1 hour ago
2
Recent falls in property values have been concentrated in the family home market, new figures show, while entry-level properties have defied the downturn to rise in value.
The property market has weakened this year as interest rates have risen and consumers have worried about an uncertain economy, but not all segments of the market have been affected equally, Cotality data shows.
Among upper quartile houses, or the top 25 per cent of the market, values have been hit most. Sydney’s upper quartile house values – houses worth $2.32 million-plus – have fallen 2.4 per cent in the three months to March.
Melbourne’s upper quartile house values – worth about $1.37 million-plus – have fallen 1.9 per cent over the same timeframe.
But more affordable houses kept rising in value – up 2.5 per cent for Sydney’s lower quartile and up 0.6 per cent for Melbourne’s lower quartile.
Even in the mid-sized capitals, where values are rising strongly, a similar trend is evident. Top-end Brisbane houses rose only 3.7 per cent, while their more affordable counterparts jumped 6.2 per cent. Perth’s upper end rose 5.7 per cent but affordable houses in Perth shot up 8.9 per cent in value in three months.
Cotality research director Tim Lawless said stronger growth conditions are evident in the lower end of the market, particularly for houses, since middle-income households struggle to afford homes that are any more expensive.
“Housing’s really unaffordable, and it’s hard to demonstrate ability to service the loan at higher price points, especially if you’re on the median income,” he said.
“If you’re on the median income as a household you can probably only afford to buy around the lower quartile of the market because that’s where you can demonstrate ability to service your loan.”
He said theoretically a buyer on the median household income buying a median value home with a 20 per cent deposit would need to spend 46 per cent of their pre-tax income on mortgage repayments – based on numbers from the end of last year, since when the picture would have worsened. In practice, banks would be unlikely to lend to this borrower.
He said investor demand is higher than normal now, and investors tend to buy in the low-to-middle part of the market too.
First home buyers are also active, taking advantage of incentives such as the federal government 5% Deposit Scheme, and the shared equity Help to Buy Scheme, he said, although he acknowledged there had already been strong demand in the affordable end of the market before the low-deposit scheme was expanded.
“Incentives for first home buyers would also be amplifying the upward pressure at the lower quartile.”
He said that demand for upper-quartile homes had been affected because of rising interest rates and rising housing prices.
“Prospective buyers looking to target that upper quartile of the market are probably finding the financial hurdles to be much more significant than they were a few years back, given higher housing values but also the higher cost of debt,” he said.
“Cost of living pressures as well do make it harder to demonstrate serviceability if your household budget is demonstrating more toward insurances, school fees, transport, food.”
He thought the trend was likely to continue, especially as interest rates are considered likely to rise again.
Westpac senior economist Matthew Hassan said the pattern was due to affordability constraints as buyers seek more affordably priced properties.
He said the trend had been observed for some while now but the divergence early this year was probably related to the expansion of the 5% deposit scheme last spring.
“When the federal first home buyer scheme was expanded there would have been some prospective first home buyers that were ready to go, but many wouldn’t have been,” he said.
“But I suspect they got themselves set up over the Christmas-New Year period and came into the market in the first few months of this year once the market reopened.”
He thought the March quarter was too early to see an effect from the war in the Middle East, which he thought is starting to show through in April’s property data such as the weakness in the auction market and home owners withdrawing their scheduled auctions.
“The first three months, it would have been about interest rate rises, and also a big shift in interest rate expectations – it became clear the RBA was going to tighten and tighten more than once.”
