Swathes of the Australia’s property market have become “overvalued”, with some suburbs now dangerously exposed to price falls as buyer demand weakens and listings pile up, new figures show.
Many of these overvalued suburbs were prominent areas of Melbourne, Adelaide, Brisbane and Sydney that had grown strongly in previous years.
But it’s not all doom and gloom: the same analysis reveals there are still pockets where homes are “undervalued”.
These undervalued markets are where prices are likely sitting below where they should be, offering buyers and investors a rare chance to get in before values lift.
The findings from analytics group SuburbData draw a sharp line between suburbs where prices have run too hard, too fast — and those where value still remains.
![State of Housing Market](data:image/svg+xml,%3Csvg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 1280 720"%3E%3C/svg%3E)
Auction clearance rates have hit dramatic lows across Sydney and Melbourne in recent weeks. Picture: Lyndon Mechielsen
An overvalued suburb, the research explained, isn’t simply one with an eye-watering median price.
Instead, a suburb tips into overvalued territory when years of aggressive capital growth push prices beyond what local supply and demand can support.
SuburbData analyst Jeremy Sheppard said the danger for recent buyers was that the value of anything they buy could soon drop, raising the risk of negative equity, especially for those with small deposits.
“The risk is that if you buy in a market like this your home may sit there for a while without getting any return on your investment, or values may fall and you go into negative equity,” he said.
“That may not be a problem if you plan to stay there 10 years, as eventually prices in these areas will go up again, but you also never know when your circumstances change, when you may have to sell because of a change in work or a relocation.”
Announcements by Treasurer Jim Chalmers and RBA governor Michele Bullock have had a hand in the current downturn.
Telltale signs of “overvalued” prices were runaway price spikes that have outpaced surrounding areas and huge price gaps compared with nearby, similar suburbs.
They also had fading buyer demand coupled with a rise in listings and house prices stretching far beyond comparable units.
“If you are ever forced to sell and there hasn’t been enough capital growth, or even negative equity, you may be in the position where you will still owe (lenders) money after sale and have to tip in extra,” Mr Sheppard said.
“I’d also be cautious as an investor in these areas. And I would even exercise caution as a first-home buyer, unless you have a very large deposit, which not many do.”
Undervalued suburbs showed the opposite conditions and buyers in these markets could benefit from catch-up growth in values.
MELBOURNE
Melbourne’s most undervalued and overvalued suburbs revealed
SuburbData analyst Jeremy Sheppard said Melbourne arguably had more undervalued markets than Australia’s other major capitals after years of weaker growth than Brisbane, Perth and Sydney.
SuburbData analyst Jeremy Sheppard.
Among undervalued areas, SuburbData rated St Kilda East $253,000 below comparable surrounding markets, the largest estimated gap in Melbourne, while nearby Caulfield was rated $222,000 above them.
At the other end of the scale, Parkville and Deepdene were each rated $250,000 above comparable nearby markets, suggesting current prices may be overvalued.
BRISBANE
Brisbane’s most undervalued and overvalued suburbs
The research identified a clear window of opportunity to buy into the next wave of growth corridors where buyer demand still outpaced supply, yet home values remained well below surrounding postcodes.
Leading the city’s undervalued tracker was Rocklea. A typical house in the southern suburb costs $827,000, $204,000 below nearby areas.
A similar value gap was found in the inner north. The typical house value in Windsor sat at $1.6m, a steep $160,000 discount compared to its neighbours.
SYDNEY
Sydney’s most overvalued and undervalued suburbs revealed
Most of the Sydney areas deemed “overvalued”, with prices much higher than what local metrics suggested was sustainable, were up-market suburbs in the east, north shore and northern beaches.
Other suburbs flagged as overvalued were out west, including St Johns Park, Wakeley and Old Guildford in the Fairfield region and Ashcroft, near Liverpool.
Many of Sydney’s eastern suburbs were deemed “overvalued”, while parts of the inner west and Blacktown region were “undervalued”.
“It’s about what the market is willing to pay … there are a lot of parts of Sydney where the prices are not just high, they’ve overshot the rest of the market.
“Suburbs don’t outperform forever. They reach a point where buyers aren’t prepared to pay the prices anymore because they have cheaper, comparable options nearby.”