Sydney’s house prices are now falling five times faster than units as poor affordability, surging inflation and lower borrowing capacity hit demand, data from Domain shows.
In the three months to June, house prices across Sydney dropped by 2.7 per cent, their first quarterly decline in two years and the sharpest fall since early 2019. During the same period, unit values slipped by 0.6 per cent.
Sydney house prices are now falling five times faster than units as affordability and higher mortgage costs bite. 
Nicola Powell, Domain’s chief of research and economics, said house price falls were likely to accelerate in the coming quarters as interest rates go up.
“We’re just at the beginning of the downturn, and it’s already starting to show greater momentum and also spreading fast geographically, so we’re likely to see prices continuing to fall as interest rates rise,” Dr Powell said.
“Potential buyers might be in the driving seat, but they are also facing worsening mortgage affordability as the recent cash rate increases added around $726 a month to a $1 million home loan. This has clearly weighed on buyer sentiment, adding to further price falls.
“I think a peak-to-trough decline of 10 per cent and 15 per cent in Sydney house prices is possible, particularly in the backdrop of a 40 per cent rise during the pandemic.”
Melbourne houses also underperformed units, with values falling by 0.9 per cent, compared to an 0.4 per cent rise in unit prices. This was the first time units had outperformed houses since the onset of the pandemic in early 2020.
Across the combined capitals, house prices fell for the first time in two years, dropping by 0.9 per cent, while units slipped 0.6 per cent.
During the pandemic, house prices nationwide rose an average 34 per cent from trough to peak, while unit prices increased only 10 per cent.
“These quarterly statistics reveal that affordability constraints, reduced borrowing capacity and the relative underperformance and perceived value [that] units offer will help steer buyer demand to affordable options, likely to be both units and entry-priced houses,” Dr Powell said.
“We’re now seeing the record price gap between property types narrowing because of the deeper house price falls as the downturn gathers momentum.”
House prices in some of Sydney’s most affluent suburbs and coastal locations were the hardest hit, with Sydney’s upper north shore, inner west, northern beaches and Sutherland falling by 8.4 per cent, 8.3 per cent, 6.8 per cent and 2.6 per cent respectively.
In Melbourne, the premium suburbs in the inner east led the biggest house price decline of 6.1 per cent on average over the quarter, followed by Mornington Peninsula with a 2.6 per cent fall.
“The premium areas tend to feel the weakness first, then it ripples out to other segments of the market,” Dr Powell said.
“Suburbs that have a higher purchase price, and therefore greater debt, place households in a vulnerable position to rising interest rates.”
In Brisbane, average house prices hit another high of $840,594. However, the pace of growth has slowed to just an 0.2 per cent rise over the quarter, suggesting the strongest upswing in 18 years had lost momentum.
Sunshine Coasts’ biggest house price boom since 2003 also ended abruptly in the June quarter, with values falling by 2.4 per cent, their first decline in over three years.
Adelaide was the country’s top-performing market after house prices climbed 3.6 per cent over the quarter to a new high of $793,220.
But similar to Brisbane, the strong house price upswing in Adelaide eased substantially from the previous quarter.
In Perth, house prices rose by 1.1 per cent, in Canberra by 1.8 per cent, in Hobart by 0.8 per cent and in Darwin by 0.3 per cent.
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