Melbourne is on the brink of losing its status as a $1m house city as rising rates slash borrowing power and drag prices lower.
Melbourne is on the brink of losing its status as a $1m housing city as a $20,000 blow to borrowing power triggers a property downturn.
PropTrack’s latest Home Price Index shows Melbourne’s median house value has slipped to just $1.005m, leaving the city just $5000 from falling below the seven-figure mark.
The city’s median house price fell about $4000 in the past month, meaning Melbourne could lose its $1m house status within months if the current pace of decline continues.
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Mortgage brokers have flagged every 0.25 percentage point interest rate rise can slash about $20,000 from a buyer’s borrowing capacity, with the prospect another hike as soon as next Tuesday could be hitting prices in a matter of weeks.
Mortgage Choice Cheltenham broker Rhys Elmi said the market had become a “catch-22” for buyers.
Mortgage Choice broker Rhys Elmi said every 0.25 percentage point interest rate rise could cut about $20,000 from a buyer’s borrowing capacity.
Melbourne’s median house value has slipped to $1.005m, leaving the city just $5000 away from falling below the seven-figure mark. Picture: Manuela Cifra.
“Borrowing capacity is going down at the same time as prices are easing,” Mr Elmi said.
“As a rule of thumb, every 0.25 per cent rate rise cuts about $20,000 from borrowing capacity.
“So even though prices are softening, a lot of buyers aren’t necessarily in a stronger position.”
The broker said rising living costs were also hitting buyers, with banks increasing minimum expense benchmarks used to assess loans.
PropTrack senior economist Eleanor Creagh said higher borrowing costs were weighing on buyer demand and dragging Melbourne house prices lower.
Sydney and Melbourne were the only capital cities to record price falls in April, according to PropTrack’s latest Home Price Index.
PropTrack senior economist Eleanor Creagh said higher borrowing costs were the key force dragging prices lower across April in Melbourne.
“We’re seeing a demand-driven slowdown, with higher borrowing costs weighing heavily on price growth,” Ms Creagh said.
The economist said Melbourne’s price falls were now widespread, but the sharpest declines were being recorded in higher-priced inner markets where buyers were more exposed to interest rate changes.
“The sharpest declines are in higher-priced inner markets, where there is greater sensitivity to interest rates due to larger mortgages and higher servicing costs,” she said.
While lower prices might appear positive for buyers, the benefits were being eroded by weaker borrowing power, she warned.
“If we see further rate rises, that could equate to roughly a 10 per cent cut in borrowing capacity,” Ms Creagh said.
“It’s unlikely prices would fall by the same amount, meaning buyers are likely to be worse off overall.”
Alba director Tom Mifsud warned buyers trying to time the market risked missing out, saying: “You wait, you lose.”
Alba director Thomas Mifsud said the symbolism of dropping below $1m hid a grimmer reality for families already struggling with rising costs.
Mr Mifsud said the affordability pressures behind it were a much bigger concern.
“I don’t think anyone really cares about that number in isolation,” he said.
“What matters is whether people can actually afford to buy.”
The buyer’s agent and loan broker said many purchasers were still being distracted by market noise instead of recognising opportunities created by softer prices.
“There’s an acceptance that the world isn’t getting any cheaper, but a lot of people still aren’t seeing price declines as an opportunity,” he said.
Experts warn falling prices may not make buying easier, with borrowing capacity shrinking faster than Melbourne home values. Picture: Jake Nowakowski.
“That’s being offset by the cost of living, which is confusing the whole affordability conversation.”
He warned against waiting for further falls, saying buyers trying to time the market risked missing out altogether.
Mr Mifsud said tightening supply could put a floor under how far prices fall, with some vendors choosing not to sell if expectations were not met.
“I’d summarise it in four words ‘you wait, you lose’,” he said.
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