27 Oct Why a Falling Market Favours Upgraders

Sydney dwelling values are 8.6% below their February peak, and higher interest rates are the reason. Most of the commentary focuses on who this hurts. A more useful question is who comes out ahead, and in Sydney right now the answer is upgraders.

A falling market narrows the gap

When prices fall, they fall by more in dollar terms at the top of the market. If a $2 million home and a $4 million home both fall by 10%, the first loses $200,000 and the second loses $400,000. The gap between them shrinks by $200,000. For an upgrader, that can outweigh receiving less for the property they are selling.

This works because the market is falling, not simply because rates are higher. It does depend on being able to fund the remaining gap, so borrowing capacity still matters.

How we got here

The cash rate is now 4.60%, the highest in around 15 years, and the average owner-occupier variable rate is about 6.5%. The last time rates were this close was 2010, when the cash rate moved from 4.50% to 4.75%. The similarity ends there. Prices and loan sizes are far higher today, and the average new owner-occupier loan in NSW is around $860,000, so the same cash rate takes a much bigger bite out of household budgets.

Sydney started 2026 with affordability already stretched, and higher rates have reduced borrowing capacity further. Buyer demand has softened and homes are taking longer to sell, so more stock is sitting on the market. Cotality, formerly CoreLogic, reported that values fell 1.4% in September alone.

When borrowing gets harder, the buyer pool shrinks and competition eases. The opportunity then depends on which type of buyer you are.

Cash buyers and buyers with substantial equity

These buyers are less affected by higher borrowing costs and benefit when competition eases. Returning expats, people who have already sold and those with significant equity can negotiate from strength and take their time choosing the right property.

Downsizers: the least affected

Many downsizers have significant equity and little or no debt, so rising rates affect them less than any other group. The benefit is not necessarily a cheaper price. It is a calmer search and a better chance of finding the right home. The best downsizer properties rarely come up for sale and are usually hotly contested, so it pays to be ready when one appears.

First home buyers

Falling prices help, but higher rates also reduce how much they can borrow. Many are searching at lower price points, where competition stays strong, so they may not see the same easing as buyers higher up the market.

Investors

There are very few investors in the market at present, largely because tax benefits have been removed. Those still active tend to be SMSFs buying at lower price points, as they can no longer borrow within the fund. We are also seeing cashed-up older buyers purchasing for their children, or in their children’s names. Without the tax advantages, rental yield and cash flow matter more than ever, and a softer market lets the remaining investors be more selective about location, rental demand, future supply and the quality of the property.

Where is the imbalance?

Waiting for rates to fall may seem attractive, but lower rates also lift borrowing capacity and bring buyers back into the market, and prices can follow. The most comfortable time to buy and the time with the least competition don’t necessarily happen together.

Rather than trying to pick the bottom of the market, the more useful question is where the imbalance sits and whether it works in your favour. Interest rates influence how much buyers can borrow, but market conditions determine what that money can actually buy.

Every buyer’s situation is different, and so is the opportunity. If you or someone you know would like help working out where the imbalance sits, we’re happy to talk it through. Call us on (02) 9960 4848.