Why a vacuum at the top could drive Australia's housing market down

Across Australia's capital cities, prices in the upper end of the property market is dropping rapidly, with experts warning it could indicate where the rest of the sector is headed.

Recent data from property analytics firm Cotality reveals that upper-quartile house prices — those in the top 25 per cent — have fallen at more than double the rate of entry-level ones in Sydney and Melbourne.

High-end homes in both cities have seen declines of more than 10 per cent in value from their peak. By contrast, those in the lower quartile have seen declines of just 3.9 to 5.4 per cent.

In Sydney, a mansion in Balmain East sold for an extraordinary $7 million loss this month — after selling for almost $20 million in 2022, it was bought for $12.8 million.

Cotality executive research director Tim Lawless told SBS News that the top end of the housing market historically moves first in a property cycle. While the sector overall peaked in March, the upper end peaked in October/November last year .

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As the Reserve Bank's rate hikes filter through, Lawless said buyers are being hit with a severe credit crunch as borrowing rates hover around 9.5 per cent, severely weakening purchasing power.

A household on a median income is now spending more than 50 per cent of its pre-tax income to serve a median-priced mortgage. As a result, those who might have previously looked in the middle-to-upper bracket are being pushed toward cheaper stock.

"Mainstream demand is getting deflected towards lower price points where buyers can actually demonstrate an ability to service the loan," Lawless explained.

Taken together, first home buyers, investors, and price-sensitive mid-tier individuals are all now competing for limited stock, which has left high-end listings exposed.

The impact of the demand vacuum at the top has been visible on the ground for some time, with vendor discounting widening while time-on-the-market has lengthened.

Director and chief auctioneer at New South Wales independent AuctionWorks noted that the sharpest initial repricing has likely passed, however wealthy buyers are in no rush to step back in.

"The top end of the market has been the most affected, with significant price adjustments occurring in recent months," Davidson told SBS News.

"However, it appears that whilst we may not yet have seen the bottom of the market, the price reductions have certainly slowed."