Property market update: Melbourne, May 2021

The Victorian capital has weathered several hardships this past year. More recently, Melburnians were hit with another lockdown caused by a fresh COVID outbreak. However, it’s worth noting that the city’s property market showed resilience after its prolonged run of hard luck. 

 While the city’s annual growth may be the weakest among its peers, the latest data revealed that Melbourne’s recovery in the most recent quarter has been strong and auction clearance rate indicate that the market is still healthy and moving in an upward trajectory. Additionally, regional Victoria paints a healthier picture, boasting above-average growth rates for the past quarter.  

But as COVID-related headwinds continue to cast a dark cloud over the city’s short-term outlook, the Victorian capital isn’t fully out of the woods yet. 

So, where do things currently stand in Melbourne’s property market, and what’s to come? 

Property values 

Dwelling values across the country continued to surge in May, with CoreLogic’s national Home Value Index up 2.2 per cent over the month. The latest figure is just shy of the 2.8 per cent pace seen in March - a 32-year high. 

After easing growth in April, property values in Melbourne rose by 1.8 per cent in May. The average Melbourne dwelling now costs $740,562, up  5.5 per cent or around $23,000 over the latest quarter. At an annual rate, the city’s pace of growth continues to be the weakest among its capital city peers at five per cent.   

Melbourne’s detached house market continued to outperform the city’s unit market. The Melbourne median house value rose by 2.2 per cent through the month to hit $908,000, increasing by $21,500 a month or $5375 a week since the start of the year. Meanwhile, units rose by 0.8 per cent to stand at a median value of $605,505. 

The report also noted that the top end of the market is currently driving the highest capital gains, especially in  Melbourne and Sydney.  In Melbourne, upper quartile home values jumped by 6.5 per cent over the past three months while lower quartile values are up by a smaller 3.5 per cent. 

CoreLogic’s research director, Tim Lawless said that Australia’s housing market remains “firmly entrenched in a housing boom”, with growth conditions remaining broad-based, both geographically and across housing types and valuation segments.

Supply and demand 

Over the past few months, the trend of demand outpacing the number of listings across capital cities has fueled the FOMO sentiment among buyers. In May, this scenario has not changed. 

According to SQM Research's latest figures, total property listings in Melbourne have fallen dramatically on a monthly basis, declining by 7.4 per cent from 40, 958 in April to 37,915 in  May.  Stocks continue to be in short supply in the city, with new listings for the month down  6.8 per cent and as buyer demand remained insatiable. 

Louis Christopher, managing director of SQM Research, said the decline was due to ‘strong market conditions’. He also noted the steep decline in old listings during the month, as overwhelming demand from increasingly desperate house buyers is leading to least-sought-after advertised properties finally being sold. According to SQM’s report, “old listings” – those on the market for 180 days or more – dropped by a massive 44 per cent over the past 12 months, falling from 139,686 listings to just 78,260.

“The downward trend in old listings suggests strong absorption rates, so new property listings are not completely offsetting the falls in old listings, indicating there are more buyers than sellers in the market, which is fuelling the property boom,”  he said. 

Data from CoreLogic showed that Melbourne is the only capital where total listing numbers are now higher than the five-year average. “Total listings were tracking 6.4per cent above the five-year average in late May, largely attributable to a 29.1 per cent increase in unit listings over the past year,” Corelogic reported.

But the research firm also highlighted that Melbourne’s house listings are down 0.2 per cent over the same period, and continue to be below average.

Auction rates 

The country’s auction market started on a strong footing at the start of May but was derailed as volumes dropped following the announcement of another lockdown in Victoria at the end of the month. 

Data from CoreLogic showed that only  2,930 homes were taken to auction across the combined capital cities over the week ending 30 May 2021 – lower than the expected 3,162 after Victoria was placed under a seven-day snap lockdown.

But despite failing to hit the expected figures, the last week of May still recorded the third highest number of auctions seen  so far this year. 

Melbourne had the highest number of auctions among the capital cities at 1,264 with the final clearance at 71.7 per cent. Around 1,451 homes were originally scheduled for auction across the city. However, with the lockdown announcement, a large number was rescheduled, withdrawn or brought forward.

In the prior week, a higher final clearance rate of 74.9 per cent was recorded across 1,291 auctions in the city. 

According to Ray White Victoria and Tasmania CEO Stephen Dullens, Melbourne continues to be strong amid recent changes.

 “After a week with so much change across Victoria, it’s been tremendous to see such fantastic results achieved across all property segments in Melbourne.

 “Despite these challenges, it’s been wonderful to see so much activity to assist our customers and keep the real estate market active,” the CEO said.

 Looking ahead, Archistar’s chief economist, Dr Andrew Wilson, sees an easing in auction market activity come June.

 “Following unprecedented autumn auction market results, activity will ease over June as the quieter mid-year selling season emerges.”

 “June buyer and seller engagement will, however, follow the record levels reported over May, with relatively high early winter numbers and rising prices set to continue over coming weeks – notwithstanding a continuation of the current lockdown restrictions on the Melbourne market,” Dr Wilson said.

Rental market

Melbourne’s rental market conditions continued to be weak in May, as tenancy demand in the Victorian capital remains dismal due to closed international borders. 

House rents in the city are up 0.9 per cent over the past three months, while unit rents are down 0.4 per cent, 8.5 per cent below their 2019 peak.

With housing values generally rising faster than rents, gross rental yields remain under some downwards pressure. Melbourne continues to be one of the weakest links among its peers, with a gross rental yield of 2.9 per cent. 

Vacancy rates 

Tenants in Melbourne and Sydney have greater choices when it comes to finding a rental, with almost nine in every 100 properties left vacant. 

Melbourne, hit by the fourth lockdown of the coronavirus pandemic, is the only capital that still has more vacant properties than at this time last year.  In May, the city’s rental vacancy rate stood at 3.8 per cent, easing from the 4.2 per cent seen in the previous month.  

The areas with the highest vacancy rates in the capital are Melbourne City (8.6 per cent), Stonnington – East (7.8 per cent), Whitehorse – West (6.1 per cent),  Stonnington – West (5.8 per cent) and Boroondara (5.6 per cent). Meanwhile, the areas with the lowest vacancy rate are Yarra Ranges (0.2 per cent), Nillumbik – Kinglake (0.4 per cent), Maroondah (0.4 per cent), Cardinia (0.4 per cent), Mornington Peninsula (0.5 per cent). 

Melbourne’s inner city, where unit rents have reached 2010 levels, had the most unoccupied rentals with a vacancy rate of 8.6 per cent. It was followed by the Stonnington East region (which includes Malvern, Malvern East and Glen Iris) with a rate of 7.8 per cent. Over 5 per cent of rentals in the Box Hill and Blackburn region, Toorak, and Kew and Hawthorn region were also untenanted, and nine more regions had a vacancy  rate above 3 per cent.

“The inner-city market is still seeing the highest vacancy rates, we have seen that come down sharply, but with the city in another lockdown that could be impacted,” Dr Powell said.

Outlook

So what’s next for Melbourne’s property market? 

While the latest COVID lockdown (which has been lifted) has caused concerns, market conditions are still in favour of continued growth of the Victorian capital. 

 Most experts continue to stand by their bullish forecasts for the property market in the coming months, as several conditions such as low interest rates, strong buyer demand, increasing investor activity and positive consumer sentiment still appear to be on the rise as the country’s economic recovery outperforms expectations.