PHOTO: Nerida Conisbee, Ray White Group, Chief Economist. Ray White
The Australian housing market is undergoing a significant transformation, with affordability emerging as a key driver behind unexpected trends across various property types. Currently, the growth of affordable house prices is outpacing that of the luxury market, while the opposite is true for apartments.
Traditionally, luxury homes have dominated the real estate landscape, but recent data indicates that affordable properties are now experiencing more substantial price increases. This shift can largely be attributed to “mortgage fatigue,” where rising interest rates disproportionately affect owners of high-end homes due to their larger mortgages and higher monthly payments. Consequently, the demand for luxury properties has cooled, making more affordable homes increasingly appealing to buyers.
In the affordable housing sector, the growing price gap between newly built homes and existing properties has significantly influenced buyer behavior. Established homes in this category are seeing a surge in interest due to their relative affordability and favorable locations within developed neighborhoods. This trend signifies a broader market adjustment, resulting in stronger price appreciation for established properties.
Conversely, the apartment market is experiencing a different trajectory, with luxury units outperforming their more affordable counterparts. This trend is largely driven by downsizers—typically older homeowners or retirees—who are less sensitive to interest rate fluctuations due to their significant equity or ability to make cash purchases. These buyers are often willing to pay premium prices for spacious, high-quality apartments that provide both comfort and convenience.
Unlike the affordable housing segment, the luxury apartment market is relatively insulated from rising construction costs. While developers face challenges in constructing cost-effective apartments due to financial constraints, the premium sector can absorb these higher expenses, as affluent buyers are ready to pay elevated prices. This dynamic has facilitated ongoing growth in the luxury apartment market, even as other real estate segments confront difficulties.
Among the emerging hotspots for affordable house price growth is Perth, where suburbs like Kelmscott have recorded impressive gains of over 34% in the past year. Even in relatively stagnant markets like Darwin, certain areas are defying the trend; for example, Weddell has experienced a 6% increase in house prices, making it the cheapest fast-growing suburb for houses nationwide.
SOURCE: THE REAL ESTATE CONVERSATION