Capital cities where property prices are dropping

Prices have begun dropping in cities across Australia with the latest data showing where homeowners are suffering the most.

Property prices have started to drop in two capital cities with more falls expected as interest rate rises begin to bite.

The latest PropTrack data from REA Group show house prices dropped in Perth by 1.8 per cent in the three months from February 1 to April 30, just before the RBA’s recent interest rate rise. Prices in Darwin dropped by 2.1 per cent.

While Sydney showed 11.1 per cent growth, this was far below the 12-month average of 24.2 per cent.

Melbourne growth has also dropped to 4.6 per cent over three months, compared to 14.3 per cent over 12 months.

PropTrack economic research director Cameron Kusher said he expected to see other capital cities follow Perth and Darwin in recording price falls.

“As interest rates rise … we’ll start to see property prices fall in most parts of the country,” he said.

“In places like Sydney and Melbourne, where growth has been very strong, we are likely to see larger price falls than in more affordable areas like Brisbane and Adelaide.”

Mr Kusher said it was also likely there would be a shift in preference to smaller, more affordable properties.

During the Covid pandemic, buyers favoured larger properties.

“If you look across the data, in most of the cities, four and five-bedroom properties had the biggest increase in price,” he said.

The most expensive properties are expected to feel the impact of falling prices the most. Picture: Brendon Thorne/Getty Images

“People were spending more time at home than they did previously and they wanted more space.”

In Sydney for example, prices for four-bedroom houses rose by 23 per cent in the past year, compared to 13.6 per cent for two-bedroom homes.

In the past three months this has slowed to 6.8 per cent for a two-bedroom house, versus 11.1 per cent for a four-bedroom house.

Mr Kusher said he expected this to switch in coming months.

“I think six to nine months down the track, we’ll see the smaller houses – because they are more affordable – they’ll be outperforming and showing better growth than four- to five-bedroom properties,” he said.

He said when property prices slow, the more expensive properties tended to slow the most as interest rate rises force mortgage payments higher.

It will be a similar story for unit prices, with Mr Kusher noting that one-bedroom units had generally underperformed price wise, compared to stronger growth in prices for two- and three-bedroom units.