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House Price Rebound Concentrated at Top End of the Market

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The sharp turnaround in house prices has prompted property economists to revise forecasts upward, with Sydney and Melbourne leading the robust growth in housing demand.

Recent analysis of property price growth in Australia’s two largest cities reveals that the rebound has not been uniform across all segments of the residential market.

The top end of the market has experienced the largest jump in house prices, with more lethargic growth in low to medium priced homes.

“It is not unusual for the top-end of the market to lead a price cycle with the lower end following,” Domain economist Trent Wilshire said.

“This upswing looks to be broadly following this historical pattern.”

Domain’s analysis tracks house and unit prices across five different price segments—price quintiles—of Sydney and Melbourne’s residential market.

In Sydney, house prices have made the most marked increase across properties in the $1 million to $1.5 million range, which have jumped by up to 8.6 per cent over the past six months.

The largest increases were seen largely across Sydney’s inner-west, northwest and southern suburbs.

In contrast, unit prices in the lower $450,000 price range of the market fell by 2 per cent over the last six months.

Related: Expect Housing Undersupply by 2020: CBA

Median house and unit prices in each Sydney price quintile

House priceHouse price 6 month % changeUnit priceUnit price 6 month % change
1st quintile$600,0003.4%$450,000-2.1%
2nd quintile$730,0001.4%$605,0000.8%
3rd quintile$1,020,0006.8%$686,7501.0%
4th quintile$1,455,0008.6%$830,0002.5%
5th quintile$2,110,0000.0%$1,000,0000.5%

^ Price quintiles are obtained by ranking all property sales each quarter in order from cheapest to most expensive and then calculating the median price of each 20 per cent of sales.


Top end of Melbourne market at the ‘epicentre’ of recovery

The rebound in Melbourne has been more exaggerated than in Sydney with homes within the $1 million segment of the market experiencing a near 10 per cent rebound.

While the most expensive segment—a median house price of $2.1 million—recorded the second largest rise of 4.1 per cent over the past six months.

“These [houses] were mainly in Melbourne’s inner-city and inner-bayside regions,” Wiltshire said.

“The top end of the Melbourne market has led the overall market in previous cycles,” Wilshire said.

“This pattern is also apparent during downturns, with the premium areas of the Melbourne and Sydney markets leading the correction that began in 2017.”

Median house and unit prices in each Melbourne price quintile

House priceHouse price 6 month % changeUnit priceUnit price 6 month % change
1st quintile$555,0002.8%$392,0004.5%
2nd quintile$660,0003.1%$500,0009.4%
3rd quintile$776,0003.5%$530,0003.9%
4th quintile$1,080,0009.8%$547,0007.8%
5th quintile$1,510,0004.1%$626,5002.1%

^ Price quintiles are obtained by ranking all property sales each quarter in order from cheapest to most expensive and then calculating the median price of each 20 per cent of sales.


Wiltshire said that if the market rebound proceeds as it has historically, the bottom end of the market may see price growth in 2020.

“Although as prices in less expensive areas tend to be less volatile, prices may not rebound as much as more exclusive areas.”

Household debt, lethargic wages growth and continued constraints on lending will continue to place downward pressure on the housing market, while regulators have indicated they will intervene should the market overheat.

“While rising property prices should give the economy a boost, a return to boom-time conditions in Sydney and Melbourne would not be a good development.

“It would make housing even more unaffordable and increase already high debt levels.”

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Article originally posted at: https://theurbandeveloper.com/articles/house-price-rebound-concentrated-at-top-end-of-the-market-