter, housing values don’t always follow suit, attributed mostly to the decreased level of stock.

This year though, has seen an easing in growth, likely linked to persistently low consumer sentiment amid stubbornly high inflation and a rise in advertised stock levels in some markets. Housing values for most of this year had been underpinned by the expectation that the next interest rate move would be downwards. Disappointingly to many, figures in May showed that inflation has remained higher than expected and pushed back the anticipated date of a rate cut. This has forced many borrowers to postpone their plans of transacting, particularly those looking to upsize and invest.

Stretched budgets, with high cost of living and increased debt servicing costs, are likely to delay purchasing decisions until the outlook for interest rates becomes clearer. Since the first rate hike in May 2022, the average new mortgage repayment for Sydneysiders has increased by approximately $2,200 per month.

The recent slowdown is notably stronger across more expensive markets and property types, with house values and values in Sydney recording the most noticeable easing. Interestingly though, the mid-sized capitals of Brisbane, Adelaide and Perth have been the star performers in terms of growth throughout the year. While these markets will likely continue to outperform markets like Sydney and Melbourne in the near term, as these cities' affordability advantage erodes, we'll likely see a further easing in demand amid persistently high borrowing costs.

Most mortgage holders have been coping with the increased strain on their finances with relatively low numbers of distressed sales. However, the longer rates stay elevated and the more homeowners’ resources get drained, the see-saw may tip under the weight of soaring debt.

It’s not all bad though.

We are still recording positive capital appreciation across most markets, and the fundamental supply and demand mismatch continues to support value growth. Unless something changes drastically, it will be business as usual.