Melbourne Property Market Update

Market Overview

It is hard to believe where we are today. On January 1st as we all welcomed the new year no one in Australia could have predicted the events that would shape 2020.

The start of the year Australians were still focused on the devastating bushfire season and had little inkling of next fast approaching emergency. The real estate year started off as always quietly preparing for the year ahead with pre-listing activity. In February the real estate market was red hot and buyer’s confidence was at an all-time high. The market was gearing up to have a very strong year, interest rates were low, the government was stable, banks were lending safely, the population was growing and unemployment low.

However, the growing pandemic and its restrictions were beginning to impact the real estate market. On the 29th of March, a mortarium on rental evictions due to financial hardship and a ban on public opens and auctions was announced. Australians, and in particular Melbournians enjoy a strong love affair with real estate and the beating heart of it was on temporary suspension!

The Victorian real estate community whilst disappointed supported and understood the decision. Real estate agents and property managers all reacted quickly. Properties listed on the market as public auction with interested parties had deals done quickly, others switched to online auction platforms or converted to private sale. Selling agents and property managers got out their diaries and started scheduling private appointments to ensure inspections could still continue for interested buyers.

Doom and Gloom…

However, as the economy slowed, and some sectors shut down consumer confidence started to slip. Media outlets started reporting doomsday housing price forecasts of drops as much as 30%. More conservative forecasts by UBS and CBA economists estimated house prices may fall between 5% to 10%. The REIA quickly refuted the more extreme forecasts “as highly questionable” and not to be “be relied upon with any degree of confidence.” 

Just before Easter the Victorian Government announced private inspections in occupied properties were no longer allowed (even if the people occupying the property were absent during the inspection). There was an uproar! Real estate bodies quickly established discussions with the state government pointing out that it could cripple the real estate industry as people would not buy sight unseen. The government quickly backflipped on the announcement and by the end of the Easter weekend, private inspections were back on, if the occupiers of the property left their home for one of the four valid reasons at the time. 

Stimulus packages announced by the Federal and State Government eased some of the building pressure off Australians. Jobseeker, Jobkeeper, mortgage repayment holidays, one-off payments, to name a few all played a part in slowing the decline of consumer confidence. 

Hitting Pause on the Market

The one thing that everyone agrees is there has been a contraction in the market.  

The Business Insider Australia reported that what we have so far encountered “is a temporary hiatus rather than a price meltdown” and Corelogic’s pre-listing activity reports provide further weight to this statement.  

Corelogic’s RP Data platform is used by the majority of selling agents in Australia to generate a CMA (Comparative Market Analysis) report. It is often downloaded in order to prepare a property for sale. Corelogic uses this metric as a leading indicator of new ‘for sale’ listings volumes.?In January and February, Corelogic reported increasing CMA downloads but in March it dropped off significantly as tougher restrictions impacted the economy and consumer confidence slipped. 

Source: Corelogic

We can personally attest to the lack of stock, especially A–grade properties in the market since March.  Overall activity in the market was very low throughout April and whilst school holidays, Easter and Anzac impact real estate every year, this year was exceptionally low. Interestingly, we did find off-market opportunities at an all-time high.?Vendors wanting to sell but not wanting to commit to expensive marketing campaigns in these uncertain times asked agents to use their network to sell properties “off-market”.

Our client base is typically a reasonably even split between investors and owner-occupiers. However, new investors who were feeling less confident were taking a more wait and see approach.  Investors without finance pre-approval in place were also finding it more difficult and longer to get new loans as loan criteria and requirements tightened up. 

So, it did appear, we were a market in waiting. 

A market reawakening 

May saw the first two easing stages of COVID-19 restrictions and the real estate industry celebrated as public auctions and inspections were reallowed. 

Initially, it was 10 people plus the minimum number of those needed to facilitate was allowed. Then in late May, 20 people plus those needed to facilitate were allowed. The market responded favourably to these easing restrictions. The Herald-Sun reported that Melbourne’s property stock jumped more than in any other Australian capital city during May. More than 4000 properties hit the market in the month, with the 11.6 per cent leap on April the largest nationwide, according to SQM Research.  

Data collected from the REIV demonstrated that auctions number were on the increase, as to be expected. 

Data Source: REIV June 30th 2020

CoreLogic (Chart One) also reported increased pre-listing activity and numbers in June were similar to the same time last year.  

Stock levels are rising, but they still remain low, and when a quality property is listed on the market competition is fierce. The sub $600k price bracket is attracting considerable interest, particularly for well-located, well-presented properties and vendors are achieving very good results. 

Some economists, including the CBA, the UBS and Treasury have wound back their housing price forecasts predictions drops to more conservative numbers. 

CoreLogic Home Value Index recorded a second consecutive month of falls, with the national index down 0.7% in June. These recent value falls represent an interrupted upswing across most regions and whilst it is Melbourne’s third month of decline its 12-month change in home values still remains in positive double-digit growth. Sydney is the only other capital city to have 12-month double-digit growth.

CoreLogic head of research, Tim Lawless, said “The downwards pressure on home values has remained mild to-date, with capital city dwelling values falling a cumulative 1.3% over the past two months.  A variety of factors have helped to protect home values from more significant declines, including persistently low advertised stock levels and significant government stimulus.  Additionally, low-interest rates and forbearance policies from lenders have helped to keep urgent sales off the market, providing further insulation to housing values.” 

There is understandable nervousness about the government eventually winding back stimulus packages and borrower repayment holidays expiring however we hope that as restrictions loosen (if we all continue to do the right thing) that many sectors of our economy will pick up and return to more normal conditions. 

The Melbourne property market is resilient.

The market will turn again, and prices will go up. There are already news articles about homes across Melbourne smashing auction reserves by six figures with 5 or more bidders vying for properties. Good property will do well in just about any market. 

And as the age-old adage says, ‘it really is about time in the market and not ‘timing’ the market’.  

Suburbs to watch

The suburb reviews were written in early March before strict self-isolating rules came into play. We have decided not to rewrite them, as we believe the reviews provide a longer-term view of the suburb. Local shops and business may close during the pandemic, but we believe that given time they will return. The pandemic does not alter their locations, access to transport, their parks, schools and essential amenities.