Why it makes sense to upsize in a downturn

A narrowing price gap could create opportunities for upsizing home owners looking to take advantage of this year’s buyer’s market.

The price difference between units and houses has shrunk from record highs when markets peaked last year, with upsizers potentially making six-figure savings when trading up.

“When you look across the combined capitals, there was a record price gap [between units and houses] achieved in early 2022,” says Domain chief of research and economics Dr Nicola Powell. 

“What we’ve started to see now is that price gap is narrowing.”

Upsizing is difficult when values rise because the price difference between entry-level properties and more valuable homes grows. But when growth pauses and prices fall, the price gap shrinks, making upgrading cheaper.

“In a tougher market, the step up on the property ladder is a smaller step,” says Melbourne buyer’s agent Cate Bakos. “We haven’t had conditions this conducive to upgrading to a family home for a long time.”

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How much does it cost to upsize?

In March 2022, when the Sydney market was peaking, Domain data shows the difference between median unit and house prices was just shy of $800,000.

The latest Domain House Price Report revealed the gap narrowed to $665,000 in the December quarter – a $135,000 saving for unit owners upsizing to a house. 

Over that time, house prices fell 11.3 per cent while unit prices dropped 5.8 per cent.

Melbourne unit and house prices both fell almost 6 per cent since their peak, but the price gap shrank from a high of $510,000 in March 2022 to $471,000 in the December quarter. Buyers who traded up late last year were about $39,000 better off than at the peak, with the price gap increasing slightly since reaching a low in the September quarter.

Brisbane unit owners now have to pay $357,000 to upgrade to a house, a saving of about $49,000 compared to mid-2022. Brisbane’s median house price fell 6.6 per cent since the mid-2022 peak, while units fell only 1.7 per cent.

Property cycles in capital cities don’t always move in sync. The gap between units and houses in Perth has been flat for much of the past decade, but has trended up in recent years as houses outpaced units. Unit owners now need to fork out a record $291,000 to trade up – a $105,000 increase since late 2020.

Why is the price gap shrinking?

When the price gap was its widest, house values saw massive increases while units lagged. 

“What we saw during the pandemic was an over-performance of house prices compared to unit prices,” Powell says. “Across the combined capitals, house prices rose 34 per cent while unit prices rose 10 per cent.”

As interest rates rose, borrowing capacities fell and, with house prices at unaffordable levels, buyers with constrained budgets sought cheaper properties.

“Over 2022 unit prices have held firmer or outperformed house prices,” Powell says. “Reduced borrowing capacities are having an impact, steering people towards the affordable end of the market.”

The improved conditions for upgraders aren’t necessarily limited to unit owners, Powell says. 

“When you look across price cycles, the upper end of the market tends to lead.

“The upper end of the market tends to see greater rates of growth during the upswing, but then sees deeper declines during the downturn.”

Given more expensive properties tend to fall in value first and by a greater amount, upgrading owners could have a relatively small window to take advantage of the narrowing gap before the next phase of the property cycle.

“If you can hit that sweet spot, it means your leap to the next price bracket can reduce,” Powell says.

Tips for upsizers making the leap

Home owners with the means and borrowing capacity to take advantage of the narrowing price gap should compare the value of their own homes and the property types they’re targeting. A reputable local agent can provide both an appraisal and local market intel.

“Have a look at the changeover cost,” says Laing+Simmons chief executive Leanne Pilkington. “It’s a great time to upgrade if the house you’re going for has fallen in value more than the one you’re selling.”

Buyers keen to get their hands dirty could see even greater savings, Powell says, with fixer-uppers seeing reduced demand while building and borrowing costs are high.

“As long as the property is liveable, that opens up opportunities for buyers who can wait to do their renovation when cost pressures come down.”

Above all, it’s crucial that upsizing home owners know whether their buying power marries up with their target property, and that future repayments are affordable, especially as interest rates peak.

A mortgage broker can help upsizers scenario-plan different outcomes depending on the potential price achieved, and provide advice for owners ready to make a move.