Here's a short update on the Melbourne housing market so far this year.
The Melbourne economy has undoubtedly been the most impacted by COVID-19 in Australia, both because of the second major outbreak in case numbers through the September quarter, and because international migration has been a key component of population growth across the state, and thus an important contributor to aggregate demand, and housing demand.
The charts below compare various economic indicators across Australia and Victoria.
State final demand fell -3.4% over the 2020 calendar year compared with a -1.1% decline in National GDP.
Employment levels are higher in Victoria compared with pre-COVID levels, more so than in the whole of Australia, but the state suffered a larger contraction in employment through late 2020.
Housing values across the combined capital cities are now 7.4% above February 2020, and while Melbourne property values are at record highs, they have not made the same gains as other capital cities, sitting just 2.4% higher due to the more significant reduction in housing values through the extended lockdown period.
The chart below summarises sub-market performance of dwellings across SA4 regions of Victoria.
Each region has seen an increase in values in the 3 months to April, and all but two markets are higher in value over the year.
Regional Victoria continued to show a significantly faster pace of growth in housing values relative to Melbourne over the past twelve months.
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Melbourne's rental markets.
The lingering impact of COVID-19 is felt geographically in the inner city region of Melbourne, where closed international borders has a significant negative impact on demand for rental property in particular.
CoreLogic estimates that Inner Melbourne housing markets account for 45.9% of investment unit stock across the greater Melbourne metro.
Interestingly, even as unit rents across the SA3 ‘Melbourne City’ region remain -20.1% lower over the 12 months to April, unit purchasing values are estimated to be around 2.0% higher in the same period.
This could be the result of expectations that demand and prices will increase once international travel resumes, lower mortgage rates, or more demand for unit stock for owner occupation.
The chart below shows the unusual divergence between rent and purchase values taking place in this market since the onset of COVID-19.
Rent listing volumes across inner city Melbourne markets remain well above the long term average.
CoreLogic maintains the view that these rental markets will not achieve a robust recovery until pre-COVID levels of international visitation return.
However, dwelling values appear to be trending steadily higher across the city.
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Editor's Note: This is an extract of Corelogic's Quarterly Economic Review