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Property market update: Melbourne, October 2019

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Property market update: Melbourne, October 2019

November 08, 2019

Melbourne, along with Sydney, has been driving the uptick in property values across capital city markets for the past few months – a reversal of fate after a period of market correction. How will the Victorian capital fare in the coming months?

New data has shown that national dwelling values has increased by 1.2 per cent from September to October – the largest month-on-month uptick in value since May 2015.

According to CoreLogic, the uptick in property values was largely driven by Sydney and Melbourne.

Melbourne, in fact, has overtook Sydney in terms of recovery this month, with dwelling prices rising 2.3 per cent in the Victoria capital, the largest monthly surge seen in the city since November 2009.

Melbourne home values are now up 6.0 per cent since hitting their floor in May, whereas Sydney prices have risen 5.3 per cent in the same period.

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Further highlighting the extent of improvement in recent months are the year-on-year figures on gains across prestigious localities such as Melbourne’s inner and inner eastern suburbs. These prestigious suburbs were also among the areas that saw a significant downturn during the decline of the market.

However, investors are advised to avoid areas with high buy-in cost and low yields, particularly the inner suburbs.

During market recovery, investor can expand their consideration to the outer suburbs and commuter centres like the south and the central coasts, which have liveability, affordability and access to the working hub.

Right Property Group’s Steve Waters said: “The secret is identifying where the ripple effect will run over time, selecting your locations wisely and then identifying specific opportunities.”

“Both Sydney and Melbourne have excellent prospects, but only for well-reasoned buyers who do comprehensive due diligence and have the wherewithal to retain a property over many years.”

Property values

After months of decline, property values in Melbourne, as well as other capital city markets, are well and truly on the rebound, based on the results of the CoreLogic Home Value Index for the month of October.

While the confirmed 1.2 per cent rise in national dwelling values is still lower than the previous peak, the positive October result takes national dwelling values 2.9 per cent off their June 2019 floor.

In fact, this result also marked October as the fourth consecutive month to experience growth in national property prices, following a consistent decline totalling 8.4 per cent nationally between October 2017 and June 2019.

CoreLogic also found that home values are at a similar level to where they were three years ago, still 5.7 per cent below peak.

The strongest growth conditions continue to be centered in Melbourne and Sydney.

According to the research group, lower mortgage rates and improved credit availability are among the primary drivers of improvement in buyer demand.

Now that the steepest slowdown in decades has ended, Melbourne records its median house price at $855,428 and its median unit price at $520,940, based on Domain’s latest House Price Report.

According to Domain’s senior research analyst Dr Nicola Powell: “Houses have now regained almost half of the price falls that occurred during the recent downturn. Prices tumbled 10.7 per cent from the December 2017 record high to the trough reached at the beginning of the year. Prices are now just 5.9 per cent below the peak.”

Over the year, Melbourne saw an 11.6 per cent improvement in housing affordability, following PerthPerth, TAS Perth, WA, Darwin and Sydney with 15.3 per cent, 13.5 per cent and 11.9 per cent, respectively, the latest Housing Affordability Index found.

Meanwhile, Brisbane recorded a 7.0 per cent improvement in housing affordability, followed by Adelaide with 4.9 per cent, Hobart’s with 3.3 per cent and Canberra’s with 1.4 per cent.

“The cuts to interest rates have more than offset the rise in home prices to ensure an ongoing improvement in housing affordability,” HIA’s chief economist Tim Reardon said.

However, it could be unlikely that housing affordability will continue to improve further moving forward.

“With little opportunity for interest rates to be reduced further, improvements in affordability will require the right economic conditions with a strong volume of new homes, low interest rates and supportive policy settings from state and federal governments,” Mr Reardon highlighted.

“Up to 50 per cent of the cost of a house and land package can be red tape and taxes. Reducing the tax on homes and ensuring an adequate supply of homes [are ongoing challenges] for governments.”

Supply and demand

Auction volumes have dropped significantly over the week ending 3 November, with only 1,535 capital city homes taken to auction – lower than the past week’s 2,622, according to CoreLogic’s Property Market Indicator.

The lower week-on-week activity returned a preliminary auction clearance rate of 73.6 per cent, which is also lower than last week’s preliminary clearance rate.

In Melbourne, there were 254 homes taken to auction over the week.

Overall, there were 832 auctions held across the city, increasing on last week’s 771 and last year’s 813.

“The lower volumes [are] what we traditionally see the week just prior to the Melbourne Cup festivities, while also coming off the back of the busiest week for auctions this year last week (1,528),” the research group indicated.

Melbourne saw 73.3 per cent of homes selling over the week, lower than last week’s final auction clearance rate of 75.1 per cent.

Over the month, 22,939 fresh real estate listings were added across capital cities – 13 per cent lower than this time last year and 15 per cent lower than the 13-year average.

Despite this, overall numbers have increased by 44 per cent from July until October.

In terms of clearance times, Hobart emerged with an average of 28 days to sell, while Melbourne, Sydney and Canberra all recorded less than 50 days.

“With increased competition, vendors are regaining some of the leverage they lost through the housing downturn and buyers could be feeling the first pangs of FOMO as they see properties selling faster and prices rising,” CoreLogic’s research director Tim Lawless said.

“If the market recovery continues at the same pace as the last few months, it’s almost certain that home owners based in the markets showing strength will take advantage of renewed level of buyers’ demand.”

Looking at year-on-year national figures, the number of properties hitting the market is still down 12 per cent compared with last year, and 17 per cent below the decade average.

Meanwhile, total advertised stock levels are 11 per cent lower relative to last year and tracking at the lowest level since 2010.

According to Mr Lawless, stock levels have not been this low since the global financial crisis.

“There has been a shortage of new listings for several years, which has likely resulted in some pent-up demand from home owners looking to sell. Despite the improved selling environment, new stock additions remain low for this time of the year, which is likely a reflection of ongoing uncertainty and low confidence,” he said.

Australia’s overall sluggish economy, largely stagnant wage growth and ongoing low levels of consumer spending might also be contributing to low stock levels, the property expert said.

“Buying and selling a home requires a high degree of commitment, which becomes much harder when there are doubts around household finances or job prospects,” Mr Lawless highlighted.

“Such a small pool of available stock against rising buyer demand is creating some competitive pressure among buyers, which is adding to urgency in the market and supporting upward pressure on values.”

Rental market

Rental rates have fallen across five of the eight capital cities in the three months ending October 2019, according to CoreLogic’s Home Value Index results.

The largest declines were seen in Darwin and Sydney, while Brisbane and Adelaide were the only capital cities where rents went up over the rolling quarter.

According to Mr Lawless, among the factors that may have spurred these softer rental conditions are the abundance of supply, a significant increase in dwelling construction and a larger than normal number of renters who chose to transition to first home buyers, thus curbing rental demand.

Rental yields have also taken a hit, with gross rental yields across the combined capitals falling to 3.65 per cent – the lowest gross yield since November last year.

Domain’s latest Rental Report found that Melbourne’s median house rent charged per week currently sits at $430 while median unit rent sits at $420.

These figures remained unchanged over the quarter, much like the rest of the 2019 calendar year.

“Despite experiencing a similar dwelling construction boom to Sydney in recent years, the Melbourne rental market has not swung in favour of tenants to the same extent. This is likely due to Melbourne maintaining stronger population growth,” the Domain report said.

Melbourne’s strong population growth meant that demand for rental has matched the 8.5 per cent increase in the volume of rental listings over the quarter.

According to Samuel Property’s managing director Illan Samuel: “Vacancy rates for rentals in Melbourne are at 2.1 per cent. Of 100 rental properties, 98 are rented, so demand is at an all-time high.”

Rental yields also rose for both houses and units in Melbourne over the past year, with rents remaining steady but property prices falling, Domain’s report noted.

Hotspots

Sound Property Group’s latest State Profile Report has compiled a list of the top 10 most in-demand Melbourne suburbs in terms of houses and units.

Houses

  1. Middle ParkMiddle Park, QLD Middle Park, VIC
  2. Albert ParkAlbert Park, SA Albert Park, VIC
  3. HawthornHawthorn, VIC Hawthorn, SA
  4. East Melbourne
  5. South Yarra
  6. Toorak
  7. South Melbourne
  8. MalvernMalvern, VIC Malvern, SA
  9. CarltonCarlton, VIC Carlton, NSW Carlton, TAS
  10. Northcote

Units

  1. Middle Park
  2. Parkdale
  3. Ashwood
  4. MitchamMitcham, VIC Mitcham, SA
  5. Mount Eliza
  6. St Kilda West
  7. Montmorency
  8. Lower Plenty
  9. Mount Waverley
  10. Blackburn North

Track the major market movements in Melbourne and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018May 2018June 2018July 2018August 2018September 2018October 2018November 2018December 2018January 2019February 2019March 2019April 2019May 2019June 2019July 2019August 2019 and September 2019 market updates. Visit Smart Property Investment’s Property Market News page to get updates on other major capital cities.

Property market update: Melbourne, October 2019
Melbourne
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