Sydney’s housing upswing is being powered from the bottom up, with cheaper homes outpacing prestige property in a sharp reversal of the pandemic boom.
Ray White chief economist Nerida Conisbee says the city has effectively taken a “K‑turn”, with price growth now concentrated in the most affordable homes rather than blue‑chip suburbs.
Since late 2023, house prices at the 25th percentile have risen at roughly twice the pace of those at the 75th percentile, leaving lower‑priced stock driving much of Sydney’s recent gains. Across the capital cities, bottom‑quartile values have also outperformed, but the gap between cheaper and more expensive homes is widest in Sydney.
Cotality’s latest figures point to a similar split nationally, with cheaper homes and mid‑sized capitals such as Perth, Brisbane, Adelaide, and Hobart pulling ahead while Sydney and Melbourne stall, and research director Tim Lawless reporting “a lot of competition for lower-priced properties” as first-home buyers, investors and subsequent buyers all converge on this part of the market while credit is tighter at higher price points.
Conisbee notes this is a clear break from earlier cycles, when premium suburbs typically led the way. During the mid‑2010s and pandemic‑era booms, price growth at the top of the market consistently outstripped the bottom end.
In the current phase, she says cheaper homes are now outperforming by around four to five percentage points, underscoring how much capital is being channelled towards the lower quartile.
Government guarantees and rate cuts funnel demand to the bottom end
Several forces are concentrating demand at the lower end. First-home buyers have become a key driver, supported by an expansion of the federal government’s 5% deposit guarantee scheme in late 2025.
Income caps and place limits were removed and price thresholds lifted, allowing eligible borrowers to enter the market with as little as a 5% deposit and no lenders mortgage insurance.
ABS lending data show first‑home buyer loans in New South Wales jumped 10.9% in the December quarter, roughly double the rise in investor lending.
APRA’s latest property exposure data show buyers have rushed in, with banks writing a record $5.4 billion in owner‑occupier loans with deposits of 5% or less in the December quarter – a 63% jump on the previous three months and lifting these loans to 4% of new owner‑occupier mortgages, the highest share on record.
Borrowing capacity has also improved after three interest rate cuts last year, helping both first‑home buyers and property investors deploy more capital into relatively affordable parts of the market.
Structural pressures are reinforcing the K‑shaped pattern.
Prices at the top end are already extremely high, making it harder for existing owners to upgrade, while surging construction costs and tighter development conditions have made new builds less viable. In many areas it is now cheaper to buy an existing home than to build, particularly in outer and more affordable suburbs with constrained new supply.
Conisbee expects the divergence to persist. She argues that “the current housing cycle is being driven by demand for the most affordable homes” and warns that any renewed rise in mortgage rates is likely to weigh more heavily on higher‑priced properties with larger loans.
For brokers, that suggests the lower end of the Sydney market will remain the most active – and the most competitive – segment over the year ahead.
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