Current data shows that demand for real estate is high in all sectors, whether it is affordable or high-end properties.
It’s not surprising that the high interest rates and higher-than-average prices for media houses are driving up demand for affordable housing. However, according to PropTrack, there is also increasing demand for luxury properties.
“High mortgage rates have reduced buyers’ creditworthiness, leading to increased demand and higher growth rates for more affordable properties,” said Karen Dellow, senior public analyst at PropTrack.
“The latest data confirms this trend, but also shows significant growth in the upscale market segment. Supply and demand are the main drivers of property price growth, and the data shows that demand for expensive properties is just as strong as that for cheaper ones.”
As interest rates rose in 2022, luxury home sales slowed. Now, however, homes in the 85th and 95th percentiles are rising faster than the national median home price.
“While many buyers are adjusting their budgets and purchasing more affordable homes, others are not constrained by price. By analyzing percentage sales price data that shows price growth rates across different market segments, we get a clearer picture,” Dellow said.
“Throughout the pandemic, prices in the higher percentile rose faster than prices in the lower percentile.”
These trends are driven by various factors, one important one being the current rental crisis, which has led many to buy properties to escape the pressure.
As smaller and cheaper properties are snapped up, demand in the lower market segment is increasing.
What makes matters worse, according to Dellow, is that many investors are returning to the market and claiming similar, affordable properties.
Dellow said: “However, continued growth in the higher percentiles suggests continued demand for expensive properties, unaffected by usual market constraints.
“Towards the end of the pandemic and into 2022, units in the higher percentiles experienced the highest price growth. However, as interest rates rose, growth in those tiers slowed, and the lower percentiles now have higher growth rates.”
Across Australia, the percentage selling prices are as follows:
- 15th percentile: 475,000 US dollars
- 25th percentile: 575,000 US dollars
- Median price: 785,000 US dollars
- 75th percentile: 1,180,000 USD
- 85th percentile: $1,515,000
- 95th percentile: $2,485,000
In the capital cities, these figures were much higher: in Greater Sydney, the median was $1,420,000 and in Greater Melbourne, $870,000.
“Sydney shows the greatest variance, with a $3.43 million gap between these categories. Canberra’s 95th percentile is 1.6 times the price of the 15th percentile – a difference of $1.22 million – making even the cheapest homes expensive,” Dellow said.
“The ongoing rental crisis and the influx of first-time buyers and investors into the market have led to significant price increases in lower percentile properties. However, the continued growth in upper percentile properties suggests continued strength in the upper end of the market, despite the interest rate increases of recent years.
“Despite reduced buyer creditworthiness, which has led to demand for affordable housing, the upper end of the market continues to thrive… Even though affordability challenges loom large for many prospective buyers, the real estate market remains buoyant across all segments, driven by strong demand for both affordable and premium properties.”
(See also: Real estate prices are losing momentum across the country)
