The type of property offering the deepest discounts right now

Prices for more expensive homes are falling faster than prices for cheaper homes, as high interest rates reduce buyers’ borrowing capacity and drive demand towards more affordable options.

It means discounts are on offer to buyers looking for family homes in affluent suburbs, while budget-conscious buyers face tougher competition, which does little to improve housing affordability.

Home values are falling faster at the upper end of the market.Credit: Flavio Brancaleone

The property market has been slowing overall amid high interest rates and stretched affordability, with Sydney values down another 0.4 per cent over the past month and Melbourne down 0.6 per cent in the same time frame, CoreLogic figures show.

But Sydney’s upper-end market – homes worth $1.78 million and above – fell 2.2 per cent in value in the past three months. The most affordable quartile – homes worth $867,000 and below – edged down just 0.3 per cent.

In Melbourne, the top quartile of the market – homes worth $1.09 million or more – dropped 2.7 per cent in value over the past three months. The most affordable quartile – priced at $604,000 and below – fell only 1.5 per cent.

Values are still rising in smaller capitals but the slowdown follows a similar pattern.

Brisbane’s top end eked out a gain of 0.4 per cent in the last quarter and its cheaper properties rose 2.2 per cent, while Perth’s top end managed a 0.6 per cent rise but more affordable homes gained 2.1 per cent.

CoreLogic head of Australian research Eliza Owen said the upper end of the market had been underperforming since late 2023.

“The high end of the market has become less and less accessible as economic and interest-rate pressures have continued to weigh on demand,” she said. “Lower borrowing capacities have meant people have been priced out of some of the higher-end markets.

“That’s led to steeper price falls in recent months and weaker annual growth performance at the high end.”

She said buyers with budgets north of $1 million might be finding relatively good value.

“This is not to say that places are becoming affordable at that segment but for those in the multimillion-dollar price range there are some substantially discounted properties,” she said.

“There are bigger discounts to be had for buyers with a higher budget.”

Melbourne’s upper end is down 10 per cent from its peak, but the lower end is down only 4 per cent from its peak, for example.

This means a cyclical market downswing does not necessarily improve a renter’s chances of home ownership.

“The low end of the market becomes more competitive, more buyers are priced out of the high end and a greater buyer pool is focused on the lower end of the market.”

Buyers’ agent Rich Harvey said the more affordable end of the Sydney market had been more active.

“That’s simply a function of higher interest rates,” the chief executive of propertybuyer.com.au said. “We’ve seen more outflow of people chasing the cheaper areas, moving out of expensive suburbs into cheaper suburbs and moving interstate.

“We’re seeing high demand, good numbers at open homes for townhouses, apartments and cheaper price points.”

Some buyers with a set budget are forced to look beyond their preferred area, he said.

“They’ll come to us and say, ‘we have a budget of $2 million and we want to buy on the northern beaches’, and we grimace,” he said.

But he thought the softness in the Sydney market would be temporary, and once interest rates fall, buyers would gradually become more confident.

In Melbourne, buyers’ agent Cate Bakos said it had been a challenge to buy for clients in the sub-$750,000 market.

“The competition is very strong and days on market are really tight,” she said. “Comparing the middle ring and inner ring housing market, to the outer ring affordable houses, is chalk and cheese.”

She said the demand was coming from first-home buyers, families looking for three or four bedrooms, and interstate investors chasing better value.

“A lot of it used to be Sydney investors … now it’s also including Perth, Adelaide and Brisbane investors because they’ve all had equity gains so they’re feeling the wealth effect,” she said. “They’re wanting to make sure they get a house on a full block of land at a lower price point.”

She described Melbourne as a two-speed market because when she looks at quality family homes at higher price points she might have two competing bidders. But in affordable suburbs beyond the ring road such as Werribee, across the west, and the outer north there would be five to seven competing bidders – and the homes are sold within days without going to auction.

“It’s brutal for a lot of buyers. I’ve had a lot of buyers telling me how many months they’ve been searching in these suburbs.”