Melbourne is basking in its new title, overtaking Sydney as property king.
CoreLogic RP Data Senior Research Analyst Cameron Kusher says it’s simply cheaper to buy in the Victorian capital.
“Melbourne is still a lot more affordable than Sydney is. To put this into some context the median unit price in Sydney is actually higher than the median house price in Melbourne.”
In the three months to January, national capital city house prices fell by 0.6 per cent on average.
In Melbourne, they declined 0.1 per cent.
Sydney saw a 2.1 per cent fall.
“From here the rate of growth in Sydney is definitely going to continue to slow. I think certain pockets will see fairly strong demand, I think particularly inner west and areas close to the city that people really want to live in.”
Over the last 12 months, Sydney prices rose 10.5 per cent.
Melbourne grew by 11.
The only capitals to record declines were Perth – down 4.1 per cent – and Darwin, which lost 2.5 per cent.
Still, affordability remains a problem and worsened in the three months after Australia’s big banks lifted variable mortgage rates independent of the Reserve Bank.
Shane Garrett, senior economist at the Housing Industry Association, says while the ratio of mortgage repayments to earnings fell at the beginning of this decade, they recently returned to above 40 per cent of income to levels not seen since 2012.
“Part of the affordability equation here is the fact that earnings growth has slowed to its lowest rate in about 2 decades and that’s partly related to economic weaknesses we’re experiencing at the moment, and it’s partly related to very low inflation environment we’re seeing as well.”
That’s likely to put further pressure on some borrowers.
Jennifer Wu, associate managing director at credit ratings agency Moody’s, is expecting an increase in the number of people defaulting on their monthly home loan repayments this year.
“I think it will be pretty mild in general for Australia across the board, however i think it depends on which sector or segment of the country you’re talking about, so for those states that are quite exposed to the commodities sector we expect the uptick will be slightly higher.”
Cameron Kusher from CoreLogic RP Data has this message for home owners.
“Don’t expect the value of your home to increase as quickly as it has been for the last three and a half years particularly in Sydney and Melbourne. For people looking to buy I think they’ve had a lot more choice than they have had for a long period of time, so they don’t have to make that decision about purchasing as quickly as they had to over the last couple of years and for people that are selling the real message is that you need to be more realistic about the selling price because prices are going to be tougher as the market does slow.”
The Reserve Bank meets tomorrow for the first time this year to discuss interest rates.