Overview

Bear with us as we use a car analogy to describe the housing market in Melbourne.

The summer property market has skidded in broadside in a cloud of smoke into the normally quieter winter market with no signs of slowing down. The final month of Quarter 2 saw 3 ‘Super Saturdays’ executed with no respite for selling or buying agents insight. However, there was not one complaint and everyone was pleased to be catching up on activity from last year’s extended lockdown.

Last report we kicked off announcing that the major capital cities stock listing were at a 12 year low. Whilst we have seen an increase in fresh stock, listings are still down overall and it is creating an imbalance between demand and supply.

The Victorian property market continues to soar and the strong market conditions are supported by low-interest rates, improving economic conditions, and a lack of available stock. According to CoreLogic Melbourne’s dwelling values increased 4.6% this quarter and 7.7% annually.

Source: Corelogic Index Results June 2021

As expected, houses have outstripped apartments for YTD growth, 11.4% and 5.6% respectively. Overall, though Melbourne dwelling values are currently at a record high.

However, that is not stopping property being snapped up. Family homes in desirable suburbs and A-grade investment properties are being fought for fiercely at auction and quite often not even making it to auction with strong pre-auction offers securing the deal. The median time on market continues to drop across regional Victoria and metropolitan Melbourne with the average days on market now at 28 days.

So, the question on everybody’s lips seems to be:

“Will the market slow down?

In short, we expect the rate of growth to slow but if people are waiting for the market to go backwards before they buy, they will be waiting on the sidelines for quite some time. Let’s look at a few influencing factors in more depth.

Clearance Rates and Interest Rates 

Victoria’s 2021 auction clearance rates are the highest they have been in the 5 years.

May experienced its highest number of scheduled auctions in 5 years and still achieved a clearance rate in the 80^th percentile. Pent up and new demand is outpacing supply and the snap two-week lockdown whilst a major headache for agents and a stress for vendors and buyers the overall impact was negligible. The majority of scheduled auctions converted to online or private sale with set dates and only some postponed. There was a slight delay for new listings as agents and photographers couldn’t access houses. However, the final weekend of June didn’t go quietly with the first of 3 winter Super Saturdays executed and a clearance rate of ?? achieved.

The RBA held interest rates at the historic low of 0.10 percent in its Quarter 2 meetings and it has been suggested that rates will remain near zero until 2024.

Clearance rates and interest rates are often used as leading indicators in forecasting property trends. When auction rates are high and interest rates low it often indicates that people’s confidence in the marketing is growing. Combine these market indicators with a recovering economy the market is in a strong position and buyer confidence is high.

However, we do believe that momentum will ease. Pent-up demand from 2020 is reducing and more stock (though still lower than average) is coming on the market. With this in mind, buyers should start to spread a little and some much-needed breathing space should return to the market.

Rebates, Schemes, Taxes and Incentives

The Federal Government has revealed a number of packages to help homeowners buy property in this rising market.

First Home Buyers and Family Home Guarantee

The First Home Loan Deposit Scheme enables first home buyers to purchase property up to a certain threshold with a deposit of just 5 percent — and a government-backed loan — removing the need to pay lender’s mortgage insurance (LMI).

The latest federal budget also revealed a newer home ownership — the Family Home Guarantee — which provides single parents with the opportunity to purchase a home with as little as a 2 percent deposit, in much the same way as the FHLDS works.

Stamp Duty and Land Taxes

The Victorian State government announced a new premium stamp duty rate for property transactions with a value above $2 million, which would increase stamp duty payable to $110,000 plus 6.5 percent of the dutiable value in excess of $2 million.

Effective from the start of the 21/22 tax year it is estimated to raise an additional $137 million for the government next financial year. In addition, increased land tax rates are planned for January 2022 for taxpayers with property holdings exceeding $1.8 million.

First home buyers continue to benefit from duty exemption or concessions if their home has a dutiable value of:

• $600,000 or less to receive the first home buyer duty exemption,
• $600,001 to $750,000 to receive the first home buyer duty concession.

Whilst some of these offerings can make it easier for some people to buy, they can also create more competition in micro markets as there are now more buyers competing for limited stock.

What’s missing?

What we really need are incentives for people to sell!

Yes, big sold prices are great but if you need to buy back into the same market you may need those deep pockets.

There is a real shortage of family homes in desirable suburbs on the market. And a large number of family-sized homes are occupied by couples and singles from the baby boom generation. Empty nesters who might be interested in downsizing are finding the cost of selling and buying too high when they can’t even find properties that match their requirements. Often, they want to stay in the same community and they want single-level living. As the empty nesters sit tight it puts downward pressure on the housing market as families looking for larger homes closer to the city are forced to look further out. It’s an interesting catch 22, which you can read more about here.

Rental Market

Melbourne’s rental market is a two-speed market and its vacancy rate is being weighed down heavily by underwhelming demand for rental accommodation in and around the city. The withdrawal of international students and overseas migration is affecting the inner city and CBD substantially, but suburban and regional locations continue to be a landlord’s market.

There are discussions about ongoing low migration numbers as the Federal Government continues to keep our national borders closed in response to the pandemic. We expect that demand for inner-city high-density housing will continue to drop off and investors should be wary about purchasing this type of property in this location.

Looking forward 

Our advice in this market is to persist and try to keep your cool.

And maybe, more importantly, be ready! Have every duck you need lined up. Let selling agents know you are interested in a property and talk to lenders about your finance. You don’t want to miss out on your dream property because you didn’t get a chance to make an offer or a delayed loan application means you couldn’t.

We expect Quarter 3 will start off busier than normal and continue right into the traditionally busy Spring market.

We do believe that momentum will ease. Pent-up demand from 2020 is reducing and more stock (though still lower than average) is coming on the market. Corelogic agrees and announced a ‘lost of momentum is clear” and that whilst the monthly change in Australian home values sits well above the decade average this month’s (June) rate of growth slowed.

Advertised listings are low but there have been more new listings coming on the market and with this in mind, buyers should start to spread a little and some much-needed breathing space should return to the market.

Suburb to watch

Case Study