Please use the menu below to navigate to any article section:
- Is it the right time to get into the Melbourne property market?
- So when will this property cycle end?
- Melbourne houses are outperforming
- Fast facts about Melbourne and its property market
- Top 10 Melbourne school zones for house price growth
- Long term Melbourne property market trends
- A strategic approach to choosing an investment property in Melbourne
Are you wondering what will happen to the Melbourne property market in 2022?
While Melbourne housing values have not grown as strongly as other capitals, now that Melbourne is out of the longest lockdowns experienced anywhere, the pent up demand at a time of increasing consumer confidence, an improving economy and abundant job creation ensures continued strong Melbourne house price growth in 2022.
Melbourne property values:
- fell 0.1% in the month of December, and
- increased 15.5% over the last year.
And there is still plenty of growth left, as there is still strong pent-up demand from both buyers and sellers.
With more properties listed for sale over the last couple of months it’s important to remember that buyers are sellers and sellers are buyers – they have to live somewhere and so many will be looking to upgrade their accommodation in 2022.
Is it the right time to get into the Melbourne property market?
Now I know some potential buyers are asking:
How long can this last? Will the Melbourne property market crash in 2022?
They must be listening to those perma bears who have been telling anyone who is prepared to listen that the property markets are going to crash, but they have said the same year after year and have been wrong in the past and will be wrong again this time.
Recently all our major banks have updated their property price forecasts in response to the market’s resilience in the face of extended lockdowns.
Remember the current upturn phase of this Australian property cycle only commenced in October 2020 and that Melbourne was held back with stops and starts due to the lockdowns.
Normally the upturn stage of the property cycle lasts a number of years and is followed by a shorter boom phase which is eventually cut short by the RBA raising interest rates or by APRA introducing macro prudential controls to dampen the exuberance of property investors and home buyers.
However, this time around we have experienced an unprecedented rate of growth seeing our property markets perform even more strongly than anyone ever expected, with the rates of house price growth at levels not seen for a number of decades.
While a lot has been said about the 20% increase in property values many locations have enjoyed so far this year, it must be remembered that the last peak for our property markets was in 2017, and in many locations housing prices remain stagnant over a subsequent couple of years and it was really only earlier this year that new highs were reached.
This means that average price growth was unexceptional over the long term, averaging out at around 4 percent per annum over the last 5 years
But recently there seems to have been a change of sentiment about our housing markets from our financial regulators and APRA has forced the banks to increase their interest rate buffers for new borrowers.
So when will this property cycle end?
There is little doubt that Macro-Prudential controls will have a negative impact on our property markets and slow the rate of growth of housing values.
After all, that’s what they’re intended to do.
Whether the markets will just experience slower growth or stop dead in their tracks will depend on what measures are introduced in the future.
Targeting debt-to-income ratios will have a limited impact on higher-wealth households, who often have multiple streams of income.
If you think about it, first homebuyers don’t have a “trade-in” of a previous home and therefore need to borrow higher loan-to-value ratios.
On the one hand, the government says it wants to encourage first homebuyers, and on the other hand, it is encouraging the regulators to sideline them.
So in the meantime, it’s just waiting and seeing what our regulators choose to do.
I hope APRA has learned from the results of its previous interventions, otherwise, if history repeats itself, there will be some unintended consequences.
Watch this space.
Melbourne houses are outperforming
Currently, Melbourne’s house price growth is stronger than unit growth, and while most sectors of the market have been enjoying strong demand, the more expensive properties are now outperforming Melbourne’s less expensive properties.
Looking back the Melbourne property market has been one of the strongest and most consistent performers over the last four decades.
Over the last 40 years:
- The median Melbourne house has increased by 7.9% per annum
- The median Melbourne unit/apartment price has increased by 7.73%per annum
Obviously, this wasn’t the same each and every year, as the Melbourne property market worked its way through the typical property cycles.
Over the last few decades, Melbourne won the mantle of the world’s “most liveable city” more times than any other city in the world.
Needless to say the Covid related lockdowns endured by Melbourne led to some challenging times, but now both buyers and sellers are back, consumer confidence has picked up strongly and property transaction numbers have increased and house, auction clearance rates are strong and prices are rising, however, Melbourne’s inner-city apartment market still looks in bad shape.
Auction clearance rates in Melbourne have remained strong despite the months of lockdowns – showing the resilience of both buyers and sellers and the acceptance of online auctions.
Some of the heat gradually came out of the Melbourne auction market at the end of the year as vendors became more confident placing a record number of properties on the market for sale by auction in December.
While there is a shortage of quality housing in popular areas across Melbourne, the lower-than-expected population growth has led to an oversupply of housing in some outer suburban new estates.
Villa units, townhouses, and family suitable apartments will be seen as affordable alternatives to houses in the highly sought-after inner eastern and south-eastern suburbs of Melbourne.
On the other hand, high-rise apartments in the many Melbourne CBD towers or close to universities are likely to underperform, remain vacant for a long time, and keep decreasing in value.
Houses in regional Victoria with easy access to the capital city are also in strong demand and should continue to increase in value.
Fast facts about Melbourne and its property market
Here’s the list of some vital points you would want to consider:
The Victorian economy is holding up well
For years the Victorian economy has been Australia’s strongest State economy creating more (and typically higher-paying) jobs than other states and once we get across the proverbial bridge the government has built for COVID-19, Victoria’s economy will surge again.
The Victorian economy has been hard by the COVID-19 pandemic due to the State’s extended lockdowns last year.
As a result, the Victorian economy contracted by -6.1% over 2020, compared to -2.8% for the national economy.
But until the most recent (6th) lockdown, it looked like the Victorian economy was rebounding in 2021 and was likely to outperform the other states this year.
Of course, economic growth will now slow down a little until we move out of our Covid cocoon.
Source: Urban Property Australia
But remember… Melbourne is not one property market…
There are multiple markets in this diverse sprawling city.
It is divided by geography price points and type of property into many submarkets – this means you can’t just buy any property and count on the general Melbourne property market to do the heavy lifting for you over the next few years, so careful property selection will be critical.
So to help you better understand what’s going on in Australia’s second-largest property market here is a long thing you should know if you’re considering investing in Melbourne property:
Melbourne House Prices
Over the last 4 decades, Melbourne property values have risen at the fastest pace of all capital cities.
Melbourne house prices and market activity were adversely affected by its extended lockdowns during 202 -21, but now Melbourne property is on the move again.
MELBOURNE DWELLING PRICE TRENDS – Source: Corelogic December 2021
Since Melbourne’s restriction ease, new listings of properties for sale are surging across the state.
Source: Realestate.com.au Listings Report October 2021
At Metropole we’re finding that on-the-ground sentiment has changed completely with strategic investors and homebuyers already starting to feel a little FOMO (fear of missing out).
However, while house prices have been resilient, Melbourne rental rates are experiencing weaker conditions due to a higher supply of rental properties, and less demand.
At the same time is more buyers being active in the market, there is currently a shortage of good quality stock on the market.
Melbourne houses are outperforming apartments
Melbourne has seen a record high in the difference between house and unit medians at 52.4% as of June.
Melbourne has also seen the weakest rental market performance since the onset of COVID-19, and as a large portion of rental stock are units, this has dampened demand across the segment.
This also likely explains some of the weakness in the Sydney unit market, where rental demand was similarly affected by a lack of overseas migration.
Unlike Sydney however, Melbourne has seen similar rates of disparity through the 2017 and 2018 calendar years, when the house price premium on units averaged 46.3%.
A prolonged period of high unit supply, and development of high-density stock, kept unit values relatively low through this period.
This dynamic may shift through the remainder of 2021, as ABS data points to a fall in construction of units, and a rise in the construction of new houses.
Furthermore, affordability constraints across the housing segment, which could be amplified by the end of HomeBuilder and temporary stamp duty discounts, may guide more first home buyers back to the unit segment of Melbourne.
So…is it the right time to get into Melbourne’s property market?
Melbourne property prices have been climbing at a breathtaking pace in 2021 with more growth expected as strong demand from buyers outpaces the volume of new listings coming onto the market.
This has been good news for homeowners but heartbreaking for house hunters.
At the same time, there have been mixed messages in the media about what’s ahead.
Of course, there’s always the Negative Nellies wanting to tell anyone who is prepared to listen to them the market is about to crash, but other more solid commentators are suggesting our property market is slowing down.
And I agree, I believe the pace of capital gains has peaked, but I’m not suggesting home values are about to dip, far from it.
Rather I believe we’ve moved from a peak rate of growth to a pace of capital gain that will be more sustainable and there’s plenty of life left in the Melbourne real estate market with property values likely to keep increasing throughout 2022 and into 2023.
Australia’s economy looked like it was going to experience the V shape recovery everybody had been was hoping for, but now with prolonged lockdowns in Australia’s 2 most populous states and therefore our largest economies, economic growth has slowed down.
However, as we move out of our Covid cocoons there are signs that economic growth will return led by employment growth and this financial security will underpin Melbourne’s property market moving forward.
However, some sectors of the Melbourne housing market will continue to languish this year.
The sectors of the Melbourne real estate market likely to underperform most moving forward will be:
- Apartments in high-rise towers – in fact, this is these properties are likely to be out of favour for quite some time.
- Off-the-plan apartments and poor quality investments stock (as opposed to investment-grade) apartments, particularly those close to universities.
- Established homes in the outer suburban new housing estates, where young families are likely to have overextended themselves financially and with many people will be out of work for a while. Currently, many first home buyers are taking advantage of the various incentive packages including HomeBuilder to buy newly constructed homes, leaving established houses in these locations languishing.
The list of top 10 Melbourne secondary schools catchment areas
The list for top 10 Melbourne primary school catchment areas
Long term Melbourne property market trends
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.