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I live in a city (Australia) where I think apartment prices are going to fall. I think they've already fallen a little bit but there are so many more units coming online in the next year or so. Already the rental prices are falling over the board.

I've just bought a house though. We felt when we were buying there was a bit of demand - house prices have stayed level and any reasonably priced house would be sold within a month or so.

My question is if apartment prices do plummet, what generally happens to house prices in the same area?

On the one hand, a place to live is a place to live so more places to live should mean that existing places to live should be cheaper.

On the other hand, the people that live and buy apartments are slightly different to those that live in and buy houses.

Apartments are commonly bought for investment purposes and rented out to people who just want somewhere convenient to live temporarily. Houses are generally bought by people that want to live in it and for the desire of living in their own home.

For the most part, it's almost like they're two seperate markets. So should I be worried? What are the correlation between apartment and house prices?

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  • Are you asking about apartment sale prices, or apartment rental prices? I suspect the answer is "it depends on the local market, and on which segment of the market you're focusing on." For example: during the Great Recession, high-end properties in Boston did not move with the rest of the housing market; they stayed high, probably because anyone who could afford them was making different economic decisions across the board. – keshlam Sep 15 '14 at 4:22
  • @keshlam : I'm asking about house sale prices VS apartment sale prices. But your Boston is exactly the type of thing I'm looking for - evidence explain why (or when?) they would or would not be correlated. – Janey Sep 15 '14 at 5:00
  • @Janey - what city are you in? I am in Sydney and both house and unit prices are still rising. I am also an investor and I prefer house to units. I also know many younger singles and couples and also many older couples that prefer to buy and live in a unit rather than a house. There are also many families that prefer to rent in houses rather than in units. That is why I usually aim for 3 bedroom houses to invest in. – Victor Sep 15 '14 at 7:17
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Generally all types of residential housing would be considered substitute goods to each other (http://en.wikipedia.org/wiki/Substitute_good). Basically you are correct that a place to live is a place to live in that these markets will tend to follow each other. A portion of the market for detached houses will be taken by the bargain prices of apartments, leaving the market for houses with less demand.

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