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The wealthy are reaping the rewards of the property market rebound — after using the downturn to upgrade their homes
The Sydney and Melbourne property markets have had a wild ride since 2017, with the most expensive properties leading the charge. While they were the ones to plummet furthest during the correction, they are now also rising the fastest as the market bottoms out.
That in part has been driven by recently-loosened lending standards that have disproportionately increased the borrowing abilities of the wealthy, in turn stimulating greater demand in more affluent suburbs.
Analysts believe that has seen the richest Australians use a soft market to upgrade their homes, as the value gap between their existing homes and grander ones shrunk.
With Sydney and Melbourne property prices peaking in 2017 before plummeting, it was the big end of town that was hit hardest.
Coming off much grander bases, expensive properties had far further to fall and more to lose than their more modest peers.
According to property research house CoreLogic, that saw the most expensive houses in Sydney (those in the top two-tenths) fall sharply.
CoreLogic's data shows the prices of the most expensive houses fell by 16.7% since their peak compared to 10.6% falls in the bottom segment of the market. The most pain, however, was felt by the second most expensive tier of houses which saw 17.8% slashed from values.
That was even more pronounced in Melbourne where top property prices have fallen by 16.8% while the lowest end of the market saw just 2% falls.
However, before you offer your thoughts and prayers to the owners of these luxe abodes, know this — as house prices have bottomed out in both cities in recent months. And it has also been the top end of the market that has led the recovery effort.
Consider Melbourne for example, which saw house prices rise for the first time in more than a year. The most expensive tenth of homes increased in value by 1.3% compared to the city-wide average of 0.1%.
“The stronger result across the upper quartile partly reflects the fact that Sydney and Melbourne housing values are more expensive relative to other cities, but also that the middle to upper end of the Sydney and Melbourne housing markets are showing the stronger trajectory in housing values after recording deeper declines during the down phase," CoreLogic head of research Tim Lawless noted of price movements.
CoreLogic analyst Cameron Kusher suggested that it also was being driven by the regulator APRA loosening lending standards. That decision has in turn increased the borrowing capability of all Australians, but especially the wealthy, who are buyers in the top market segments.
To me this segment is leading the recovery because many that already own have seen their borrowing power increase. The larger falls at the top end allow them to upgrade and although the value of their home may have fallen, the home they are buying has fallen a larger amount.
— Cameron Kusher (@cmkusher) August 5, 2019
That sentiment was echoed by Lawless who said the wealthy had seen these enormous market movements as an opportunity.
"With borrowing capacities recently increasing as a result of lower mortgage rates, and a reduced serviceability floor, existing owners may increasingly be looking to upgrade into more expensive homes," Lawless said.
"Despite value declines across the board, more expensive housing stock has generally recorded greater declines which may be offering homeowners the opportunity to upgrade into a more expensive property despite the recent value declines."
As auction clearance rates in both cities hold above the 70% mark for the third week in a row, economists predict modest price gains ahead. The lion's share of that price growth, however, could again go to the top end of the market.
If that transpires, those who moved up during the falling market will be laughing all the way to the bank.
