After spending years in the shadow of astonishing home price increases, the units now appear to have their moment in the sun, holding up much better against rapidly rising interest rates than homes. I’m here.
Home prices have surged in recent years as people prioritized more space and a better lifestyle during the coronavirus pandemic.
But as interest rates rose, home prices began to fall sharply nationwide, down 2.7% from their peak in March. Sydney and Melbourne led the price decline, both with him nearly 5% below their respective peaks.
But as the recession progresses, strange trends are emerging. The apartment market is holding up.
according to PropTrack Home Price Indexhouse prices have fallen 3.6% nationwide since March, but the decline in unit prices has been less pronounced, down 2.6% from its peak in February.
The previous declines in house prices have also been larger and more widespread. Looking at 88 of his SA4 regions across Australia, 71 have seen home prices fall. In contrast, only 43 regions experienced unit price declines.
Units have proven to be more resilient to rising interest rates than homes.Photo: Getty
House price declines from each of the previous peaks have also been significant, with an average rate of decline of 2.3% in the 43 SA4 regions where unit prices fell, compared to an average rate of decline of 2.3% in the 71 SA4 regions where home prices fell. was 2.9%. .
Sydney’s Northern Beaches SA4 area tops the list for the biggest price declines for both homes and units, with house prices down 10.6% and unit prices down 9.8% from peak last October. .
However, this follows a shift in tastes caused by Covid, where homes have significantly outnumbered units over the long term.
When the experience of lockdowns and severe restrictions made apartment living less appealing, buyers paid a premium for more space and larger homes.
For many, the shift to remote work, or spending more time at home, has made a larger residence a more attractive proposition.
As a result, the premiums people pay for their homes have accelerated significantly in recent years.
Since the pandemic hit in March 2020, home prices have risen 35% to their peak in March this year, but unit prices have risen only 12% to their peak.
Homes typically command a premium over units, but in this two-tier market, the price differential between homes and units has become record extreme.
But as the apartment market holds up, it’s now starting to shrink.In fact, house prices are falling almost twice as fast.
Low interest rates also enabled people to pay more debt, increased their ability to buy homes rather than units, and helped provide affordable prices.
Other factors, such as lower investor participation, declining overseas demand, and worsening rental conditions in inner-city areas, have also contributed to the relative weakness of the apartment market during the pandemic.
But now the market is adapting to new realities and this situation is changing significantly. The combination of rising borrowing costs and declining borrowing capacity is driving demand for apartments.
Interest rates have risen 225 basis points in five months. This is his fastest tightening cycle since 1994.
Listing engagement data from realestate.com.au showed that the number of potential buyers interested in homes across the capital fell by 7.1%, while the number of potential buyers interested in units increased by 2021. It’s down just 5.7% from the record high seen in October.
On a listing basis, demand from potential buyers in the capital is more muted as the pace of new listings remains historically strong on the back of moderate demand in recent months.
From the peak in demand per listing seen in January this year, the capital’s residential listings are down 18.5% and unit listings are down just 8.1%.
Higher interest rates not only increase repayments, but reduce the amount that prospective buyers can borrow. Currently, the cash rate is stuck at his 2.35%, and his maximum borrowing capacity is down about 20%.
The pool of eligible buyers for higher value homes is shrinking as most people take out debt to buy property. Although not many borrowers take out the largest loans.
This has reached the upper limit of the market, along with other factors such as the supply of plotted land, higher incomes, and mortgage debtthe more expensive properties and neighborhoods saw prices fall the fastest.
Moreover, as borders reopen and cities settle back into post-pandemic normal, the rental market tightens to extreme levels, creating strong rental demand.
These factors also indicate that demand from potential buyers is holding up better in the apartment market.
When broken down by capital, Hobart, Canberra, Sydney and Melbourne saw the biggest declines in potential buyers per home listing from their respective peaks. This makes sense given the faster pace of new listings in these markets, normalizing total inventories more quickly and giving buyers more choice.
Additionally, late last year, the Australian Prudential Regulation Authority (APRA) increased the conservatism buffer applied to new mortgages.
Banks must now be able to offer customers a 3 percentage point higher mortgage rate compared to the previous 2.5 percentage point buffer. This has reduced the maximum amount a prospective buyer can borrow by up to 5%.
This means that those with pre-existing debt or high-interest loans will experience a greater decline in borrowing capacity. This usually gives investors more influence. This is another factor that maintains the relative attractiveness of lower-priced properties, especially units.
Investor activity has slowed as interest rates rise, but a tight rental market and strong tenant demand for units, along with affordability considerations, are likely to contribute to investment activity in the apartment market.
The unit may continue to hold up better against the house.Photo: Getty
Despite falling real estate prices, housing affordability has deteriorated as repayments have gotten higher, and units continue to do better, combined with the relative discounts and lower-than-usual price points offered by the apartment market. It is likely to hold up.
Affordability constraints, shrinking budgets, and value units on offer all prevent a sharp decline in apartment buyer demand.
The more affordable sector of the market is also being cut off by demand from first home buyers taking advantage of government assistance schemes.
The cheaper the unit price, the easier it is to enter the market. Purchase help Once the scheme is implemented, it will create more options under the proposed price ceiling in the apartment market. The same is true for the extended home warranty system.