Melbourne’s price growth in 2021 has largely been driven by owner-occupiers, but as we round into the second half of the year, investors are poised to take over.
This time last year we contacted some long standing clients – key metrics we track pointed to the market bottoming out, meaning that it w…
Melbourne’s price growth in 2021 has largely been driven by owner-occupiers, but as we round into the second half of the year, investors are poised to take over.
This time last year we contacted some long standing clients – key metrics we track pointed to the market bottoming out, meaning that it w…
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Melbourne’s price growth in 2021 has largely been driven by owner-occupiers, but as we round into the second half of the year, investors are poised to take over.
This time last year we contacted some long standing clients – key metrics we track pointed to the market bottoming out, meaning that it was a great time to buy.
But, we certainly didn’t predict the remarkable price rises we’ve seen since. Nobody did.
In just the last 9 months, the median house price in Melbourne has jumped by over 15 per cent.
This isn’t unique to Melbourne of course, and the following partial explanations of this rebound can be loosely applied to other capital cities.
Firstly, before COVID hit, we were only just recovering from the sharpest market correction in living memory. From 2018-2019, house prices had fallen by about 12 per cent.
In late 2019 and early 2020, momentum was increasingly positive in the market and prices were moving upwards. Enter COVID and more price drops. A reversion to trend had to occur.
Secondly, the first lockdown, followed by a second severe 100-plus day lockdown, meant that far fewer properties transacted over a six-month period.
Our analyses of historic and seasonal trends show that about 16,000 fewer residential properties sold than would have been expected in non-COVID times.
This led to a major bottleneck of demand and seriously heightened competition between buyers.
Finally, millions of people locked in their own homes were forced to practically assess their surroundings – how many found their abodes too dated, too small, or too far away from important amenities?
Tens of thousands of people came out of lockdowns with genuine intent to purchase.
All of the above goes some way to explaining the heat in the market through late 2020 and the early months of 2021.
But, surely the impact of these past conditions is starting to weaken.
Enter investors. The graph above shows housing finance lending commitments across Australia over the last four years.
As the heat started to come out of the market in 2017, and prices began falling in 2018 and 2019, fewer buyers were entering the market – owner occupiers and investors alike.
As prices started increasing in late 2019 and early 2020, buyer demand picked up, then dropped sharply in the early months of COVID panic.
Look at how lending commitments from owner occupiers jumped significantly through the back half of 2020 as people gradually recognised the market picking up.
In Dec 2020 it was up 39 per cent compared to the same time in 2019.
Look at what’s happened in the first months of 2021.
Owner occupier lending has ticked up a bit, but the real story has been the massive increase in Investor Lending.
As a percentage of total lending, it bottomed out at 23 per cent in late 2020, and has jumped to 29 per cent in July.
Historical analyses suggest that investor lending has some way to rise still.
Whereas owner occupiers were largely responsible for driving prices up in late 2020 and early 2021, we expect that investor activity will go a long way to shaping the market over the next six to 12 months.
