Property Shocker: Adelaide and Perth Closing In on Melbourne’s Prices – What This Means for Investors!

Key takeaways

According to recent data, Adelaide and Perth's median dwelling price are now nearly as pricey as Melbourne for the first time in up to 15 years.

At the same time, the median dwelling price in Canberra and Brisbane is higher than Melbourne. This is partly to compositional bias with more apartments in Melbourne., bringing down the median dwelling price.

Just to be clear... these are median "dwelling" prices being reported by Corelogic, rather than "house prices", and there is compositional bias as in Melbourne there are more apartments than in the other cities bringing down the median" dwelling price" which relates to all types of dwellings.

However, this creates a strong countercyclical investment opportunity in Melbourne.

Melbourne's property market remains fundamentally strong, as the city boasts a robust economy, a diverse population, and a high quality of life. It has evolved as the biotech capital of Australia.

Some investors will think it's the wrong time to buy in Melbourne, but the smart money would have been there 2-3 years ago and is now focused on locations in the early growth stage of their property cycle.

In an unexpected turn in the Australian property market, Adelaide and Perth are now nearly as pricey as Melbourne for the first time in up to 15 years, according to recent data.

According to the latest CoreLogic Home Value Index, Adelaide’s median dwelling price jumped to $734,173 in March, a 1.4% increase, while Perth’s median broke the $700,000 mark, reaching $703,502 – a 1.9% rise.

In contrast, Melbourne’s median dwelling price remained steady at $778,892, suggesting a potential crossover between Adelaide and Perth in the near future.

If this trend continues Adelaide’s median house price is likely to surpass Melbourne soon, and Perth will not be far behind.

In fact, median house prices in Brisbane in Canberra are already more expensive than in Melbourne.

Just to be clear... these are median "dwelling" prices being reported by Corelogic, rather than "house prices", and there is compositional bias as in Melbourne there are more apartments than in the other cities bringing down the median" dwelling price" which relates to all types of dwellings.

Historical insights

Rewind 15 years to April 2009, and Adelaide’s median was on par with Melbourne’s at around $368,969.

Perth and Melbourne also shared similar medians in August 2011 and January 2015.

The mid-2000s mining boom in Western Australia saw Perth’s prices momentarily eclipse Melbourne by 32.1% in 2006.

However, Melbourne’s real estate market regained momentum, surpassing Perth by 2015.

Source: CoreLogic

The influence of COVID-19

The onset of COVID restrictions in 2020 marked a decline in Melbourne’s property premium over Perth and Adelaide, with an exodus from Melbourne during lockdowns.

A once 40-50% price difference narrowed to merely 10.7% over Perth and 6.1% over Adelaide.

Today a shortage of housing stock and high immigration (especially to Perth) are fuelling the price surges in Adelaide and Perth.

Conversely, Melbourne’s abundant supply levels, particularly for apartments, are keeping its overall dwelling prices more stable.

Melbourne’s counter-cyclical investment appeal

Despite its stable prices, or maybe I should say because of its underperformance, Melbourne presents a unique investment opportunity, especially in a counter-cyclical context.

I see the Melbourne housing market offering a unique combination of affordability, stability, and long-term growth potential.

As you can see from this table, Melbourne has been the strongest-performing property market over the last 20 years.

In fact, according to ABS data, it’s been the strongest-performing property market over the last 40 years, and there is no reason to think this will be any different in the future.

But the COVID-19 pandemic and numerous city lockdowns hit the city hard – many residents fled northwards to Queensland and closed borders halted migration from overseas.

From the economic fallout of the COVID-19 pandemic and being locked down for longer than any other city in the world, to 13 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 to the recent trough in January 2023.

While the Melbourne housing market turned the corner in early 2023, property price growth has been slower than in some other capital cities.

Despite the recent slowdown, Melbourne's property market remains fundamentally strong.

The city boasts a robust economy, a diverse population, and a high quality of life.

Melbourne has evolved as the biotech capital of Australia as the result of a combination of strong institutional support, robust research and development infrastructure, strategic collaborations, and a skilled workforce.

This is likely to nurture local talent and keep attracting knowledge workers to the city, while at the same time, Melbourne educational institutions will continue to attract international students.

Melbourne’s diverse economy, consistent population growth (amongst the highest in the country), and ongoing infrastructure developments make it an attractive long-term investment destination.

Recently Oxford Economics forecast that the Mebourne property market will outperform over the next 3 years with 21% growth in the median Melbourne house price while apartments in Melbourne will grow by 20% in value over the next 3 years

A window of opportunity

This period of relative price stability in Melbourne could be an opportune moment for savvy investors to enter the market, anticipating future growth as the city’s housing market recovers.

Of course, I understand why some investors will think it’s the wrong time to buy in Melbourne.

“The herd” jumps into markets when they read that prices have risen 15% or 20% in the past year – or 50% in the past three years like some of our other capital cities have experienced.

The smart money would have been there 2-3 years ago and is now focused on locations in the early growth stage of their property cycle.

That’s why investing in the right properties in the right locations in Melbourne makes sense for strategic property investors with a long-term focus.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.