The Melbourne Market Moves Ahead
No one seems to have told the property buying public that January is a time for the real estate industry to collectively go sun-bathing at the beach or take off for some skiing overseas, as the market takes a breather.
Melbourne’s median house price rose 1.2 per cent last month, only slightly down from its rise of 1.4 per cent in December. A combined 5 per cent increase in the last three months of 2019 has escalated the city’s median house price to $901,951.
It now sits within striking distance of the record of $908,734 set in the December quarter of 2017, with market sentiment suggesting an inevitable surpassing of that level soon.
James Nihill, Managing Director of Patrick Leo said Melbourne started the year strong, demonstrating a healthy auction clearance rate above 65 per cent, which is impressive for this time of year.
“Sales have been driven by the ongoing trend of buyers being keen to get in before prices rise any further,” Mr Nihill said.
“The recovery has come much quicker than expected, with prices rising particularly fast over the last quarter.
“This is good news for investors, particularly in growth areas such as Melbourne’s outer west suburb Bacchus Marsh, with house prices jumping 8.5 per cent to a median of $537,000.
“Prices in popular inner-city beachside suburb St Kilda East skyrocketed by 23.6 per cent in January, to a median house price of $1.3 million,” he said.
Unit prices are also predicted to rise by 5 per cent in 2020, comfortably exceeding the record $549,701 set at the end of last year.
Debt and desire
Housing and economics expert Dr. Sam Tsiaplias, Senior Research Fellow at The University of Melbourne, said the Melbourne Institute’s housing survey data suggested the proportion of individuals believing house prices in Melbourne would rise has been rising steadily over the past 11 months.
“In February, seven in 10 people expected house prices to rise in Melbourne compared to only two in 10 people at this time last year,” he said.
“At the same time, there has been a large drop in the number of people who believe now is a good time to buy a house in Melbourne, which seems to indicate that consumers are cautious about entering a possibly overheated market.”
The rush to get on the property ladder is indeed taking its toll on many.
More than a million Australian households are facing significant mortgage stress as rising costs of living and stagnant wages challenge many families trying make ends meet.
According to new data from Digital Finance Analytics, in January 2020, 32.9 percent of mortgage-holding Victorians and are now in mortgage stress.
Financial forecasts show expectations that 83,400 Australian households will default on their mortgage within the next 12 months.
Research conducted by Dr. Tsiaplias suggests that, at least in the short term, house prices in Melbourne and Sydney are extremely sensitive to interest rates, with the link between house prices and economic fundamentals breaking down when rates are too low.
“When this occurs, house price volatility goes up and house prices tend to overreact,” he said.
“This seems to be happening again right now - investors may be getting higher returns but they are also accepting higher risk.”
Cate Bakos, President of The Real Estate Buyers Agents Association of Australia (REBAA), said leftover stock sold quickly after Christmas and buyers were left feeling hungry, while desperately hoping for more stock and waiting for agents to return to work.
“The auctions kicked off in the first weekend of February just last weekend and there are plenty more scheduled to come in February before we bunker down for our second long weekend of the year for Labour Day.
“Auction volumes are still not at the level of past years, but it is a relief to see signs of vendors returning to the market in the quest for healthier prices,” Ms. Bakos said.
“The true test of our emerging data will be whether it is compelling enough for vendors to return in strong numbers for our autumn season.”
The rapid price rises have also caught bank forecasters off-guard.
Westpac upgraded its forecasts late last year and now expects Melbourne’s median dwelling prices to rise by 6 per cent in 2020. ANZ likewise upwardly revised its predictions from a 6 per cent rise in Melbourne’s house prices to 11 per cent in the 2020 calendar year. NAB have reaffirmed their latest prediction for Melbourne of a rise of 7.4 per cent for house prices, and the same for unit prices over 2020.
REBAA’s Ms. Bakos said rentals had also remained firm “despite some horrendously hot days that would deter most from house-hunting”.
Among the great unknowns in the world economy is the coronavirus. Usual reports on its economic impact are doom and gloom but it may prove the opposite for local property.
The shutdown in China due to the coronavirus has reportedly led to a rush of Chinese buyers looking for a safe haven. The China property portal Juwai.com has seen quadrupling in the number of enquiries for Australian property over the past week.