Home and unit prices in several inner suburbs of Sydney and Melbourne have fallen below pre-pandemic prices, but that may not be cause for celebration just yet.
Three Sydney suburbs and four Melbourne suburbs have seen median house prices drop below what they were in March 2020, according to REA. To qualify for the list, suburbs had to have a minimum of 10 sales.
Looking at unit prices, the number of suburbs falling to an average price before covid hit jumped to 45 around New South Wales and Victoria.
In Sydney, Rhodes recorded the biggest drop in house prices, falling 21.43 per cent. Beecroft had the biggest turnaround of all the suburbs, with unit prices down 40 percent.
The changes in Melbourne were less drastic but still significant, with house prices in Caulfield East falling 8.83% and house prices in Albert Park falling 25.23%.
“If you look at the types of areas where prices are falling, it’s generally the most expensive markets,” PropTrack Director of Economic Research Cameron Kusher told news.com.au.
“It’s really being driven by the fact that interest rates are rising rapidly and much sooner than people expected,” he continued.
“As a result, people just can’t borrow as much as they used to, they just can’t afford the best price for these properties.”
Will more suburbs see a drop in prices?
Kusher and most experts have already predicted that interest rates will continue to rise, so it seems likely that more suburbs will follow suit.
“The important point is that while interest rates are up 1.75% year to date, people have only really felt the effects of 0.75% of that,” Kusher explained.
“It may be several months before it starts to affect your mortgage payment, and we expect interest rates to go up even more, so I think we’re going to see more suburbs where prices drop in the coming months.”
This is not the time to get excited
While falling home and unit prices sound like a good thing, it’s unlikely to make buying property any easier yet.
“Rising interest rates means paying your mortgage is more expensive. So while the dollar value of what you pay is lower, what you actually have to pay on that mortgage is higher,” says Mr. Kusher.
“Obviously lower prices, on paper, look good and appear to be improving housing affordability, but the effect of higher interest rates largely offsets those price declines,” he continued.
To further complicate matters, Mr. Kusher. says that when he applies for a mortgage, he is “assessed on his ability to pay that mortgage at a 3 percent higher interest rate.”
“So when the variable rates were 2 percent, your ability to pay the 5 percent was evaluated. If interest rates rise to 4 percent, your ability to pay the 7 percent mortgage is assessed.
“It means you can’t borrow as much, but it also means the servicing costs of that mortgage are higher.”
He also emphasized that going back to pre-pandemic prices doesn’t really mean going back to affordable housing prices.
“We have seen exceptional growth in recent years; I don’t think anyone said that property prices were necessarily affordable before the pandemic.
“It’s just not drastically improving housing affordability.”