Property market update: Melbourne, March 2022

But this year is different. At the end of the first quarter of 2022, we’re looking at a more fractured Australian property market – one in which the two biggest cities in Australia are on the tail end of the property frenzy and lagging behind their capital city peers. 

According to industry observers, the factors that have given the cities the golden touch in the previous year have now lost their potency, and the white-hot real estate frenzy in the NSW and Victorian capitals has now all but disappeared. 

Recent data revealed that property price growth in Sydney and Melbourne has come to a standstill, indicating both markets have well and truly peaked.  

CoreLogic’s research director Tim Lawless joined the chorus of real estate commentators who believe that the property boom in Sydney and Melbourne is officially over. 

“[We] are now seeing those markets either right at the top of their cycle and about to start to move into a consistent downturn or potentially already moving into a downturn,” the expert said. 

CoreLogic’s data showed that Melbourne’s housing market had seen the quarterly rate of growth slow from 5.8 per cent in April last year to just 0.1 per cent over the past three months.

Mr Lawless said that there was no lone culprit for the city’s softening growth; rather, the weaker market conditions were the result of several headwinds blowing in Melbourne’s direction fully coming into the fore.

“We are seeing less demand in the market but, of course, there [are] other factors around rising interest rates. Affordability is still very challenging in both of those cities as well,” he said. 

In terms of demand, the momentum lost is supported by the lending data. New figures released by the Australian Bureau of Statistics (ABS) showed that housing loan commitments were valued at just under $32.3 billion in February, marking a monthly decline of 3.7 per cent.

The value of owner-occupier mortgages fell by 4.7 per cent compared with a 1.8 per cent fall in investor loans.

Commonwealth Bank head of Australian economics Gareth Aird weighed in that the figures are a testament to how some buyers have hit their limit on what they can afford to pay for a property. 

He added that the major capitals have likely peaked, and values fell due to buyers’ already stretched budgets.

“The evidence is pretty clear. Prices have peaked in the two biggest capital cities. Affordability has become stretched because prices have gone up so much. There is a limit to how high they can go,” he said.

“You can’t continue to grow indefinitely and that affordability picture has kicked in earlier in Sydney and Melbourne,” the economist said. 

In terms of supply, the total volume of listings continued to rise, offering buyers more options and forcing sellers to drop their asking prices to compete.

Domain’s latest report showed almost one in 10 properties on the market in Melbourne was discounted in February, with the average size of the discount on offer at 4.7 per cent.

Domain chief of research and economics Nicola Powell stated that while there were price adjustments in any market, the sentiment among sellers in Melbourne was turning from mostly edging to a higher price in 2021 to mainly discounting prices this year.

“We’re now seeing a rise in asking price adjustments downwards again,” Dr Powell said. “That’s because we have seen a lot more listings come onto the market in Melbourne.”

As the property market pendulum continues to swing back in favour of home buyers, the expert said that those looking to get a piece of the Victorian capital were becoming more selective, which was leading to a housing slowdown.

“Buyers are getting more careful of paying too much [for a property] rather than paying out of fear of missing out. We’ve gone into 2022 with much better buying conditions,” Dr Powell commented.

Will Melbourne get another taste of the highs it saw in 2021 with a rebound in the coming months? Or are solid price gains now out of reach for the market? 

For now, let’s see how the property market performed in March 2022. 

Property values

In what could be taken as an omen of broader downturns for Melbourne, CoreLogic data showed the city’s home prices fell by 0.1 per cent over March.

The monthly decline brought the quarterly growth to 0.1 per cent – significantly lower than the peak growth rate of 5.8 per cent in the three months to April 2021. 

Over the year, prices in the Victorian capital have risen by 9.8 per cent, bringing the median value of a property in Melbourne to $805,232. The figures indicate an almost $5,500 monthly increase in the average cost of dwellings in the city. 

CoreLogic data showed median house values in the city fell 0.2 per cent, with the median value of houses currently standing at $999,037. Despite the further slowdown in growth, the average cost of a house in Melbourne rose by $700. 

Compared to March 2021, the median price of houses in the Victorian capital has risen by 11.9 per cent. 

Meanwhile, the unit sector managed to post an increase of 0.2 per cent month-on-month, speeding up from the 0.1 per cent increase recorded in February. The median value of an apartment in the city currently stands at $629,072, representing an increase of over $3,000 over the month. 

PropTrack’s recently released Home Price Index revealed a similar scenario. Data from the REA-owned group showed Melbourne’s price growth stalled during March, eking out a 0.1 per cent increase.

Over the year, prices in the Victorian capital rose by 10 per cent, the slowest rate since the start of the pandemic. Currently, the city’s median house value sits at almost $900,000, according to PropTrack. 

The slowdown in growth was mainly attributed to the reduced influence of lower interest rates, giving the city’s runaway prices a bitter chill pill. 

“Fixed mortgage rates have already increased over recent months and larger rises are expected as the RBA increases the cash rate – widely expected later in the year,” according to PropTrack economist Paul Ryan. 

Looking forward, the report said that the outlook for price growth remains subdued, pointing out the pace of the official interest rate hikes as the “big unknown” for the property market this year. 

Supply and demand

Melbourne property owners rushed to sell in March, hoping to cash in ahead of expected interest rates hikes and forecast weakening in house prices. 

Data from SQM Research showed total residential listings in the city rose by 3.5 per cent in March to 35, 900 from 34, 697  in February. 

Over the year,  the total number of properties for sale in  Melbourne is down by 8.7 per cent. 

New listings (or properties that have been on the market less than 30 days) in the city recorded an increase of 9.3 percent from 16, 607  in February to 18, 145 in March.  Compared to the same period last year, new listings are down by 7.6  per cent. 

Meanwhile, data showed that old listings or property listings over 180 days fell by 5.7 per cent from 6, 150  to 5, 802 over the month. On an annual basis, old listings have fallen by 22.7 per cent. 

Commenting on the figures, managing director of SQM Research Louis Christopher said: ’’The rise in listings over March will be welcome to home buyers who largely struggled for choice, last year.”

“Going forward I expect we will shortly enter into a lack lustre period of activity in the lead up to the Federal Election. After that point there will be a looming interest rate rise for the market to consider.” 

Mr Lawless noted that the variances in growth seen between different cities and regions are correlated with how much, or how little, supply is available in those different markets. 

On a national level, CoreLogic reported that total available listings remain 30 per cent below the five-year average. While that number continues to decline as more stock becomes available, it does paint the whole picture across capital markets. 

In Melbourne, the total advertised supply was 8 per cent above the previous five-year average towards the end of March. 

According to Mr Lawless, the rise in listings, weakening sentiment and higher costs of living have all weighed on demand. 

“Listings in Melbourne are well above the long-term average, [so] buyers have more stock to choose from, less urgency, and they can negotiate more,” he said.

“Higher inflation implies less disposable income and lower household savings which could make it harder for prospective buyers to raise a deposit and demonstrate their ability to service a new loan commitment.”

“Weak sentiment, along with slowing housing markets and the prospect of rising interest rates, is likely to cause prospective buyers to think twice before engaging with the housing market.”

The cooling demand is now translating into weaker sales figures, according to Mr Lawless.

Data showed that the number of property sales has fallen, with the volume of sales 14.3 per cent lower in the three months to March 2022 compared to the March 2021 quarter but remains higher than the five-year average.

“Our estimate of sales activity through the March quarter is 39 per cent lower than a year ago in Sydney and 27 per cent lower in Melbourne, while stronger markets like Brisbane and Adelaide have recorded a rise in sales over the same period,” Mr Lawless said.

He noted that with higher inventory levels and less competition, buyers are gradually moving back into the “driver’s seat”.

“That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless said. 

Auction markets

Melbourne’s auction clearance rate remained below 70 per cent in March as a result of more properties on the market and reduced competition.

Domain’s latest auction report showed that Melbourne’s clearance rates rose 1.4 percentage points to 67.1 per cent. However, the figures are 7.3 percentage points lower than in March 2021. 

However, the city’s clearance rate is still down 13.9 percentage points on an annual basis. 

The report also noted that while clearance rates remain high compared to the end of last year, Domain argued that the elevated level might be because rates bounce early in the year based on historical data.  

In terms of Melbourne’s auction volumes, Domain reported that 2022 had the second-highest number of March auction listings since Domain records began.

According to the report, supply continues to enter the market in the first quarter of 2022 as sellers strategically choose their market timing, listing their properties while selling conditions remain positive, with the perception that prices are at or close to a peak.

Domain also expects some sellers will also be aiming to sell before there is an increase in interest rates or further macro-prudential measures are implemented, which will negatively impact demand. 

Dr Powell said that the predicted increase in the supply of homes being listed on the market would likely further impact clearance rates as the year progresses.

“As the market moves further into autumn and more homes hit the market, buyer appetite could decline due to increased choice, which will see the continued fall in clearance rates at the end of last year continue in 2022,” Dr Powell said. 

Meanwhile, CoreLogic’s latest quarterly auction report showed Melbourne’s clearance rate was recorded at 68.5 per cent over the March quarter, down from 69.7 per cent over the previous quarter. 

The figures are also lower compared to the 77.5 per cent clearance rate observed during the March 2021 quarter.

In terms of auction volume, there were 10,315 homes taken to auction across the city during the period.

Melbourne’s inner region was the busiest spot for auctions, with 2,049 auctions held over the quarter, up from 1,987 over the March 2021 quarter. 

All nine of Melbourne’s subregions recorded a fall in clearance rates over the quarter compared to the same quarter last year. 

The Mornington Peninsula was the best-performing subregion over the March quarter with a clearance rate of 76.5 per cent, followed by the outer east with 74 per cent and inner south with 72 per cent. 

If you want to be in the loop about what’s happening across auction markets in the country, follow our weekly updates in our News section.  

Vacancy rates 

Domain declared that all capital cities are now operating in a landlords’ market – the first time this has happened since its records began, with Melbourne joining the club for the first time in two years this month after recording a fall in rates. 

Melbourne’s rental market continued its sharp recovery from the pandemic-induced spike, falling further this month to 1.8 per cent, the lowest vacancy rate since March 2020. Last month, the city’s vacancy rate stood at 2.1 per cent.

Compared to March 2021, vacancy rates in the Victorian capital are down from 4.3 per cent. 

The number of vacant rental listings in the city also continued to trend lower, with increasing demand in the first quarter of 2022 absorbing availability. Data showed Melbourne’s rental stock is down 12.5 per cent on an annual basis to just under 9,500.

The areas with the highest vacancy rates in Melbourne were Stonnington – East (3.6 per cent), Whitehorse – West (3.1 per cent), Banyule (3.1 per cent), Stonnington – West (3.1per cent), and Boroondara (2.7 per cent). 

Meanwhile, the areas with the lowest vacancy rates were Yarra Ranges (0.4 per cent), Cardinia (0.4 per cent), Sunbury (0.4 per cent), Maroondah (0.6 per cent), and Nillumbik – Kinglake (0.6 per cent) 

Rental market

Market experts continue to ring the alarm bells over a rental crisis across the country as rents soar across capital markets because of a record-low number of available rental properties. 

Melbourne’s asking rents jumped 11.5 per cent over the year, according to SQM Research. 

Asking rents for units in the city rose by 2.1 per cent, while houses posted an increase of 3.1 per cent in the last 30 days, bringing the weekly rates to $549 and $407, respectively. 

According to Mr Christopher, the rise in asking rents is being driven by the low number of available rentals. 

SQM’s data showed that Melbourne’s rental vacancies stood at 12,400 in March, representing a vacancy rate of 1.6 per cent in the city. 

The numbers are less than half of the 27,300 vacancies in March 2021, when vacancy rates stood at 4.4 per cent. 

Mr Christopher said that with many localities and towns having rental vacancy rates close to zero, actions must be taken to avert the crisis. 

“Clearly, we are not going to resolve this overnight, but I do hope the various state and territory governments will ramp up their rental assistance packages in order to cushion the rental accommodation emergency we have here and now,” he stated.

Outlook for Melbourne’s market 

Expert forecasts for Melbourne’s growth are mostly dim, with most experts taking in the March decline as the first of many to come in the following months. 

House price falls are set to speed up in Sydney and Melbourne after prices hit their peaks, according to CoreLogic. 

Mr Lawless said declines in the two biggest cities were likely to accelerate in the months as the strong gains recorded in early 2021 drop out of the 12-month calculation.

“The interplay of supply and demand supply side will continue to feature in the housing markets,” he said.

The expert explained that while Melbourne has not seen consecutive monthly declines such as Sydney, the trend is looking “virtually the same”. 

“It looks like the market pretty much flattened out in December and has been tracking along that bottom since that time,” he stated. 

Despite the gloomy outlook, he assured that the decline would be a slow one and would not cause major disruptions. “I expect price falls will speed up in these markets as the downward pressure mounts, but we’re not expecting the market to suddenly crash over the medium term,” Mr Lawless said. 

Some agents and local experts are optimistic that the historically quieter winter season will provide a reprieve for the market, which usually sees a lower number of properties on the market, and in turn, reignite competition over homes for sale in winter and stabilise prices.

But Dr Powell said this was unlikely given there were “headwinds” ahead for the housing market in Melbourne.

“We will see activity ease in winter because that’s what we anticipate across the colder months, but we are likely to see more auctions occur compared to other years,” Dr Powell said. “People are cashing in now while conditions are still good, but we are going to see weakening prices in Sydney and Melbourne.”

She also forecast that prices would likely fall by 5 per cent or even 10 per cent by the end of the year, but the pace of decline will mostly depend on how hard interest rates are raised by the Reserve Bank of Australia.

Sellers and market analysts are very aware of the impending interest rate rises and price falls, especially after the RBA hinted that a rate rise could come as soon as June. 

As such, economists from ANZ, CBA, NAB and Westpac all now believe the cash rate will start to rise this year. 

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