The prestigious Melbourne suburbs where house prices are falling most

House prices in some of Melbourne’s most exclusive suburbs have fallen, driven by high interest rates, buyer hesitancy and sellers’ reluctance to meet market expectations.

Armadale is leading the decline among the $2 million-plus club, as the median house price dropped 15.8 per cent to $2.29 million in the past 12 months, according to Domain data for the September quarter. It was followed by Toorak, Melbourne’s luxury suburb, where prices fell 14.3 per cent to a median of $4.5 million. A 12.5 per cent fall was recorded in Caulfield North.

House prices in other prestigious eastern and south-eastern suburbs with a $2 million-plus median, including Elwood, Brighton East and Kew, also fell.

Domain’s chief of research and economics Dr Nicola Powell said Melbourne’s overall housing market had been slowing, and high-end property markets were particularly sensitive to economic changes.

“In Melbourne’s property market, the premium end of the housing market leads price cycles. More expensive suburbs see greater rates of growth during an upswing, but then equally tend to see greater rates of decline when price is going to a downturn,” she said.

Powell said the downturn in these areas was driven by consecutive interest rate hikes, which had increased monthly repayments and tightened borrowing limits. Many potential buyers are lowering their price brackets, or postponing purchases.

Armadale house prices have fallen by almost 16 per cent over the past year.Credit: Eamon Gallagher

“Affordability impacts different buyers in different ways. If you were once able to afford a $2 million home, borrowing capacity changes might mean you’re now looking at $1.5 million.”

Ultra-high-end suburbs like Toorak are less influenced by interest rate changes because top-end properties are often held by high-net-worth individuals, trusts or generational families. Dr Powell said these sellers had the luxury to wait out downturns for more favourable conditions, which could in turn push the median price down as entry-level homes for the area continued to transact.

“You could see compositional changes, with people selling off lower-priced homes, holding onto their higher-priced properties … Natural human behaviour is, if you don’t have to sell, you won’t sell your home until you get the right offer.”

Not all suburbs at this price point fell, but gains have been muted. Areas such as Albert Park, Camberwell, Hawthorn and Sandringham have median house prices over $2 million and rose between 1.1 per cent and 5.5 per cent in the year to September.

Elwood house prices have slipped.Credit: Penny Stephens

Buyer’s agent Nicole Jacobs, managing director at Cohen Handler in Victoria, said buyers who had secured homes below $5 million in prestigious suburbs at low interest rates were now facing steep mortgage repayment increases and needed to sell in a weakened market.

“You never lose if you don’t have to sell, but you sometimes can lose if you’re at the mercy of a market which is not favourable to what you’re selling in.”

She said some upper-end sellers were reluctant to lower their prices to meet buyers’ expectations, contributing to stagnation and an increase in listings.

“At the $5 million to $10 million and even to the $20 million market in some areas like Brighton, there’s a lot of stock on the market … ​​they’re sitting on the market because they’re priced too high.”

It’s a similar story for Emma Bloom, a director at buyer’s agents Morrell and Koren, who is seeing a pattern of sellers who will abandon their first real estate agent after they don’t achieve their desired selling price.

“There is definitely jumping from agent to agent, and that’s maybe desperation, maybe sort of bad management and maybe disbelief,” she said.

“Second and third agents is where they get real. The vendor gets a reality check, and basically they’re the ones that have the luck in selling all those properties because they eventually have to listen to what the market said their property is worth.”

Bloom said buyers once eager to compete during the pandemic boom were now more cautious despite lower prices. Global uncertainty, rising interest rates and economic instability have dampened buyer confidence.

“We’ve had interest rates out of control. We’ve had multiple wars, and just general global unhappiness.”

The slowdown has also affected high-end auctions, where sellers are opting for private sales to avoid public failure.

“You could drive through the top suburbs and stop at an auction on every street once upon a time, but now you’d be hard-pressed to find one,” Bloom said.

“The last thing you want to do is have an auction and everybody sees that no one’s there bidding, or no one turns up because then the power goes straight to the purchaser.”

Despite significant declines, Bloom said many of these inner suburbs might face downturns but would always be sought-after.

“There’s always triple-A locations,” Bloom said. “The best streets of any suburb, Toorak, Armadale, South Yarra, they don’t change. They’re bullet-proof streets that are always good investments.”