Climbing interest rates spur rapid house price drops
The premium for houses over units has shrunk significantly in all capital cities since May, with climbing interest rates triggering a faster drop in house values than in unit prices, according to data from CoreLogic.
The gap between Sydney house and unit prices has narrowed by 7.3 percentage points to 61.9% since May, with the premium paid for houses falling by $83,864 to $490,502, The Australian Financial Review reported.
In Melbourne, house premiums are down by 2.4 percentage points to 55.3%, falling an average of $29,275 to $333,855.
Brisbane saw the steepest drop in house premiums, which tumbled 9.7 percentage points to 68%, an average drop of $46,414 to $340,698.
Ken Lardner, founder of Suburbtrends, told AFR that the gap between house and unit prices would continue to dwindle as interest rates rise.
“As borrowing capacity falls, buyers are left with little choice other than finding a place to live that they can afford,” Lardner said. “We’re seeing increased demand from first-home buyers and new arrivals from overseas, which will remain strong for many years. Considering the drastic decrease in building approvals and low pipeline supply, I see prices holding up well in most unit markets for the foreseeable future.”
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Mark Bainey, CEO of Capio Property Group, said investor demand for apartments was on the rise.
“Demand is still soft, broadly speaking, but we are seeing investors coming back into the market because rents are rising so fast,” Bainey told AFR. “Investors are now our biggest buyers as homeowners remain cautious about buying at the moment.”
Nationwide, the gap between house and unit values has fallen 1.2 percentage points to 32.2%, an average drop of $12,687 to $187,404, AFR reported. Since May, house prices across Australia have fallen by 3.7%, while unit values dropped by only 2.8%.
“Units still offer a significant value discount compared to houses, and for those in the market looking to purchase we would expect demand for this housing type to remain unchanged,” CoreLogic research analyst Kaytlin Ezzy told AFR. “Even as the gap narrows further and houses become attractive again, it’s likely that units will retain much of the relative affordability advantage compared to houses for some time yet.”
