Recent interest rate cuts have boosted market activity and new data shows that the top-end of the market may be experiencing stronger growth as a result. However, further historical analysis reveals another story.
In June, PropTrack's Home Price Index reported a monthly increase of 0.4% and an annual increase of 4.6% in home prices.
The market gains are likely driven by the uptick in borrowing capacity and demand following interest rate cuts in February and May this year.
While prices have risen across the market, certain segments are experiencing greater growth.
Since the start of the calendar year, the high-end market, representing homes between the top 25% and just below the top 5% have outpaced the low and mid-market in terms of price growth. This may reflect increasing buyer confidence in premium markets in recent months.
However, to get a gauge of which segment has performed better over a longer period, it is important to look into price movements throughout the past few years.
In late 2020, during the pandemic, interest rates fell to a historic low, sparking a surge in home prices. High-end property prices increased at a faster rate than both mid-range and low-end properties following the rate cut.
This trend along with the activity in the past 6 months suggest that the high segment may be more sensitive to interest rate cuts. However, the high-segment tends to face more price volatility overall.
In May 2022, interest rates rose for the first time in over a year resulting in a shift in trends. Demand for the low-end market, which consists of properties within the 5th to the 25th percentile, gained more traction, outpacing both the mid-range and high-end market.
Properties in this segment doubled the cumulative growth seen in the high end market from mid 2022 to end of 2024. The quick change of pace implies that the low-end market may be more responsive to interest rate hikes.
Both segments have had periods of strong growth but a closer look at total price growth over the past five years favours one in particular.
The low-end market has seen a cumulative increase of 67% since January 2020. This was followed by the mid-range market which saw a 52% rise and the high-end market which saw a 47% increase.
Despite recent interest rate cuts slightly improving affordability, rates remain higher than any time since 2012, keeping housing affordability at historically low levels. According to PropTrack's 2024 Housing Affordability Report, a household on a median income of just over $112,000 could only afford one in ten properties.
In these current conditions, many households have had to turn to more affordable properties which has resulted in more significant price growth in this segment compared to their more expensive counterparts.
With further interest rates forecast for the upcoming months, we may see a continued rise in borrowing capacity and improvement in housing affordability.
Demand for the mid-range and high-end market may rise further as buyers are able to secure larger loans, potentially increasing their price gains over the low-end market.
However, if interest rates remain steady or only decrease marginally and there are minimal improvements in affordability, the lower segment is likely to record stronger growth in the upcoming months.
