State of Sydney Report December 2023

Every six months, the quarterly Shore Financial State of Sydney Report forecasts how house
prices will change over the next half-year in select Sydney suburbs.

The Shore Financial State of Sydney Report has a track record for delivering accurate
forecasts.

The most recent forecasts were made in December 2022 and June 2023.

So how accurate were the forecasts?

The December 2022 house price forecasts were largely accurate, while the June 2023
forecasts had more deviations.

New report provides important clues about the current Sydney property market

The Sydney property market has significantly outperformed price growth forecasts over the second half of 2023, suggesting that more strong price growth might be coming in 2024. To understand why, we need to assess the forecasts that were made in the December 2022 and June 2023 editions of the Shore Financial State of Sydney Report.

The December 2022 edition correctly assessed how the Sydney property market was placed, based on analysis of asking prices, days on market, inventory levels and sales volumes. As the report stated at the time, while the city’s overall median price still had a little further to fall, some suburbs were showing signs of strong imminent price growth over the next six months.

For the June 2023 edition, the same data points were analysed, but this time there was more deviation between the forecast results and actual results. Why? Because the analysis failed to capture just how much pent-up demand there was in a lot of suburbs. As a result, a lot of locations significantly outperformed the forecasts.

Shore Financial CEO Theo Chambers said this retrospective look at price growth over the past 12 months provides us with important clues about the current market. “This time last year, the Sydney property market was in a fairly predictable place. We’d had a large boom during the pandemic, that had been followed by a correction, and it seemed like the market might fall a little more before entering a period of moderate growth. That’s largely how things played out,” he said.

“Six months ago, the Sydney property market was in a state of flux. It was hard to tell if demand was being artificially propped up by low housing supply or if it was the result of genuine buyer interest. As a result, the data seemed to suggest that we could expect moderate rather than strong price rises. In reality, though, it turned out that more Sydney suburbs were in growth mode and at higher rates than expected.

“Four factors contributed to that above-average growth. First, Sydney’s population has been rapidly increasing, largely due to external migration, which is pushing more people into the housing market and bolstering demand. Second, rental vacancy rates have remained ultra-tight and rents have continued surging, which has encouraged more people to switch from renting to buying – further increasing buyer demand. Third, rising prices have become a self-fulfilling prophecy: people are buying to get ahead of rising prices, which is causing prices to rise further. Fourth, while demand is elevated, supply is still quite low, even though quite a lot of new listings came onto the market over spring. “When you study all these data points and indicators, it gives us clues about what we can
expect from Sydney prices in 2024.

“A lot of people felt that with interest rates elevated, unemployment rising and Sydney’s median price close to a record-high, we’d see only limited price growth next year. However, the reality could turn out to be very different. “Demand is likely to remain strong, because it’s likely that external migration will remain high and that the rental market will remain very tight and continue pushing people into the sales market. At the same time, the supply of new listings is likely to remain constrained, because that’s been the trend in recent years and there’s nothing to suggest that will suddenly change.

“When you put all that together, there’s a reasonable chance the Sydney property market will be in boom mode in 2024. “Where that might change is if the Reserve Bank kept pushing up interest rates, if unemployment spiked or if a surge of vendors listed their homes to take advantage of higher prices. If that happened, price growth would be much more moderate.”