Melbourne property prices have rebounded after the COVID-19 pandemic to surpass their previous peak, which was recorded in April 2020.
CoreLogic, who track house prices across Australia, announced today that March 2021 prices were 0.2% up on those from 11 months ago, which was the previous high bar for property prices in Melbourne.
It represents a serious rebound for the Melbourne housing market after the Victorian capital endured Australia’s longest lockdown, which had wiped 6% off the price of housing.
The growth that has been seen in 2021 has been huge all over Australia, but in major cities such as Sydney and Melbourne, it has been the top end of the market that has pulled the average price up.
“As with the Sydney market, the acceleration in values is most prominent at the top end of the market,” said Eliza Owen, Head of Research at CoreLogic. “In the three months to February, the top 25% of values in the Melbourne market increased 4.0% in value, compared with 3.1% growth at the middle 50% and 2.4% rises at the bottom 25% of the market. February also showed more expensive markets like the Inner East and the Inner South exhibiting stronger monthly growth rates.”
The obvious question that comes with such exponential growth centres over how long such a boom can continue.
“It is difficult to say how long momentum in the market can be sustained,” said Owen. “The low cash rate setting is likely to be a significant tailwind to property markets, potentially for years to come. However, the rate of increases in dwelling values will slow at some point, as affordability constrains grow, or pushes demand to other markets.”
“Total listings volumes across Melbourne are also gradually rising, which may provide some relief for buyers. The total listings count observed across Melbourne in the 28 days to March 29th were 0.7% above the 5 year average, suggesting a gradual uplift in volumes.”
“In the longer term, any effort to constrain potentially risky lending, such as higher mortgage serviceability assessment rates, or stringency around loan to income or debt to income ratios, would also slow market conditions. However, there is no indication of excessively risky lending being observed by the regulator which would trigger an intervention at this stage.”
Melbourne’s house prices have sky-rocketed, but so have vacancy rates, implying that owner-occupiers are dominating over investors.
“ABS finance data to January 2021 suggests owner-occupier purchases were still dominant, but investor participation is rising after bouncing back from a recent low in October 2020,” said Owen. “In the three months to January, the value of finance for the purchase of investment property purchases in Victoria was up 11.8%, compared with a 27.6% lift in owner occupier purchases, and investment finance made up around 22% of finance lent for the purchase of property through January 2021.
“It is worth remembering that the vacancy rate dynamic is quite varied throughout greater Melbourne, and not every market is seeing significant deterioration in rental conditions. Since in the year to February 2021, the rental vacancy rate has actually tightened in the Mornington Peninsula, and the Outer East region, while the Melbourne Inner market has seen the biggest increase in the vacancy rates from 1.8% to 4.9% over the year.”
