More modest homes are seeing serious price drops as markets cool
Smaller houses are taking the biggest price hits as the Sydney and Melbourne markets cool, according to data from Domain.
House prices in Melbourne dropped a marginal 0.7% last quarter to an average of about $1.09 million, according to a report by The Sydney Morning Herald. However, the median price for smaller two-bedroom homes plummeted 10.5% – more than $83,000 – to a median of $710,000.
This was significantly sharper than the quarterly decline for three-bedroom (down 4.5%) and four-bedroom houses (down 5.7%) – both of which had recorded stronger price growth over the year.
In Sydney, the median house price rose a marginal 0.2% to about $1.59 million, the Herald reported. However, the median price for two-bedroom houses fell 5.2%, or $51,500, to $940,000. Smaller declines were posted for three-bedroom (down 2.7%) and four-bedroom houses (down 2.9%), which also posted stronger annual growth.
Two-bedroom houses also posted weaker performance than larger homes in Perth and Brisbane, according to the Herald.
Dr Nicola Powell, chief of research and economics at Domain, said buyers become more selective during softening markets. She predicted that the slowdown in Melbourne and Sydney would have a greater impact on more modest homes.
“You see a divergence in performance depending on the types of property, quality of property and size of property as well,” Powell told the Herald. “Buyers become more mindful of what they’re purchasing. They don’t want to compromise, particularly not on space. We know they’ve really had a preference for homes with more bedrooms [during the pandemic] because they’ve seen greater price growth, and we’ll probably see that [preference] continue.”
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Smaller apartments have also taken a harder price hit, with one-bedroom units seeing the largest drop in Melbourne (-5.9%), Perth (-7.4%) and Adelaide (-2.8%). In Sydney, two-bedroom units saw a greater drop over the quarter, down 4.9% – but one-bedroom price growth was still softer on an annual basis.
Powell told the Herald that smaller homes – especially one-bedroom units – had a smaller buyer pool. While rising investor activity could increase demand for more affordable homes, upsizing buyers were still the largest market segment, she said.
