Melbourne and VIC property market update - July 2020

How did the Melbourne and regional Victorian real estate market perform in July? Likely a little bit better than what we’re expecting from August. 

With Stage 4 restrictions being introduced in Melbourne due to the state’s second wave, many buyers and sellers have no choice but to wait on the sidelines until restrictions are eased. 

"The real estate market isn’t performing as badly as forecasters had expected."

However, it’s not all doom and gloom. The general consensus from leading real estate experts and data analysts is that so far, the real estate market isn’t performing as badly as forecasters had expected.

Right now, it’s unclear how much current Stage 4 and Stage 3 lockdown measures will impact the property market moving forward, though Tim Lawless, Head of Research at CoreLogic has stood firm on the opinion that the longer it takes to contain the virus and bring operations back to normal, the higher the downside risk is to housing values. 

We can see how homeowners and sellers might be a little nervous, given the second wave, but agent and industry pundits remain optimistic. 

Let’s look at July performance to examine how we were tracking and see what industry insiders are saying to understand where this optimism might be coming from.

Melbourne market update

Across all capital cities, Melbourne led home price falls last month, with a 1.2 per cent slide, bringing the median value of a property to $678,334. 

Over the quarter, home values were down 3.2 per cent. However, if we look at Melbourne property values annually, we can still see growth of 8.7 per cent.  

In July, Melbourne house values dropped 1.2 per cent, while units dropped 0.7 per cent.

According to Mr Lawless, housing markets have remained relatively resilient through the Covid period so far. 

“The impact from Covid-19 on housing has been orderly to-date, with CoreLogic’s national index falling only 1.6% since the recent high in April, and housing turnover has recovered quickly after its sharp fall in late March and April,” he said. 

According to Mr Lawless, record low interest rates, government support and loan repayment holidays for distressed borrowers continue to be factors insulating the housing market from a more significant downturn. 

He added that there’s been an increase in demand for housing due to specific incentives from both federal and state governments to assist first home buyers.

Since March, the region of Melbourne that is leading the city’s property declines is the Inner East, with a 5.2 per cent decline. In terms of which quartile of the market is declining the fastest, in Melbourne it is the upper quartiles, which are also down 5.2 per cent over the past four months.

The lower quartile of the market has remained the most resilient, where values have only declined a modest 1.2 per cent.

CoreLogic notes that historically upper quartiles have tended to decline the fastest, also given that these markets recorded the most significant run-up in values throughout the second half of 2019 and early 2020.

Why is Melbourne leading price declines? 

According to CoreLogic’s Head of Australian Research Eliza Owen, Melbourne property is subject to more volatile growth rates, and is also showing strong declines off the back of high growth rates during the previous upswing in property prices. 

This is based on data that suggests the Melbourne market has historically experienced a turn in the market before others. 

Melbourne has also been impacted by the closure of international borders, as the city previously had the highest level of net overseas migration of capital city markets. 

Regional Victoria market update

It’s been a little bit different in regional Victoria, which saw milder declines compared to the Melbourne market. Dwelling values declined by -0.5 per cent, bringing the median value of a home in regional Victoria to $391,716. 

House values in regional Victoria declined by -0.5 per cent in July, while units more or less held their value, only declining by a minimal -0.1 per cent. Dwelling values across regional Victoria have only declined by -0.8 per cent over the quarter. 

There are many reasons why regional markets are faring better during the pandemic, but generally speaking, regional markets are more insulated from economic shocks as they’re less reliant on international trade and housing is more affordable. 

In addition, agents are reporting increased interest in regional areas as more and more businesses have switched to remote work. This means there is less need to live close to the city. In addition, making the move to a regional area is more appealing given the increased space that is available during a lockdown. 

In terms of how the market will fare during the current stage 3 lockdown, regional Victoria is in a better position to weather the storm compared with Melbourne, as one-on-one inspections can still go ahead.

Rental market update

CoreLogic reported that nationally rental rates continued to trend lower throughout July. The weakest rental conditions were seen in Hobart, Melbourne and Sydney. 

According to Mr Lawless, these weaker rental conditions are the result of border closures and a rise in rental properties hitting the market. 

“Some inner city areas of Melbourne and Sydney have seen rental listings more than double since MArch due to the combined effect of temporary migrants departing, and overseas arrivals, including foreign students, stalling.”

Other factors are also compounding these conditions, including:

• Job losses across the hospitality sector, whose workers have historically made up a sizeable portion of renters in the city.
• A surge in construction activity and investment over previous years has added to inner-city rental supply.
• Short-term rentals on sites like Airbnb have transitioned to long-term rentals, adding to the glut of vacant properties in the market.

The outlook ahead

According to CoreLogic, the previous lockdown saw Melbourne real estate agent activity across CoreLogic platforms plummet by around 70%. After Easter this number gradually improved, and once lockdown policies were lifted in mid-May, there was a sharp rise in activity. 

In fact, as restrictions eased and consumer sentiment began recovering to previous levels, listings were tracking 18% higher than a year ago in the first week of July. Real estate agent activity on these platforms is strongly correlated with the number of new listings coming onto the market. 

At a national level listings rose as well, which according to CoreLogic suggests home owners were more willing to test the market. Data also implied a strong rate of absorption, which shows that demand for housing stock is outstripping supply. 

Will this happen after the end of the current six-week lockdown? No one can really say. Given that face-to-face inspections in Melbourne are completely banned, it’s highly likely that the majority of sellers and buyers will be waiting until restrictions ease. 

While real estate agents are now more prepared to move to an online selling environment, the inability to inspect a property physically will impact the number of transactions in the market. 

Real Estate Institute of Victoria (REIV) President Leah Calnan told ABC Radio Melbourne that, “We expect the transaction levels over the next six weeks will be almost nothing.”

In terms of Melbourne property prices, CoreLogic notes that if there is a shortage of advertised stock on the market, this should help to insulate home values from material declines. In addition, current government stimulus, low interest rates and mortgage payment holidays will prevent distressed sales from hitting the market. 

When we spoke to REIV’s Leah Calnan about the Melbourne market in early July, she said, “There will certainly be vendors looking to put their property on the market for the spring campaigns, and they’ll start to make those necessary preparations in the coming weeks,” she said.

If these sellers have now had to put their plans on hold, there is likely to be a backlog of properties hitting the market once restrictions are lifted. 

Tim Lawless notes that, “Once restrictions are lifted in six weeks-time there is likely to be a level of pent-up demand which will see housing activity improve, as it did when previously when social distancing measures were relaxed or lifted.”

Louis Christopher, Managing Director of SQM Research said that prices are likely to dip in the short-term due to levels of higher unemployment. He told ABC News that “Over the long-term, it’s unknown. If we do see a vaccine come through later this year or early next year, we’ll definitely see sentiment turnaround.” 

Given the recovery we saw after the first lockdowns, we’re likely to see housing market activity recover as restrictions are eased or lifted. The pace at which that happens will be determined heavily by consumer sentiment, which some may argue could have been affected more negatively this time around given that lockdown measures have been tougher. 

What does this data mean for you?

Remember that while data can be insightful, you need to take any high level numbers with a grain of salt. It’s really important to do local research if you are looking to buy or sell. While high level indices give a great snapshot of what is happening nationally, in capital city markets and regionally, they don’t give great insight into what is happening at the post code level.

Market conditions will vary from suburb to suburb, and the value of your home is not only impacted by location, but also by property type and price point. While there may have been price drops in your city, there are still markets within cities where performance is above average. 

For advice around the biggest market indicators that impact price growth, you can download this helpful guide.