Sydney & Melbourne premium homes lead housing slump

Higher-value homes are leading Australia's housing downturn, with the steepest declines in Sydney and Melbourne.

Data from property analytics firm Cotality showed upper-quartile house values were 10.7% below their peak in Sydney and 10.5% lower in Melbourne, while cheaper homes and units held up better. The figures point to a correction that began in premium suburbs and has since spread more broadly across the market.

National dwelling values fell 3.1% in the three months to August, while annual growth slowed to 2.7%. Even as momentum weakened, the median dwelling value was still about $24,648 higher than a year earlier.

Sales activity also eased. National annual sales fell 2.7% in the year to August, with capital city volumes down 5.2%, while regional sales rose 1.8%.

Selling conditions softened further nationwide. The median time on market rose to 39 days from 28 days a year earlier, vendor discounting across the capitals widened to 4.2%, and total listings climbed to more than 139,100 properties, up 18.1% from a year earlier and 2.2% above the five-year average.

The auction market also weakened. The four-week average clearance rate was 49.5% at the end of August and had stayed below 50% since early June.

Premium drag

The divide between expensive and more affordable housing has been most pronounced in the two largest cities. In Melbourne, the gap between cumulative declines in upper and lower-quartile house values reached 6.6 percentage points; in Sydney, it was 5.3 percentage points.

By contrast, the difference was less than one percentage point in Perth, Adelaide and Brisbane, suggesting the downturn in those cities has been more evenly spread across value bands. Canberra also recorded significant falls in premium housing, though its unit market moved differently from the broader national pattern.

Gerard Burg, Head of Research at Cotality, said the downturn had widened beyond the segments where it began.

"Early in the cycle, falling home values were largely confined to higher-priced properties in Sydney, Melbourne and Canberra. More recently, however, home values have also started declining across Brisbane, Adelaide and Perth, demonstrating that the downturn is now affecting a broader range of markets," Burg said.

"While the market correction has become more widespread, the largest declines continue to be concentrated among higher-value homes."

The timing and scale of falls still varied by city. Sydney, Melbourne and Canberra were the first markets where higher-value dwellings turned lower, and they continue to show the largest cumulative drops.

"Higher-value dwellings in Sydney, Melbourne and Canberra were the first to turn and continue to record the largest cumulative falls. Upper-quartile houses in Sydney and Melbourne are now more than 10% below their cyclical peaks, underscoring the role premium housing has played in driving the downturn. In contrast, price declines across Brisbane, Adelaide and Perth have been more evenly distributed across value segments, reflecting their later entry into the downturn," Burg said.

Units steadier

The unit market has shown a similar pattern, although the gap between more expensive and cheaper properties has been narrower than in detached housing. In Melbourne and Sydney, the difference between upper and lower-quartile unit declines reached 4.9 and 4.5 percentage points respectively, compared with 2.6 percentage points in Adelaide, 1.4 percentage points in Brisbane and 1.3 percentage points in Perth.

"Units have generally proven more resilient throughout the downturn, supported by their relative affordability and lower entry price points. While higher-value units have generally recorded larger declines than lower-value stock, the gap is smaller than what we are seeing across detached housing," Burg said.

There were some exceptions. In Canberra, lower-value units posted larger declines than higher-value units, which Cotality linked to a larger supply of cheaper stock.

"Canberra's unit market has bucked the pattern, with lower-value units recording larger declines than their higher-value counterparts. Lower-quartile unit values in Canberra are down 2.9% from peak levels compared with a decline of 1.6% across the upper quartile, reflecting an overhang of more affordable stock," Burg said.

Perth and Adelaide also broke from the broader trend in parts of the unit market.

"Perth's unit market has recorded larger declines than houses across every value segment, while upper-quartile units in Adelaide have fallen further than upper-quartile houses. Despite these exceptions, affordability has generally helped support demand for units and cushion value declines relative to detached housing," Burg said.