Melbourne and VIC property market update - September 2020

September marked the second month of Stage 4 restrictions in Melbourne, with the ban of private inspections putting the majority of real estate activity on hold.

How did Melbourne property values perform over the month and what impact did travel bans have on the regional market? 

Let’s explore this below.

Melbourne market update

Houses

$780,836

Monthly change: -0.9%

Units

$558,952

Monthly change: -0.8%

In September, Sydney and Melbourne reported price falls as all other capital cities rose. Melbourne property values were the hardest hit, down -0.9 per cent to a median of $666,796. The rate of decline has however eased over the month. 

According to Domain senior research analyst Nicola Powell, Sydney and Melbourne continue to experience price declines due to border closures. 

“What we’ve seen is that demand shocks have impacted Sydney and Melbourne more so than any other capital city. They have more exposure to overseas migration.” she said. 

Along with the impact of border closures, undoubtedly, stage 4 restrictions also continued to heavily impact real estate activity with the latest CoreLogic figures revealing that in the four weeks to September 20, new listings in Melbourne fell by 938 listings. 

While this is a large drop, the decline has significantly eased from the previous four week period where new listings fell by 2,976. 

"With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October."

Auction activity has also been affected, with the Real Estate Institute of Victoria highlighting that although spring is usually the peak time for sales, the inability to conduct any inspections saw the number of transactions plummet. 

“The number of auctions over August was down by over 80% compared to recent years, with September numbers reduced to under 10 per week.” they said. 

With the Melbourne real estate market essentially shut down over September, it was to the relief of many in the industry, when it was announced by Premier Daniel Andrews that private inspections would be allowed to recommence starting 27 September. 

The Real Estate Institute of Victoria welcomed the announcement saying that the relaxing of restrictions will see a slow and gradual return to real estate transactions in Melbourne. REIV CEO, Gil King also commented.

“This is great news for Victorians and should be seen as a positive and encouraging step towards a return to ‘normal’,” he said. 

With eased restrictions, CoreLogic head of research, Tim Lawless anticipates an uplift in activity in the coming months. 

“With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October.”

Regional Victoria market update

Houses

$411,295

Monthly change: -0.1%

Units

$293,069

Monthly change: +0.4%

Overall, the value of property in regional Victoria remained unchanged over September, coming in at a median value of $387,870. At the property type level, houses dipped a slight -0.1% to a median of $411,295, and units were up +0.4% over the same period to a median value of $293,069. 

Regional Victoria has largely avoided the larger drops in value seen in Melbourne, as even though the entire state has been subject to restrictions, stage 3 rules still permitted private inspections.

From September 16, these restrictions were eased further with the allowance of outdoor auctions with a maximum of ten people in attendance.

Regional markets across the country have been outperforming capital cities over the past few months, and the numbers show that regional Victoria is no exception. 

According to recent Domain data, new listings in regional Victoria have risen by 24.8 per cent over the past month.

According to Mr Lawless, the resilience in regional values can be attributed to a variety of factors, but one of the biggest is that regional areas weren’t recording the same growth conditions as capital cities prior to Covid. 

“Home values in these markets are often more affordable, and don’t have a high base to fall from,” he said. 

In addition, Mr Lawless notes that there is a growing transition of demand from cities to regional centres, and particularly those that are within commuting distance to capital cities. 

“Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part,” he said. 

This demand for regional housing is surfacing in other CoreLogic data, too. A recent report examined how quickly it took to sell a house pre-Covid compared to the three months to September. 

According to the report, the time it takes to sell a house has fallen by 5 days, to 43, which signals tighter conditions and higher demand compared to pre-Covid conditions. In contrast, and most likely due to Stage 4 restrictions, Melbourne’s average days on market rose by 6 days when comparing the same periods. 

And it looks like consumer confidence is rising, too. According to recent Domain data, new listings in regional Victoria have risen by 24.8 per cent over the past month, and compared to this time last year, listings are only down 5.8 per cent. 

Victoria rental market update

According to CoreLogic, between the end of March and September, performance of the rental market has diverged substantially between houses and unit rents. 

The biggest difference between the two property types is seen in Sydney and Melbourne where units rents are down -5.0 per cent and -5.5 per cent respectively, compared to the substantially smaller declines of -1.3 per cent and -1.0 per cent for house rents. 

Mr Lawless explains that the difference in rental falls is a result of supply far exceeding demand. 

“Investment grade apartment markets have seen significant supply additions over the past decade, with a large portion of new apartments built in Sydney and Melbourne… while supply has surged, COVID-19 brought about a demand shock from international and state border closures. 

“Add to this the fact that industry sectors such as food, accommodation services, the arts and recreational services have been hit by job losses and lower working hours. Workers in these sectors are more likely to rent than in other industries.” he said. 

In regional Victoria, rents are much more resilient with house rents rising +1.2 per cent and units up +1.3 per cent. 

The outlook ahead

According to CoreLogic, real estate markets nationally will be dealing with a “mixture of headwinds and tailwinds.”

This refers to fiscal support such as JobKeeper and JobSeeker tapering out and distressed borrowers who may put their properties on the market once mortgage holidays come to an end. 

According to CoreLogic’s latest Pain and Gain report, some lenders have encouraged distressed borrowers across the country, especially investors, to sell their properties before mortgage holidays end. 

“This could see an increase in loss-making sales over the following two quarters, particularly in more high-risk, investor-concentrated markets,” said the report. 

However, according to the report, only 6.9 per cent of sellers were likely to make a loss in Melbourne, which is in stark contrast to Darwin where 52.1 per cent of sales in the June quarter transacted at a loss. 

Off the back of eased restrictions and a return to private inspections, pent-up demand has caused a surge of listings on the market. 

In addition, the report states that apartment sellers are more likely to transact at a loss compared to houses. 

Matthew Peter, QIC Chief Economist told the Australian Financial Review that while house prices across the country will be cushioned by low interest rates, a recovering economy and pent-up demand from buyers, high density apartments in Sydney and Melbourne may experience greater falls in excess of ten per cent. 

This is in part due to oversupply and slower recovery in the international student market and permanent migrant arrivals. 

While there is an expectation that distressed could flood the market, so far new listings are being quickly absorbed, which indicates that there are still plenty of buyers on the market.

However, it’s not all doom and gloom. In Melbourne, off the back of eased restrictions and a return to private inspections, pent-up demand has caused a surge of listings on the market. According to Domain Senior Journalist Melissa Heagney, the number of listings hitting the market in the past week rose by 241 per cent, the highest level seen since March 2020. 

Nicola Powell, Senior Research Analyst at Domain said that the pent-up demand from buyers and sellers was responsible for a fast rebound in listings, and expects that listings will continue to rise.. She described this sharp rebound as ‘textbook’ with the market’s behaviour reflecting what has been seen in other countries that have gone into lockdown. 

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.