Melbourne and VIC property market update - August 2020

If you’re in Victoria, you’re probably wondering how the real estate market performed in August. The answer is, not great, but with Melbourne being subjected to Stage 4 lockdowns for much of the month, this frankly comes as no surprise. 

Melbourne sellers and buyers are still waiting on the sidelines until restrictions have eased, while the regional Victorian market continues to move, as vendors and purchasers are still able to transact under Stage 3 restrictions. 

What impact has this had on the market so far and how have home values fared? Let’s explore this below.

Melbourne market update

In August, Melbourne’s property market took another dive posting falls of 1.2 per cent; this decline is more than twice those seen in any other capital city around the country.

The drop in values is being widely attributed to restrictions on real estate as a result of Stage 4 coronavirus lockdowns, which Melbourne has been in for most of the month. 

By contrast, the rate of decline in other capital cities was on the smaller side, with Sydney posting a -0.5 per cent decrease, and Brisbane a -0.1 per cent decrease in comparison. 

This comes as no surprise, as CoreLogic’s Head of Research, Tim Lawless has always stood firm on the belief that the state of the market during this time is greatly impacted by the extent of restrictions and social distancing policies that are put in place. 

“The performance of housing markets are intrinsically linked with the extent of social distancing policies and border closures which also have a direct effect on labour market conditions and sentiment.

“It’s not surprising to see Melbourne as the weakest housing market considering the extent of the virus outbreak, and subsequent restrictions, which have weakened the economic performance of Victoria,” he said.

However, despite this, realestate.com.au have reported that there were 754 private sales in Melbourne in the week ending the 6th of September, which is a fairly high number considering lockdown. 

Although Melbourne property values have now fallen 4.6 per cent since the start of the pandemic, values are still in positive territory over the longer term with prices up 5.9 per cent annually.

The more affordable segment of the market continues to fare better than the upper quartile which may be due to a couple of factors.

One is first-home buyer demand boosted by government incentives.

The other is that this sector of the market recorded lower growth rates during the last property upswing in the second half of last year and the early months of 2020. This could be why declines are so mild at the lower end of the market, as CoreLogic has previously noted a historical trend in higher-end property markets, where growth has been faster, tending to lead price falls during downturns. 

Over the month, the more affordable housing segment declined 0.6 per cent compared to a 1.9 per cent drop across the upper quartile. Since the beginning of the pandemic, Melbourne’s upper quartile values have dropped by 7.0 per cent, which the decline across lower quartiles has been 2.0 per cent and 0.7 per cent respectively. 

Current stage 4 restrictions in metropolitan Melbourne are scheduled to end on September 13. Premier Daniel Andrews is set to announce a roadmap out of stage 4 lockdown and stage 3 stay-at-home orders on Sunday the 6th of September.

Regional Victoria market update

Regional Victoria, which has been in Stage 3 lockdown for much of August has also taken a bit of a hit, with dwelling values dropping -0.5 per cent over the month to a median value of $393,569. This drop in values was second only to the regional Northern Territory market. 

While both regional house (-0.5 per cent) and unit (-0.6 per cent) values trended downwards, the drop in values is still quite mild. This is to be expected in comparison to Melbourne, as restrictions on real estate in regional Victoria still allow for private inspections. This has meant that buyers and sellers have still been able to transact in the current market. 

In addition, regional Victoria is less impacted by a loss in overseas migration, which has caused a drop in demand for property in metropolitan areas.

CoreLogic’s Head of Research Australia, Eliza Owen told the ABC that a decrease in properties coming to market for sale was also potentially helping to stabilise prices outside of Melbourne.

Speaking to the ABC, Ms Owen said, “Over the month of August 2020, we’ve seen new listings volumes down about 12 per cent, or a decline of about 3,500 additional listings over the month.”

“This is a time of year, [where] we’d usually see listings volumes increase in the ramp up to the spring selling season. 

“The relatively tight levels of stock available on the market at the moment are maintaining some of that stability in the dwelling market prices as well,” she said.

According to the latest CoreLogic Quarterly Regional Market Update, the quickest selling region for houses around the country was Ballarat - taking around 30 days to secure a sale. Ballarat also offered the lowest vendor discounting of all the regions at -2.4 per cent. 

Anecdotally, 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.

Victoria rental market update

According to CoreLogic, from a national perspective capital city rents have held up better than housing values, with rents dropping by 1.4 per cent, and dwelling values dropping by 2.3 per cent. However, when you look at property type, houses are faring better than units in capital cities, with rents for houses dropping by 0.3 per cent and rents for units dropping by a more substantial 3.5 per cent. 

This gap in performance is pronounced in Sydney and Melbourne, where there is an approximately 3 percentage point variance between the fall in house rents compared to unit rents. 

In August in Melbourne, house rents dropped by -1.0 per cent, and unit rents dropped by -4.4 per cent. Rental yields for Melbourne houses were 2.7 per cent, and units, 3.4 per cent. 

According to CoreLogic’s Tim Lawless, these weaker rental conditions across the unit sector is due to an oversupply of rental properties on the market and a decrease in demand. 

Melbourne’s rental market is impacted due to stalled overseas migration, less foreign students, and less demand from domestic students who can study from home. Rental demand in capital cities has also been impacted by job losses in industry sectors common with renters, including hospitality, the arts and recreational service sectors.

The outlook ahead

CoreLogic’s data shows that markets are now showing greater diversity compared to earlier in the pandemic. At the start of Covid-19, housing markets around the country were reacting in a similar fashion, with both listings and home sales falling sharply, and house values heading south. 

But as the virus was relatively contained and controlled, with restrictions being lifted, and borders being opened, housing markets started bouncing back to relatively normal levels of activity. In more recent months, we’re also starting to see that housing values in some regions and cities are actually increasing. 

Tim Lawless has always maintained that housing market performance is directly linked with how well we are able to contain the virus. It’s things like social distancing policies, restrictions and border closures that have a negative effect on consumer sentiment and market conditions. 

According to Mr Lawless, “Looking forward we are likely to see a diverse outcome for housing markets around Australia, depending on how well the virus is contained and the region’s exposure to other factors such as its reliance on overseas migration as a source of housing demand.”

He added that at a national level the spring selling season is likely to be less active than normal.

In last month's home value indices report, Mr Lawless said 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.”

Domain Senior Research Analyst Dr Nicola Powell said that the lag in people being able to get their homes ready for sale could result in the typical spring selling season extending into December. She said that the other possibility is that the spring season could be shorter and more intense than usual. 

“When we look towards other countries, the stricter the lockdown, the more rapid the listings rebound has been,” she said. 

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. 

So far, fiscal support from the government has helped to prevent a glut of distressed sales from hitting the market, however, this situation could change towards the end of the year as fiscal support starts tapering off, and lenders become less lenient when it comes to repayment holidays. 

The long-awaited Federal budget will be announced on October the 6th 2020, which is expected to shed some light on the direction of Australia’s housing markets.

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.