Melbourne property prices fall as interest rates rise and housing affordability constraints weigh

Prices also fell 3.6% in the leafy northeast, another popular lockdown location, and 2.8% in the inner suburbs.

The report comes as headline inflation hit its highest pace in two decades, official figures showed on Wednesday. Rising consumer prices could give the Reserve Bank confidence that the economy is recovering enough to start raising interest rates from their emergency-era lows, and economists are skeptical. expect the first rise as early as May or June.

Frankston South homebuyer Paul Turner kept the prospect of rising interest rates and falling house prices in mind when he and his partner bought their home from three bedrooms last month.

The 37-year-old plumber previously owned a house in Perth and sold it for less than he paid when prices fell, then went back to using automated investment adviser Stockspot to save a new deposit.

The couple had been to a few auctions in Melbourne where the price exceeded expectations by 20%, but they took the opposite route and offered 10% less in a private sale.

“We offered $75,000 less because we thought if two rate hikes happened quickly, that’s what the property would be worth,” he said.

Paul Turner bought a house in Frankston South after making an offer that was discounted from today’s prices, but in line with what he thought the property would be worth if interest rates rose. Credit:Joe Armao

“I’ve been burned before in the Perth property market. I can’t predict the market, I’m trying to make my life a bit easier.

Barrenjoey’s chief economist, Jo Masters, said the increased supply of homes for sale and rising fixed mortgage rates had cooled the Melbourne market.


Expectations of a jump in mortgage rates over the next 18 months to two years, as the Reserve Bank raises the cash rate perhaps as early as May, could weigh on buyer demand.

“One of the lessons of the pandemic is the power of interest rates… population growth has collapsed and yet house prices have soared because of interest rate cuts,” a- she declared.

Market forecasts were centered on a 10% drop from peak to trough, with prices not likely to fall further as first-time homebuyer activity historically recovers and supports the market once prices are released, Masters said.

She said pandemic-era price growth in Melbourne was not as strong as in other cities due to multiple closures, increased flow of Melburnians to regional areas and other capitals, and a shortage of international migrants during the border closure.

HSBC’s chief economist for Australia and New Zealand, Paul Bloxham, said the main drivers of the housing downturn include rising interest rates and last year’s decision by the banking regulator to reduce the maximum borrowing capacity.

“Fixed rate mortgages are already rising and variable interest rates are expected to rise as well, as the market expects the Reserve Bank to start raising interest rates soon,” did he declare.

Homebuyers are aware of rising interest rates.

Homebuyers are aware of rising interest rates.Credit:penny stephens

Affordability constraints are also being felt after a substantial rise in property prices over the past two years, he added.

He expects domestic property prices to end this year higher and then remain broadly stable next year, with Melbourne expected to be weaker than smaller capitals. It predicts between 1% and 3% growth for Melbourne in 2023.


Real Estate Buyers Agents Association of Australia chair Cate Bakos warned sales results are mixed and buyers should expect a weaker seller’s market, not a buyer’s market.

“For all the compromised properties – bad location, weird floor plan – they’re struggling, they’re passing,” she said.

“But with good properties, they are well frequented and they get competitive offers.”

Some providers aren’t keeping up with the change as well as others, she said.

“We have a lot of crazy sales people, which is always a frustration.”

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