‘Nonsensical’: Economist shuts down 10% price drop talk
A big four bank’s suggestion that Australia would see a 10 per cent dip in property prices over 2023 has been promptly...
Melbourne’s property market kept the ball rolling in September as the city’s dwelling values rose once more during the month, albeit at a slower pace. How will the Victorian capital perform as it emerges out of lockdown?
Melbourne’s property prices continued to make headway in September, notching the ninth month of gains in 2021.
Despite Melbourne’s monthly price growth tapering off since hitting peak levels in March, experts are not expecting the Victorian capital’s property market to completely cool off any time soon.
CoreLogic’s Australian head of research Eliza Owen said Melbourne properties were still “seeing high rates of growth”.
She said the slowing pace was indicative of a national trend but noted the city’s median house price “does seem to be trending towards that million-dollar mark”, hinting that Melbourne’s housing market may join Sydney in the capital city million-dollar club in the near future”.
“It’s really interesting because the trend we’re seeing across Melbourne is a trend reflected nationally,” the expert said.
CoreLogic’s research director, Tim Lawless, attributed the slowing growth to the higher barriers to entry for first home buyers, along with fewer government incentives to enter the market.
He also noted that the decline in first home buyers is evident in the lending data. “[The] number of owner-occupier first home buyer loans has fallen by -20.5 per cent between January and July.”
In another sign that home buyers are really starting to feel the pinch, he highlighted that more Aussies are now taking out an investment housing loan rather than a regular home loan, indicating that more first home buyers are choosing to ‘rent vest’ to enter the property market.
And it’s not just Aussies taking note of the skyrocketing prices in Melbourne. According to the latest edition of the Demographia International Housing Affordability, the Victorian capital is now the fifth most unaffordable place in the world to live in. The only other Aussie city to enter the top 10 was Sydney, which took the third spot.
With all this said, it seems that there’s no stopping Melbourne in its tracks. However, market commentators are now seeing potential headwinds to Melbourne’s price growth on the horizon.
Before we discuss what lies ahead for the Victorian capital this spring, let’s take a look at how the city’s property market performed in September in more detail.
Melbourne’s housing market conditions have been consistently softer than the capital city average, with housing values rising only 0.8 per cent in September, according to CoreLogic.
Over the year, the city has recorded a 15 per cent increase, which is the lowest annual gain across the capital cities. However, it is still the highest annual growth rate recorded in the Victorian capital since 2010.
Melbourne’s median dwelling price is now at $775,142, around $93,000 more than it was at the beginning of January 2021.
CoreLogic noted that there were significant differences in the rate of growth across Melbourne, depending on the region.
Peninsula stands out, with the highest annual rate of gain at 31 per cent. This was followed by Melbourne’s outer east, where values are up 17.6 per cent.
During the period, the softest sub-regions have been Melbourne West and Melbourne’s inner city, where housing prices were up 9.4 per cent and 10.4 per cent, respectively.
In September, the unit market continued to drag the headline growth rates. The trend of house values rising faster than unit values also persisted over the month.
Month-on-month, Melbourne unit prices rose by only 0.2 per cent. Unit prices have increased by 8.3 per cent from September 2020. The average price of units in the Victorian capital now stands at $619,443.
Meanwhile, data showed Melbourne house prices rose 1.1 per cent month-on-month. Compared to the same period last year, house prices have risen by 18 per cent. Melbourne’s houses now have a median price of $962,250, indicating an increase of $7,754 from August 2021.
Supply and demand
With the latest Melbourne lockdown pushing the start of the spring selling season back, there’s been plenty of anticipation around fresh listings coming to the market – and they’re finally piling in.
Data from SQM showed that the total residential listings in the city are up by 1.7 per cent over the month, rising from 32,445 in August to 32,990 in September. The figures are seen to continue rising as restrictions ease further.
On an annual basis, listings in the city have fallen by 5.1 per cent from 34,771 in September 2020.
Louis Christopher, managing director of SQM Research, said that the imminent lifting of lockdown in Melbourne would result in a rise in housing listings for October and November.
However, he noted that the expected upward trend of supply is not guaranteed to slow down price growth. “[The] expected rise in listings is unlikely to create a housing slowdown prior to Christmas as low-interest rates continue to stimulate the housing market and the expected economic uplift following the end of lockdown will also likely create stimulus for housing.”
According to CoreLogic, new listings being added to the Melbourne market are now tracking 18.3 per cent above the five-year average, and total listings are 2.9 per cent above average. Higher stock levels could take some further heat out of the market over the coming months.
The research firm also noted that while new listings are ramping up, the trend in total active listings remains extremely low, indicating the rapid rate of absorption seen amidst high buyer demand.
Melbourne’s auction market activity ramped up in September as listings rose and inspections were allowed later in the month.
Following a tepid performance in August, Domain reported that clearance rates bounced back in Melbourne over the month, rising from 52.3 per cent in August to 71.2 per cent in September.
However, volumes were still down significantly – more than 40 per cent below the 10-year average for the month – with almost 60 per cent of auctions postponed.
Domain’s chief of research and economics, Nicola Powell, said that sellers in the Victorian capital pushed back auction dates to take advantage of the news that in-person inspections would return in late September.
At the same time, the percentage of homes withdrawn from auctions declining, more than halving over the month, helped to push up the clearance rate higher. Postponed auctions are not counted when calculating the clearance rate.
“The sheer ability to provide one-on-one inspections has had a positive impact on sentiment and the clearance rate,” Dr Powell said.
CoreLogic echoed Domain’s observations. “Vendor confidence is improving with the return of one-on-one property inspections in Melbourne, and this can be seen in the lower withdrawal rates, leading to higher clearance rates,” CoreLogic noted in one of its auction reports in September.
Throughout the month, CoreLogic reported that the city’s clearance rate continued to improve. In the last week of September, the Victorian capital even recorded the highest preliminary clearance rate seen since the week ending 23 May 2021.
Marshall White Stonnington director and auctioneer John Bongiorno said buyers are now out and about since the return of inspections, and more vendors were coming onto the market.
“We might see a little bit of surge in listings in October and November,” he said, as fresh stock comes to the market and as auctions and sales campaigns which had been delayed several times due to lockdowns finally pushed through.
The worst may be over for Melbourne unit landlords, with the city’s troubled unit rental market posting its first quarterly increase in weekly rents since pre-pandemic.
According to the latest Rental Report from Domain, the Victorian capital’s unit market saw a 1.4 per cent quarterly increase in median weekly rent to $370.
However, Melbourne houses tell a different story. The city is now the only cheapest capital city to rent a house in a spot it previously shared with Adelaide. Over the quarter to September, Melbourne’s median weekly house rent remained unchanged at $430.
“Overall, Melbourne continues to record weak rental growth becoming a renters’ market the closer to the city, a positive for tenants looking for more affordable rentals,” Domain noted in its report.
Meanwhile, SQM’s data showed rents for houses and units rose by 0.9 per cent and 0.6 per cent, respectively, over the month to October 4. Average weekly rents for houses now stand at $524.6, while rents for units are at $374.
CoreLogic noted that at a national level, rental prices continued to rise in September, albeit at a slower pace. On an annual basis, house rents in Melbourne rose by 4.1 per cent while units fell by 1.2 per cent.
The slowdown of rental growth was mostly attributed by the research firm to a softening of house rents in the latest quarter. According to CoreLogic, the pace has eased from 3.5 per cent in the March quarter to 1.9 per cent in the September quarter.
At the same time, growth in unit rents appears to have stabilised around 1.9 per cent quarter-on-quarter, down from a recent peak of 2.5 per cent in the March quarter.
With the growth in housing values continuing to outpace growth in rents, rental yields have reached new record-lows across most capital cities. Gross rental yields in Melbourne stood at 2.8 per cent in September.
Figures from SQM Research showed that Melbourne had the highest share of vacant properties among capital cities in September at 3.5 per cent. However, it should be noted that Victoria’s vacancy rate has been declining.
The latest Domain figures showed that the city’s vacancy rate halted its upward climb seen in the previous months, falling slightly to 3.4 per cent in September from 3.6 per cent in August.
Dr Powell said vacancy rates were likely to fall further as locked-down cities such as Sydney and Melbourne navigated their way out of lockdown. The expert also highlighted that the reopening of borders and the return of overseas migration and international students would likely drive up demand and prices.
“I do think we will see additional pressure on rental markets in Melbourne and Sydney once overseas migration goes back to normal,” said Dr Powell.
“We know that the majority of people arriving from overseas choose Sydney or Melbourne as their destination, we have seen those rental markets have a greater disruption because of a lack of overseas migrants,” she said.
With gains slowly reducing and a rush of stock expected to come to the market, are things about to change for Melbourne’s property market?
Throughout the 2021 boom, the trend of supply outstripping demand has underpinned the increase in property prices. This was further exacerbated by the recent string of lockdowns brought on the Delta variant, which kept sellers away from the market.
But with Melbourne emerging from lockdown at the end of October, a wave of fresh stock could flood the market. As advertised stock levels may start to normalise over the final quarter of the year, it could take further heat out of the market as buyers benefit from more choice and less urgency.
Through late September and early October, we also saw the federal Treasurer endorse tighter credit policies for home lending. There are worries that APRA’s recent move and further potential tightening of lending standards further take the heat out of the market over the coming months.
Despite the potential headwinds to house price appreciation, experts say that monetary policy remains accommodative of high housing demand. In its latest board meeting minutes, the RBA reiterated the cash rate was unlikely to move higher until 2024.
Additionally, market momentum remains strong, with monthly growth in housing values nearly four times the decade average of 0.4 per cent, while indicators suggest Melbourne is still very much a “seller’s” market.
It looks like there are plenty of trends to keep an eye on through October. In the meantime, you can keep up to date with what’s happening in the real estate market at Smart Property Investment’s News Section.