What is going to happen to the Melbourne Property Market during the rest of 2022 and 2023?

• House values have fallen by -3% since their peak earlier this year
• Units have fallen by -1%
• Given significant savings by households during the pandemic, the RBA has argued many Australians can weather interest rate storm

During the growth phase, housing values across Melbourne increased by 17%.

Houses led the way, increasing by 21%, with unit values rising by 11%, according to CoreLogic.

However, since peaking in February, house values are down -3%, while units have fallen by -1%.

With the ongoing cooling conditions, the number of home sales is heading downward. It is down by – 18% in the June quarter compared to the same time last year.

Advertised supply levels have risen – SQM Research data shows that total property listings for sale in Melbourne have gradually risen since the start of the year.

Melbourne

Weekly asking prices have also levelled out this year, with $1.17 million as the median asking price for houses and $587,000 for units.

Melbourne

With this higher level of inventory and less competition, house buyers are getting some leverage back.

Excluding a dip during the Grand Final Day weekend, clearance rates have remained relatively steady around the late 40%’s mark, suggesting more realistic price expectations.

Melbourne

Also, immigration is picking up, and many economists believe the cash rate cycle is near its peak.

So, what is going to happen during the rest of the year?

CoreLogic national research director Tim Lawless noted that after recording a relatively soft upswing in dwelling values, Melbourne dwelling values are still on the decline.  He did note the increase for houses was close to double that of units

While selling time on the market during September 2022 was 32, just one day more than the same time in 2021, vendor discounts have increased. While this was – 2.9%, it is now – 4.2%.

“Home sales through the September quarter were estimated to be -2.9% lower relative to last year, when Melbourne was navigating its sixth lockdown, however, sales activity over the quarter was still above 4.8% above the previous five year, demonstrating that first home buyers are still active despite higher interest rates and weaker market conditions.”

“The most important factor influencing housing markets will continue to be the trajectory of interest rates.”

Tim Lawless, CoreLogic

The Reserve Bank of Australia (RBA) itself has argued that households will be able to weather the storm of higher interest rate rises. An additional $260 billion has been saved by Australian households since the pandemic began.

Data shows a share of these funds was channelled into offset and redraw facilities on home loans.

Not all doom and gloom

Antoinette Sagaria, Director of Property at Entourage, told The Property Tribune that despite gloomy headlines, the Melbourne property sector is “boringly, predictably and quietly making a lot of people a low of money” echoing a similar sentiment expressed by the CEO of the Real Estate Institute of New South Wales (REISNW), Tim McKibbin.

“It is true to say that it has been a bumpy year for property, sales have been slower and rising rates have cooled the market a little, though not to pre-pandemic levels yet,” she said.

“Challenges abound with interest rates increasing for the first time since 2011 and construction costs having risen by about 10 per cent across the country in the past 12 months, there is even an uptick in mortgagee sales as borrowers with little wiggle room are faced with some tough choices.

“But this does not translate to property being a bad investment.”

Antoinette Sagaria, Entourage

Ms Sagaria noted while there are potholes on the road, investments are still heading northward over the longer term – which is the mentality you should have with any investment.

“In many parts of the property market it has been a case of business as usual,” she said.

“The auction clearance rate in Melbourne of 70 per cent is the same as 2019, the median house price in the city has gone up over $200K in the same time and median unit prices are up nearly $60K.”

“The Melbourne property market is a bit boring right now. But boring and business as usual don’t sell papers. Yes, the market does look a little different to a couple of years ago. Firstly, the rise in construction costs has meant that most buyers now want a turnkey investment, only the brave are opting for the “renovators’ dream”.

“On market property stock levels are lower, there is vendor hesitancy out there and with that comes less choice for buyers. However this doesn’t mean properties aren’t selling. A lot of transactions are occurring off market where people are quietly spending and making their money.”

Off-market on the rise; location, location, location

Ms Sagaria added that off-market property transactions are on the rise and have been since the market began cooling earlier in the year. Her agency, Entourage, bought 30% of properties off-amrket throughout the year, double any other year.

She also said that location still remains the most important part of the property equation.

“Even within the same suburb there can be drastic differences in price surrounding the median,” she said.

“There are pockets that will always outperform the market and other which may lag; it is important to know what you are looking at and how it fits into the spectrum or property in your market.”

Ms Sagria noted increased savings by households throughout the pandemic.

“Looking at aggregate household balance sheets, most households hold assets more than 1,000 per cent of their disposable income, with housing underpinning a substantial chunk of this wealth. In comparison, household debt sits at less than 250 per cent of disposable income,” she said.

In conclusion, she expects the market to perform well.

“Why would you put your money anywhere else?” she said.

“If you have bought in the City of Yarra, one of the best performing regions in Melbourne, 30 years ago, your investment has gone up 779 per cent based on the median growth.

“The property doomsayers may scream from the rooftops about collapses and crunches, fear and loathing, but for the most part the Melbourne property market is simply not listening.”