Interest rate pain punctures Sydney property market high

Back-to-back interest-rate rises and geopolitical uncertainty are testing Sydney property prices, with experts predicting a cooler market in the months ahead.

Last week, the Reserve Bank of Australia (RBA) lifted the cash rate by 25 basis points to 4.10 per cent, dismaying borrowers already grappling with rising petrol prices amid a cost-of-living crisis.

The move followed a 25-basis-point hike in February. If the RBA lifts rates again in May, as some economists are predicting, it will undo all three rate cuts it handed down in 2025.

BresicWhitney director Andrew Liddell says world conflicts and persistent cost-of-living pressures at home are giving Sydney buyers pause.

“It almost feels like we’re back in early 2020, when COVID kicked off and buyers became very anxious,” he says.

Fewer groups are inspecting properties and making offers this selling season than late last year, Liddell adds. “My team and I have had almost 40 sales this year, and I would say 90 per cent of those sales have come down to one buyer.”

Sydney’s auction clearance rate has declined consistently since February, and slipped to 58 per cent last weekend, on preliminary Domain data.

A clearance rate of 60 per cent is generally seen as a balanced market. A rate below 60 per cent suggests prices are likely to fall.

“You would have to err on the side of caution and say the market is probably going to get worse before it gets better,” Liddell says.

Domain head of research and economics Dr Nicola Powell says the Sydney market is more sensitive to changes in the cash rate than other markets.

“Sydney is a high-priced market with higher levels of investor activity, which creates greater volatility when interest rates move,” she says.

The city’s median house and unit prices are likely to decline slightly in the quarter to March, Powell adds.

The median house price in Sydney was $1,759,909 in the quarter to December, on Domain data, while the median unit price was $844,400. Both results were all-time highs.

Independent housing market analyst Eliza Owen says the Sydney market is softening, but movements aren’t uniform across price points.

“At the moment, the market is very split,” she says. “Values at the lower end of the spectrum, below the $1.5 million mark, are being supported by the expanded 5 per cent deposit scheme,” now called the Australian Government 5% Deposit Scheme.

At the more expensive end, Owen says rate hikes and poor affordability relative to incomes are dampening price growth.

“In fact, at the high end of the market, there are a lot of suburbs where values have actually declined in the past few months,” she says.

Even so, Owen says she doesn’t expect Sydney property prices to fall significantly this year.