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- So how long will this cycle continue?
- Melbourne houses are outperforming
- The Victorian economy is holding up well
- Melbourne House Prices
- Melbourne houses are outperforming apartments
- So…is it the right time to get into Melbourne’s property market?
- Here’s the list of top 10 Melbourne secondary schools catchment areas:
- Here’s the list for top 10 Melbourne primary school catchment areas:
- 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 over the balance of 2021 and into next year?
Well… based on how the market has been performing so far it’s likely that will see high double-digit Melbourne house price growth in 2021, with most segments exhibiting strong price appreciation other than the inner city and high-rise apartment market.
While Melbourne housing values suffered because of its extended lockdown which severely impacted market activity in 2020 since late October the Melbourne property market has rebounded strongly despite its intermittent Covid related shutdowns.
Melbourne property values:
- rose 0.3% this past week
- risen 0.8% in September, and
- increased 15.8% over the last year.
And there is still plenty of growth left, as Melbourne property values have only recently exceeded their previous 2017 peak levels.
So how long will this cycle continue?
If you would have asked me this question a couple of weeks ago I would have suggested that our property market would continue growing at the rate of 6 to 7% per annum throughout 2022 until eventually affordability slowed the market down.
Remember the current upturn phase of the property cycle only commenced a year ago, in October 2020.
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 macroprudential controls to dampen the exuberance of property investors and home buyers.
However, this time round 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 the 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, the banks and even our treasurer.
The Council of Financial Regulators, the club of four main financial watchdogs, showed concern about the increased level of home lending in the first half of the year.
In particular they signalled their concern about the number of mortgages taken out at more than six times the borrower’s income.
The council has asked APRA to put together a list of potential measures, but this is going to be a challenge and their response will need to be measured so as not to create unintended consequences such as a severe property downturn.
Just look back to 2014 when APRA checked house price growth by targeting investors and restricting the size of what they could borrow relative to the value of their housing collateral.
While tougher lending standards will certainly take some heat out of Australia’s property markets by restricting the number of people that can get home loans, or lessen the amount they can borrow, the move could backfire in the short term as investors and homebuyers try to rush and buy to beat the buzzer on the upcoming tightening of lending conditions.
Back to the question of 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.
Targeting debt to income ratios will have 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 wait and see what our regulators choose to do.
I hope they have learned from the results of previous interventions, otherwise if history repeats itself, there will be some unintended consequences.
Watch this space.
However in the meantime there is likely to be a mini boom as home buyers and investors bring forward their property purchases to beat the buzzer of more restrictive lending criteria.
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.
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 things 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.
Last year Melbourne house prices and market activity were adversely affected by its extended lockdowns but now Melbourne property is on the move again with dwelling price growth for the year to date of 15.0%
The stats below for Melbourne price growth for the past year are low because of a number of very flat months during the 2020 lockdowns, but as these months fall off the rolling 12 month stats, capital growth for Melbourne will show up as very strong figures.
MELBOURNE DWELLING PRICE TRENDS – Source: Corelogic October 2021
The following chart from Real Estate.com.au shows how buyers are actively back into the Melbourne property market.
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.
Changes in Melbourne property prices over the past two years
Similar to the market in Sydney, despite the economic shock to the Covid-19 extended lockdown in Victoria, Melbourne’s housing market defied the odds with any price decline being short-lived.
By the end of 2020, the median hit a new record high of $936,073 which is $28,000 above the previous record in early 2020.
Dr. Nicola Powell, Senior Research Analyst at Domain explained:
“First-home buyers became active, utilising incentives, low mortgage rates and a deeper savings pot as Covid restrictions reduced discretionary spending.
Upsizing buyers were enticed by cheaper credit and altered their wish-lists post-lockdown.”
Over the past two years, 91% of Melbourne’s suburbs enjoyed house price growth as buyers continue to be attracted by affordability, with price growth even spread across outer areas.
All suburbs that Domain mapped in the North East of Melbourne rose annually, while 97% of suburbs in the West (Niddrie and Maddingley the exceptions) and 95% of suburbs in the South East (apart from Sandhurst and Dandenong) also enjoyed a price hike.
By December, Blairgowrie took the title as the suburb with the largest property price increase across Melbourne with a 24.8% rise.
Although substantial price rises were also recorded in Portsea, Flinders, Ventnor, McCrae, and San Remo on the Mornington Peninsula.
“[The data shows] lifestyle and holiday locations are beginning to accelerate in price as working remotely becomes normalised and international borders remain closed,” Dr Powell said.
Suburbs including Bacchus Marsh, Capel Sound, Darley, Diggers Rest, Manor Lakes, Mickleham, The Basin, Werribee, Wollert and Yarra Glen, have also continued to show annual growth over the past two years.
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.
Here’s the list of top 10 Melbourne secondary schools catchment areas:
Here’s the list for top 10 Melbourne primary school catchment areas:
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