Property market update: Melbourne, April 2021

But the latest property market boom is far from over. After the historic growth rate of 2.8 per cent in March, national dwelling values still rose by 1.8 per cent in April, with market observers noting that the monthly uptick is considered to be a more sustainable pace of growth. 

Melbourne managed to record solid gains in April, indicating that Victoria is a step closer to recovering  from the previous year’s pandemic-induced downturn. Trends indicate that both buyers and sellers are now returning to the city’s property market as consumer confidence strongly rose, resulting in high property transaction numbers and solid clearance rates despite the high prices. 

Experts point to  'fear of missing out' FOMO as the prevailing sentiment among those looking to secure real estate in the Victorian capital. However, there is still plenty of room for growth as Melbourne property values have now just hit their pre-pandemic levels and are yet to reach new peaks. 

Here’s the highlights of the Melbourne property market  in April 2021. 

Property values

Melbourne’s home values climbed 1.3 per cent in April, translating to a median dwelling price of $744,679. However, the Victorian capital still lagged behind its capital city peers in terms of annual growth, recording a modest increase of 2.2 per cent compared to the same period last year, attributable to the extended lockdown period in 2020. 

The price growth of houses continued to outpace the unit sector through April. Melbourne’s house market recorded a  1.4 per cent  growth month-on-month and a 2.2 percent increase year-on-year. The recent gains caused the median house prices in the city to stand $869,676. 

Meanwhile, the city’s unit market recorded a one per cent increase over the month and a 1.9 per cent increase compared to April 2020, bringing the median value to $599,234. 

According to Tim Lawless Corelogic's research director, the home value index has begun to show a “clear and broad based slowdown” in the rate of housing value growth – a trend that has been evident since late March.

“The slowdown in housing value appreciation is unsurprising given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth. With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower income households, are finding it harder to save for a deposit and transactional costs, ” he said. 

As capital city prices continue to rise, home buyers are now starting to be priced out. Recent figures from the Australian Bureau of Statistics (ABS) revealed that financing for first home buyers declined by 4.8 per cent over the past two months.

Supply and demand 

According to Corelogic, strong selling conditions have encouraged more vendors to enter the market, resulting in a surge  in new listings. 

Data shows that 40,630 new residential property listings were added to the market nationally over the four weeks ending April 25, significantly higher relative to the previous two years and almost 14 per cent above the five year average. 

SQM’s latest monthly report showed that national residential property listings rose in April by 2.4 per cent  to 262,617 from 256,568 in March. However, compared to 12 months ago, listings were down by 10.3 per cent. 

Melbourne recorded a 4.1 per cent increase during the month, climbing from  39, 335 in March to 40, 958 in April. Compared to the same period last year, listings in the city rose 18.9 per cent

Louis Christopher, managing director of SQM Research said that the increase in listings are caused by property owners responding to the property boom hype in the market and have aggressively hiked asking house prices over April. Despite the increase in the number of advertised properties, Mr Christopher said that the sale rates were still ‘quite strong’ for the month, as old listings continued to decline. 

This observation is corroborated by Mr Lawless, noting that rise in new listing numbers indicates an improvement in vendor confidence. “ Total advertised stock levels were 25 per cent below the five year average in late April. Such low total listing numbers, at a time when new listings are above average, reflects the strength of buyer demand, fueling the current rapid rate of absorption,” he said. 

Auction market 

Since the start of 2021,  Melbourne has become the auction capital of Australia. After bearing the brunt of the impact of COVID-19 last year, auction clearance rates in the city have been at boom time levels.

In April, the Victorian capital’s auction market continued to show strength, as clearance rates in Melbourne remained in the lower 70 per cent range during the month. In the week ending April 25, Melbourne recorded the highest number of auctions at 925, with a preliminary clearance rate of 76.1 per cent.

While the figures were 23.6 per cent lower compared to last week’s volumes, it is still higher than the 144 held one year ago. During the same time in 2020, much of Melbourne’s auction activity was dampened by restrictions around onsite auctions and inspections.

Rental market

Melburnian landlords are still feeling the tenancy demand shocks from stalled overseas migration due to COVID, according to the latest Corelogic data. 

“Prior to COVID, Melbourne and Sydney accounted for around three quarters of overseas migrants into the capital cities. With international borders remaining closed, rental demand in these cities, and in particular their unit market, has been materially impacted,” Mr Lawless said.

The city’s unit rentals have been more impacted by the weak rental conditions, falling 7.6 per cent over the last 12 months. But rental rants in the Victorian capital’s apartment sector seems to be stabilising, as rents hold steady over three of the last four months. 

Weaker rental conditions are skewed towards higher density markets, particularly in Melbourne and Sydney. The downwards shift in unit rents has been more severe in Melbourne where rents are down -7.6 per cent over the past 12 months.

Vacancy rates

Every capital city except Melbourne saw an annual decline in vacancy rates. Data from Domain showed that the vacancy rate stood at 4.2 per cent in April 2021, almost double of the 2.8 per cent seen in the same period last year. 

While Melbourne’s vacancy rate did increase annually, it recorded the biggest decline over the month – from 4.6 per cent in March.  There were just over 24,000 estimated vacant rental listings across Melbourne at the end of April, a fall of seven per cent from last month.  In a welcome sign for landlords,  vacancy rates in the city are moving closer to where they were in September 2020 and significantly lower than the seasonally affected December 2020 peak of 5.4 per cent. 

The areas with the highest vacancy rates in the city were Melbourne City (10.2 per cent), Stonnington – East (7.8 per cent), Whitehorse – West (6.9 per cent), Stonnington – West (6.7 per cent) and Boroondara (6 per cent). Meanwhile, the areas with the lowest vacancy rate were the Mornington Peninsula (0.4 per cent), Yarra Ranges (0.5 per cent), Nillumbik – Kinglake (0.5 per cent), Cardinia (0.5 per cent), and Macedon Ranges (0.7 per cent). 

Looking ahead,  conditions will be improving for Melburnian landlords as vacant rental listings fell significantly over April. The regions with the largest fall in rental listings were largely situated within inner-city regions and close to universities with a large concentration of apartments and share houses, an indication that people may in fact be returning to the city.

Outlook  

In the first quarter of the year, the Australian property showed exceptional strength as it began to shake off the impact of the pandemic, with the national growth rate hitting a 33 year high in March. However, some experts believe that the property boom has run its course. Corelogic pointed to the lower clearance rates, higher vendor activity, higher housing supply and fewer incentives for homebuyers among other factors as indicators that the market is seeing a “clear and broad based slowdown”. 

But some analysts expect the property market to continue its bullish streak, with ANZ forecasting a  17 per cent total increase in housing values nationally by the end of 2021, with Melbourne predicted to rise by 16 per cent.