Australian Homebuyers Adjust Expectations in Competitive Market

A new report from property website Domain reveals that Australian homebuyers are increasingly adjusting their expectations in response to rising prices and fierce competition in the housing market. The report indicates that many buyers are abandoning their aspirations for freestanding homes in favor of more budget-friendly townhouses and units.

Despite an increase in borrowing capacity, the demand for homes continues to outstrip supply due to ongoing population growth. The report highlights significant price disparities, particularly in inner-city areas, where homes are priced well above buyers' budgets.

In Canberra, for instance, the average listing price exceeded what buyers were searching for by $712,000, while Sydney, Melbourne, and Brisbane each showed inner-ring gaps of around $300,000. The starkest contrast was found in Sydney's eastern suburbs, where the price gap reached $2 million.

This situation underscores the challenges faced by buyers seeking detached houses, which remain the 'most aspirational, but least attainable' option. In light of these challenges, the report suggests that medium-density housing, such as townhouses, is emerging as a viable alternative, bridging the gap between space and affordability.

Townhouses recorded the smallest misalignment between buyers' budgets and actual prices, with new supply helping align prices more closely in the middle and outer rings. However, Sydney and Melbourne remain exceptions where prices consistently exceed buyer searches due to high land costs and limited supply.

The report also reveals a growing acceptance of apartment living, as many buyers, whether by choice or necessity, are opting for units. Notably, search budgets for units in Brisbane, Adelaide, and Darwin exceeded median prices, indicating a shift in preferences.

Domain's insights suggest that the traditional divide between inner-city and outer-suburban markets is less clear-cut, with demand for medium-density homes rising in areas previously seen as more affordable.

The report calls for policymakers to consider the importance of medium-density supply to maintain balance in urban markets. The Grattan Institute has also advocated for increased density in residential areas, highlighting that building more homes where people want to live will ultimately lower housing costs and enhance the vibrancy of cities.

As Australian homebuyers navigate a challenging market, their evolving expectations could have significant implications for real estate policies and the broader economy.