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Units outperform houses as buyers hunt for value

Buyers are on the lookout for more affordable housing options as rising interest rates make units more appealing.

Domain’s June Quarterly House Price Report found that the momentum in Australia’s housing market slowed further over the June quarter and is spreading geographically.

Notably, unit prices across the combined capitals outperformed house prices for the first time in three years as buyers seek out lower-priced housing options.

Across the combined capitals, house prices fell for the first time in two years, to be 0.9 per cent below last quarter’s record high, while the annual growth rate has fallen to 10.9 per cent.

Unit prices were relatively flat over the June quarter, 0.6 per cent below the December 2021 price peak, however, they are 2 per cent higher on an annual basis.

Domain Chief of Research and Economics Dr Nicola Powell said the slowdown was already starting to show increased momentum and was spreading fast geographically

“These quarterly statistics reveal that affordability constraints, reduced borrowing capacity and the relative underperformance and perceived value units offer will help steer buyer demand to affordable options, likely to be both units and entry-priced houses,” Dr Powell said.

“The changing market dynamics across our capitals are also being driven by a rebalancing of supply and demand, weighing on overall buyer sentiment.”

Australia’s capital city housing markets were operating at two speeds, with Sydney and Melbourne being the weakest, while Brisbane and Adelaide remain the strongest and the only cities to have record high house and unit prices.

Sydney’s housing market downturn gathered momentum and spread geographically to North Sydney and Hornsby, Inner West, Northern Beaches, City and Inner South, Sutherland, Parramatta, Outer South West and Blacktown, over the second quarter of 2022.

Sydney house prices dropped for the first time in two years to provide the steepest quarterly drop since March 2019. 

They are now 2.7 per cent below the March 2022 price peak, with annual growth at the slowest rate since December 2020.

Melbourne’s slowdown didn’t gain any further negative momentum over the June quarter, as house prices slipped by 0.9 per cent over the quarter to $1.07 million, which is the first back-to-back quarterly decline since the 2018-19 downturn. 

Meanwhile, unit prices bucked this downward trend to nudge marginally higher over the quarter, as they increased 0.4 per cent to $579,532, which is 1.4 per cent higher than the same time last year.

In Brisbane, house prices hit a record high of $840,594 after rising 0.2 per cent over the quarter and 24.7 per cent over the year. 

However, the pace of price growth has slowed, suggesting the strongest upswing in 18 years has lost momentum. 

Adelaide is the fastest-growing capital city market in Australia over the 2021-22 financial year with house prices jumping 27.4 per cent, adding around $170,000 to reach a record high of $793,220.

Perth house prices reached a record high, rising 1.4 per cent over the quarter to $651,956, while unit prices declined 1.1 per cent for a second quarter to $356,904, which is the steepest annual fall in three years at 5.9 per cent.

Canberra house prices increased again last quarter, up 1.8 per cent to $1.15 million, and unit prices jumped 4.4 per cent to a record of $599,735.

Hobart’s house price growth was four times slower over the June quarter than the previous, as prices rose 0.8 per cent, while unit prices increased 0.5 per cent to $555,884. 

Annual growth has lost momentum, providing the slowest pace in 15 months for houses and 12 months for units, at 21 per cent and 13.6 per cent respectively.

House and unit prices were on the rise again for Darwin, although it is unlikely to be a sign of momentum building. 

House prices increased 0.3 per cent over the quarter to $632,071, which is 3.6 per cent higher than the same time last year.

Darwin unit prices climbed 3 per cent over the quarter to $390,265, up 22.5 per cent annually.

With the Reserve Bank of Australia tipped to continue lifting the official cash rate, Dr Powell said higher rates would put pressure on homeowners and property prices.

“Some Australian households, and prospective buyers, are much more sensitive to higher interest rates and strong inflation levels due to the high level of debt being carried, ultimately eroding savings,” she said.

“We are seeing some Australians being placed in a financially vulnerable position, particularly in areas with a higher purchase price, such as Sydney and Melbourne. 

“However, there are a number of reasons that suggest households could be resilient to these cash rate hikes, as asset balance sheets are in a good position due to strong growth in dwelling prices, strong household savings and some mortgage holders being ahead on their repayments.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.