Buyer demand has remained strong in more affordable areas. Picture: Josie Hayden
Greater Sydney’s housing market has turned into a tale of two cities, with interest rates uncertainty keeping a lid on prices in wealthy areas, while home price gains have continued in cheaper suburbs.
New data reveals the broader market has slammed on the brakes, with Sydney prices dropping 0.3 per cent in December, according to PropTrack.
The drops came as buyers reeled back from sales amid warnings of imminent rate hikes.
The prospect of a rate hike has since dropped, but housing experts have revealed the blow to buyer sentiment has been enough to moderate the market in many areas.
Sydney’s eastern suburbs recorded the largest falls in prices, with the median price of all dwellings in the region dropping by 2.11 per cent over the last three months of 2025.
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Source: PropTrack
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There was also weakness in the north, with north shore homeowners seeing an average 1.31 per cent wiped off their values, while Ryde slipped 0.13 per cent into the red over the three months.
It was a different story in the outer west and Blue Mountain region, where dwelling values rose 2.6 per cent over the quarter – the sharpest gain of any region in the city.
The area, which includes Penrith, remains one of Sydney’s cheapest markets for both house and unit sales.
The outer southwest, including Campbelltown and Camden, recorded a 1.7 per cent average rise in dwelling values. There was similar growth in the southwest, which includes Liverpool and Fairfield.
The Central Coast, another of Greater Sydney’s cheaper markets, recorded a 1.59 per cent rise in values and rounded out the top four fastest growing regions.
REA Group economist Anne Flaherty said that prices in more affordable areas were rising faster because investors and first-home buyers were competing for the same properties in these areas.
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Source: PropTrack
Investors were returning to the market motivated by the chance of getting capital growth, realising Australia has a “housing shortage that will take a while to correct”, Ms Flaherty said.
First-home buyers were often bidding with support from the government First Home Guarantee Scheme, the economist added.
The scheme helps buyers get into the market with 5 per cent deposits without having to pay the lender’s mortgage insurance normally charged on mortgages with small deposits.
Ms Flaherty said many of the top growth markets around the country had prices under $800,000 making them eligible for the scheme in most states.
“Affordability is driving more people to cheaper suburbs,” Ms Flaherty said.
Ray White United Group agent Amber Boumelhem, who sells houses in the St Marys area of Western Sydney, said the more affordable prices in the region were a huge draw for both investors and first-home buyers.
Auction clearance rates started to moderate toward the end of 2025. Picture: Sam Ruttyn
She added that some first-homebuyers had been priced out of other areas and were often willing to bid up prices in cheaper suburbs just to land a foot on the property ladder.
Investors, meanwhile, had been encouraged by largescale infrastructure investment in the area, which is expected to turn it into a vital Western Sydney hub.
The expectation from investors is that this will drive up local rents and home values.
Realestate.com.au economist Anne Flaherty
“The investors have more money and they can usually outbid the first-home buyers,” Ms Boumelhem said.
“A lot of the first-home buyers are coming here because this is what they can afford. Sydney prices are crazy.”
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