Selective discounts expose brutal reality of current housing downturn

Australians cheering recent home prices falls may be disappointed: the kinds of homes becoming cheaper are overwhelmingly properties most buyers wouldn’t have been able to afford even with a discount.

New PropTrack figures have revealed Sydney’s eastern suburbs, north shore and northern beaches have become the epicentre of the slump, with prices in these areas dropping faster than in the rest of the city.

These three regions together represent the most expensive housing markets in the country and prices, even when discounted, typically demand huge budgets.

Ray White chief economist Nerida Conisbee said the current downturn remained driven by falls “at the top end”.

REA Group economist Anne Flaherty said many buyers remained priced out of much of the city despite recent price falls.

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“It’s the same story of affordability,” she said. “Sydney’s median house price is so high that a shrinking pool of buyers can afford to buy one.

“The affordability constraints make it increasingly difficult to buy in that high end of Sydney – houses have taken a bigger hit, just because they’re so much more expensive.”

Many of the eastern suburbs with the biggest recent price falls were ultra-premium markets such as Bellevue Hill, Vaucluse, Rose Bay and Darling Point.

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Median prices in some of these areas are now an average of $500,000 lower than they were last year but remain well above $5 million.

Bellevue Hill was in fact the suburb with the largest median house price fall across the country in dollar terms, with the median dropping by $1.18 million over the June quarter.

Houses in the suburb still average over $10 million.

Even factoring in some of the region’s cheaper suburbs, along with apartment prices – prices remain well above the budget of most buyer’s even after recent discounting.

Dwelling prices across the eastern suburbs region as a whole are now $79,000 cheaper than they were at this time last year, but still average $1.86 million, PropTrack’s Home Index showed.

North Shore dwelling prices, based on sales of units, townhouses and houses, have dropped an average of $91,000 annually, but still average $1.63m.

Northern beaches dwelling prices average $2.3m, despite falling by an average of $84,000 over the past year.

The opposite trend has emerged at the bottom end of the market – those suburbs within the budgets of a much larger cohort of buyers are actually still rising.

PropTrack indicated dwelling prices in the southwest of Sydney, one of it’s cheapest major markets, have climbed $34,000, on average, over the past year.

There’s been a more recent change in price fortunes over the past three months, with prices now beginning to fall in the southwest, but the average quarterly drop was $11,000.

That’s arguably a smaller amount than the average drop in most buyers’ borrowing power after three interest rate hikes, which means properties in the area are less affordable even after getting cheaper.

Ms Flaherty said Sydney’s high price point for homes meant the effects of interest rate rises and federal budget fears were especially felt.

“Sydney is the most expensive market in the country, and that makes it the most sensitive to a high interest rate environment,” she said.

“When interest rates increase and borrowing capacity is impacted, that can have a higher impact on prices.”