Property market is strongest for one type of home

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Key points

  • Home values at the top end of the market in Sydney are rising, pointing to a recovery in the downturn.
  • However, experts say it’s too soon to say the market has turned a corner.
  • There are still risks which could push prices down including further interest rate rises.
  • Melbourne’s upper end home values are not falling as much as for affordable homes.

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The property market was stronger for more expensive homes in Sydney and Melbourne than for more affordable homes over the first three months of the year.

Improving top-end values are usually a sign that property market falls have reached a trough and are starting to recover, but experts say this time it’s too early to tell if there will be a sustained turnaround.

It is too early to say if the property market has reached the bottom and is now recovering, experts say.Credit: Flavio Brancaleone

There was a 1.3 per cent rise in values for the segment of Sydney homes worth $1,520,111 and above last quarter – the top 25 per cent of the Sydney market, CoreLogic figures show.

This was a turnaround from the three months to January during which dwelling values were down by 4.1 per cent in Sydney’s top end.

The top end was stronger than the more affordable 25 per cent of the market, where values fell 0.7 per cent over the March quarter.

In Melbourne, homes in the top 25 per cent of the market, valued at $1,051,764 or above, fell in value by 0.6 per cent over the same period. It was a smaller fall than the more affordable end, which lost 1.3 per cent.

Melbourne’s upper end also stabilised compared with its 3.5 per cent fall in the three months to January.

The upper end of the property market, particularly in Sydney, normally leads the trend of rises in house prices. Prices and auction competition have been picking up in sought-after neighbourhoods this year.

CoreLogic’s head of Australian research Eliza Owen said, although the data increasingly show the market may have moved through its low point, it was too early say definitively as risks still loom.

“Increasingly, the data is suggesting we’re moving through a trough in the cycle, but we’re still a little cautious to confirm that because there are still massive risks ahead,” Owen said.

“We’ll really have to wait and see how those risks are navigated by households and the RBA [Reserve Bank] in the coming months.”

Overall, Sydney’s dwelling values have fallen 13.8 per cent since the peak in January 2022. Melbourne’s are down 9.3 per cent since the peak in February 2022, CoreLogic data shows.

But there are still risks from possible further interest rates rises and home owners shifting from lower, fixed interest rates to more expensive repayments that could affect whether the market rebound continues.

“The risk is that households can’t deal with the higher interest rates and a whole heap of people list their houses for sale at the same time,” Owen said. That would push house values downward, she said.

The rise in the upper end of the market wasn’t shared across all capitals. Values in the upper market fell by 2.1 per cent in Brisbane over the quarter and were down 0.4 per cent in Perth while more affordable properties in both cities outperformed.

AMP Capital chief economist Dr Shane Oliver was also reluctant to say that the bottom of the market has been reached.

“My base case is we haven’t seen the bottom yet. This could just be a bounce as interest rates pause,” he said. “History tells me that, to get a sustained rebound, you need lower interest rates and that’s still a long way off.

Prices at the top end of the market in Sydney are rising, CoreLogic data shows.Credit: Peter Rae

“The impacts of past interest rate hikes are still flowing through.”

Oliver said the market was different to the past because interest rates were rising at the same time as demand for homes was surging as migrants returned to Australia.

In Sydney, Thomas McGlynn, chief executive of BresicWhitney, an agency that operates in areas including Sydney’s eastern suburbs, said discounting had stopped in the first quarter of this year as competition at auctions increased.

The agency’s average sale price in the March quarter was $2.07 million, $40,000 above its average list price.

That is a reversal from the previous quarter when the average sale price was $2.34 million, a discount of $50,000 from the average list price.

“It shows clear indicators that we potentially may have moved past the bottom,” McGlynn said.

“The biggest thing that I believe that has driven the recovery has been the incentive for first home buyers …things have recovered a lot quicker than people were anticipating.”

In Melbourne, confident buyers were returning to the market, many wanting to get in before prices started to rise again.

Nelson Alexander Carlton director Nicholas West said multiple bidders were now returning to auctions.

“People are thinking we are somewhere near the bottom of the market and, because rates have paused and they may go up again, they’re thinking ‘I’ll go now before they rise and prices go up again,’ ” he said.

“I’m certainly not saying the market is going to take off, but the lack of supply [of houses for sale] is no doubt assisting the good sale prices.”

West said this could change by spring or early summer if sellers decided to come back to the market.

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