Sydney house prices

Declining Sydney property prices a forecast for the rest of Australia | WATCH

PHOTO: Sydney house prices are dropping in value every month. (AAP: Dan Himbrechts)

As interest rates rise, Sydney house prices are dropping and experts say it is a “bellwether” for what is about to happen across the rest of the country.

After hitting record highs in January, Sydney housing values have fallen 1.5 per cent, according to CoreLogic data.

While the cost of buying a home in Australia’s largest city remains 22.7 per cent above pre-COVID levels, the decline in value is getting bigger by the month, driven by rising interest rates.

Digital Finance Analytics’s Martin North said Australia already had a “housing affordability crisis”.

“I actually think the next evolution is falling prices, there is a very significant risk of seeing significant falls,” he said.

“Housing prices are way too high relative to incomes — debt to income ratios of six, to nine times are not acceptable.”

Mr North said Sydney was a bellwether for what would soon hit the rest of the country.

“This is something which isn’t just a Sydney/Melbourne problem.

“What tends to happen is Sydney tends to react first because of the significant leverage that there is there.

“Then Melbourne follows and then other areas tend to follow perhaps 12 to 18 months later.”

On Tuesday, the Reserve Bank of Australia increased the cash rate by 50 basis points or half a percentage point, to 0.85 per cent.

“If we see interest rates rise potentially another 150 or maybe even 200 basis point increase, it would increase mortgage repayments by about 24-25 per cent and lower borrowing capacity by about 20 per cent,” PropTrack economist Paul Ryan said.

“It really reverses all that affordability increase that we saw throughout the pandemic period when interest rates were lowered to kind of their lowest level ever.

“We’ve seen Sydney slow down quite dramatically, it’s the fastest slowdown over a six-month period since 1989.”

A man wearing a suit and tie
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 Sydney’s inner west, has already noticed a substantial drop in buyer activity.

“It’s dropped by about 47 per cent, from foot traffic to the open homes, online inquiries, even the phone calls, we get day to day,” he said.

“We’ve seen that buyers will be more tentative, and probably sit on the sidelines of an auction to see what the result may be.”

According to Canstar’s chief commentator Steve Mickenbecker, “there is a silver lining to falling prices”.

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“A lot of people are predicting a 10 per cent to 15 per cent fall in house prices, that will make it easier to put a deposit together.”

However, it is grim news for those who have paid “top dollar” over the last two years and purchased with a deposit of less than 20 per cent.

“Plenty of people will have bought way below the 20 per cent deposit,” Mr Mickenbecker said.

“People who have bought on 5 per cent or 10 per cent will find themselves in negative equity.”

From Sydney’s east, where people have “overstretched”, to Campbelltown in the city’s south-west, mortgage stress is biting.

A recent survey by Digital Finance Analytics has found that across the country an increasing number of households are spending more on essentials and loans than they are earning through income.

A man and woman hugging in front of a for sale sign at a house
Buyers are urged to “shop around” for their mortgage.(ABC News: Daniel Irvine)

“People are already making horrendous trade-offs between the various things that they want to do,” Mr North said.

“We’ve seen on our surveys people saying, well, you know, we have to eat, but we, we now maybe can’t buy the kids clothes that we were expecting to buy.

“Quite often people give up on dental treatment because that’s something they can put off.”

The map shows the number of households in each postcode that are experiencing financial stress.

The data comes from a household survey where information on income and expenses are collected, excluding non-discretionary items such as holidays.

Households that have a negative cash flow are considered to be financially stressed.

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