Property market update: Melbourne, December 2019

The premium value suburbs of Melbourne and Sydney, in particular, were the biggest winners of the year.

“In fact, amongst the top 10 best-performing suburbs for growth, seven were located in Sydney or Melbourne and show a median value of at least $1.1 million,” Mr Lawless highlighted.

Moving forward into 2020, property markets are likely to remain in “recovery mode” as prices catch up and eventually overtake previous record highs.

However, the rapid increase in capital gains may lose steam as stock levels rise, affordability declines and the labour market weakens. Still, the pace of growth will remain positive, albeit slow.

Building approval may also trend higher as housing demand rises, with lower interest rates, first home buyers and property investors supporting housing demand.

According to Mr Lawless: “2019 saw the housing market end the year in positive annual growth territory, with capital city home values around 2.2 per cent higher over the full calendar year – a remarkable difference from 2018 when capital city housing values were down 6.1 per cent.”

Property values

Across the eight capital cities, the weighted average median house price has increased to $743,776, according to the Real Estate Institute of Australia (REIA).

The increase was largely driven by Melbourne and Sydney where there have been significant improvements in dwelling values over the year.

REIA president Adrian Kelly said: “The weighted average median price for other dwellings increased to $577,135 over the quarter, with prices increasing in Sydney, Melbourne, Adelaide and Hobart. Prices remained stable in Brisbane and Canberra and decreasing in Perth and Darwin.”

CoreLogic showed that Melbourne and Sydney’s housing values were up 3.6 per cent over the quarter. There was a softer growth trend across most of the smaller capitals, while Adelaide, Perth and Darwin values drifted lower.

Property prices rose in Sydney (3.6 per cent), Melbourne (3.6 per cent), Brisbane (0.7 per cent) and Hobart (1.3 per cent).

In Melbourne, house prices rose by 3.7 per cent, while attached dwelling prices rose by 3.6 per cent.

“The increase in property prices is in line with housing market indicators, particularly in Sydney and Melbourne. New lending commitments to households, auction clearance rates and sales transactions all improved during the September quarter,” According to ABS chief economist Bruce Hockman.

Supply and demand

The combined capital city clearance rate has dropped below 70 per cent, “as volumes see their usual seasonal taper” for the final week of auction reporting, according to figures from CoreLogic’s Market Activity Update.

There were 2,750 homes taken to auction across the combined capital cities over the week—down by -5.6 per cent on last week’s 2,912 auctions, which was marked the second busiest week of 2019.

Preliminary results show a clearance rate of 69.2 per cent, after last week’s final clearance rate of 71.1 per cent.

A year ago, there were 2,406 auctions held across the combined capitals, with only 40 per cent clearance rate.

In Melbourne, there were 1,394 homes were taken to auction for the week ending 15 December 2019, returning a preliminary clearance rate of 73.2 per cent—a significant increase from last year’s 44.2 per cent clearance rate across 1,173 auctions.

“Auction activity won’t pick up in earnest until early February next year as the market emerges from the seasonal festive period slowdown,” CoreLogic noted.

Hotspots

Melbourne’s inner east, which recorded dwelling values increasing 12.1 per cent, took the top spot in CoreLogic’s new research which revealed the top 10 subregions for annual change in dwelling values.

Melbourne’s St Kilda, in particular, has been deemed Australia’s fastest-growing suburb, rising by 19.6 per cent over the financial year.

Following Melbourne’s inner east are Sydney-inner west and Sydney-Baulkham Hills and Hawkesbury, both at 8.8 per cent, Melbourne-inner at 8.0 per cent, Sydney-city and inner south at 7.7 per cent and Melbourne-inner south at 7.6 per cent.

Completing the top 10 are Sydney-Ryde at 6.5 per cent and Sydney-Sutherland, Sydney-Eastern Suburbs and Sydney-Northern Beaches, all at 6.3 per cent.

Meanwhile, a number of subregions in Darwin Perth and Adelaide were recorded with the biggest decrease in dwelling values.

Despite the consistent improvement in dwelling values, Melbourne and Sydney still offer opportunities to budding investors looking to capitalise on entry-level investments, if buyers are willing to go a few kilometres away from the city centre.

Here’s how far homebuyers to go in order to find something near entry-level prices:

● Campbelltown (57km from Sydney CBD) median house price = $550,000
● Melton (47km from Melbourne CBD) median house price = $385,000

For investors looking to play the long-term game, RiskWide Property Research CEO Doron Peleg listed five Melbourne suburbs where owners won’t sell, ranging from family homes to large estates.

These suburbs have holding periods of over 20 years, according to him:

1. Wheelers Hill

2. Noble Park North

3. Campbellfield

4. Oakleigh

5. Vermont South

Talking about the different reasons people choose to hang onto properties longer, Mr Peleg explained: “It is well demonstrated that the long-term approach is very effective, and with transaction costs being extremely high, this provides negative incentive for homeowners.”

“A couple of other reasons not to sell are that the primary place of residence is not subject to land tax and, in most cases, is also below the means testing threshold for retirees.”

Due to huge population growth in Melbourne and Sydney, as well as the systematic undersupply of family-suitable properties, he said that it is “very likely” holding periods would continue to increase as long-term price growth was evident.

“Obviously, the greater the holding period in strong markets, the greater the equity people have, so with property prices making a strong comeback, ultra-low interest rates, a more relaxed lending environment and auction clearance rates sitting above 70 per cent, it pays owners to sit back and see what happens.”

Moving forward, the property markets of Victoria and NSW will be supported by good population growth, strong economic fundamentals, solid economies and healthy job markets, as well as solid economic growth and high government spending and private capital expenditure.