Melbourne and VIC property market update - November 2020

Throughout November, the housing market continued with its trend towards recovery. CoreLogic’s national index recorded a second consecutive monthly rise, with dwelling values rising by +0.8 per cent over the month. 

According to CoreLogic’s Head of Research, “if housing values continue to rise at the current pace we could see a recovery from the COVID downturn as early as January or February next year.”

However, he notes that the recovery in Melbourne, where home values remain -5.0 per cent below their recent peak, will take a little bit longer.

It’s not all bad news though, and a recovery in Melbourne looks to be well underway. While stock levels are rising, they still remain low, which is helping to insulate prices for homeowners.

New listings on the market are being absorbed, and according to the Real Estate Institute of Victoria (REIV), the average Victorian home is currently spending 33 days on market, which is the lowest recorded level since 2009.

Leah Calnan, President of the REIV says with homes taking less time to sell, optimism is now returning to the state’s real estate market. She says that lower days on market is a strong indicator of buyer desire.

“Competition between buyers is heating up, and people aren’t waiting to purchase the property they want,” she said.

“Competition between buyers is heating up, and people aren’t waiting to purchase the property they want,” she said.

Melbourne market update

Houses

$790,543

Monthly change: +0.6%

Units

$568,056

Monthly change: +0.7%

Property values in Melbourne were up +0.7 per cent over November, to a median value of $860,967, with houses climbing +0.6 per cent, and units +0.7 per cent.

Across capital cities, homes in lower price brackets are driving the strongest pace in recovery. In Melbourne, for example, homes in the upper quartile are -7.9 per cent below March 2020, while lower quartile values are only -1.2 per cent lower. However, CoreLogic notes, that the upper quartile of the market is now beginning to recover,

According to recent REIV data, homes in metro Melbourne are being sold within 25 days on average, which is faster than the 34 days it took to sell a home at the same time last year.

Homes in Montrose in Melbourne’s East are selling the fastest in the state, with properties spending just 14 days on market, compared to 17 days last year.

Melbourne unit prices show surprising resilience

House and unit value performance continues to diverge, and across the combined capitals index, house values have driven most of the gains. Houses have risen by +1.1 per cent, while capital city unit values fell by -0.6 per cent, although the pace of decline is easing.

“This trend towards stronger conditions in detached housing markets is evident across most of the capital cities. Relative weakness in the unit market can be attributed to factors including low investment activity, higher supply levels in some regions, and weaker rental market conditions across key inner city unit precincts,” Mr Lawless said.

Melbourne’s unit market, however, has been the exception to the rule. Unit values in Melbourne have recorded smaller than expected declines throughout the pandemic period, and over November, actually advanced +0.7 per cent. The trend shows a more substantial recovery, which is quite surprising given the impact of a second lockdown and deteriorating rental conditions.

“The resilience in Melbourne unit values is surprising given the high supply levels across inner city areas and the sharp decline in rental conditions. 

“We suspect the stronger trend in Melbourne unit values relative to houses could be short-lived unless overseas migration turns around sooner than expected which would help to shore up rental tenancy demand,” Mr Lawless added.

Regional Victoria market update

Houses

$430,479

Monthly change: +1.3%

Units

$297,988

Monthly change: +1.2%

Following a trend that has been seen nationally, regional Victoria continued to perform better compared to Melbourne, with regional housing values growing by +1.3 per cent over November, proving that there has been a silver lining for regional Victoria throughout covid. 

It’s a similar story in many regional parts of the country, where activity is being bolstered by Aussies looking for a lifestyle change, and the numerous first home buyer incentives on offer. 

In fact, a recent report released by ME Bank found that two thirds of first-home buyers were more likely to consider buying property in regional areas due to Covid-19, to save money, and to improve their lifestyle. 

A recent report found two thirds of first-home buyers were more likely to buy property in regional areas due to Covid-19, to save money, and to improve their lifestyle. 

Regional towns in Victoria are certainly popular with first home buyers, with the report showing that eight out of the top 20 towns around the country favoured by first home buyers were in Victoria. Woodend in the Macedon Ranges took out the top spot for Victoria, where the median house price is $807,500.

Others included Tatura, Kilmore, Wangaratta, Beechworth,  Castlemaine, Mansfield and Port Fairy. 

In regional Victoria, homes are selling within 43 days on average, compared to 55 days at the same time last year.

Homes in Eastwood near Bairnsdale are selling the fastest, spending only 23 days on market, compared to 64 days last year. 

Victorian rental market update

Like other capital cities, the divergence between the rental performance of houses and units has become even more pronounced over November. In short, house rents have tended to grow, while unit rents have declined in capital cities. 

Most of this weakness is being driven by Sydney and Melbourne - in Melbourne, unit rents have fallen by -7.6 per cent since March 2020. This is in stark contrast to house rents which have only dropped by -1.0 per cent in the same period. 

The weakness of the unit rental market in Melbourne can be explained by its reliance on overseas migration and demographics that were most financially impacted by Covid, including students and those who work in hospitality, entertainment and the arts. Prior to Covid, supply levels were already quite high, which would not have helped the situation.

An improvement in rental conditions in Melbourne, where much of the market is driven by temporary migrants, will be reliant on international borders re-opening. 

In regional Victoria, the trend is different, with house rents up by +2.0 per cent since March, and unit rents up by +2.1 per cent.

The outlook moving forward

Most experts agree that the Victorian housing market will continue on an upward trajectory into 2021. According to Louis Christopher’s latest Housing Boom and Bust Report from SQM Research, the most likely and conservative scenario would see Melbourne dwelling prices rise by between two and six per cent next year. 

This scenario assumes ongoing support from the Federal Government, and the Reserve Bank of Australia throughout 2021, as well as the rollout of a vaccine and the potential for a third wave of the virus. 

While Mr Christopher expects that rate cuts and stimulus from both the State and Federal Governments will provide support for houses in Melbourne, CBD units are expected to record ongoing price declines. 

Mr Lawless from CoreLogic has also weighed-in on the inner-city unit markets of Sydney and Melbourne, stating that with rents and occupancy rates falling, the outlook for this sector remains weak. 

Overall, housing demand continues to rise, and record low interest rates are one of the biggest factors responsible for a rise in buyer numbers. Listings still remain low in comparison, which is having an inflationary impact on housing values, so if you were looking to sell, now might be a good time.