The pace of house price growth at the upper end of the market – the most volatile segment – has eased back since the recovery began at the start of the year, as affordability crimps demand for more expensive homes, experts say.
While home values are still expected to rise and potentially hit record levels within the next few months, the top 25 per cent of the housing market by value, particularly in Sydney, is losing some steam.
House prices across the top 25 per cent of Sydney’s housing market by value are slowing sharply, according to CoreLogic. Peter Rae
In the past three months, the premium end of the Sydney housing market added just 2.2 per cent, the slowest reading since February, and less than half the 5.7 per cent quarterly growth racked up in the June quarter, data from CoreLogic shows.
Similarly, in Melbourne, home values at the top quartile of the market rose by just 1.3 per cent in the September quarter, also less than half the 3 per cent it gained in the three months to May.
“I think we’ll continue to see upwards pressure on home prices, but as we’ve seen in previous cycles, the top end of the market tends to be a bellwether,” said Tim Lawless, CoreLogic research director.
“It tends to lead the turning points in the cycle, so now that we’re starting to see upper end prices rising not as quickly, arguably, down the track, we’ll probably start to see a similar trend evolving in the more affordable price sectors as well, albeit with some lag.
“Part of that is simply due to the affordability challenges that are becoming more pronounced as prices rise faster than income and interest rates remain in a high setting. But also I think we’re starting to see supply levels rebalancing as well which in my view would take some further heat out of the marketplace.”
Leichhardt district in Sydney’s inner west posted the sharpest downturn with house prices in the upper end declining by 1.3 per cent during the September quarter, down from a 7 per cent gain in the previous three months.
Across the top quartile on the eastern suburbs-north, which includes Dover Heights, Rose Bay and Vaucluse, house prices slowed from a 7.9 per cent increase in the June quarter to just 0.6 per cent in the past three months.
In Manly on the northern beaches, house prices on the upper end fell by 2.3 per cent, down from a 4.9 per cent gain in the previous quarter.
Sydney-based real estate agent and chief executive of BresicWhitney Thomas McGlynn said the lift in listings have impacted how buyers were approaching the current market.
“Buyers have more options, so they feel they can take a little bit more time to make their decisions, so properties are taking slightly longer to sell at the moment,” he said.
“It also impacts how buyers make their offers, which is becoming increasingly obvious that they’re not negotiating just on one property, but on two or three.
“That’s something that we haven’t really seen in the past six to eight months, especially not at the start of the year when a seller could take that time because the buyer didn’t have options.”
Across Ryde-Hunters Hill and Warringah, house prices on the top 25 per cent of the market have slowed to 0.3 per cent from 6.6 per cent and 2.6 per cent from 8.5 per cent respectively.
Meanwhile, Manningham-West in Melbourne’s inner east eased from 5.3 per cent to 0.7 per cent during the same period.
Rich Harvey, chief executive of Sydney-based buyer’s agency Propertybuyer, said buyers in the upper end segment of the market were heavily impacted by reduced borrowing capacity.
“We’re definitely seeing a pullback in that segment of the market,” he said.
“Buyers are considering where the markets are heading and the pain that’s still yet to play out, and we’ve noticed that they’re a bit more cautious, they tend to hold back and not jump in quite as quickly when they find something.”
Since the start of the recovery, home values in Sydney’s upper quartile have led the upswing, gaining 11.1 per cent through the year to date compared to a 6.7 per cent rise across the lower quartile of the market.
Similarly, in Melbourne, prices lifted by 4.8 per cent across the upper quartile and by 2 per cent across the lower end.
But the upper end also posted a sharper decline during the downturn, with Sydney’s premium markets slumping by 15.3 per cent peak-to-trough while the lower end only dropped by 6.8 per cent.
In Melbourne’s upper quartile, prices declined by 10 per cent, while the lower quartile fell by 5 per cent.
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