The homes seeing the largest price drops in the cooling market
Prices for smaller apartments have also been hit harder, with one-bedroom apartments seeing the biggest price drop in Melbourne (-5.9 per cent), Perth (-7.4 per cent) and Adelaide (-2.8 per cent).
In Sydney, it was two-bedroom units that saw a greater pullback over the quarter, down 4.9 per cent, but one-bedroom unit price growth was still softer year-on-year.
Powell said smaller homes, particularly one-bedroom units, had a smaller buyer pool. While rising investor activity could improve demand for more affordable homes, upsizing buyers remained the largest market segment.
In Melbourne, selling agent Abdul Allouche, of Ray White Brunswick, has seen prices for two-bedroom townhouses, and to a lesser extent three-bedroom townhouses, ease recently.
“The heat has dropped off a fair bit,” Allouche said of the market segment, which was popular with first home buyers.
He said townhouses had been doing extremely well at the start of the year, no matter their location, but that now, due to an oversupply, buyers had far greater choice. This combined with the broader softening of the market had seen prices fall, particularly for townhouses in complexes with more than three homes.
Larger freestanding houses and duplexes were seeing stronger demand, except for homes in need of a lot of work, given the rising costs of building materials and trades, he added.
Buyer demand more broadly had also eased, with some house hunters now delaying their plans to purchase in hopes of a big price drop later this year, which Allouche thought was unlikely to occur.
In Sydney, BresicWhitney chief executive Thomas McGlynn said larger homes were in stronger demand. With many people still working at home, buyers were still valuing more space.
There was still good demand for smaller homes but more heat had come out of that market segment, McGlynn said. While everything had sold well in a booming market when buyers had a fear of missing out, house hunters had become more discerning as the market “got a little bumpy”.
Buyers were now more cautious in their spending on less desirable homes, such as properties in poor locations, those with structural problems and smaller homes.
McGlynn added that those purchasing smaller homes, such as first home buyers, typically borrowed more of a property’s worth than established home owners upsizing to a larger house. As a result, such buyers may have been impacted more by changes to the mortgage serviceability buffer late last year, which reduced borrowing power, and could have been more wary of the prospect of rising interest rates.