Affordable properties in the spotlight

A significant drop in median house prices at the top end of the property market has created an unexpected lift for some of the country’s more affordable property markets.

According to results covering the March 2011 quarter, the median house price across the combined capital cities is now $478,000, with 20% of the most expensive capital city suburbs recording a fall in values of -5.4% over the 12 months to April 2011, compared with a -0.5% fall at the most affordable end and -0.9% decline across the broad middle 60% of the market.

As an example, Perth’s prestigious riverfront suburb, Mosman Park, was the hardest hit in Australia and experienced a -43.1% drop in its median house prices since peaking back in August 2008.

While the low number of transactions during the quarter affected the results in Mosman Park, there is no doubt that demand and prices in the region have declined.

Across the 25 council areas within the capital cities with the greatest fall in median prices, 17 of the regions had a median house price which was greater than $1 million at their respective peaks. By the end of the March 2011 quarter, only 12 of these regions had a median house price in excess of $1 million.

To add to Perth’s woes, the city now holds nine of the worst performing council regions followed by Sydney seven), Adelaide, Hobart and Melbourne (all three).

During the last 12 months, most of these regions have continued to record median house price falls. Only the Sydney suburb of Hunter’s Hill (2.9%), Adelaide LGA (5.1%) and Cottesloe in Perth (8.5%) have recorded any bounce in median selling price during the last 12 months.

In contrast, a number of capital city regions have their median house price holding firm at record highs as shown in the adjoining table.

Across all capital cities, just 14 areas have current median house prices which are recorded at the historic high.

Across those areas that have a current record high median price, 10 of the 14 have a median house price below $500,000. The most expensive of these regions is Botany Bay in Sydney with a median of $850,000.

Across the list of 25 best performing capital city regions not one of the areas listed has a median house price greater than $1 million. In fact, Botany Bay is the most expensive. More than half of the best performing regions (14) have a median house price which is below $500,000.

Across the capital cities, Sydney has had the greatest number of best performing regions (11) followed by Adelaide (six), Melbourne (five), Perth (two) and Canberra (one).

The analysis certainly supports the broad trend that indicates that the weak performance of the premium sector of the market is having a significant impact on the overall market and subsequently sentiment also.

The premium sector is being impacted by a perfect storm of forces such as consumer conservatism, higher interest rates, poorly performing equities markets (both in Australia and nationally), unstable global economic conditions and lower levels of business and consumer confidence.

With subdued residential property markets likely to persist over the next year, it’s anticipated that the premium and most affordable segments will underperform. The most affordable sector will likely see demand dampened by interest rate rises which impact lower income households and the premium sector will be hampered by those forces previously detailed.

Tim Lawless is the Director of Property Research at RP Data.