Melbourne, Sydney house prices continue COVID slide

House prices in Melbourne and Sydneys continued to dip in September, while every other capital city recorded price increases, according to the latest update from CoreLogic.

Melbourne was Australia’s weakest performer over the month, with its lockdown affected market producing a 0.9 per cent fall in median house prices.

Sydney’s median was down 0.3 per cent for the month, while Darwin was the strongest performer, with a gain of 1.6 per cent.

Adelaide house prices rose by 0.8 per cent, Hobart and Canberra 0.4 per cent, and Perth’s median rose 0.2 per cent in September.

CoreLogic head of research Tim Lawless said Melbourne home values had now declined 5.5 per cent since March, but he expected conditions to improve as restrictions start to be eased in Victoria.

Outside of the capitals, the CoreLogic showed regional centres were outperforming the big cities, collectively rising 0.4 per cent in September.

Mr Lawless said the combined regional index had slipped just 0.8 per cent over the pandemic, compared to the capital city price decline of 2.6 per cent since March.

“From a cyclical perspective, regional areas weren’t recording the same growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from,” he said.

Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required.

Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part.”

In the rental market, performance is continuing to diverge between house and unit median rents.

Since the end of March, national house rents are up 0.4 per cent, while unit rents are down 3.3 per cent.

Sydney and Melbourne were the most acutely affected markets, with unit rents down 5 per cent and 5.5 per cent, respectively.

Mr Lawless said the difference in performance was due to a combination of supply and demand factors.

“Investment grade apartment markets have seen significant supply additions over the past decade, with a large portion of new apartments built in Sydney and Melbourne. 

“The supply side has been further impacted by short term rentals transitioning to long term rentals. 

“While supply has surged, COVID 19 brought about a significant demand shock from international and state border closures.

“Overseas migrants comprised a material component of tenant demand across inner Melbourne and Sydney, with many of these foreign students.

“Add to this the fact that industry sectors such as food, accommodation services, the arts and recreational services have been hardest hit by job losses and lower working hours. 

Workers in these sectors are more likely to rent than in other industries, which has also negatively impacted rental demand.”