Premium properties are leading the boom

CoreLogic’s head of research, Eliza Owen, has published a new report examining the movements in property values at low (bottom 25%), middle (middle 50%) and high (top 25%) price points.

The report shows that value growth across the most expensive quarter of the market has overtaken the other broad valuation bands. This comes after the upper quartile posted the heaviest (-4.3%) decline in values across the combined capital cities between March and September last year compared to a 1.6% fall across the middle of the market and a 0.8% fall at the low end (see next chart).

After recording the heaviest losses in 2020, the upper quartile is now leading property growth.

The next table also shows that the upper quartile is leading price growth across every capital city except Hobart and Adelaide:

The top end of the market is reporting the strongest price growth across every capital city except Hobart and Adelaide.

This pattern of premium sector under-performance during downturns and out-performance during upswings has been evident over previous cycles, as illustrated in the first chart above. Premium properties by definition are smaller in number and have a smaller pool of potential buyers. Hence, they tend to display greater volatility over time than properties at the more affordable and middle ends of the market.

Eliza Owen elaborates on this point:

High-end property markets may seem excessively risky during downturn periods because they tend to lose the most value in a negative economic shock.

However, what is being observed across the market at the moment is that periods of upswing deliver higher returns across the more expensive segment of the property market.

Similarly, the low end of the housing market may appear subdued while the rest of the market is booming, but holds its value relatively well during downturns.

Importantly, Owen notes that value changes across the three broad value buckets have been “fairly uniform” over a 10-year time frame, suggesting that lower value properties on average provide greater risk-adjusted returns.

Unconventional Economist

Comments

  1. Diogenes the CynicMEMBER

    Definitely seeing that on my regular school run. Premium property is flying in Perth. For a while sellers only wanted cash offers but now they will take the highest even if subject to sale as they know the buyer’s sale will very likely go ahead due to this insane market. With the end of rent moratoriums in March a number of places will come onto the market – I’d hate to be a renter at the moment.

    • I’ve observed the same thing. Houses are selling extremely quickly in the western suburbs and for ridiculous prices. My neighbour had someone knocking on their house offering to buy it for a crazy amount (it wasn’t for sale), and we’ve had letters in the letterboxes from buyer’s agents – I didn’t know that was a thing in Perth.

  2. Know IdeaMEMBER

    Well vacuous people can’t presently brag about recent OS travel so they have to resort to the other primary shallow egotistical topic for such expression. But that may just be in the circles I have to move in.

  3. Prices are simply bonkers on Sydney’s upper north shore. It’s always expensive and never good value but now it is completely deranged.
    Even crappy houses on crappy streets are achieving nosebleed prices.

    Real estate agent paracites openly declare they are “living the dream” – actual quote for a genuine douche bag.

  4. My mum has a house in Kinglake Vic
    Her place is 2 acres with a great view of the city.
    This place is much smaller, no view and more road traffic/noise and it fetched way above what we thought.
    https://www.realestate.com.au/property-house-vic-kinglake-135479598
    Apparently 2 offers.
    1. $1.08M – Sold for unconditional.
    2. $1.15M – Conditional – They took the lower offer.

    Kinglake is NOT near the city or transport and is damn cold in winter.