Property market update: Melbourne, June 2021

Australia’s property market stayed the course towards recovery last month, as national dwelling prices smashed a 17-year record high at the end of the 2020-21 financial year. CoreLogic reported that residential property prices across capital cities grew 13.5 per cent compared with the same period last year, the highest annual growth rate since 2004 and when the market was unwinding from the housing boom of the early 2000s.

Melbourne, which took the biggest toll from the negative impact of the COVID-19 pandemic lockdowns, still managed to post solid year-to-date growth, according to CoreLogic figures. And with the Victorian capital now in the clear from another lockdown, there is still some space for Melbourne to continue its recovery. 

However, CoreLogic’s head of research for Australia, Eliza Owen, noted that there are some markets in the country where performance is starting to ease more notably. 

So, how did Melbourne’s property market perform in June and where does it look like things are heading for the Victorian capital? 

Property values

New figures from CoreLogic showed that dwelling values in Melbourne are now 5.3 per cent higher or $37,646 more  than their previous pre-covid highs reached in March 2020. 

On a monthly basis, property values in the city rose by 1.5 per cent to stand at a median value of $753,100. That equates to around a $12,500 increase for the month, or near  $2,900 per week. 

Almost all major capital cities posted double-digit increases in value over the past 12 months, with the exception of Melbourne (7.7 per cent) and Perth (9.8 per cent).

Despite this, the Victoria capital’s growth still managed to defy expectations of steep declines by experts and have seen slow but steady growth during the first half of 2021. To put things in perspective, the median monthly change in the country’s dwelling values over the last 10 years is a 0.4 per cent increase, so while Melbourne’s current property market performance might be weaker compared to its peers, the data indicates that the market remains heated. 

Notwithstanding the start of June being overshadowed by a lockdown, house values in Melbourne increased by 1.8 per cent or almost 22,000. The city’s house median value now stands at a record $929,769, boosted by the 11.4 per cent increase over the year. 

The unit market saw a softer monthly growth of 0.7 per cent. Unit prices in the city now stand at a median value of $610,043, with an annual growth of 4.7 per cent. 

CoreLogic noted the softer growth rate at the ‘higher’ end of the market as a main indicator of the trend in the coming months. Across the top 25 per cent of dwelling values in the combined capital cities market, growth in dwelling values in the June quarter was 8.0 per cent, edging down from 9.2 per cent in the quarter to May. While this increase was still the highest seen among the value tiers analysed, the growth rate also had the biggest month-on-month slowdown.

According to Ms Owen, “This easing in the pace of growth at the top end of the market is another clear sign of a shift in momentum. The rest of the market tends to follow movements at the high end, and this is the first time in nine months that the high-tier growth rate has not accelerated.” 

Supply and demand  

The trend of buyers outnumbering sellers was an enduring market trend in June, as the buying frenzy did not lose steam from the chilly weather. 

Domain described the market conditions as reaching a ‘gridlock’, as housing markets have stalled almost to a standstill with the number of new listings declining last month as vendors, in turn, are afraid of the lack of available properties to buy. 

Many sellers are also hesitant to put a ‘for sale’ sign on their homes in winter, which is viewed as a traditionally slow time for sale activities, adding to the problem. With demand still significantly outweighing supply, experts say the tight market conditions won’t be going away any time soon. 

Latest Domain Group figures showed that listings in Melbourne fell by a staggering 28.7 per cent. The steep drop in the number of listings could be attributed to the Victorian capital’s fourth COVID-19 lockdown, as well as the winter season, which tends to hit the southern states much harder.

Domain senior research analyst Nicola Powell says the market is proving too risky for many potential sellers who are worried they’ll have trouble finding the right home – and overcome the strong competition for it – once they’ve sold.

“And, even if they do find something they like after a couple of months of looking, they know the price might have gone up in that time because of the general upswing in the market,” Dr Powell said. “Then it becomes a story of affordability as well.” 

This trend is also backed up by the latest SQM Research listing numbers, which show total listings in Melbourne fell by 5.3 per cent from 37, 915 in May to 35, 900 in June. At an annual rate, listings in the city fell by 9.1 per cent. 

In a  sign that older stock is clearing, Melbourne’s old listings (properties that have been on the market for 180 days) fell from 6,409 to 6,337 from May to June. 

Meanwhile, regional Victoria continued its red-hot streak, as data released by the Real Estate institute of Victoria (REIV) showed that Aussies are continuing their migration to the regional areas, with lists falling for the last six consecutive months. It also reported the shortest days on market since May 2010, with five towns recording substantial decreases in days on market, slashing at least 60 days from May 2020 figures.

Auction market  

After a slower start to the month partly due to Melbourne’s lockdown extension, auction clearance rates in the city tracked in the low-to-mid 70 per cent throughout June, a strong indication that demand remains high and market conditions are still hot.  

In the week ending 27 June 2021, capital cities saw an improvement in clearance rates as auction volumes rose. Out of 1,418 auctions, Melbourne recorded a final clearance rate of 74.7 per cent. 

Domain’s Nicola Powell said that despite the fact that Melbourne is heading into a typically quieter period for the auction market, she believes that the city is bound for an unseasonably busy winter. 

“We’ll see Melbourne defy the odds for a typical winter and already our figures are showing that June was very strong in terms of the number of winter auctions,” she said. 

 Ray White Victoria and Tasmania CEO Stephen Dullens predict the same trend of an unusually busy winter auction period for Melbourne. 

“Considering we were in lockdown that first weekend in June this year, and only opened on the Friday before the second June weekend, to achieve results that strong is a sign there is still a lot of momentum in the market,” he says.

Rental market 

Melbourne is now one of the two cheapest cities to rent in, with house rents on par with Adelaide, according to the latest data released by Domain. 

The June quarter marks the first time the city has been one of the lowest-cost cities, with the median house rent unchanged at $430 a week over the last three months. Melbourne’s west had the biggest fall in house rents of 2.6 per cent, or $10, over the quarter.

The Victorian capital’s pandemic-hit apartment market weakened further, with unit rents easing by a further 2.7 per cent  ($10) to $365 a week. This equates to the amount tenants were paying in 2015. Inner-city weakness continued, with rents sliding 2.6 per cent over the quarter to be down a huge 17.8 per cent over the past year. 

Unit rentals are now 12 per cent lower compared to the same period in 2021 and are significantly lower than apartment rents in other capital cities.

The latest figures are a stark contrast to the previous year when Melbourne’s unit rents hit record highs of $430 per week before the pandemic triggered lockdowns and international students were barred from entering Australia. 

 “This is the steepest downwards adjustment in unit asking rents that Melbourne has ever recorded,” Dr Powell said. “However, the number of available rentals have been dropping quite quickly recently, which shows that more people are moving to Melbourne to take advantage of the cheaper rents.”

CoreLogic data showed that gross rental yields in Melbourne now stand at 2.8 per cent, easing by one percentage point from May. The annual change in unit rent values was a decline of 6.4 per cent, recovering slightly from YTD declines of 8.2 per cent in the 12 months to March 2021. 

Vacancy rates

Despite Melbourne being one of the two cities that were unable to return to pre-pandemic level vacancy rates, the Victorian capital was the main driver of the latest monthly decline in the national vacancy rate to 1.6 per cent  in June from  1.7 per cent  in May. This is the lowest vacancy rate recorded since Domain records began in 2017.

The Victorian capital's vacancy rate fell to 3.0 per cent in June, from 3.8 per cent in May. The city continued to recover from its COVID pandemic-induced surge in the number of available properties for rent, with the estimated vacant rentals sliding by a further 6.4 per cent during the month. 

Melbourne's vacancy rate has edged down 1.8 percentage points in the last six months, with the areas seeing the largest falls in rental listings around the inner city and around university campuses. 

Domain Senior Research Analyst, Dr Nicola Powell, said the length of current lockdowns across the country would have a big impact on the rental market. 

Outlook

Is there more room for growth in the NSW capital’s property market?

Experts see Melbourne continuing its road to recovery, albeit at a slower pace. CoreLogic noted in its latest report that the rate of growth in the second half of the year may begin to ease. 

“We are seeing that monthly rate of growth starting to ease off and I think we can put that down to worsening affordability in a market that is rising so much faster than household incomes,” Corelogic’s head of research Tim Lawless says. 

“I would expect values to continue to ease in the second half of this year and into 2022. We will still see values rise but not as quickly.”

Domain also expects the rate of growth to slow down over the coming months. “When you compare Melbourne to Sydney, it is further behind in the property cycle and, for that reason, I think there is more room for further price growth in Melbourne,” Dr Powell says.

She added that the lockdowns have a large role to play in the city’s forecast price growth in the coming months. 

“We are likely to see prices continue to rise and push further away from their previous peak, but gains might slow from the start of the year when the Melbourne market really opened back up with a lot of pent-up demand after a year of extensive lockdowns.”

“Prices will continue to rise in Melbourne but at a slower pace and it all hangs on what happens in terms of community transmission and lockdowns because we’re in a pretty delicate position right now,” she says.