The Melbourne suburbs where house prices have fallen up to 20 per cent

Property prices have fallen by double digits since their peaks in a string of inner Melbourne suburbs amid soaring interest rates, creating better conditions for buyers and a weaker market for sellers.

But with a rate cut on the horizon, possibly as soon as Tuesday, experts predict house prices could bounce back.

House values in Moorabin recorded a fall of 20.3 per cent from its peak in March 2022, with the median house price down by $295,423, CoreLogic figures show. Once the coastal markets of the Mornington Peninsula are excluded, this was the steepest drop in Melbourne.

Median home values were also down by 17.3 per cent since their peak in Flemington and Brunswick West, while Aberfeldie and Essendon North recorded falls of 16.9 per cent and 16.7 per cent, respectively. The median house in Caulfield North is now worth $450,642 less than the suburb’s peak in November 2021.

CoreLogic head of research Eliza Owen said the suburbs which have had the largest drops in home values were family oriented areas where properties have traditionally been more expensive.

“They might be having to take out quite a bit of debt to buy into these areas,” Owen said. “Caulfield North comes to mind, where the median house value, even at its discounted level, is $2.3 million. These areas might be more sensitive to interest rates for that reason as well.”

Owen noted that while these suburbs have experienced deep falls, median house values remain high, reaching upward of $1 million and even $2 million in some areas, pricing out low-income and first home buyers.

“The biggest price falls in Melbourne have been in the high end of the market, so you could argue that the biggest price falls have happened for the type of buyer that doesn’t necessarily need the same improvement in affordability that low-income buyers might,” Owen said.

“In fact, more buyers are concentrated at the low end of the market, which has helped to hold it up, and that’s partly why you see bigger declines in the high end.”

Owen said these suburbs are well-placed to bounce back following a rate cut, but for now, conditions remain weak for sellers.

“You need to wait longer for your property to transact ... you probably have to offer more of a discount to get your property sold,” Owen said. “Three years ago, you would have gotten a much higher price. It’s time for vendors, in these markets in particular, to really adjust that.”

Property Home Base buyers advocate Joe Dunbar agreed vendors in these suburbs need to adapt to the market, with overpriced properties struggling to sell, giving buyers the upper hand.

Dunbar said many sellers were trapped in the COVID housing boom mindset, when properties were selling for record prices.

“They need to price accurately,” Dunbar said. “There’s still a good number of people trapped in that thinking, that they can just kind of put [their home] onto the market and that’s just going to sell for whatever price they put out there.”

Dunbar said while declining home values have opened up the market, many buyers are still waiting for a rate cut so they can increase their borrowing capacity.

“There’s just a lot more manoeuvrability for home buyers to be able to be a little bit more picky on what they’re wanting,” he said. “I would say we’re leaning towards a buyers’ market right now, but I’m not sure how much longer that’s going to stay that way ... if there’s an interest rate cut that should stimulate the market quite a bit.”

Head of data and insights at Quantify Strategic Insights Angie Zigomanis agreed that falling property values haven’t necessarily made it easier for buyers, with borrowing capacity restricted by high interest rates.

“Many of the suburbs which have experienced declines are family areas where cost of living pressures combined with high interest rates could be affecting mortgage stress,” he said.

Home values have fallen in a string of inner Melbourne suburbs. Credit: Arsineh Houspian

“At the moment, it’s interest rates that are putting a limit on what they can afford.”

Despite falling prices in sought-after suburbs, Zigomanis said buyers will likely seek out homes in more affordable areas, even if they get a rate cut.

“You might see prices recover here, but you’ll probably find that people with a set budget would rather push towards a middle ring suburb where they get more bang for buck based on interest rates,” he said.

Director of property and buyers advocate at Entourage Finance Antoinette Sagaria said increased costs fuelled by mortgage stress, cost of living and land tax have affected household budgets.

Buyer demand hasn’t been as strong as the COVID housing boom, when prices peaked and interest rates were low, she said, pushing home values lower.

“People were making decisions very quickly ... so they’re the ones that are likely to feel that financial pressure,” she said.