Conventional wisdom says that upper-end homes perform best in any property market, but lately that’s not true.
Prices fell in the top quarter of Melbourne’s property market over the three months to January, but rose slightly in the lower quarter of the market, according to CoreLogic data.
The upper quartile – properties about $1.36 million and up – had been leading the upswing last year but then slowed, recording a price fall of 1.6 per cent over the three months to the end of January.
It was outperformed by the lower quartile – properties about $737,000 and below – which edged up 0.1 per cent over the past three months, and the middle of the market, which fell only 0.2 per cent.
The weakness may be temporary, however. Auction clearance rates have been surprisingly strong in early 2024. The Melbourne clearance rate was 62.7 per cent in the first week of February, 63.3 per cent in the second, and 66 per cent in the third. A rate above 60 per cent is usually associated with future price gains.
CoreLogic research director Tim Lawless said it was common for the upper end of the property market to lead in both upswings and downturns, as it was prone to more extreme movements in price.
“I think there’s a few factors at play and one is simply the cyclicality of the market,” he said. “It was the upper quartile leading the market [in the upswing].”
The most recent price falls were a result of high Reserve Bank interest rates, Lawless said, which cut borrowing capacity.
“There’s been a reduction in borrowing capacity and there’s already affordability hurdles, so it’s deflecting some of that demand into the middle of the market or the lower quartile,” he said.
Agents that often sell in the upper price bracket said it was weaker towards the end of 2023, but were confident that an unusually early burst of buyer activity and positive sentiment would turn figures around soon.
Rita-Marie Hopfner says she wasn’t worried about trying to catch the market at the perfect moment. CREDIT:PENNY STEPHENS
“There were a lot of fence-sitting people who were watching and waiting,” Biggin and Scott Port Melbourne listing agent Fraser Lack said.
“With all the positive media over the past two to three months regarding the potential reduction in interest rates” many buyers were predicting cuts, he explained, and reasoning that “the time to buy is now, ‘because I’m paying less than I would be come September’. Buyers are creating a sense of urgency and momentum earlier than we expected.”
Lack will soon list Rita-Marie Hopfner’s home on Beach Street in Port Melbourne. Hopfner said the movements of the market were of little concern to her.
“I believe people are out there looking for quality homes,” she said. “Irrespective of what the market is saying, if you’re confident to put your house out there, you’ll be able to find someone to buy your home. Why put your life on hold?”
Hopfner’s house fits the bill of what agents say buyers are searching for: a renovated, large family home in a good location.
“We’re moving to the country, so I was going to sell regardless of what the market was doing,” she said.
Jellis Craig Northcote partner Nigel Harry said price reductions in the top 25 per cent of the market could be short-lived.
“All the properties north of $1.3 million that I’ve been involved with have been competitive,” he said. “There’s a delay reflected in the data. It speaks to the difference between the macro and the micro level. Buyers see light at the end of the tunnel, we’re not anticipating five to six more rises.”
Lawless said strong clearance rates could indicate conditions were improving. “Given the strength in the auction market, we could see the upper end of the market level out earlier,” he said.
“As we see consumer sentiment improve … then we normally see housing activity follow that. Any improvement in consumer spirits will result in a lift in buyer activity.
“There’s still a lot of hurdles out there. You still have affordability, borrowing capacity is lower, rates still aren’t coming down, but with those tempering comments in mind, I wouldn’t be surprised if alongside this lift in sentiment we would see some subtle growth returning to the marketplace.”
Commonwealth Bank’s head of Australian economics, Gareth Aird, felt it was too early to draw much from the rising clearance rate, and expects growth to moderate due to already high prices, constrained borrowing power, and an increase in homes for sale.
“All conventional metrics of affordability have deteriorated, so you get to the point where it’s hard for home prices to keep pushing higher at the rates that they have been,” Aird said.
But if the Reserve Bank starts to cut rates from September, as Aird expects, that would boost borrowing capacity and prices. He has forecast Melbourne prices to end the year 5 per cent higher.
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