Does Melbourne have good long-term prospects?

The auction rates, RiskWise noted, remained solid this year despite the seasonal change and the end of the housing boom, while the capital city also experienced strong population growth and migration from both interstate and overseas, bolstering demand in the middle ring and the western suburbs.

Despite RiskWise CEO Doron Peleg admitting the residential market had experienced a cooling and the unit market still has high levels of risk, Melbourne’s low-medium housing risk meant good things for long-term capital growth.

“The Melbourne property market is being looked at unfavourably by many so-called experts and this is having a dramatic impact on ‘mum and dad investors’ as well as policy makers,” Mr Peleg said.

“However, our research has shown that, in fact, Melbourne is a good option for investors, particularly the housing market in affordable areas, such as the western suburbs.”

“It seems the perception appears to be one of negativity due to people making generalisations about the market, over-reacting to slight fluctuations and taking a short-sighted approach instead of a long-term view.”

Mr Peleg claimed pundits who see price weakness this year in the Melbourne market “fail to acknowledge there are many different markets, all with their own idiosyncrasies”.

“They also fail to distinguish between houses and units, rather using the term ‘dwelling’ for an all-encompassing view.

“It also doesn’t help that some commentators are suggesting there will be ‘5 to 10 per cent price falls in 2018’. This just causes an overreaction by investors who then become afraid to enter the market.

“The likelihood that houses in Melbourne will experience a significant correction is low.”

Cameron Kusher, head of research for Australia at CoreLogic, said in the short term, Melbourne has experienced the second-highest rate of value growth, with only Sydney in front, and agreed with Mr Peleg’s claims of a strong economy and population growth.

However, dismissing the slowing value growth is something that should not be overlooked.

“Over recent times value growth in Melbourne has slowed with some monthly falls which are likely to be linked to stretched housing affordability and a pull-back in investor demand,” Mr Kusher said to Smart Property Investment.

“These inhibiting factors are likely to persist this year while demand is likely to continue to be driven by strong rates of population growth. Overall, we expect that value growth will be much slower over 2018 with values fairly flat.”

Looking to the longer term, Mr Kusher said that while values are likely to trend higher with strong demand due to population growth, the market may not be all it appears to be.

“We anticipate that growth over the coming years will be much more moderate than it has been [in] recent years, especially once mortgage rates start to move higher from their current low levels,” he warned.

Simon Pressley, managing director of Propertyology, agreed with Mr Kusher’s claims.

“Melbourne hasn’t had any months of price declines but the rates of growth are significantly less than what they saw for those four strong years and we think we’re probably only a couple of months away before we hear the Domains and CoreLogics of the world saying, ‘Oh, there was a small fall in Melbourne property prices last month,’” Mr Pressley said to Smart Property Investment.