Sydney’s blue chip waterfronts impacted by price downturn

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Sydney property prices are sinking dramatically as rising interest rates and inflation bites, while global economic uncertainty and property tax changes also unnerve buyers.

As a general softening ripples across the market, new data spotlights inner-city, up-market and waterside locations that are showing significant decline, with prices in some suburbs dropping by nearly 30 per cent annually.

It comes as figures from PropTrack’s Home Price Index revealed Sydney home prices have already dropped below their late February peak.

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Kirribilli has seen the greatest annual price decline for units according to new data. Photo: iStock

North Avoca had one of the most significant annual decline of house prices

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But price declines have been substantially larger in premium markets like the eastern suburbs, lower north shore and northern beaches.

The biggest drop annually was for units in Kirribilli with a price decline of 32.3 per cent, followed by a dip of about 20 per cent for suburbs Waverley and Kurraba Point.

Houses in Warrawee have seen an annual decrease in prices of 25.9 per cent followed by North Avoca, Sylvania Waters, Longueville and Queens Park that also saw a significant drop.

Interest rate increases are the strongest factor for the downturn, likely to keep prices falling or slowing growth in the months ahead.

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REA Group Senior Economist Anne Flaherty says coastal areas have been among the worst affected

REA Group Senior Economist Anne Flaherty said coastal areas have been among the most sought-after locations in recent years, particularly as the pandemic reshaped how and where people live and work.

“This drove strong price growth between 2020 and 2022, significantly eroding affordability and leaving these markets more exposed to a pullback,” Ms Flaherty said.

“Since then, price growth across many regional and coastal areas has slowed, with some experiencing declines.”

Ms Flaherty said now, higher interest rates are adding further pressure.

“Given the relatively higher price points of many coastal markets compared to other regional areas, the impact of rising rates is being felt more acutely,” she said.

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Economist, Broker and Founder of Its Simple Finance Joseph Daoud said the property market is going through a correction.

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Economist, Broker and Founder of Its Simple Finance Joseph Daoud said the housing market is going through a correction and the first suburbs to feel the effects are historically the upper end of the market.

“The lower end of the market is currently being buoyed by first home buyers utilising the First Home Guarantee,” he said.

“So everything below the $1.5 million price cap (in Sydney) is still growing in price thanks to sustained demand and limited supply.”

Mr Daoud said with the RBA increasing rates, mortgage holders are forced to reduce their spending, limiting borrowing capacity and reducing the pool of those able to afford the higher end of the market.

“So with demand dropping in the upper end and further rate rises expected this year, we’re likely going to continue to see housing values fall,” he said.

“By how much is the real question. Analysts are predicting as much as a six per cent drop in Sydney home values by the end of 2026.”

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Sydney’s east has been hit hard by price falls. Picture: NewsWire / Simon Bullard.

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According to Shore Financial Founder and CEO Theo Chambers, many of the suburbs that have seen significant annual decrease are coveted by young professionals, who would likely be in a more exposed debt position, or downsizers.

“Generally we find that young professionals who have recently had children are a bit more stretched financially and sometimes they’re the ones that are positioned to sell in climates like now and accept lower offers than others would,” he said.

“In Kirribilli, Kurraba Point, Elizabeth Bay and Longueville, definitely areas like the eastern suburbs, there’s young professionals that are really stretched entering those marketplaces because they’re expensive marketplaces and normally people put all their eggs in the basket of their home.

“So normally those areas where price affordability is the most stretched, they’re the ones that have the most to correct in tough times.”

Mr Chambers said in a strong market, people are willing to pay a lot more than the price guide because they feel prices and property are very buoyant in blue chip areas.

“In a weak market, that confidence really dissipates quite quickly, the disparity between a good price and a bad price is a significant amount in terms of a percentage,” he said.

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Shore Financial Founder and CEO Theo Chambers says young buyers are stretched.

“The other extreme there looks at downsizes, North Avoca and Longueville, it could be people either selling, North Avoca could be holiday homes and Longueville could be a downsizer that’s looking to take equity out of their home, get a smaller property and use that equity to invest to get an income.”

Mr Chambers said buyers could be reactive to the negative economic news and data right now.

“People are factoring in future rate rises and the initial hit in prices is happening right now,” he said. “These windows of softening prices are generally short-lived, they generally only last three to six months. Towards the end of the year, I think things will stabilise.”