Melbourne continues to lead house price decline

Melbourne home values have continued their COVID-related decline, falling 1.2 per cent in August as house prices in other capital cities across the country begin to stabilise.

CoreLogic said Mebourne’s August tumble demonstrated the impacts of Victoria’s COVID-19 outbreak on property markets, relative to other cities.

In Sydney, house prices declined by 0.5 per cent, while Brisbane home values nudged down by 0.1 per cent, CoreLogic said.

Perth and Adelaide were steady in August, while Hobart home values ticked up by 0.1 per cent, and Darwin’s median house price rose by 1 per cent. 

“The performance of housing markets are intrinsically linked with the extent of social distancing policies and border closures, which also have a direct effect on labour market conditions and sentiment,” CoreLogic head of research TIm Lawless said.

“It’s not surprising to see Melbourne as the weakest housing market considering the extent of the virus outbreak, and subsequent restrictions, which have weakened the economic performance of Victoria.”

Mr Lawless said capital city property markets would likely diverge in coming months, depending on how well the virus is contained and each region’s exposure to factors such as reliance on overseas migration as a source of housing demand.

He said home values in some centres had been insulated by relatively low levels of listings, with vendors retreating from the market throughout the pandemic.

“So far, there has been no evidence of urgent or distressed listings starting to pile up,” Mr Lawless said.

“This could potentially change, however, as fiscal support starts to taper at the end of September and distressed borrowers taking a repayment holiday reach their six month check-in period at the same time.

“The timing of these two events could be the catalyst for a gradual rise in distressed listings which will be an important trend to monitor.

“If we do see active listing numbers rising to be higher than previous years, it could signal that vendors will need to offer up greater discounts in order to sell their home.”

In the rental market, median rents have held up better than home values, falling by 1.4 per cent since March across capital cities, compared with a 2.3 per cent drop in dwelling values.

However, a big gap is opening up between rental houses and units.

CoreLogic said house rents across all capitals had declined 0.3 per cent since March, while rents for units and apartments had fallen 3.5 per cent.

“Supply levels for rental grade units have surged over recent years, especially in Sydney and Melbourne, where high-rise unit supply across key inner city markets has remained substantially above-average,” Mr Lawless said.

“At the end of March there remained around 51,000 units under construction across NSW (+19 per cent on the ten year average_, and about 45,000 units were under construction across Victoria (+24 per cent above the decade average).

“On the demand side, rental demand for inner city apartments has been significantly impacted by stalled overseas migration, including foreign students, as well as less demand from domestic students who are generally studying from home.”