For decades, Australians have been told property is the safest bet for a long-term investment – but the country’s most booming housing market could be about to dive.

I’ve crunched the numbers and it’s not good news for homeowners in Sydney, particularly those who bought during the Covid boom when prices peaked.

In the past three months, Sydney’s mid-point house price has fallen by 1.6 per cent. That might not sound like much, but put in cash terms, that’s $23,968 in value wiped since the start of November.

If you bought recently, and suspect you may have overpaid, that’s a bitter pill.

House prices aren’t falling across the board, of course. The downward trend is concentrated in more upmarket suburbs for now, while less desirable (and more affordable) areas are still seeing growth.

But the dominos of diving house prices always start to fall at the top end of town, so owners in suburbs where the decline has yet to be felt shouldn’t assume they’re safe.

Here, I break down what’s happening with house prices in Sydney, why they’re falling in some areas and not others, and which suburbs are being hit the hardest.

I’ll begin with an overview of property prices versus incomes, which is the main factor driving the housing crisis in the Harbour City.

Sydney house prices have been falling in the wealthier postcodes by the beach, even as they continue to climb in more affordable, outer suburbs

Sydney housing has become so unaffordable that even Australia’s top one per cent of income earners would have trouble getting a mortgage in a suburb by the beach.  

Mortgage stress – where borrowers struggle to make their home loan repayments – usually hits poorer suburbs with more force as the rich get by with their higher incomes and savings accounts.

However, there comes a point where house prices rise so steeply that, mortgage stress aside, there are simply fewer buyers who are able to bid for houses at auction – particularly if it’s a property near a beach, or close to the harbour. 

As a result, in the last year, prices have been falling in these exclusive postcodes, even as they continue to climb in more affordable outer suburbs.

Perhaps the best way to illustrate this trend is with the help of a chicken shop. Allow me to explain. 

The so-called Red Rooster line divides Sydney’s west and its more affluent northern and eastern suburbs. This ‘line’ roughly delineates the areas that tend to have more Red Rooster outlets (west) and the suburbs that have either zero or one (north, east).

Current trends show house values are falling in areas where the takeaway chicken franchise has no outlets.

In these well-heeled postcodes, prices are tumbling not because of mortgage stress (or a lack of chicken shops) but because the banks are restricted in what they can lend.

On the Northern Beaches, Narrabeen's mid-point house price has fallen by 7.7 per cent during the past year to $2.775million

On the Northern Beaches, Narrabeen’s mid-point house price has fallen by 7.7 per cent during the past year to $2.775million

This is because, in 2025, even the top one per cent of earners in Australia would have trouble getting a mortgage in a nice suburb by the beach.

Sydney’s median house price of $1.474million is now so expensive that someone would need to earn $227,000 to even qualify for a loan with a 20 per cent mortgage deposit.

This high-income earner would still be in mortgage stress – with their mortgage eating up one third of their pay each month – despite putting them among the top 2.3 per cent of income earners.

In short, prices are falling in the top end of town because it is virtually impossible to buy there unless you are a lottery winner. You can’t sell if there are no buyers.

This has seen prices fall along the coast from the Northern Beaches to the Sutherland Shire – and the ultra-expensive eastern suburbs in between.

But by contrast, there have been double-digit rises during the past year in Sydney’s outer south-west, where houses are expensive but not so expensive that a high earner can’t secure a loan from a bank.

I’d certainly advise bidders at auctions in wealthy suburbs to be more cautious, and Canstar data insights director Sally Tindall agrees.

‘It’s highly likely that some of those would-be buyers have reached their maximum budget and the bank won’t lend them any more,’ she tells me.

Prices are falling along the coast from the Northern Beaches to the Sutherland Shire - and the ultra-expensive eastern suburbs in between. (Pictured: Newport on the northern beaches)

Prices are falling along the coast from the Northern Beaches to the Sutherland Shire – and the ultra-expensive eastern suburbs in between. (Pictured: Newport on the northern beaches)

‘Or they might have decided not to overstretch themselves in order to get that winning bid in – fewer buyers in the market means less competition.’ 

The lack of competition is certainly evident in beachside Cronulla, in southern Sydney’s Sutherland Shire, where mid-point house prices plummeted by 8.5 per cent in the year to January to $2.883million.

Someone would need to earn a salary of $443,484 just to get a loan to live there!

That means you’re likely to only see a handful of top chief execs at an auction in the suburb that was the setting for Kathy Lette’s Puberty Blues novel about teenage surfers and their girlfriends during the early 1980s.

Meanwhile, harbourside Vaucluse, in the eastern suburbs, saw its mid-point house price fall by 7.8 per cent to a ridiculously expensive $8.334million, while Narrabeen’s mid-point house price has fallen by 7.7 per cent during the past year to $2.775million.

So where do we go from here? Well, not very far it seems.  

Until the Reserve Bank cuts interest rates, banks are typically limiting their lending to about 5.2 times a prospective borrower’s income before tax.

That means average-income earners on $100,000 would struggle to buy a unit worth more than $650,000, let alone a house within a 40-minute train ride from Sydney’s city centre. 

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