Rate rises push house values lower across Melbourne, except in one suburb

Rising interest rates have pushed house values lower in every Melbourne suburb analysed, except for one that is defying gravity five months since the first hike, new figures show.

In the first-home buyer stronghold of Kalkallo, in Melbourne’s outer north, house values are a wafer-thin 0.2 per cent higher than they were at the end of April, a $1292 gain, CoreLogic figures show.

But Kalkallo could soon join the downward trend as financial pressures on home buyers build. The Reserve Bank lifted the cash rate another 0.25 per cent on Tuesday to 2.6 per cent, its sixth consecutive monthly increase.

CoreLogic research analyst Kaitlyn Ezzy said house values in the cheaper end of the Melbourne market had held up better than in expensive inner-city suburbs.

“The upper quartile, that is the top 25 per cent of house values, lead the upswings, and they also tend to lead the downswings,” Ezzy said.

“They fall first and they fall faster. The flipside of that is the more affordable houses tend to stay more stable.”

Prices for more affordable homes are holding up more than their inner-city counterparts.Credit: Jason South

That included first-home buyer areas in Melbourne’s outer west, north-west and north-east where house values were only down slightly since the first interest rate rise in May.

House values in Donnybrook and Mickleham, close to Kalkallo, fell by 0.2 and 0.5 per cent respectively, while falls are under 1 per cent in Melton, Melton West, Tarneit and Wyndham Vale. The data excludes suburbs with fewer than 20 sales.

That stood in contrast to double-digit falls in pockets of the inner eastern suburbs.

Malvern East house values have plummeted 13.4 per cent, or by $361,304 since April, while Malvern values dropped 12.2 per cent, and the popular tree change suburb Hurstbridge fell the same amount.

Overall, Melbourne’s dwelling values have dropped 5.6 per cent since January this year, with 5.4 per cent of that fall happening since interest rates rose in May, Ezzy said.

“The level of [debt] that Australia has currently means that rate rises have had a much stronger impact,” she said. “Even in 1994, when rates rose by a similar amount, the level of household debt was significantly lower.”

Someone with a $750,000 home loan is paying $1030 a month more in repayments than in May. The hikes have dented demand for new loans, which fell another 3.4 per cent in August after an 8.5 per cent drop in July, ABS figures showed.

C Square Real Estate Craigieburn director Harry Banga said Kalkallo had become a bridesmaid suburb of sorts, the “second” choice for those priced out of Mickleham and Craigieburn.

“It’s never their first choice, but they can get bigger land size for their money,” Banga said. “The market has definitely slowed since last year but whoever is out, is out to buy.

“If there are four people at an open [house], all four of them are ready to buy, they’re not wasting time, they’re serious.”

While house values rose in Kalkallo only, unit values rose in more suburbs as buyers priced out of the detached housing market sought a cheaper alternative further from the city.

In Kurunjang near Melton, unit values rose by 6 per cent, while they rose by 5.8 per cent in Cranbourne West and 5.3 per cent in Hoppers Crossing.

“It all leads back to affordability,” Ezzy said. “And houses will always have a larger swing than units which tend to be more stable in value because of that.”

Commonwealth Bank’s head of Australian economics, Gareth Aird, said though values were up in some suburbs, the shifts that had started at the top end of town would spread across the market over time.

“[Values] are declining at a pretty quick pace, the forecast profile is that we hit the trough in the second half of next year and that the RBA ends up cutting interest rates, and then the market starts to rally off the back of that, but again we don’t know how much higher [rates] are going to go before they have to come back down,” Aird said.

Aird is forecasting a national fall of 15 per cent in house prices, and a peak-to-trough decline of 17 per cent in Melbourne.

“Until the RBA stops raising interest rates [prices won’t rise] … as a lot of buyers are sitting and waiting to see where rates get to before deciding what they want to pay for something,” he said.