After a brief three-month dip, Australian home values bounced back slightly in February, rising by 0.3%. Sydney’s housing market followed suit, with a modest 0.3% increase, largely driven by a resurgence in the city’s high-end property sector.
Rental Market Gains Momentum
While home values saw a small lift, the rental market experienced a stronger surge. National rents climbed by 0.6% in February—the most significant monthly jump since May last year. As a result, gross rental yields edged up to 3.72%, a slight improvement from their recent low of 3.65%. For investors, this is a promising sign that rental returns remain on an upward trend.
Interest Rate Cuts and Borrower Confidence
With the Reserve Bank of Australia (RBA) easing interest rates, lenders have started passing on lower mortgage rates. This is expected to boost borrower confidence and provide some relief for buyers navigating the challenging Sydney market.
However, the impact of the rate cuts on home values remains uncertain. While Sydney’s 0.3% rebound halted a four-month downturn—where prices dropped by a total of 1.7%—ongoing affordability issues could put a cap on further recovery.
Sydney’s Housing Affordability Crisis
Sydney remains one of the least affordable housing markets in the country. Current figures reveal that dwelling values sit at around 10 times the average income. Households are spending a staggering 60% of their earnings just to service a new mortgage, and it now takes over 13 years to save for a 20% deposit on an average home.
Given these affordability pressures, some experts warn that Sydney’s market may not sustain its recent gains. AMP Chief Economist Shane Oliver pointed out that while the recent rate cut allows borrowers to access around $9,000 more in lending, they are still significantly behind where they were three years ago—when borrowing capacity was approximately $170,000 higher.
“Sydney prices have still risen by 28.2% over the past five years,” Oliver noted. “Unless we see a series of rapid rate cuts, it’s hard to see how the recovery can continue at this pace.”
Luxury Market Leads the Recovery
Despite affordability concerns, Sydney’s wealthier suburbs are showing the strongest signs of recovery. Areas on the lower north shore have recorded price increases of up to 2% over the past three months, according to CoreLogic data. This is significant because the luxury segment previously saw some of the steepest declines when the broader market softened.
Eliza Owen from CoreLogic highlighted that high-end buyers have responded particularly well to the recent rate cut, as well as to the anticipation of further cuts in the lead-up to the RBA’s decision. “It gave buyers confidence that they could access more finance, which in turn allowed them to offer higher prices for properties,” she explained.
Historically, when interest rates drop, the premium property market benefits the most, as buyers at this level typically have greater financial flexibility. If this trend continues, Sydney’s top-tier suburbs could see even stronger growth in the months ahead.
What’s Next for Sydney’s Property Market?
The outlook for Sydney’s property market remains uncertain. While the recent rate cut has offered a short-term boost, affordability remains a major hurdle. If borrowing capacity doesn’t improve significantly, the market could see further fluctuations rather than sustained growth.
For buyers and investors, keeping a close eye on interest rate decisions, lending conditions, and market trends will be key to navigating the ever-evolving Sydney real estate landscape.