Melbourne’s hottest suburbs for home buyers have just changed fast

House prices in some of Melbourne’s most affordable suburbs have been steadily rising over the past year, but last month’s rate cut changed the market with the city’s most affluent areas now fielding a surge in demand.

Experts said the recent interest rate cut was fuelling renewed buyer confidence, particularly in high-end suburbs, where prices rose sharply in the past month.

Buyer interest in high-end suburbs has jumped after a rate cut.

New data from CoreLogic shows that in February, Melbourne’s wealthier areas lifted in value, including Stonnington’s western region by 2.1 per cent and Port Phillip at 1.8 per cent. The Brunswick-Coburg area also rose by 2.1 per cent.

Over the past three months, the strongest growth was recorded in a mix of areas: Stonnington’s western region (1.6 per cent), Tullamarine to Broadmeadows (0.9 per cent) and Keilor (0.8 per cent).

CoreLogic research director Tim Lawless said this shift to more expensive areas wasn’t surprising.

“We’ve seen those top-end markets behave quite softly through higher interest rates, probably due to lower sentiment and also the fact that listing numbers rose more substantially in those areas,” he said.

“Markets around the inner east, the Bayside, the Mornington Peninsula, the high-end markets historically, have generally been the first to react to interest rates coming down.”

During last year’s sustained rate hikes, many buyers were pushed into Melbourne’s more affordable regions.

Over the past 12 months, house prices have risen the most in Tullamarine to Broadmeadows (1 per cent), Casey North (0.5 per cent) and Casey South (0.2 per cent).

“As affordability has become quite challenging, demand deflects towards those lower price points,” Lawless said.

Lawless said lower-priced areas would take longer to respond to expected cash-rate reductions.

“[Affordable markets] are likely to be more sensitive to high rates and cost of living pressures… There will probably be a more of a lagged response.”

Commonwealth Bank’s head of Australian economics, Gareth Aird, said the Reserve Bank’s rate cut had already had an effect.

“Auction clearance rates have firmed, and CoreLogic data shows home prices lifted in Sydney and Melbourne in February,” he said.

The gap between buyer expectation and seller price point has narrowed.Credit: Jason South

Lower interest rates improve borrowing capacity and boost sentiment.

“Many households know that as rates come down, borrowing power increases, which lifts buyer confidence. We’ve seen this happen several times before,” Aird said.

Aird was surprised at how quickly the data reflected the economic state, but said the coming months would provide more clarity.

“It will be helpful to see the March data to work out if it’s a genuine turning point or not. But two things have happened in the month of February: prices have gone up and interest rates have gone down.”

With further rate cuts expected this year, Aird predicted prices would rise as borrowing capacity increased.

“We [expect] 75 basis points of cuts pencilled in for this year with the next cut coming in May.”

Jellis Craig Stonnington partner Michael Armstrong said there had been a significant lift in demand, particularly in the $3 million to $10 million range.

He said there had been a 30 to 40 per cent lift in interest in some homes compared to six or 12 months ago.

“In the past two or three weeks, most of our company’s auctions have had multiple bidders on them.”

While last year saw a significant gap between buyer expectations and seller price points, Armstrong said that gap had now narrowed, making transactions easier.

“We saw people come in very low with offers that were just a bit ridiculous last year, because they were building in a lack of confidence and lack of direction in the market.”

He said the rate cut had played a psychological role, rather than a financial one, with low-ballers leaving the market.

“All of a sudden people who were sitting back and sort of making tentative offers on things, stepping forward more with much more conviction.”

Managing director of Barry Plant Glenroy, Fadi Khoder, said affordability and strong interstate interest had driven house prices higher in Broadmeadows and surrounding suburbs over the past year.

“It’s probably one of the cheaper suburbs of Melbourne, especially Broadmeadows. Where do you find real estate 15 kilometres outside the CBD for $500,000, $600,000? That’s why a lot of Sydney [buyers] are coming down… 15 kilometres out of the CBD in Sydney is paying $2.5 to $3 million,” Khoder said.

He also highlighted the area’s strong infrastructure and accessibility as major drawcards.

“Broadmeadows is like a township. It’s got a shopping centre, great facilities, so it’s very affordable. The infrastructure is excellent in regards to transportation and freeways.”

Despite the area’s popularity, Khoder says investors have faced challenges since the pandemic.

“Be it rising interest rates, or land tax it’s just getting very, very challenging for an investor or a landlord to hold property,” he said.