After booming through 2020 and 2021 with prices rising by 15.8%, Melbourne housing values fell -7.9% from their peak in March 2022 through to the recent trough in January 2023.
But now the Melbourne housing market has clearly turned the corner with prices rising consistently for the last 10 months - now up 4.5% since January 2023
This new cycle creates a window of opportunity for home buyers and investors to get into the property market as the Melbourne market picks up again.
Currently, there are around 5.8 million people in Melbourne which has now overtaken Sydney as Australia's largest capital city.
Melbourne has a unique lifestyle and economic benefits that will attract overseas migrants as well as plentiful jobs for highly paid knowledge workers.
Rather than trying to time your next property purchase based on where we are in the cycle, take a long view and if your income is secure and the time is right for you, this may be an ideal time to get a foothold in the Melbourne property market while others are sitting on the sidelines.
Are you wondering what will happen to the Melbourne property market in 2024?
It's no secret that the Melbourne housing market has faced its fair share of challenges over the past couple of years.
From the economic fallout of the COVID-19 pandemic and being locked down for longer than any other city in the world, to 12 consecutive interest rate rises, the lowest level of consumer confidence in decades and a continuous conveyor belt of negative messages in the media, tightening of lending restrictions, the Melbourne property markets have faced considerable headwinds.
After booming through 2020 and 2021 with prices rising by 15.8%, Melbourne housing values fell -7.9% from their peak in March 2022 through to the recent trough in January 2023.
But it is now clear that the Melbourne housing market has turned the corner:
- Corelogic's daily home value index suggests Melbourne house prices dropped -0.1% in November after rising 0.5% in October 2023.
- Proptrack reports Melbourne dwelling prices grew by a modest 0.04% in November. This brings prices up 1.39% from their level a year ago.
- Dr. Andrew WIlson's My Housing Market showed Melbourne house prices remained flat over the month while unit prices are up by 0.8%.
Sure each research house has slightly different stats, but any way you look at it Melbourne has now clearly passed the bottom of the market downturn, following 9 month-on-month increases in median property prices.
While Melbourne has not seen as sharp a recovery in prices this year as Sydney has, it also did not see as large a decline in 2022.
Of course there are many sub-markets in Melbourne, but despite some potential headwinds, it's clear Melbourne is in the early recovery stage of the property cycle.
And remember... the Melbourne property market has been one of the strongest and most consistent performers over the last four decades.
In contrast to Sydney's quick recovery, Melbourne has seen a slower, more steady price growth trajectory.
This isn't necessarily a bad thing, especially as Melbourne has performed strongly in the long term when compared to other capital cities.
Across sub–regions, Melbourne's Inner and Outer East are outperforming marginally while the North West and West are seeing prices stabilise rather than rise.
Conditions are notably softer outside the capital, prices only stabilising for the Mornington Peninsula but declines continuing for Geelong and showing few signs of abating for Bendigo.
However at Metropole Melbourne we’re finding that strategic investors and homebuyers are back actively looking to upgrade, picking the eyes out of the market.
Like all our capital cities there is not one Melbourne property market, and A-grade homes and investment-grade properties remain in strong demand and are likely to outperform, many holding their values well.
Another pointer to the strength and depth of the market is that Melbourne’s auction clearance rates have held up well this year.
- rose 15.8% from the onset of Covid to their cyclical peak in March 2022
- fell -7.9% from their previous cyclical peak to their recent trough in January 2023
- have risen 4.5% from their trough to the end of October 2023.
While Melbourne's property market have moved to the next phase of the property cycle, there is not "one" Melbourne housing market and it's a bit like having one hand in a bucket of hot water and the other in a bucket of cold water and saying: On average I'm feeling comfortable.
The various sectors of the Melbourne real estate market will be segmented, which is a more “normal” property market.
There is a clear flight to quality with A-grade homes and investment-grade properties still in short supply for the prevailing strong demand, but B-grade properties are taking longer to sell and informed buyers are avoiding C-grade properties.
This is creating a window of opportunity for homebuyers and property investors with a long-term perspective.
Sure, many discretionary buyers and sellers have left the market at present, but life will go on in the Victorian capital – people will get married, people will get divorced, families will have babies and many Melbournians are going to need to move house.
When they realise interest rate rises have stopped (and we're almost there) and that inflation is under control (and we're past the peak already) they will come back into the market with a vengeance.
In fact buyers are back in the market however seller sentiment is still lagging.
And with the recent opening of international borders, Melbourne has become a major recipient of new residents putting extra pressure on our property markets, particularly the rental markets.
MEDIAN PROPERTY PRICES FOR MELBOURNE
|Property||Median price||Δ MoM||Δ QoQ||Δ Annual|
|Capital city houses||$943,725||0.0%||0.7%||3.3%|
|Capital city units||$610,490||-0.3%||0.2%||2.5%|
Source: CoreLogic, 1st December 2023
Melbourne’s population is forecast to rise by roughly 500,000 over the five years to 2026-27, after increasing by an astounding 1.7 million people (52%) so far this century.
That's the equivalent of two Hobarts’ worth of population growth in only five years
In fact Melbourne’s population is expected to grow by one million people over the next ten years.
According to the Federal Treasury’s Centre for Population, Melbourne will have 6.1 million residents by 2033, with net overseas migrants accounting for nearly three-quarters of these new residents.
It would also mean that Melbourne’s population had nearly doubled since the turn of the century, from roughly 3.3 million people at the 2001 Census, owing mostly to high net overseas migration.
Considering it has taken about 188 years for Greater Melbourne to grow to its current size of about 2.1 million dwellings in Greater Melbourne, this means Melbourne will require roughly one new dwelling for every two existing homes within the city’s boundaries.
Accommodating 50% more houses within existing boundaries in the next decade or two will require major policy changes and the construction of a significant amount of infrastructure.
Not just "hard” infrastructure, but schools hospitals aged care facilities etc..
Melvourne housing prices charts
Note: Over the last 4 decades, Melbourne property values have risen at the fastest pace of all capital cities.
At Metropole, we’re finding that on-the-ground sentiment has changed and strategic investors and homebuyers are accepting that inflation has probably peaked and that interest rates are likely to peak in the next few months, so they are getting on with property decisions.
While more buyers are active in the market, there is currently a shortage of good quality stock on the market.
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.
CBRE estimates Melbourne's apartment delivery will average 10,000 pa over 2024-28, nearly 40% below Sydney.
Demand for housing stock (apartments and communities) is likely to average 38,000 pa over the next five years.
This should continue to drive down city-wide vacancy from 1.7% to 0.9%.
Melbourne is experiencing a rental crisis with historically low vacancy rates.
Melbourne apartment rents have soared 23.1 per cent in the past year, leaving tenants struggling to find and afford somewhere to live.
Source: SQM Research
Traditionally in Melbourne, vacancy rates have been tight hovering well below the level of 2.5% vacancies which represents a balanced rental market.
However, Melbourne's vacancy rates are now at historic lows and this is pushing up rental rates.
And at Metropole Property Management our vacancy rate is less than half the industry rate, in part because our clients have chosen investment-grade properties, but we'd like to think it also has a bit to do with our proactive property management policies.
Melbourne's decline in vacancy rates can be attributed to several factors.
One major factor is the city's strong economy and job market.
Melbourne is home to a number of major industries, including finance, technology, and healthcare, which are driving the demand for housing.
Another factor is the city's growing population.
Melbourne's population has been growing steadily in recent years, with more people moving to the city to take advantage of its job opportunities and quality of life.
This increased demand for housing has led to competition among renters, driving down vacancy rates.
Overall, the decline in vacancy rates in Melbourne is a sign of the city's strong economy and growing population.
While it may be more difficult for renters to find a property, the city remains an attractive place to live and work.
The lower yield investors have been achieving is a reflection of higher capital growth and the value of Melbourne properties.
As a consequence, overall yields have declined over the past few years, but more recently as rents have skyrocketed investment yields have improved for investors in Melbourne as can be seen from the following chart from SQM Research.
Melbourne's school zones for house price growth
Education influences home buyers and property investors across a broad range of demographics and data show that it is now influencing property prices in greater Melbourne’s popular education catchments.
Education is a long-term consideration and, whether you are planning a family, have children already enrolled in school, or are an investor looking to attract long-term, quality tenants, it may be beneficial to consider school catchment zones when you are determining suburbs of interest.
A well-rated school can do wonders for property value, and recent data shows that school catchment zones can actually have a significant influence over how quickly property prices grow.
In fact, Domain Group’s latest 2021 School Zones Report shows that house prices in some of Melbourne's school zones have outperformed and skyrocketed by close to 40% over the past 12 months as fierce competition to get into preferred school catchment areas continues to drive property price growth.
The report confirmed how public school zones can influence property decisions and impact house price movement.
Melbourne's property prices growth over the last 10 years
Over the last decade, Melbourne's house price growth was stronger than unit growth, but that wasn't always the case...
Looking back the Melbourne property market has been one of the strongest and most consistent performers over the last four decades and 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.
But now the price gap between apartments and houses is the biggest it has ever been, and with affordability constraints kicking in, it's likely that potential buyers will turn their attention to more affordable "family-friendly" apartments, vill units, and townhouses which will outperform.
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, and other cities have topped the charts...but watch this space.
Prior to the coronavirus Melbourne‘s population grew by around 120,000 people each year and migrants are going to come pouring back into Australia.
Melbourne has a unique lifestyle and economic benefits that will attract overseas migrants.
Sure many Australians see Melbourne as the poor cousin that caught coronavirus and was locked down for 260 days, but overseas people see Melbourne as the only World City of 5 million people that contained coronavirus.
So this creates a window of opportunity to get into the property market before Melbourne property takes off again later this year.
Auction clearance rates give a great "in time" indication of the mood of Melbourne property buyers and sellers and as the chart below shows, Melbourne's auction markets have recovered their "mojo."
Historically, the city’s property market has gone from strength to strength.
In 1966, the median house price in Melbourne was just $9,400.
Values have doubled more than six times since then, with the median crashing through the $100,000 barrier in 1988, and pushing through the half-million-dollar mark in 2010.
Today one in three Melbourne suburbs has a median house price of at least $1 million, with 90% of suburbs within 10km of the CBD having a million-dollar median house price and almost 50% of suburbs in the middle ring also in the million-dollar club.
And changing demographics are playing a big role in driving shifting market trends.
The big house on a big block is no longer a surefire strategy for success, as single-person homes and households without children are increasingly favouring living in medium-density inner-city and waterfront apartment properties.
Meanwhile, families are trending towards locations that offer effective transport infrastructure, with access to amenities and quality education.
Upgrades to major highways and new rail links may close the gap between suburbs that were previously closed off by poor infrastructure.
Currently, there are 5.8 million people living in Melbourne.
The Victorian government has a business plan to increase Melbourne's population by 2050 to 8 million people, and at that time Victoria will have a population of 10 million people.
Over the next 30 years Melbourne is likely to require:
- 1.5 million more dwellings which will be made up of
- 530,000 detached houses
- 480,000 apartments and
- 560,000 townhouses
Currently, the number of property sales in Melbourne is growing week by week, and asking prices are lifting, meaning subsequent sales prices will be higher:
Melbourne's significant population growth is presenting a number of challenges for city planners and residents alike.
Melbourne is already "bursting at the seams," and city officials are now looking to develop new cities in outer suburbs to accommodate the growing population.
in 2023 Melbourne has officially overtaken Sydney to become Australia’s largest city by population — thanks to a technicality when the city's borders were redrawn to include the district of Melton.
In its 2022 population statement, Australia’s federal government said Melbourne was projected to overtake Sydney as Australia’s largest city by 2031-32.
But the newly recast Melbourne has a total of about 5.8 million residents, almost 19,000 more people than Sydney.
One of the biggest challenges posed by Melbourne's population growth is the strain it is placing on the city's infrastructure.
Melbourne's public transport system, in particular, is struggling to keep up with the increased demand, leading to overcrowding, delays, and other issues.
The city's roads are also becoming increasingly congested, making it difficult for people to get around.
To address these challenges, the Victorian government has committed to investing heavily in public transport infrastructure.
The Metro Tunnel project, for example, will create a new underground rail line through the CBD, while the Suburban Rail Loop project will create a new orbital rail line connecting Melbourne's suburbs.
These projects will help to relieve congestion on Melbourne's roads and public transport system, providing much-needed relief to commuters.
Another challenge posed by Melbourne's population growth is the cost of living in the city.
As more people move to Melbourne, demand for housing and other goods and services is driving up prices, making it difficult for many residents to afford a decent standard of living.
The city's housing affordability crisis has become a major issue, with many residents struggling to find affordable accommodation in the areas they want to live in.
To address this challenge, the Victorian government has introduced a number of measures aimed at increasing the supply of affordable housing in the city.
These measures include the introduction of the HomesVic scheme, which helps first-time buyers get onto the property ladder, and the establishment of the Victorian Property Fund, which provides financing for affordable housing developments.
Another challenge posed by Melbourne's population growth is the impact it is having on the city's natural environment.
The city's air and water quality are both being affected, as are its green spaces and wildlife habitats.
This has led to calls for better environmental protections and greater efforts to reduce the city's carbon footprint.
To address these challenges, the Victorian government has committed to investing in sustainable infrastructure and practices.
The state's Renewable Energy Target aims to generate 50% of Victoria's electricity from renewable sources by 2030, while the Greener Government Buildings program aims to reduce the energy use and emissions of government buildings by 25% by 2020.
To accommodate the city's growing population, city officials are now looking to develop new cities in the surrounding suburbs.
These new cities will be designed to provide residents with the amenities and services they need to thrive, while also promoting sustainable development practices.
One of the proposed new cities is located in Melbourne's west, in the suburb of Werribee.
This area is currently home to a number of industrial sites and other developments, but city officials believe it has the potential to become a major new urban centre, complete with housing, commercial and retail spaces, and public services.
The Werribee City Centre Framework Plan outlines a vision for a vibrant, mixed-use urban centre that will be connected to Melbourne's CBD via a new rail line.
Another proposed new city is located in Melbourne's southeast, in the suburb of Cranbourne.
This area is currently home to a number of green spaces and other natural areas, but city officials believe it has the potential to become a major new residential and commercial hub, providing much-needed housing and services to the growing population.
The Cranbourne East Development Plan outlines a vision for a sustainable, mixed-use development that will create jobs, housing, and amenities for local residents.
Despite the challenges posed by its population growth, Melbourne remains a city of great promise and potential.
With careful planning and smart investments, it can continue to thrive and grow, while also maintaining its unique character and quality of life for all residents.
As I explained the Melbourne property market has passed the bottom of this cycle and is now in the early upturn stage of the property cycle.
Of course, the Melbourne housing market won't boom again any time soon, but anyone who buys an A-grade home or investment-grade property in Melbourne will look back in a couple of years' time and recognise they bought a bargain.
Of course, I know some potential buyers are asking:
What about all those headlines that the Melbourne property market crash in 2023?
They must be listening to those permabears 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.
The following chart from Shane Oliver chief economist of AMP Capital shows that over the last century residential real estate has returned 11% per annum, and that doesn't take into account the benefits of gearing and compounding.
Sure the property markets move up and down cyclically - while the short-term trends may be flat or downwards, the long-term trend has always been up.
And with Australia's population likely to grow to 40 million people by the middle of this century and with Melbourne's population likely to grow to 8,000,000 people, the long-term capital growth of Melbourne property is assured.
So rather than time trying to time your next property purchase based on where we are in the cycle, take a long to view and if your income is secure and the time is right for you, this may be an ideal time to get a foothold in the Melbourne property market while others are sitting on the sidelines.
Currently, there are 5.1 million people in Melbourne.
By mid-century Melbourne will have 8 million people Victoria will have 10 million inhabitants.
In fact, Melbourne will most likely be Australia’s largest capital city in the next decade
1. Melbourne’s demographics
More than 70% of Victorians live in Melbourne, making it a much more urban state than Sydney and Brisbane
Melbourne had been ranked the world's most liveable city more times than any other city and is a major and relatively young city with a growing population of 4.9 million people.
Melbourne has now overtaken Sydney to become Australia’s largest city by population — thanks to a technicality.
The borders of the city have been redrawn to include the district of Melton, allowing Melbourne to leapfrog Sydney.
Previously Melbourne was projected to overtake Sydney as Australia's biggest city by 2030, but obviously things have changed spurred on by high international and interstate migration.
Melbourne is currently home to over 2.5 million households, up from 2.2 million households in 2016, most of which (68.3%) are homeowners, either with or without a mortgage.
Melbourne has a relatively young population for a major city within a developed country with a median age of 37.
One of the key demographics of Melbourne is its diverse ethnic makeup.
Melbourne is home to people from a wide range of cultural backgrounds, including Indigenous Australians, Anglo-Australians, and people from a variety of Asian, European, and Middle Eastern countries.
This diversity is reflected in the city's vibrant and multicultural arts, food, and cultural scene.
Another important demographic of Melbourne is its gender makeup.
The city has a fairly even split between men and women, with women making up 50.7% of the population.
Melbourne is also a city of young professionals, with a high proportion of people in the 25-34 age group.
The city is home to a number of universities and colleges, and this, combined with its strong job market, has attracted a large number of students and young professionals.
Finally, Melbourne is a city of homeowners, with a high proportion of people living in houses rather than apartments or other types of dwelling.
The city has a relatively high median house price, reflecting its strong economy and high quality of life.
Overall, Melbourne is a diverse, dynamic, and youthful city, with a population that reflects its vibrant and multicultural character.
Victorian residents can look forward to these major infrastructure projects:
- The 15.8 Billion North East Link road project which will transform how people move around the city.
- The $ 11 billion Melbourne Metro Tunnel which will allow more than half a million additional people per week to use Melbourne's railway system during peak periods.
- The $10 billion Westgate Tunnel
- The $10 Billion Melbourne Airport Rail Link is a game-changing public transportation project that, for the first time, connects Melbourne Airport to Victoria's rural and metropolitan train network.
- The M80 Ring Road upgrade ($2,25 billion) and the Monash Freeway Upgrade ($1.37 billion)
- Plus the Monash rail line ($475 million) and Frankston to Baxter rail line ($225million) upgrades