Melbourne: overstocked or over the worst?

Amid the mixed signals in the Melbourne property market, signs and hints are emerging that the worst is over.

Despite Melbourne dwelling values joining a broad-based recovery trend in November, and values rising 0.7 per cent in the month, the sheer volume of stock up for grabs could slow the rate of recovery across Melbourne in 2021.

This is certainly the case in the inner city, where total stock on market was at its highest in November (at 4,652 dwellings), with values likely to underperform until the relaxation of international border travel restrictions.

But prices are on the rise again in the family belt suburbs and the regions have taken off as city dwellers realise they don’t necessarily have to be at work to be doing their work.

The median house price in Victoria recorded its largest increase since 2000, according to data from Real Estate Institute of Victoria’s quarterly December report.  

For the first time, metropolitan houses in Melbourne surpassed a median value of $900,000, jumping by 9.5 per cent from the September quarter to $941,000.  

With most spending more time at home than ever throughout the year, families took the opportunity coming out of lockdown to upgrade their home. 

This benefited house prices in middle Melbourne, the typical suburban family belt, which increased by 8.0 per cent from September to reach $1,066,500, and valued houses at 7.3 per cent above the December 2019 median.  

REIV President Leah Calnan said the Victorian property market has remained remarkably resilient in 2020 despite dire market predictions at the onset of COVID-19.  

“Throughout the July and September quarters, we received constant reports of low listings and activity but once restrictions across the state eased, demand and buyer competition skyrocketed,” Ms Calnan said.    

“Certainly low interest rates and government incentives such as stamp duty concessions and first home buyers grants added to buyer appetite for the December quarter, while volatility and uncertainty in the Australian equity market have secured property as a preferred investment option for Victorians”.  

But each of the greater capital city markets, with the exception of Melbourne, saw an increase in the rate of profit making sales over the September quarter. 

And Melbourne landlords have also had to tolerate lower returns, with COVID-19 in Melbourne having had a severe impact on rental markets, including Greater Melbourne unit rents falling 7.0 per cent in the year to November 2020. 

Inner city rental markets of Sydney, Melbourne and to a lesser extent, Brisbane have been particularly impacted by the closure of international borders, where historically high demand from overseas migrants has been disrupted. 

Notably, the vast majority of overseas arrivals to Australia are initially renters.

Lights back on in 2021

Ray White Victoria chief executive Stephen Dullens told Australian Property Investor Magazine that the year finished with record-breaking buyer metrics, such as loan pre-approvals, open for inspection numbers, registered auction bidders, and online enquiries. 

“Victorians, and Melbournians in particular, certainly made up for lost time as restrictions eased," Mr Dullens said. 

“These metrics continue to give us confidence that the current extraordinary momentum should endure well into 2021, especially as the Reserve Bank of Australia continues to forecast very low interest rates for at least the next three years."

“Blue chip areas performed strongly but the regional strength was something I don’t think anyone predicted. 

“People who realised that they didn’t need to travel into the city for work often wanted to move for more room or to have a lifestyle change to be by the beach,” he said.

With Victorians spending more time at home due to lockdown in 2020, many families took the opportunity to upgrade their property.

“It’s pushed people to make decisions, to make a decision about buying a property,” Ms Calnan of the REIV said.

Malvern East in the city’s southeast had the biggest price rise and was up 28.5 per cent.

There were also strong surges in the north, with Fitzroy North up 22.8 per cent and Essendon recording an increase of 26.8 per cent.

Eastern suburbs including Camberwell, Balwyn, Canterbury, Bentleigh East and Mitcham also had increases of around 20 per cent.

The federal HomeBuilder grants have also buoyed the Victorian market, with more than 25,000 Victorian households applying for the government's Home Builder grant, designed to boost the economy via residential construction. This was almost a third of the total applications in the country and around 50 per cent more than New South Wales.

Taking stock

Research group CoreLogic recently released the Best of the Best 2020 report, which said high stock levels posed the biggest threat to a Melbourne property recovery. 

“Listings patterns across Melbourne show there has been a high level of volatility in response to social distancing measures, however, as private property inspections and onsite auctions resumed in late September, stock on market has soared,” the report said. 

CoreLogic said sales volumes across Melbourne have not kept up with the unusually high increase in new listings volumes. 

“Modelled sales volumes for November estimate 4,301 transactions took place across Melbourne, compared with 8,054 new listings added to the market in the same period," the report said.

This means there was around one sale for every two new listings added. Nationally, the situation was reversed, with 1.2 sales for each new listing added to the market in November.

Much will seemingly depend on the next developments in the pandemic and how quickly the state’s economy can return to normal.