Real estate industry professionals across the country are facing a unique macroeconomic conundrum: home values in Australia’s major financial hubs are sliding, yet affordability is continuing to worsen.
According to the latest Cotality Monthly Housing Chart Pack released this week, the combined impact of three consecutive Reserve Bank of Australia (RBA) interest rate hikes this year has entirely wiped out any financial relief that buyers would have gained from recent property price drops.
Cotality Head of Research Gerard Burg detailed the shift, stating that despite dwelling values falling across Sydney and Melbourne over the past five months, higher variable mortgage rates have severely intensified mortgage serviceability constraints nationwide.
“People have been increasingly asking, is this now a buyer’s market?” Mr Burg said. “And it strikes me that the answer is probably no. The improving conditions for buyers come down to the fact that there are fewer of them in the market … pressures from rate rises and the cost of living have reduced overall property demand.”
The Brisbane Shift: Units Outpace Sydney’s Lower Quartile
The standout revelation from Cotality’s June analysis is an unprecedented structural shift in Queensland. Driven by a lack of affordability in the detached housing sector, buyer demand has flooded the apartment segment.
Brisbane unit values are now growing faster than houses (21.8% annual growth vs 18.6%).
Most surprisingly, Mr Burg revealed that Brisbane’s lower-quartile unit market has officially crossed a major historic threshold.
“When you look at that lower-quartile market, the bottom 25% of values and below, Brisbane is now actually above Sydney in terms of value,” he said.
“It is a really significant shift. There is now a relatively little gap between Brisbane and Sydney units even for that top spot.”
Mr Burg attributes this rapid acceleration to a persistent, pandemic-spurred wave of interstate migration to Queensland, combined with local buyers who are being completely priced out of freestanding houses and turning to units as their only entry point.
Mid-tier income requirements spike
The sheer velocity of the mid-tier market is dealing a heavy blow to aspiring buyers. To secure a median house in Brisbane, buyers must earn an additional $17,000 in annual household income compared to what was required just five months ago in January.
Perth is tracking along a near-identical trajectory, with rising property values forcing an extra $16,500 income requirement spike over the same short period.
Over the past 12 months, Perth dwelling values skyrocketed by 25.8%, compared to a stagnant 0.5% in Melbourne – widening the growth gap between capital cities to a massive 25 percentage points.
Melbourne’s massive affordability advantage
For real estate professionals in Victoria, the report offers a compelling value proposition for incoming residents and investors.
Due to limited growth over the past five years and a 0.8% drop in May, Melbourne now presents a sizeable affordability advantage over other major capitals.
A buyer looking to purchase a median house in Sydney now requires a staggering $70,000 more in annual household income than an equivalent buyer in Melbourne.
Burg hinted that this deep pricing disparity could soon spark a major demand pivot, though developers may struggle to keep up.
“There’s been anecdotal talk about an increase in interstate migration into Victoria reflecting some of that affordability advantage,” Mr Burg said.
“However, with values at their current levels, it’s much more difficult to get new construction to pass the feasibility test given current cost pressures. New supply in Melbourne will likely remain relatively constrained.”
He suggested that if a fresh wave of migration meets this constrained supply pipeline, Melbourne could see a sharp relative upward correction in values further down the track.
Across the combined capital cities, median vendor discounting has crept up to 3.3% as auction clearance rates drop below the 60% threshold.
While those buyers remaining in the market can afford to shop around and take their time, the reality for agency principles is a transitional market where transaction volumes are slowing. Nationally, sales volumes over the three months to May tracked 2.2% lower than the same period last year.
Cotality data suggests national home values to broadly enter a period of modest downturn. However, tightly-held markets like Perth and Brisbane may continue to defy the trend, holding up far more strongly than the larger southern capitals.