- CoreLogic's Tim Lawless expects a more buyer friendly market
- Melbourne's house prices, like Sydney's, have declined recently
- Property experts around Australia expect this to occur as the RBA continues to increase the cash rate
Last year, without doubt, was one of the most significant years in real estate for Melbourne.
Although property prices in Australia’s largest city remain below that of Sydney, both markets are experiencing declines in their property prices.
According to CoreLogic, Melbourne’s dwelling prices declined in May by 0.7%. Until November last year, house prices had increased every month since October 2020 – when Melbourne’s Delta lockdown occurred.
As we head towards the middle of the year, we review what is being said by Australia’s top property experts and professionals.
So, what’s in store for 2022?
CoreLogic’s research director, Tim Lawless, said that, like Sydney, higher stock levels have been recorded in Melbourne while there has been a decline in buyers. As a result, he forecasts a market more friendly to home buyers.
“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price.”
Tim Lawless, CoreLogic Research Director
Nicola Powell, Domain’s chief of research and economics, added that buyers are now more selective when searching for properties, especially given changes in lifestyle since the pandemic, most notably in the form of more bedrooms and studies.
“You see a divergence in performance depending on the types of property, quality of property and size of property as well,” said Dr Powell.
“Buyers become more mindful of what they’re purchasing. They don’t want to compromise, particularly not on space.”
On the ground
Melbourne Upside Realty agent Matthew Florance said there has been talk about the “bubble bursting” for some time now, and he believes he is witnessing a shift in the market.
“We’ve had a large increase, recently, in listings of lower-end investment properties in Melbourne which sellers are offloading as they evaluate the recent interest rate rises,” Mr Florance told The Property Tribune.
“At auctions, whereas we were seeing a ratio of one property to three bidders – that’s now becoming one to one.
Matthew Florance, Melbourne Upside Realty
“We’re seeing a normalising and shift in the market and over the next five years for us as agents we’ll need to go back to having databases of buyers to sell properties.”
Adviseable property buyer Kate Hill reiterated that price growth is slowing, and it is likely prices will continue to fall following tightening monetary policy.
“Fixed rates were already up,” she said.
“The cash rate will affect variable mortgage rates, lifting minimum repayments and reducing borrowing power.
“This tends to affect the higher priced property markets. There are also affordability and cost of living/fuel price concerns among buyers.”
Ms Hill noted that the return of immigration, falling unemployment and rising wages, along with rising exports and a strong economy need to be considered when providing an outlook on house prices.
“Lack of development and long lead times for new housing should keep supply levels overall on the steady while demand levels.”
When asked about the outlook on house prices in Melbourne for the next five years, Ms Hill noted that dwelling values reached a cyclical peak of 22.4% in the 12 months to January 2022.
“If they correct a little, then, you’re still ahead on what they were when you look at long-term averages, which is what you should do.
“We expect these normal property cycle ups and downs to continue into the next five, 10, and 25 years and ride out everything that the universe throws at us.
Kate Hill, Advisable
She added that Melbourne inner-city unit markets should continue to improve as international migrants and students return.
“We expect most of Melbourne’s residential real estate market to flatline for a while and take a breath as everyone gets used to the new status quo in terms of pricing before the normal fundamental growth drivers of increased populations, strong economy and stable housing markets lure investors, migrants, and foreign investment in.”
What about the rental market?
Andrew Graham, CEO of Rental Management Australia, told The Property Tribune that the overall Victorian vacancy rate of just over 1% is well below 3% – the level considered to a healthy equilirium for rental supply and demand.
“At Rental Management Australia we are currently seeing many good quality tenants coming out of properties due to the sale of their rental property they are currently living in,” he said.
“We are currently seeing international students returning to the market which will absorb apartment rental stock.
“In my opinion and based on the current market I can only see the demand for rental stock continuing and rental prices continue to rise.”
Ms Hill said rental prices will continue to tighten, with many events scaring investors away such as APRA tightening lending in 2017, and Labor threatening to remove negative gearing during the 2019 election before disasters such as bushfires, flooding and Covid.
“Investors were scared of falling asset prices – fuelled largely because of media hysteria and misinformation,” she said.
“This all affected the low supply of rental market.
“Now supply chain issues and slower development approvals will reduce supply further and demand will continue to increase from natural sources, migration will ramp up, divorce and separation rates up – increasing demand, where there was one household there are now two and one rents – and rising interest rates will continue to scare away many more novice investors.”
“The rental crisis Australia is in will only worsen – and will potentially help offset any interest rise that makes an investor’s mortgage more expensive,” she concluded.
To read commentary from the other capital cities, check out these articles: