Perth prices fell $105,000. Her repayment quote went up. Why a cheaper house can cost you more

She is 35. She has rented the same two-bedroom unit in Perth's inner south for six years and has a deposit sitting in a savings account that took most of that time to build.

In January she did what everyone told her was the smart thing. She stopped looking. Perth's median dwelling had reached $1.08 million and the commentary said a correction was coming. Wait for the fall, then buy.

She is a composite illustration, not a real person. Her numbers are the city's numbers.

This week the fall arrived. Cotality's latest quarterly home value index puts Perth's median dwelling at $975,000, down 4.7 per cent over three months and roughly $105,000 below where it sat in January, as reported by the Sydney Morning Herald. Cotality's research director Tim Lawless told the paper the market peaked in March, and that of Perth's eight downturns in the past 40 years, this one is the most rapid.

So she rang her broker to start again. The monthly repayment quote came back higher than the one she had in January.

The question

"I waited for Perth to fall and it fell. The median is down about $105,000. So why is my repayment estimate higher than it was when prices were at the top? What exactly did I wait for?"

The answer: price and cost are two different numbers

The number in the headline is the price. The number that leaves her account every month is the cost. They move for different reasons, and this week they moved in opposite directions.

On Tuesday the Reserve Bank lifted the cash rate to 4.6 per cent, a 15-year high, according to the SMH report. A cheaper house financed at a dearer rate can cost the same each month, or more. Perth buyer's agent Trent Fleskens made the point in the same article: the house price can go down, but if the rate goes up and the price of the debt is the same on the 28th of every month, what was the benefit?

That is the part the headline leaves out. She spent nine months waiting for a price. The thing that governs what she can afford is a rate, and the rate went the other way.

The median describes a city. She is buying a street.

There is a second problem with waiting for the median, and it is bigger than the first.

Fleskens told the SMH that Perth has about 400 suburbs. In a year when the Perth median rises 10 per cent, some of those suburbs fall. In a year when the median goes sideways, half go up and half go down. The million-dollar figure, in his words, reflects the median of a select group of suburbs and does not reflect the performance of your house on your street.

The same article names the parts of Perth that grew this year: Serpentine-Jarrahdale, Mandurah and Rockingham, all outer metropolitan. Lawless said mortgage belts across the country are seeing the same thing, because buyers on a median income cannot service a loan at the median price and their demand is shifting toward the lower quartile of the market.

So while she waited for "Perth" to fall, parts of Perth rose. Two streets in the same suburb can be having completely different years. The median cannot tell you which one you are standing on.

The number nobody puts in the headline

Perth values are still up 10.1 per cent over the past 12 months and 74 per cent over five years, per Cotality's figures in the SMH. The $105,000 fall is real. It is also a fraction of what the market added while she was saving.

She did not wait for a cheaper Perth. She waited for a smaller gain on a much more expensive base, financed at a higher rate, after paying six years of rent to someone else.

What it means for you

If you are holding off on a purchase because the city median is falling, ask two questions before you ask about price.

First, what does this asset cost me each month at today's rate, and does my structure carry it comfortably? A lower price does not lower that number if the rate rises faster than the price falls.

Second, what is the street doing, as distinct from the city? A citywide median is a useful figure for a journalist. It is a poor instrument for a decision about one property in one of 400 suburbs.

The expensive mistake is anchoring a seven-figure decision to a single number that, by its own author's admission, does not describe your house.

The Ripehouse reframe

The people who do well across a full cycle are rarely the ones who called the top or the bottom. They are the ones who bought the right asset, on the right street, with a structure that could carry the repayment through a 4.6 per cent cash rate without panic.

That is a structure question, and structure is something you can control. Timing is something you can only guess at.

Across 997 client portfolios since 2021, Ripehouse Advisory clients have seen median portfolio growth of +19.0 per cent per year on a 5-year rolling basis, against about 6.3 per cent for the combined capitals over the same period (benchmark: CoreLogic/Cotality). Past performance is not a guarantee of future results. We publish those results, including the portfolios that underperformed, because a median hides as much as it shows, and you should see the whole distribution before you trust anyone's number.

Want to see how we test a decision like this street by street, before any money moves? Join Jacob's free live webinar.