Luxury property market signals early signs of recovery

Australia’s high-end property market is showing early signs of recovery, with luxury homes leading the way in February, the latest CoreLogic Housing Chart Pack for March suggested.

The top 25% of home values in capital cities rose 0.2% last month, reversing a -0.3% decline in January. While lower-priced homes outperformed, increasing 0.4%, the sharp turnaround in premium properties indicates a possible market shift.

Kaytlin Ezzy (pictured), CoreLogic economist, noted that despite still lagging behind the lower and middle market, luxury properties in Sydney, Melbourne, and Hobart have rebounded the most.

“The upper 25% of values in Melbourne, Sydney, and Hobart – which our research shows have historically been some of the most sensitive to rate changes – recorded the largest improvements,” she said. “The top quartile is the one to watch as they tend to be a bellwether for broader market recoveries in those cities.”

If this momentum continues, high-end properties could outperform the lower and middle markets for the first time since August 2023.

Sydney’s prestige suburbs lead the growth

In Sydney, where there is a general downturn in property prices, high-end locations saw the strongest turnaround.

• The Eastern Suburbs - North region, which includes Point Piper, Double Bay, and Rose Bay, recorded a 2.0% increase in February, bouncing back from a -0.5% decline in January.
• Hornsby also posted gains, rising 1.1% after a -1.1% drop, marking a 200-basis-point improvement.

“It is possible that these kinds of markets have a stronger response to cash rate falls because people generally need more finance to buy into them,” Ezzy said.

However, she also noted uncertainty in how sustained this momentum will be, given the RBA’s cautious stance.

“The RBA board minutes and statement in February were fairly hawkish despite the rate cut, so there is some uncertainty as to whether the recent momentum will continue,” Ezzy said.

The Sydney auction clearance rate also dipped slightly, falling to 64.5% in early March, down from 67.2% in previous weeks.

Melbourne and Hobart see strong turnarounds

Similar market rebounds have been seen in Melbourne and Hobart, with premium locations leading price improvements:

• In Melbourne, Stonnington East saw the biggest change, shifting from a -1.9% drop in January to a 0.8% increase in February – a 264-basis-point turnaround.
• Other high-end markets, including Manningham East, Bayside, and Glen Eira, also showed notable improvements.
• Hobart’s North-East region, which sits at the higher end of the city’s market, posted the largest monthly gains, with home values rising 0.4% – tied with Melbourne for the highest increase across all capitals.

Rate cuts boost sentiment and market confidence

The recent 25-basis-point cash rate cut to 4.1%, following months at 4.35%, has boosted market sentiment and borrowing conditions, supporting the rebound in premium housing markets.

Ezzy noted the impact of changing sentiment.

“This suggests sentiment was also at play,” she said. “If buyers are out in the market expecting they can access more finance, this may have contributed to a strong market response.”

Lower rates are expected to enhance borrowing capacity, particularly in high-end markets, where property values tend to be more sensitive to interest rate fluctuations.

Many prestige property buyers rely on financing, and reduced rates can improve affordability, potentially driving demand in luxury suburbs.

Key highlights from CoreLogic’s March Housing Chart Pack

• The total value of Australia’s residential real estate held steady at $11.2 trillion in February.
• National home values fell -0.1% over the rolling quarter, with capital cities declining -0.4%, while regional markets rose 1%.
• Sales activity has slowed, with 40,085 transactions in February, bringing the rolling 12-month count to 532,244 – up 6.2% year-on-year, though demand has eased in recent months.
• Homes are taking longer to sell, with the median time on market increasing to 42 days, up from 27 days in Q3 2024.
• Vendor discounting rates expanded slightly, rising from 3.5% in spring to 3.6%.
• Rental growth continues to slow, with rents up 4.1% over the year to February, compared to 8.3% over the year to March 2024.

Will the market recovery continue?

The upper quartile’s price growth and increased buyer sentiment signal early signs of a market turnaround, but uncertainty remains.

While further rate cuts could support ongoing recovery, RBA’s cautious stance and longer selling times suggest that the market may not yet be in full rebound mode.

For now, high-end properties remain the sector to watch, as they have historically led the way in past recoveries, CoreLogic reported.

Read the CoreLogic announcement and access the full report.