House prices in some of the most expensive suburbs in the country, such as Bellevue Hill in Sydney’s eastern suburbs, have fallen by as much as $972,745, or 11 per cent, from their recent peaks, highlighting the RBA’s assessment that the premium end of the market is the most sensitive to interest rate changes.
Median house values in Vaucluse, Double Bay and Bronte also fell sharply, slumping by 8.1 per cent, 12.1 per cent and 13.4 per cent respectively, according to CoreLogic data. In dollar terms, Vaucluse house prices have dropped by $715,691, Double Bay by $758,346 and Bronte by $813,364.
Meanwhile, the median house price in Toorak in inner Melbourne plummeted by 10.9 per cent, or $609,168, from its peak.
At the height of the pandemic-led boom, house prices in Vaucluse, Bellevue Hill and Double Bay surged 46.6 per cent, 45.6 per cent and 40.9 per cent, respectively, according to CoreLogic.
At their peaks, house price soared 32.6 per cent in Clovelly, 40.9 per cent in Castlecrag and 45.5 per cent in Balgowlah Heights. Prices have since fallen by 14.5 per cent, 13.8 per cent and 12.7 per cent respectively.
The Reserve Bank of Australia’s head of domestic market, Jonathan Kearns told The Australian Financial Review Property Summit said the most expensive areas were particularly sensitive to rate changes and houses were more sensitive to rising rates than apartments.
“It appears that the limited supply of available zoned land partly explains this result,” he said.
Houses in areas with high levels of mortgage debt, more investors and higher incomes were also more vulnerable to an interest rate-driven property price downturn, Dr Kearns said.
Top-tier houses across the combined capital cities have already dropped by 5.9 per cent in the past three months alone. At their peaks in May last year, premium houses were rising by 9.2 per cent over the three-month period.
By contrast, the more affordable segment rose 0.3 per cent in the three months to August and had climbed 4.2 per cent over the quarter at its peak.
Eliza Owen, CoreLogic Australia head of research, said expensive markets tend to show more volatility, meaning higher highs and lower lows over the course of the cycle.
“It’s a fairly consistent pattern we’ve observed across relatively high-end houses and units over time,” Ms Owen said.
“The more expensive markets have historically been more sensitive to both rate rises and reductions.
“That is pretty clear in the data, where upswings and downswings have more volatility across detached houses relative to units, and higher-priced suburbs relative to more affordable markets.”
The limited supply of land in high-end markets makes housing on that land more desirable when the cash rate is falling, and less attainable when the cash rate is rising, according to Ms Owen.
“We also know that high-income buyers and investment buyers tend to be more highly leveraged relative to their income, and housing investors don’t pay down debt as quickly,” she said.
“This means these buyers could be more constrained on further asset purchases in a rising rate environment, bringing down values in premium markets more dramatically.”
Kent Lardner, founder of Suburbtrends, said the variability in housing stock in the premium markets also added to the volatility in these areas.
“We’re seeing fewer higher-priced houses listed across some premium markets, and where the ‘rich’ decide to hold out, we can expect to see the prices we measure decrease,” Mr Lardner said.
“If this trend continues, it is likely prices in the top suburbs will be pushed down due to the shift towards lower-priced homes selling. In this case, a lot of this downward shifts in prices will be due to compositional bias rather than values falling.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/top-end-suburbs-fall-harder-as-rates-climb-20220920-p5bjnj