Here is a way to think about the top end of the Australian housing market: it is the part of the market that is most honest about how everyone is feeling. Ordinary houses have a bid from people who need somewhere to live. An $85 million Point Piper pile has a bid only from people who feel rich, and feeling rich is a mood, not a condition. So when the mood changes, the top end moves first and furthest, in both directions. “Prestige markets are often the markets that accelerate first when confidence improves,” Nicola Powell, Domain’s chief residential economist, told the Australian Financial Review. “They’re also the first to slow when conditions soften.”
They are slowing. With the highest interest rates in 15 years and sagging sentiment pushing national home values down 1.1 per cent in October — the market is on track for its steepest downturn in 40 years, and the median combined-capital price is down 1.8 per cent over the year to $973,525 — the prestige end is doing noticeably worse than the rest. Domain’s numbers show Sydney houses in the top 5 per cent by price falling almost 17 per cent from their November peak of $4.75 million to $3.95 million by August, against an 8.3 per cent decline for the top 25 per cent. In Melbourne, the top 5 per cent is down 13.7 per cent over the same stretch.
The people paid to value these houses expect more of it. A survey by CBRE of 34 of its valuers, taken at the end of September, found 68 per cent expect prestige house values in their local markets to fall over the next year. At the end of the March quarter, only 12 per cent expected a decline. That is a remarkably fast turn: six months ago the top end was a correction story; now it is a consensus.
The agents, whose paychecks depend on the mood not dying entirely, are more optimistic, or at least more complicated. “If we’re not at the bottom, we’re very close,” said Michael Pallier of Sydney Sotheby’s, whose eastern suburbs have fallen as much as 20 per cent over the past year. There, developer Robert Magid knocked $10 million off the $85 million asking price for 6 Wolseley Crescent and sold it for $75 million after 10 days. Pallier, who handled the sale, says inquiries are picking up, and files the usual caveat: “If there are one or two interest rate rises, it might go down a little bit more.”
D’Leanne Lewis of Laing+Simmons Double Bay offers the agent’s traditional defence, which is also kind of true: good houses hold their value because there is always someone rich. Her exhibit is a five-bedroom Vaucluse house at 36 Wentworth Road, 1,043 square metres, sold for $22.25 million in April last year; she sold it again last month for $22 million. “That’s not down 10 to 15 per cent. They’ve lost the stamp duty, but it’s about equal to what they paid for it,” she said. “There’s certainly a correction, but this is a normal correction in the cycle of the marketplace.”
Notice what “about equal” means here: the seller paid $22.25 million, received $22 million, and is out the stamp duty in between. As investment returns go that is a loss wearing a tie. Lewis’s real complaint is not the cycle but the government — NSW’s low- and mid-rise rezoning plans around Woollahra and Edgecliff, plus Canberra’s budget changes to property and trust taxation. “What’s made it unusual is the constant arrows the government is throwing at us to make it very difficult to be a property owner,” she said.
In Brisbane, prestige agent Jason Adcock puts the prestige threshold at $3.5 million and says that slice is down about 5 per cent over six months, with open-home traffic weak and the market “a hell of a lot more subdued” than the past four or five years. He thinks it flattens from here.
Powell’s framework explains why everyone is guessing. Top-end buyers, she says, care less about the cash rate than about confidence — equity markets, business profits, executive pay. In other words, the rich buy mansions when they feel rich, and the leading indicator of how rich they feel is not the Reserve Bank, it’s their portfolios. Down on the Mornington Peninsula, agent Curtain has a simpler model: buyers are parked until after next month’s state election, stock is very low for this time of year, and he is telling would-be sellers to wait it out. The intersection of the $75 million housing market and the Victorian electoral cycle is presumably small, but everyone needs a reason to do nothing.