Sydney home prices have fallen for the second consecutive month in what pundits are warning could be the start of a protracted market correction.
The average price drop was minor at 0.29 per cent – equating to about $3000 – but it was double the previous monthly fall, according to the PropTrack Home Price Index released Wednesday.
Falls in Sydney prices over May were also the biggest in the country, eclipsing the drops recorded in Melbourne, Canberra and Hobart. Prices rose in Brisbane, Adelaide and Perth.
The median price of a Sydney home at the end of the month, based on data from sales of units, townhouses and houses, was $994,000.
This was more than $200,000 pricier than the median in Melbourne and about $350,000 above the Brisbane median.
PropTrack senior economist Paul Ryan said Sydney’s “stretched” housing affordability was part of the reason prices were dropping.
Agents reported there was also a mood of hesitation among buyers, who were wary of the impact of rising interest rates.
Other buyers expected there to be more falls in prices and the result was a “fear of paying too much” and a perception it would be better to delay purchases until there was more market certainty.
Mr Ryan said Sydney price drops were the largest because city buyers would be the most impacted by additional rate rises on top of the May cash rate increase – the first Reserve Bank raise in 11 years.
“The more you’re paying, the more rate rises make a difference so buyers would be the most reticent in Sydney, where people tend to borrow more,” he said.
This mood of buyer hesitancy or even conservative spending would continue until purchasers had a better idea of what kinds of rates they would be paying for the first few years of their mortgage, Mr Ryan said.
A general sense of “market fatigue” following the record rises in prices last year would further dampen buyer activity, Mr Ryan said.
Cautious buyer activity during May was particularly apparent in the auction market.
The typical auction at this time last year had eight registered bidders, but last month many properties were withdrawn from auction before bidding was scheduled to commence due to lack of interest.
Among the auctions that did go ahead, the average had four registered bidders.
Weekly clearance rates – which measure the proportion of auctions resulting in a sale – hovered around the 55 per cent mark for most of May, well below the 80-90 per cent rates recorded last year.
Clearance rates below 60 per cent have historically correlated with a drop in prices.
SQM Research director Louis Christopher said falls in prices were common in an environment where interest rates were rising and it was likely Sydney prices would continue to dip.
But a “crash” in prices was unlikely due to low unemployment figures, he added. There was also a chance high inflation would prevent a significant price correction.
Mr Christopher said buyers, in the short-term, were in a position where they could take their time. “There is no need to rush into (a purchase),” he said.
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