Micro markets in major capital cities have started to weaken, with prices falling as much as 8.5 per cent in the past three months.
The latest CoreLogic Property Pulse showed inner-city and upper-quartile suburbs in Sydney, Melbourne and Canberra have led the price falls with suburbs such as Sydney’s Beaconsfield dropping 8.5 per cent in the past three months.
In Darlinghurst prices have fallen 8.3 per cent, while in Surry Hills prices have dropped 7.8 per cent.
In cities where prices are still rising such as Brisbane, prices have fallen more modestly in high-density areas weighed down with a high proportion of units.
Unit prices in Hendra have declined 1.3 per cent, while in South Brisbane unit prices are 1.2 per cent lower.
In Adelaide and Perth, suburbs that may be classified as unaffordable dominated the list of tumbling prices.
House prices in Peppermint Grove have fallen 1.3 per cent in three months, while unit prices in Findon, in western Adelaide, have dropped 4 per cent.
CoreLogic Research Director Tim Lawless said most prices falls have occurred in more expensive locations.
“We are seeing this trend more broadly, where the upper quartile of the market has softened out more visibly than the middle to lower end of the market,” Mr Lawless said.
“These softer conditions come after a stronger performance across the premium end of the market through the growth phase.
“Historically more expensive housing markets tend to lead the upswing, but also lead the downturn, which is what we seem to be seeing at the moment.”
Not all high-end suburbs are fairing poorly with many Brisbane suburbs still seeing good growth.
The city as a whole remains in an upswing phase, with values up 29.8 per cent in the year to April, however, higher density, inner-ring suburbs, including South Brisbane and West End, have recorded slight falls in the past three months.
In Darwin, a handful of the city’s more affordable suburbs have the lowest growth rates possibly due to fewer constraints on housing affordability according to Mr Lawless.
Head of Research Eliza Owen said in a downturn, expensive and more leveraged suburbs, were sensitive to changes in credit conditions.
“Higher income households tend to hold more housing debt to income, so do property investors,” Ms Owen said.
“That’s why the high end of the market can often be more sensitive to changes in interest rates or credit conditions, but this can also affect some other popular investment markets like inner city areas.”
Ms Owen said expensive suburbs in Sydney and Melbourne had the potential for higher volatility.
“These are also areas that have experienced some of the most extraordinary gains through the cycle, and have been a bellwether for other parts of the market historically,” she said.
“If we take Beaconsfield in Sydney’s inner-city for example, it may look like the area has not had much growth, but that’s because it had a much earlier cyclical peak, at annual growth of 33.7 per cent back in the 12 months to October 2021.
“Sharp deterioration in demand across the suburb has now dragged down the annual growth rate to just 2 per cent.”
The same can be said for houses in Surry Hills in Sydney’s inner east, where annual growth peaked at 28.9 per cent in the same month, and nearby Darlinghurst at 26.9 per cent.
“These higher-end house markets generally have higher peaks in growth during boom times and sharper declines in the downswing phase.”
Ms Owen said expensive and popular locations can skew prices on a micro-level.
“There tends to be micro-markets where dynamics such as stretched affordability can manifest in a single suburb pushing buyers into the next most affordable suburb,” she said.
“One good example of this is Newtown, a dynamic and popular suburb in Sydney’s inner west. It’s also relatively expensive with a median dwelling value of almost $1.5 million yet it recorded a quarterly decline of 5.5 per cent, which suggests buyers may be at their limit and are being forced to find alternative options within their budgets.”