Auction Clearance rate
October 2023 in Sydney saw the average clearance rate for the month come in at 62% with a total of 2,281 properties sold out of the 3,678 reported. The clearance rate was down on the September 2023 clearance rate of 65%.
Interest Rates
The Reserve Bank of Australian Board increased the cash rate by 25 basis points or 0.25% which makes the cash rate 4.35%. The Governor of the RBA has said that inflation is still above the Bank’s preferred rate of between 2% and 3% and she has said that the Bank will not rule out increasing rates again in the coming months.
In a speach to the Australian Business Economists Annual Dinner RBA Governor mentioned that inflation was very broadly based and that a lot of the goods and services that Australians are consuming is causing inflation to run above 3%. The Governor also mentioned that services were causing inflation to be above 3% and these were hairdressers, dentists, dining out, sporting costs and other recreational activities. The mainstream media has had a field day with the above statements and not too many of the major players mentioned that Governor Bullock was referencing Australian Bureau of Statistics data.
The Governor mentioned that the above reflects domestic economic conditions and is an indication that aggregate demand is sufficiently greater than aggregate supply to sustain these price increases.
It will be interesting to see what will happen in the coming months with inflation and interest rates.
The graph below shows the areas of the economy that is having an impact on inflation
Outlook for Residential Rents
The overall capital city forecast is for the market (asking rents) to rise again next year by between 7% to 10%. Perth is expected to record the largest increase of market rents of 12% to 15%. While Canberra is forecasted to record the largest declines of -6% to -2%. For the past 12 months to 20th of November capital city combined market rents have risen by 15.2%, while overall national rents, encompassing regional Australia have risen by 9.2%.
The severe mismatch of completed new dwellings for 2023 (expected to be approximately 175,000 dwellings) compared to an additional population expansion of some 575,000 people, has driven yet another year of market rental surges. Since January, 2020 combined capital city market rents have risen by 40.5%. This is likely the fastest rise in rents since the 1970s.
SQM’s rental market assumptions for 2024 include population expansion slowing back to 455,000 people, and dwelling completions to fall to 153,000. If SQM is right about its assumptions it will mean a further shortfall of some 20,000 dwellings for next year. SQM does expect tenants to respond with increased sharing (a rise in the number of occupants per dwelling).
If migration does not slow as expected it is likely rental increases will be greater than forecasted. While any better than expected building completion rates would somewhat help alleviate the shortfall.
Sydney Housing Price Outlook
Sydney’s housing market is expected to record a moderate fall in dwelling prices of between -4 to 0%. It is expected Sydney’s middle to outer rings for free standing houses will record a greater correction. Sydney units are expected to outperform, and Sydney’s inner ring is still expected to record price rises as top end property remains in demand from foreign investors.
2023 has recorded a significant deterioration in housing affordability for Sydney. Typical mortgage repayments to household incomes have reached generational new highs and based on the current Sydney median dwelling price ($1,100,000) have put housing out of reach for the majority of Sydney working adults.
