Suburbs set to recover from Sydney real estate crash first

As Sydney endures its worst real estate slump in decades, the suburbs that are set to lead the Harbour City out of its housing malaise have been revealed.

By many measures, both expert and anecdotal, Sydney property falls are expected to last through the rest of this year and throughout 2027.

Meaning prices may not begin to recover across the board until 2028.

According to realestate.com.au’s Home Price Report for August, Sydney home prices have plummeted 4.9 per cent since their November peak. The reasons for that fall is being largely blamed on several interest rates rises and the Albanese Government’s highly controversial property tax reforms.

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To provide deeper insight and some rare good news, Shore Financial has released their half-yearly State of Sydney Report which seeks to identify the suburbs that will lead Sydney out of the real estate blues.

“Sydney house prices have eased during 2026, but the more affordable end of the market is proving notably resilient,” the report notes.

According to Shore Financial CEO Theo Chambers, the Sydney market is being pulled in opposite directions by unusually tight supply and constrained borrowing capacity.

“Some of the suburbs in this report have less than one month of housing inventory, which would normally put significant upward pressure on prices. But even in those markets, we’re forecasting price falls,” he said.

“That tells you how powerful the other force has become.

“Buyers simply can’t borrow as much as they could before the Reserve Bank started raising rates again.

“Tight supply is cushioning the downturn – without it, prices would probably be falling more sharply – but right now it isn’t strong enough to overcome the reduction in borrowing capacity.”

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The Reserve Bank of Australia has raised rates by 75 basis points to 4.35 per cent from November’s 3.60 per cent. All four of Australia’s big banks now expect the RBA’s next move to increase the cash rate to 4.6 per cent, given incredibly stubborn inflation, either later this month or in November.

It’s a move that will only put more downward pressure on prices.

The Reserve Bank’s 0.75 percentage points of rate rises during the first half of 2026 – followed by two consecutive holds – have significantly changed conditions for Sydney property buyers, according to Chambers.

“The Reserve Bank has now moved to a mildly restrictive setting and we’re seeing the effects flow through the property market. Higher mortgage rates have reduced borrowing capacity, which means buyers simply can’t bid as aggressively as they could before,” he said.

“There are now signs those higher rates are doing their job. Headline inflation fell from 3.8 per cent in June to 3.5 per cent in July, while unemployment has gradually increased from 4.1 per cent in January to 4.5 per cent in July.

“But the inflation problem hasn’t disappeared. Trimmed-mean inflation was still 3.6 per cent in July and has been above the Reserve Bank’s 2-3 per cent target range since July last year. The labour market has softened, but remains relatively tight.

“So while the softer jobs market and improvement in headline inflation have reduced the near-term risk of another rate rise, the Reserve Bank still has a tightening bias and another increase can’t be ruled out.

Chambers believes, matter could start improving for homeowners and homebuyers in 2027.

“Looking further ahead, rates may start falling in 2027 if inflation continues moving in the right direction. When that eventually happens, I’d expect the more affordable, higher-yielding parts of Sydney to be among the first to respond,” he said.

“Those markets are already proving more resilient because buyers need smaller loans, while investors can benefit from stronger rental yields. If borrowing capacity eventually starts increasing again, those fundamentals should put the affordable end of the market in a strong position.

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“Consumer confidence and sentiment are also playing an important role alongside reduced borrowing capacity. Many buyers simply lack the confidence to make a decision in the current environment.

“But that uncertainty can create significant opportunities for those willing to act – particularly upsizers. The discount they can negotiate on a more expensive purchase may substantially outweigh any discount they need to accept when selling their existing property

“For buyers, this remains the most workable market we’ve seen in years.

“There is more choice, less competition at auction and more time to do proper due diligence. But Sydney is made up of scores of distinct local markets, so buyers still need to focus on the fundamentals of individual suburbs rather than the citywide headlines.”

The last time Sydney suffered a broader property slump was in late 2015 before a powerful bounce back in 2016 that pushed prices to record levels. That slump was largely blamed on loaning regulators APRA significantly tightening lending standards in 2015.

The market caught fire againt after the RBA cust interest rates to historic lows. As illustrated in the higher up in this story.

This time things are likely to be very different.

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SUBURBS TO LEAD SYDNEY HOUSE PRICE RECOVERY

Based on the above, these are the standout suburbs, Chambers believes can spearhead Sydney’s property recovery.

Hebersham

Median house price: $972,000

Median house price growth over past 12 months: +7 per cent

Median house price forecast growth over the next six months: -1 per cent to – 2 per cent

Colyton

Median house price: $1.15m

Median house price growth over past 12 months: + 10 per cent

Median house price forecast growth over the next six months: -1 per cent to – 2 per cent

Blackett

Median house price: $880,000

Median house price growth over past 12 months: + 7 per cent

Median house price forecast growth over the next six months: -1 per cent to – 2 per cent

Tregear

Median house price: $890,000

Median house price growth over past 12 months: +7 per cent

Median house price forecast growth over the next six months: -1 per cent to – 2 per cent

Seven Hills

Median house price: $1.310m

Median house price growth over past 12 months: – 1 per cent

Median house price forecast growth over the next six months: -1 per cent to – 2 per cent

Milperra

Median house price: $1.55m

Median house price growth over past 12 months: +3 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Carramar

Median house price: $1.22m

Median house price growth over past 12 months: – 3 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Yennora

Median house price: $1.310m

Median house price growth over past 12 months: – 3 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

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Sefton

Median house price: $1.425m

Median house price growth over past 12 months: – 3 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Yagoona

Median house price: $1.5635m

Median house price growth over past 12 months: + 3 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Petersham

Median house price: $2.050m

Median house price growth over past 12 months: – 10 per cent

Median house price forecast growth over the next six months: -4 per cent to -5 per cent

Loftus

Median house price: $1.661m

Median house price growth over past 12 months: 0 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Hornsby Heights

Median house price: $1.72m

Median house price growth over past 12 months: – 8 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Engadine

Median house price: $1.6m

Median house price growth over past 12 months: 0 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

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Normanhurst

Median house price: $1.85m

Median house price growth over past 12 months: – 8 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Lilyfield

Median house price: $2.745m

Median house price growth over past 12 months: +2 per cent

Median house price forecast growth over the next six months: -6 per cent to -7 per cent

Rozelle

Median house price: $2.4m

Median house price growth over past 12 months: + 2 per cent

Median house price forecast growth over the next six months: -6 per cent to -7 per cent

Annandale

Median house price: $2.35m

Median house price growth over past 12 months: + 2 per cent

Median house price forecast growth over the next six months: -6 per cent to -7 per cent

Cromer

Median house price: $2.45m

Median house price growth over past 12 months: – 8 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Beacon Hill

Median house price: – $2.35m

Median house price growth over past 12 months: – 8 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

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Bondi Beach

Median house price: $4.5m

Median house price growth over past 12 months: + 8 per cent

Median house price forecast growth over the next six months: -3 per cent to -4 per cent

Paddington

Median house price: $3.2m

Median house price growth over past 12 months: +8 per cent

Median house price forecast growth over the next six months: -3 per cent to -4 per cent

Crows Nest

Median house price: $2.65m

Median house price growth over past 12 months: -1 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Neutral Bay

Median house price: $3.37m

Median house price growth over past 12 months: -1 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent

Cammeray

Median house price: $3.25m

Median house price growth over past 12 months: – 1 per cent

Median house price forecast growth over the next six months: -5 per cent to -6 per cent