Melbourne price surge likely to last

Fresh data shows Melbourne’s rising house prices aren’t necessarily just a result of pent up demand from lockdown, with the upwards trend likely to continue throughout 2021.

In October, we reported to our clients that Melbourne house prices had bottomed out, capital growth was likely to resume, and it was a good time to buy.

Since then, prices have shot up. Any way you look at the above graph, prices are up. December results are particularly encouraging – sales volumes were higher than they were the year before, meaning that price rises can't simply put down the supply/demand imbalance associated with COVID lockdowns.

In other words, strong buyer demand is driving prices upwards.

We believe that Melbourne prices will continue to rise through 2021. Below are just a couple of reasons for our projections.

First, owner occupiers have been driving the market. The above graph shows that lending commitments have jumped to unprecedented levels in recent months. Clearly, the demand has been strongest from buyers looking for new family homes (in green).

Investor activity has risen, but not nearly as much. Look at the red line in the above graph. Investor lending as a percentage of all new loan commitments remains at historically low levels. Just a few years ago, more than one in three new loans was to an investor; now, it's less than one in four.

If investors come back into the market to anywhere near the same level they did in 2017, the market will boom.

Second, prices remain well below their previous peak in the majority of Melbourne suburbs.

The above map, perhaps more than any graph we could show, demonstrates why we are so bullish about property price trends over coming months.

The dark blue suburbs are those where the median house price is equal to or higher than the previous peak. For the remaining three in four suburbs, prices are still below where they were a few years ago. The lightest colour suburbs are those where prices are more than 8 per cent lower.

While prices have rebounded in many areas, they have a long way to rise still for a great number of suburbs across Melbourne. The heat continues to build in the market - it’s important to be clear eyed about price trends in specific suburbs, and where the best potential lies for medium-term capital growth.