Melbourne and VIC property market update - May 2020

Keeping your finger on the pulse of the Melbourne and Victorian property market?

As we pointed out in our April market update, real estate agents have adapted to the coronavirus changes, and even though transactions are down - buyers and sellers are still active in the property market despite what you may have read. With so much uncertainty, and with conditions changing quickly, there is a clear need to focus on the data, and not be swayed by doomsday predictions. The best thing we can do is provide you with the facts, and in the words of REINSW President Leanne Pilkington, “...follow the data rather than the headlines”.

Follow the data rather than the headlines

The shutdown has had a noticeable impact on the real estate sector, with a significant slowdown in the number of transactions - with many postcodes reporting as many sales in a month as previously transacted in a week. The low number of sales can skew results, something property data and analytics outfit CoreLogic are clearly concerned by. 

Over the four weeks to May 24, a 15% increase in new listings was recorded in Melbourne.

They point this out on their Monthly Hedonic Home Value Index page, saying the data “...should be interpreted with some caution until transactional activity returns to more normal levels.”

It’s also worth noting that in May restrictions on real estate activity were relaxed in Victoria, with auctions and open homes restricted to 10 people earlier in the month, with this number rising to 20 people from June 1. This will help stimulate activity in the months ahead as consumer confidence returns. Data from Domain shows this is already happening, with a 15% increase in new listings over the four weeks to May 24 recorded in Melbourne.

Let’s start this update by looking at the real estate market in Melbourne and how it performed over May.

Here’s what’s happening in the Melbourne property market

Houses

$809,274

Monthly change: -1.1%

Units

$580,009

Monthly change: -0.6%

Melbourne’s property market posted the largest falls of any capital city for the month, down -0.9% overall for a median dwelling value of $686,798. This is largely due to the drop in house prices, which are down -1.1% over May. This follows the -0.3% drop in April, marking the first month-on-month fall in property values since May 2019. This brings houses down -1.1% for the quarter and +1.1% year to date. Units were down -0.6% over the month, -0.1% over the quarter and +1.7% year to date.  

Melbourne’s property market posted the largest falls of any capital city for the month, down -0.9%. 

We must bear in mind that these falls come off the back of a robust recovery in housing values that began in June last year. Dwelling values also reached a new record high in February of this year. 

Clearance rates at auction are still in healthy territory - albeit with lower sales volumes, reaching 71.9% over May. In May 2019 the auction clearance rate was actually lower - at 61.6%.

Here’s what’s happening in the regional VIC market

Houses

$416,528

Monthly change: 0.0%

Units

$291,396

Monthly change: +0.5%

Overall regional markets across the country have been more resilient to value falls, with the Victorian regional index holding firm at 0.1% through May. Houses were steady with no movement for a median value of $416,528 to leave them +3.5% up, year to date. Units were a little more lively, growing +0.5% for a median value of $291,396 for a respectable +2.9% year to date.

Melbourne and VIC rental market update

The SQM Research Weekly Rents Index reports Melbourne house rents down -0.5% over May, with units weaker, being down -0.8% over the same rolling monthly time frame.  

CoreLogic data confirms that every capital city - except Perth - recorded a fall in rents over April/May. New high-rise developments are particularly vulnerable to the fall in rental demand, which is likely given the significant job losses recorded across the country. 

For this reason, well-known real estate industry commentator Michael Yardney believes, “rental markets are likely to experience weaker conditions relative to home values due to higher supply of rental properties, and less demand.”

What does this mean and what can you expect?

In terms of knowing what to expect, it would be foolish to minimise the full impact of the pandemic, which is likely to have a longtail. The elephant in the room is the 600,000+ Australians who have lost their jobs, and with GDP figures from the Bureau of Statistics indicating that Australia's economy shrank -0.3 per cent in the March quarter - a recession is now a reality. Critical moments in the months ahead include when:

The current round of government stimulus measures end; 

And when repayment holidays expire for mortgage holders who took up this option.

CoreLogic’s Tim Lawless believes a combination of the abovementioned factors could put pressure on housing values, “...which could come under some additional downwards pressure if economic conditions haven’t picked up towards the end of the year.”

The RBA have also weighed in on the future of the economy, stating that “...the economic downturn may not be as severe as earlier thought.”

The RBA have also weighed in on the future of the economy, stating that “...the economic downturn may not be as severe as earlier thought.” The Real Estate Institute of Victoria (REIV) has also pointed out that the state’s property market, “...seems to be holding its ground well during the COVID-19 Pandemic”, while acknowledging that sales volumes are “...much lower than expected at this time of year.”   

Property investment guru Michael Yardney believes Melbourne is still a great strategic investment, citing its “long-term fundamentals as… one of the 10 fastest growing large cities in the developed world.” 

He also points out that Melbourne’s population was forecast to grow by some 10% over the next four years, and believes it will continue to be one of the most liveable large cities for the foreseeable future. He also notes clear weaknesses for the city, including a vulnerability to a drop in overseas migration, as well as any restrictions to on-site auctions and open home inspections. 

If you're thinking of selling but unsure if now is the right time, check out our guide: How to know when it's a good time to sell - for some advice and helpful pointers to tracking market data.