First-home buyers rejoice: Affordable Melbourne property is becoming slightly more so

The low end of the Melbourne property market has taken a hit, after spending months holding up better than higher-priced homes.

Surging first-home buyer demand had kept pushing prices higher for the cheapest homes for the past nine months even as the broader market weakened, but now steadily decreasing demand and tight credit has seen a halt to the low-end supremacy.

For the bottom 25 per cent of sales, price growth had been tracking at an annual 5.3 per cent in the September quarter last year, on Domain data.

But this dropped to -0.9 per cent in the December quarter for this bracket, which has a median price of $580,000.

The top 75 per cent of houses, with a median of $1.026 million, have been harder hit. This price bracket recorded a 1.7 per cent fall in the September quarter, accelerating to a 10.8 per cent fall in the December quarter.

Further falls were likely for both segments of the market, Domain senior research analyst Nicola Powell said.

“We are seeing a more broad spectrum downturn across Melbourne. It was focused on the upper end but now we’re seeing all regions and price points fall,” she said.

“Until we see signals that lending clamps will be loosened, the market will continue to fall.”

Associate director of property at ANZ Daniel Gradwell agreed the credit-fuelled downturn was now spread across the entire property market.

“What’s interesting now is the divergence is still there, but the gap in what’s happening there is narrowing,” he said.

“The difference being it’s now really negative and not very negative, instead of slightly positive and slightly negative.

“It shows the credit tightening is affecting everyone.”

Mr Gradwell said it had taken more time for the lower end of the property market to feel the impact of the credit tightening, due to lower debt-to-income ratios when compared to more wealthy home owners.

Dr Powell agreed. “What we have tended to see historically is that the top end leads in price growth but also in the downturns as well,” she said.

The bottom 25 per cent of the property market had recently performed well due to first-home buyer incentives.

The stamp duty concession and grant for first-home buyers offered by the state government had encouraged enough buying to keep a floor under prices for most of the downturn, Dr Powell said.

“When you see a new initiative come into play, you get an influx of new people trying to take advantage of the incentives,” she said.

Dr Powell said while it appeared prices were falling across the city, the prices where it mattered for entry-level buyers were stubbornly strong but this has changed as demand dried up.

“They were still facing rising prices until only recently and even though it’s only a minor fall, it’s good news because affordability has improved marginally,” she said.

“That was the hurdle. At the entry level prices were continuing to grow.”

The number of first-home buyers in the market were gradually decreasing, and so was the value of their loans, Mr Gradwell said.

“The average loan size has pulled back a little and that has impacted on prices,” he said.

Urban Development Institute of Australia Victorian division chief executive Danni Hunter said the fall in prices was good news for cash-strapped buyers.

“This lowest quartile is imperative to ensuring there are more accessible points in the market for buyers with less access to capital,” she said.

“These prices have only just started to decline, or some would say correct, and are a good indication of what people buying that product can afford in this financial climate.”