8 February, 2022 / Category: Blog
This is a question we are getting asked now more than ever. There are several forces at play in the Melbourne housing market that are key to identifying opportunities in the market.
2022, like the last two years, has already thrown us some surprises (thank you, Omicron). The Melbourne housing market has opened similarly to how it closed at the end of 2021, with the number of auctions occurring in January up approximately 64% compared to the same time last year. This has led to buyers benefiting from more choice and reduced urgency.
Despite what felt like a slowdown in the market late last year, Domain’s latest House Price Report shows us that Melbourne’s median house price reached another record high of $1,101,612 in the final three months of 2021.
There is still a lot of additional stock on the market, creating a window of opportunity for buyers to have the upper hand in negotiations and less fierce competition at auction. However, with the RBA recently opting to hold interest rates at record low levels, we expect the buyer pool to bounce back quickly this quarter and that supply and demand will re-balance and drive growth in prices again.
For those who are decisive and prepared, buying during this window, where supply is outstripping demand, could save significant money in the longer term. Domain’s latest House Price Report revealed that Melbourne’s house prices jumped by 5.8 per cent over the December quarter, or around $660 a day, adding $60,749 to the median house price in one quarter.
Several factors will influence whether or not the market continues to grow or starts to decline in value this year.
One of the critical factors that many commentators discuss is the disproportionate growth in housing values compared to income growth. This, combined with recent government changes to increase the size of deposits needed to finance a new property, are likely to impact affordability and subsequently weigh on housing demand over the year ahead.
The potential growth in interest rates could put further pressure on affordability. However, the central bank does not expect this to happen until 2024, as the labour market needs to be tighter and wages growth materially higher than they are at present.
There are also parts of the Melbourne housing market that are likely to perform better than others. After leading the market growth for the last few years, the upper end of the residential property market is slowing. According to CoreLogic, values in the upper end of the market in the capital cities were up 2.6% in the December quarter compared with a 3.7% rise in the lower and middle of the market.
Considering all of these factors, we believe that the growth rate will slow to levels below those seen in recent years but will not lead to a decline in value.
Regional markets continue to see strong momentum in value growth, with the most popular areas seeing growth over 30%. According to CoreLogic, since March 2020, housing values across regional Australia have been up 32.0% compared to the 20.0% lift in values seen across the capital cities.
One of the standout regional areas is the Mornington Peninsula. The region’s house prices skyrocketed 11.2% over the December quarter to a median price of $995,000, only 9.5% below the Melbourne median house price.
The unit rental market saw the most significant decline off the back of COVID-19 in 2020 as it was disproportionately affected by stalled overseas migration and domestic rental preferences shifting away from higher-density options. It is now recording a faster growth rate than houses. According to CoreLogic, Melbourne unit rents recorded a 1.6% quarterly increase compared to the 0.9% rise seen in house rents in the final quarter of 2021.
As international borders re-open, we expect rental demand will be the main beneficiary, especially across the inner city rental precincts popular with students and visitors. The housing rental market should also remain strong in 2022 given the lack of supply in the market.
While COVID remains a wildcard, we expect Victoria’s housing values will continue to rise in the short term, albeit at a slower rate. The main drivers of this will be the continued low cost of debt and balancing supply and demand in blue-chip areas.
If you choose to hold off and see where the market goes, you could be losing $660 a day as the market goes up.
Did you know that working with an experienced buyers advocate can save you up to nine months of searching, inspections, auctions and disappointment? We use our market knowledge and negotiation skills to maximise your finances and save you time.
Contact us today for a free 30-minute discovery call and find out how we can help you buy your dream property faster.