What’s Falling Faster: Sydney Property Prices or Your Buying Power?

Sydney property prices are falling. For buyers who have spent years watching prices move further out of reach, that can look like welcome news. In some respects it is. Cotality’s recent data shows Sydney’s upper-quartile house values are now about 10.7% below their peak, with higher-value homes recording the largest declines. Properties are taking longer to sell, vendor discounting has widened and listings have increased.

There is another number that matters just as much. Buying power.

A lower listing price does not automatically mean a more affordable purchase. The price of the property is only one half of the equation. The other half is what a bank will allow you to borrow and what the repayments on that debt will look like.

The Listing Price Is Only Half the Calculation

Imagine the type of home you want was worth $3 million at the peak. A 10% fall would bring it to around $2.7 million. On the surface that looks like a meaningful improvement. You appear to be buying the same home for $300,000 less.

That improvement only holds if your ability to fund the purchase stays the same. Banks do not simply look at the asking price. They assess income, expenses, existing liabilities and the capacity to service the proposed loan. APRA still requires lenders to apply a serviceability buffer of three percentage points above the loan interest rate when assessing most new borrowers. As borrowing costs rise, the amount a household can qualify for can fall even while property prices are declining.

Two variables are moving at once: the price of the property and the buyer’s capacity to fund it. Both need to be watched.

A Falling Market Can Still Move a Property Out of Reach

This is where waiting solely for lower prices becomes more complicated than it first appears.

Suppose you have identified the type of property you want but decide to wait because you expect another six months of price falls to produce a better opportunity. You might be right about the property price. That is not enough on its own. If the property falls another $100,000 while your maximum borrowing capacity falls by $200,000, you are not $100,000 better off. Your position may have deteriorated.

The reverse is also true. If prices fall materially while income, deposit and borrowing capacity remain strong, purchasing power can genuinely improve. The relevant question is therefore not simply how much further Sydney property prices might fall. It is what your available budget will actually allow you to buy if they do.

This Matters Most at the Higher End of the Sydney Market

Not every part of Sydney is behaving the same way. Cotality’s data shows the largest cumulative declines have been concentrated among higher-value homes. The gap between upper-quartile and lower-quartile house declines in Sydney has been around 5.3 percentage points. For buyers targeting established family homes in more expensive markets, that can create opportunities that did not exist at the peak.

Financing conditions can move in the opposite direction at the same time. At the AFR Property Summit in early September, RBA Assistant Governor Sarah Hunter noted that inflation remained the priority and that if inflation proved stronger than forecast, the Board may need to raise interest rates again. That does not mean another rate rise is certain. It does mean buyers should not assume today’s borrowing position will necessarily be available six months from now.

Lower Price and Better Affordability Are Not the Same Thing

This is the distinction that matters most. Price and affordability are not interchangeable. A property can become cheaper while the monthly cost of financing it increases. A buyer can negotiate a larger discount while simultaneously qualifying for a smaller loan. A market can become more favourable to buyers in aggregate while an individual buyer’s financial position becomes less favourable.

Sydney buyers currently have more negotiating leverage than they have had for some time. Selling times have lengthened, vendor discounts have widened and higher-value homes have experienced substantial repricing. None of that automatically tells you whether you are becoming more capable of buying the specific property you want.

The Practical Question to Keep Asking

This is not an argument for buying immediately or for waiting indefinitely. There are valid reasons to wait. Your deposit may still be growing. Your income may change. Better opportunities may appear in your target market. The right property may simply not be available yet. Falling prices are also not a reason to force a purchase that does not suit you.

The point is narrower. If you are waiting because you expect Sydney property prices to fall further, do not measure the success of that decision by property prices alone. Keep track of your borrowing capacity. Keep track of the repayments associated with the debt you would need. And keep track of what your available budget actually buys in the suburbs and property types you are targeting.

You do not buy the Sydney market. You buy one property. If your buying power falls faster than the price of that property, waiting for a cheaper market may not leave you in a better position at all.