National home prices have fallen for the first time this year, but one segment of the market is still powering ahead as affordability constraints push buyers into cheaper properties.
Australia’s median home value dipped by 0.1% in April according to the latest PropTrack Home Price Index, as buyers wait for more certainty on interest rates and housing reforms in the upcoming federal budget.
But new data has revealed a split has emerged between property price points, with the more affordable end of the market continuing to surge, while the top end pulls back.
PropTrack senior economist Eleanor Creagh said it points to the more expensive end being more exposed to the pullback in borrowing capacity and buyer confidence.
“Interest rates do tend to affect market segments differently,” she said.
“Higher priced markets are typically more sensitive because buyers typically require larger loans, are more exposed to serviceability constraints, and in many cases can be highly discretionary purchasers or investors.”
The RBA has raised the cash rate twice this year, with a third hike expected next week.
The data from PropTrack shows the bottom 25% of the market outperformed the middle and top quartiles in most capital cities during the March quarter.
In Sydney, where the median property price in the bottom 25% of the market is $911,692, home values jumped by 2% in the first three months of the year, compared to 0.9% for homes in the middle market ($1.25m median) and just 0.1% at the top end ($1.88m).
Melbourne also recorded 0.7% quarterly growth at the bottom end of the market, compared with 0.1% at the midpoint and a 0.6% decline at its upper quartile.
Ms Creagh said buyer demand is being redirected toward more affordable price points as higher interest rates constrain borrowing capacity, but government policies such as the 5% Deposit Scheme was also supporting activity.
“Buyers who can no longer stretch into higher price points are shifting down the price spectrum, while first-home buyer support and deposit schemes are helping sustain demand for lower priced stock.”
Homes at the affordable end of the market are outperforming the middle and top quartiles. Picture: realestate.com.au
Will Gosse, chief executive of Sydney real estate agency BresicWhitney, said the upper segments aren't weaker, they're just more patient and discerning.
"Buyers there can often afford to wait, and right now, many are," Mr Gosse told realestate.com.au. "The lower end stays active because the underlying drivers are less discretionary.
"Confidence is the single biggest variable in the upper segments. When rates and policy are unsettled, that confidence takes longer to return."
Even in hot markets like Brisbane and Perth – where home prices have soared around 20% in the past 12 months – affordability pressures are funnelling buyers towards cheaper houses or apartments.
Brisbane-based buyer’s agent and president of the REBAA, Melinda Jennison, said affordability has been playing out in the market for some time.
“The lowest segment of the market has been outperforming the middle and the top segment of the market in terms of quarterly price growth for over 12 months now,” Ms Jennison said.
Home prices at the top end of the market are seeing the biggest pullback as affordability constraints and uncertainty around housing tax policy pushes buyers to the sidelines. Picture: Getty
“So that's the section where there's more demand, and that's playing out in higher values or more pressure on prices in that that section.
“If you're shopping in a price point under that $1 million mark, and that's where those first-home buyer incentives apply, there's a lot more competition.”
Housing market splits into multi-speed phase
National home values went backwards for the first time this year during the month of April, as declines in Sydney and Melbourne offset price growth in the smaller capital cities.
Ms Creagh said it marks a turning point in the housing market, from broad-based growth seen over 2025 to a more uneven, multi-speed phase.
“Rate-sensitive inner-city markets are leading the shift, particularly in Sydney and Melbourne, where price declines have emerged after back-to-back interest rate rises,” she said.
“In contrast, more affordable markets, particularly across parts of Perth, Adelaide and regional areas continue to record strong annual growth.”
Prices still remain 8.5% higher than a year ago, adding around $92,200 to the value of the median home.
The looming federal budget is also keeping buyers on the sidelines, according to AMP chief economist Shane Oliver.
He said expected changes to capital gains tax arrangements and negative gearing “may reduce investor expectations for the after-tax return they can expect which will mean less investor demand and so lower home prices in the short term.”
“Working the other way, the boost from the expansion of the 5% low deposit scheme for first-home buyers is showing up in relatively stronger growth in lower quartile property prices and in units in most cities,” he added.
“They are also benefitting from poor affordability pushing existing homeowners and investors into lower price points for houses and into units.”
The PropTrack data shows the top 10 regions for price growth over the past year are largely concentrated around Perth and Brisbane’s more affordable outer-rim suburbs, where first-home buyers are typically more active.
Mr Oliver said government incentives would continue to underpin growth in the lower price points for houses and in units, though expects demand will “hit an air pocket at some point”, likely next year.
“With FOMO remaining in the boom time cities of Brisbane, Perth and Adelaide, they are likely to remain the strongest of the state capitals in the near term,” he said.
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