THE PRACTITIONER'S COMPANION
Wednesday 6 November 2024

Flight to affordable houses as mortgage fatigue sets in

Affordable house price growth is now outpacing the luxury market - while demand for prestige apartments is growing faster than cheaper units. 

2 min read
Demand for affordable houses on the up

HOUSES and apartments are heading in different directions pricewise, according to one leading property economist.

Ray White chief economist Nerida Conisbee said that mortgage fatigue meant hard-pressed families were tightening their belts.

“Australian housing is experiencing a notable shift, with affordability driving unexpected trends across different property types,” she said.

“Affordable house price growth is now outpacing the luxury market. While the opposite is now occurring for apartments. 

“The traditional outperformance of luxury homes in the real estate market is being challenged by current data showing more substantial price increases in affordable properties.

“This shift is largely attributed to “mortgage fatigue,” where rising interest rates disproportionately impact owners of expensive homes due to their larger mortgages and higher monthly payments.

“As a result, demand for luxury properties has cooled, while more affordable homes have become increasingly attractive to buyers.”

Analysis by the firm shows a widening cost gap between a newly built home and existing homes, with established properties seeing heightened interest due to their relative affordability and location in developed neighbourhoods.

“This trend reflects a broader market adjustment, leading to stronger price appreciation for established homes,” Conisbee said.

In the apartment market, luxury units are outperforming more affordable options in terms of growth.

“This disparity is primarily driven by downsizers, typically older homeowners or retirees, who are less sensitive to interest rate changes due to their substantial equity or ability to make cash purchases,” the economist said.

“These buyers are often willing to pay premium prices for spacious, high-quality apartments that offer comfort and convenience.

“Unlike the affordable housing segment, the luxury apartment market remains relatively unaffected by rising construction costs.

“While developers struggle to build cost-effective apartments due to financial constraints, the premium sector can absorb higher construction expenses as affluent buyers are prepared to pay elevated prices.”

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