Are pricier properties outperforming affordable homes?

High home loan rates have reduced buyers' borrowing power, leading to increased demand and higher growth rates for more affordable properties. 

The latest data confirms this trend, but it also shows significant growth in the high-end market.

Supply and demand are the main drivers of property price growth, and the data indicates that demand for expensive properties is as strong as that for cheaper ones. 

Demand for higher priced properties is strong and is boosting price growth. Picture: Realestate.com.au

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While many buyers are adjusting their budgets and purchasing more affordable homes, others are not restricted by price. 

By analysing percentile sale price data, which shows price growth rates across different market segments, we see a clearer picture. 

A percentile is a statistical measure indicating the relative position of a value within a dataset. For example, a property in the 15th percentile is priced lower than 85% of properties, while one in the 95th percentile is priced lower than only 5% of properties. 

Throughout the pandemic, higher percentile prices increased faster than lower percentile prices. 

This trend slowed in 2022 with rising interest rates, but since then, properties in the 85th and 95th percentiles have had prices grow faster than the national median. 

Properties in the 15th and 25th percentiles also had consistent price growth during the pandemic and the period of interest rate hikes, catching up with the higher percentiles. 

Factors that have contributed to growth 

The rental crisis in Australia has driven many renters to buy, with first-home buyers opting for smaller, cheaper properties. 

In addition, investors have re-entered the market, favouring more affordable properties. Due to high interest rates, many buyers are restricted to cheaper properties, increasing demand and driving up prices in these lower percentiles. 

Over the past five years, the 15th percentile for houses has experienced consistent price growth, indicating rising demand for affordable homes. 

However, continued growth in higher percentiles suggests sustained demand for expensive properties, unaffected by the usual market constraints.

Towards the end of the pandemic and into 2022, higher percentile units saw the highest price growth. 

However, as interest rates rose, growth in these tiers slowed, and the lower percentiles now show higher growth rates.

Year-on-year growth data highlights different trends across the capitals

Adelaide had similar growth in both lower and higher tiers (totalling 18% in the past 12 months), while Brisbane, Darwin, and Perth experienced faster growth in lower percentiles.

In contrast, Sydney's lower percentiles grew much less than its higher percentiles, with 8% growth in the 75th and 85th percentiles compared to just 2% in the 15th percentile.

Melbourne experienced lower growth in general, with the 95th percentile even declining. 

Price variance between the cheapest and most expensive percentiles

The price gap between the lowest and highest percentile sale prices is stark. Nationally, the 95th percentile house price is five times that of the lowest percentile, with a $2 million difference.

Sydney shows the largest variance, with a $3.43 million gap between these tiers.

Canberra's 95th percentile is 1.6 times the 15th percentile price — a $1.22 million difference — making even the cheapest houses pricey. 

For units, the 15th percentile is four times less than the 95th percentile at the national level, with a $1.15 million gap. 

Sydney again has the largest variance, with the 15th percentile at $525,000 compared to $2.07 million in the 95th percentile – a difference of almost $1.55 million.

The ongoing rental crisis and the influx of first-home buyers and investors into the market have prompted notable price increases in lower percentile properties. 

Yet persistent growth in higher property price percentiles indicates continued strength in the top end of the market, despite the interest rate hikes of the past few years. 

Despite the reduced borrowing power of buyers, which has spurred demand for more affordable homes, the top end of the market continues to thrive. 

This could in part be attributed to many upgrading homeowners utilising the significant equity gains made in the period of strong growth during the pandemic to purchase more valuable properties. 

Over recent years, higher priced properties have increased in price at a faster rate than lower priced properties. Picture: Realestate.com.au.

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Additionally, many buyers at the top end of the market have fewer financial constraints than buyers seeking affordable homes.

Many of these buyers do not require a home loan given around 40% of current home owners do not have a mortgage, meaning they are less affected by interest rate rises. 

Also downsizers who own outright can bid prices up when selling to purchase a new home.

While affordability challenges loom large for many prospective buyers, the property market remains buoyant across all segments, driven by strong demand both for affordable and premium properties.