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Melbourne home values rose another 0.5% in October, continuing a relatively mild rate of growth that’s been evident since February.
Since finding a floor, housing values have increased by 4.5%, yet the market remains 3.7% below the record highs of early 2022.
With vendors becoming more active across Melbourne, buyer activity doesn’t seem to be keeping pace.
Total listings have normalised, tracking 1% above the 5-year average at the end of October and trending higher.
At the same time, rental vacancies have fallen to new record lows, reaching 0.8% in October.
Upwards pressure on rents is likely to persist until some rental supplies start to flow into the market.
Here’s what’s currently happening in Melbourne
The Melbourne property market has been one of the strongest and most consistent performers over the last four decades.
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.
Melbourne property prices have now fallen through 10 of the past 12 months, taking the cumulative decline to -7.1%.
But the CoreLogic’s daily home value index suggests Melbourne house prices have risen in the first few weeks of March 2023.
While Melbourne property values may still fall a little further – it’s a little too early to call the bottom of the market – buyers are back and the market is definitely “looking for a floor” and the Melbourne property market is going to reset in 2023.
Reduced borrowing capacity will continue to weigh on buyer sentiment, placing a brake on Melbourne’s housing demand and prices.
However, auction clearance rates have remained firm over the Summer selling season.
What is noticeable though is that over the last month or two the sentiment of both Melbourne property buyers and sellers has shifted.
Buyers are no longer prepared to take shortcuts of compromise in order to secure a property like they were during the recent property boom.
They’re more cautious, their pockets are more shallow and their borrowing capacity is significantly reduced.
At the same time, sellers hesitate, holding off from going to market amid uncertainty, which is causing a slowdown in the number of new listings.
Usually, every year during the first half of March – referred to as weeks nine to 11 on the calendar – there is a surge in listing activity.
But not in 2023.
Nationwide, this year 8,721 new listings were added to the market in ‘week 11’ (March 11-19), down 27.3% compared to the same time last year, and 21.3% below the previous five-year average.
So far in 2023 new listings nationally have been tracking 18.0% below 2022 levels.
For Melbourne, new listings are 12.3% below the previous five-year average and 23.4% lower than last year.
But, as we know, Melbourne’s market is not one-size-fits-all.
Moving forward, there will be a flight to quality and 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.
While overall Melbourne property values are likely to fall a little further, 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.
There is broad consensus amongst economic forecasters that Sydney’s property markets will continue to fall before recovering once the Reserve Bank’s interest rate hikes have stabilised.
Here are some of the most recent forecasts:
- ANZ Bank forecast Melbourne property values could decrease 9% in 2023
- CBA forecast Melbourne property values could decrease 2% in 2023
- NAB forecast Melbourne property values could decrease 14.1% in 2023
- Westpac forecast Melbourne property values could decrease 10% in 2023
- PropTrack forecast Melbourne property values could decrease 7-10%
These forecasts are dependent on the Reserve Bank finishing up its cycle of interest rate increases in order to get on top of inflation, which, according to some forecasts, could be very soon.
These predictions come in response to a recent rapid rate tightening cycle implemented by the RBA, which some banks believe may be negatively impacting the economy by slowing growth and job creation.
While most banks believe that the RBA will cease rate hikes by May 2023, Commonwealth Bank believes that rates may not even reach that high, and that rate cuts could be implemented as early as later this year.
This forecast is based on the bank’s assessment that inflation will decrease more quickly than anticipated, thus giving the RBA the leeway to lower interest rates to stimulate the economy.
However, the RBA doesn’t really know what it’s going to do – it decides each month and may continue to implement its current policy until it believes that the economy is stable enough to warrant a change.
Of course, it is possible that unforeseen events, such as changes in global economic conditions or domestic politics, may impact interest rate decisions in ways that are difficult to predict.
Melbourne is the auction capital of Australia
Melbourne’s auction clearance rates have remained firm over the Summer selling season.
The Melbourne auction market produced its highest weekend auction clearance rate since February 19th2022 to end March clearly on a high.
Melbourne reported an impressive clearance rate of 74.5% on Saturday which was well ahead of the 67.2% recorded last weekend and higher than the 69.9% recorded over the same weekend last year.
Melbourne’s Outer East reported the top regional clearance rate on Saturday with 83.3% followed by the Inner South at 78.2% and the Inner East at 77.4%.
The West recorded the lowest regional rate at 66.4%.
The house clearance rate was 75.2%, with units lower at 70.8%.
The resurgence of buyer interest in the Melbourne property market and rising clearance rates help to prop up property prices across the city.
More investors are getting into the Melbourne market now recognising that there are bargains to be found and that in 12 months’ time, the properties they purchased today will look like a bargain.
However, there is currently a flight to quality, with A-grade homes and investment-grade properties selling quickly often within days of coming onto the market.
Melbourne’s top performers 2022
2022 was a challenging year for all our property markets as cash rate hikes, lower borrowing capacity, and cooling demand took a toll on prices throughout the city.
But when interest rates stabilise, and inflation begins to come under control, buyers and sellers will storm back into the market with a vengeance.
This will create a property market RESET and the next property cycle will commence.
And with the recent opening of international borders, Melbourne will be a major recipient of new residents putting extra pressure on our property markets, particularly the rental markets.
Of course, there is not one “Melbourne property market” and some segments outperformed others.
Here are some of the best performers for Victoria in 2022, according to CoreLogic’s Best of the Best report 2022:
These are the Melbourne Suburbs with the top sales in 2022:
Victoria’s economy begins to rebound
There are also various economic indicators across Australia and Victoria to help to determine the current positions of Melbourne’s property market
Melbourne’s state final demand – a key measure of economic activity – grew 0.2% over the final quarter of 2022, compared with a 2.1% increase in national GDP.
Meanwhile, Victoria’s unemployment rate has fallen to 3.1% – the lowest rate seen in Victoria in almost 50 years and the lowest current rate of all Australian states – while regional unemployment is even lower at 2.9%.
Having created almost 330,000 jobs state-wide since September 2020, the Labor Government has exceeded its target of generating 200,000 jobs and outperformed all other Australian states.
Meanwhile, Victoria’s population growth is rebounding.
Around 15 years ago the Victorian Government released “Melbourne 2030”, which projected that Melbourne’s population would reach 5 million people by 2030, which it then smashed 11 years early in 2019.
In fact, Melbourne’s population has swelled by 1.5 million people (44%) since the turn of the century and is still on track to overtake Sydney as the nation’s largest city by 2031-32 and reach 6.1 million the following year.
Overall, Victoria’s population is set to climb from around 6.6 million now to 7.8 million by 2032-33.
Meanwhile, dwelling values remain higher than they were at the onset of COVID across every capital city and broad rest-of-state region.
Melbourne now has the smallest value buffer, with housing values only 0.03% above March 2020 levels, followed by Sydney, where dwelling values remain 7.7% higher.
The chart below summarises the sub-market performance of dwellings across SA4 regions of Victoria.
Only 1 Melbourne region but all 10 regional regions have seen an increase in values in 2022.
Regional Victoria continues to show a significantly faster pace of growth in housing values relative to Melbourne over the past twelve months.