The type of home that is getting ‘hit harder’ as house values fall

House values have fallen across almost all price points in Melbourne and Sydney over recent months, with the biggest losses for sellers concentrated in the top end of the market.

While Sydney had a very modest 0.2 per cent growth in the bottom quartile, values have fallen across the two capitals, Cotality data shows, as rate hikes, global uncertainty due to conflict in the Middle East and the impact of policy announcements in the federal budget leave buyers cautious.

The Reserve Bank on Tuesday kept the cash rate steady at 4.35 per cent following three consecutive rate rises this year, which have added to the cost of mortgage repayments

The upper quartile – also known as the family home market – of properties has been hit hardest, falling about four per cent in both Melbourne and Sydney over the three months to the end of May.

This contrasts with gains in the smaller capitals, which have continued to rocket up, with Perth seeing an almost four per cent gain in the top quartile and an over six per cent gain in its bottom quarter.

Cotality head of research for Australia, Gerard Burg, said it wasn’t surprising that the top end of the market in the two most expensive capitals was seeing falls.

Burg said factors like the federal government’s five per cent deposit scheme were helping to keep competition in the bottom quartile, but that first home buyers would also be more sensitive to further rate hikes.

He thought affordability and borrowing pressures might be forcing buyers who were previously looking to the middle band to bid on cheaper homes, increasing competition.

“Until recently, investors were probably focused on that part of the market too,” he said. “But obviously, they will be affected by the announced policy changes around the capital gains discount and negative gearing.”

Westpac senior economist Matthew Hassan said it wasn’t unusual for the top quartile to feel the brunt of a downturn.

“It runs hotter during upward swings, and gets hit harder during corrections,” he said.

“What’s unusual is the milder price corrections in the bottom and middle tiers. The lower tiers are really out-performing.”

But Hassan thought there were early signs that a correction would flow through to the wider market.

“We had three rate hikes in the three months to May alone, and it’s beginning to weigh down on those lower segments too,” he said, noting that the government’s proposed changes to capital gains tax and grandfathering of negative gearing would slow investment and disincentivise those with existing homes from selling.

Sydney-based buyer’s agent Mic