As luxury home prices fall, sub-$1 million units in Sydney and Melbourne's priciest suburbs open doors for first home buyers

A strange split is opening up in Sydney and Melbourne's most expensive suburbs. House values in the top 25% of the market have fallen more than 10% from their peaks in both cities, while prices further down the market keep climbing. At the same time, analysis from PropTrack points to more than 40 premium suburbs where the median unit price still sits under $1 million, even though houses in the same postcode are stretching well past $2 million. That combination, a correcting luxury market and a comparatively affordable unit next door, is creating entry points into suburbs first home buyers may have written off as out of reach.

Why the top end is correcting faster

Prestige property relies on a smaller pool of high-income buyers who typically borrow more relative to their income to compete at that level. Higher mortgage rates and tighter lending conditions hit that group hardest, which is why upper-quartile house values in Sydney and Melbourne have fallen roughly 10.5% to 10.7% from their recent highs, well ahead of the broader market. Meanwhile, Sydney's lower-quartile values have kept rising even as its top quartile keeps falling, a pattern several market commentators describe as the prestige market "splitting in two."

This is not the same as a broad market crash. It is a specific, income-sensitive segment adjusting to the cost of borrowing, while cheaper properties, including units, continue to benefit from strong underlying demand and tight rental markets pushing more buyers toward purchasing sooner.

The house-versus-unit gap in expensive suburbs

• Units are the affordable door into these postcodes. In dozens of suburbs where a house now costs upward of $2 million, a unit in the same area can still be found for under $1 million, giving buyers access to the location, schools and amenity of a premium suburb without the premium house price tag.
• The gap has been widening, not narrowing. As house values in these suburbs pulled back from their peaks more slowly than unit values held steady, the price difference between the two property types in the same postcode has grown more pronounced over the past year.
• Lifestyle buyers and investors are adjusting too. Higher-net-worth buyers have been spreading further into lifestyle-driven capitals rather than only competing in Sydney and Melbourne's traditional prestige pockets, which is part of what is taking heat out of the very top of those two markets.

What this means for first home buyers

A correcting luxury market does not automatically make a suburb affordable, but it can shift what "affordable" means within it. If a location you assumed was permanently out of reach now has established unit stock priced well under the house median, it may be worth a second look, particularly if strata living suits your stage of life.

• Widen your search within a suburb rather than ruling it out entirely. Comparing house and unit prices separately, rather than relying on a single suburb median, can reveal options a headline price might hide.
• Factor in ongoing strata fees and building costs when comparing a unit against a house on a like-for-like basis, since a lower purchase price does not always mean a lower total cost of ownership.
• Check whether stamp duty concessions or grants still apply at the unit's price point in your state, since falling to below a particular price threshold can unlock concessions that would not apply to the equivalent house.
• Speak with a mortgage broker or lender about how a lower purchase price changes your borrowing position. A professional can walk you through options specific to your income, deposit and the property type you are considering.

Run the numbers

Before deciding whether a unit in a prestige-adjacent suburb fits your budget, it is worth testing the real numbers rather than going on the headline suburb median:

• True Cost Calculator - see the full picture of buying a unit, including strata fees, so you can compare it fairly against a house in the same suburb
• Borrowing Power Calculator - check how much you may be able to borrow based on your income, before you start comparing suburbs
• Stamp Duty Calculator - check whether a lower purchase price brings you under a concession threshold in your state