Property market update: Melbourne, January 2021

In the last quarter of 2020, Australia’s property market showed signs of rebounding after being slowed down by the lockdowns put in place to combat the coronavirus pandemic, which triggered an expected economic recession. Deloitte Access Economics forecasts that Australia will expand by 4.4 per cent this year. 

Property markets kicked off the year with a strong showing, with some experts even calling it a “property boom” as property values in all capital cities rose in January. 

And Melbourne seems to be leading the growth. Aside from dwelling prices rising, new listings and activity surged in the Victorian capital as more Australians are looking for a new home or to upgrade their homes at a time when there are fewer properties on the market.

The main question now is if Melbourne’s property market can sustain its recovery in the following months, despite foreseen economic headwinds. 

Housing values 

Housing values grew in January across every capital city and rest-of-state region, bar regional South Australia, where values held firm on a monthly basis. 

According to the CoreLogic Hedonic Home Value Index, the first month of 2020 saw the national housing value index increase by 0.9 per cent. Across the capital cities, Sydney and Melbourne continued as the leaders for capital gains after recording significant declines during the recent downturn. Dwelling values rose by 1.1 per cent and 1.2 per cent over the month, respectively. 

According to CoreLogic head of research Tim Lawless, the recent monthly data demonstrates a broader recovery trend, which originally started in Sydney and Melbourne midway through 2019 and gradually spread to other areas of the country.

But growth in dwelling prices continues to be slow. Although there is an apparent recovery across every GCCSA (Greater Capital City Statistical Area) in the country, the speed of growth has lost some momentum over recent months. The national dwelling index slowed from a recent monthly peak of 1.7 per cent in November, to 0.9 per cent in January. 

Looking ahead, experts also warned that the inner-city Melbourne market will see greater risk, with an increase in listing stock weighing on a recovery in values.

Auction rates 

In January, Melbourne remains the busiest auction market. According to new data from CoreLogic, 615 homes in the city went under the hammer last week, rising sharply from a week earlier when 390 auctions were held. Despite the city’s prolonged lockdown, the number of auctions also surpassed last year’s numbers, which stood at a much lower 419.

Overall, auction volumes across the country increased from 884 in the week ended 31 January, which resulted in a clearance rate of 77.2 per cent, the highest final clearance rate recorded since February 2017.

CoreLogic head of residential research Eliza Owen said, “As prices in Sydney and Melbourne rose 6.2 per cent and 6.1 per cent respectively in the December 2020 quarter, a corresponding increase in auction market activity is expected. Vendors have been responsive to higher prices, with auction volumes up by 4.0 per cent year on year.”

Supply and demand 

The number of properties for sale in the country is beginning to dry up and Melbourne is no exception. 

Currently, property buyers are heading back into our housing markets in droves, keen to get a foothold before property values reach new heights. However, they are finding limited stock, with seven of the eight capital cities having significantly fewer properties for sale than 12 months ago.

Data from SQM Research showed that national residential property listings declined to 265,111 properties in January, indicating a 2.9 per cent decrease from December’s total of 272,999 listings. Compared with January 2020, total listings were down by 10.5 per cent.

Sydney, Brisbane and Melbourne recorded the steepest declines of 4.7 per cent, 3.5 per cent and 3.4 per cent, respectively.

New listings also declined nationally by 24.46 per cent over January, with 16,234 fewer new properties listed for sale in the market. However, looking at annual data, new listings recorded a slight increase of 4.3 per cent, with most capital cities following the upward trend, except for Sydney and Hobart.

As of January, Melbourne has the most stock available on market at 37,617 properties, followed by Brisbane with 25,720 and Sydney with 25,149.

Rental market 

At the end of 2020, Sydney and Melbourne were the worst cities to be a landlord in 2020, as the only two cities where the rental price for houses fell throughout the past year. Data from SQM Research revealed that Melbourne had the highest number of empty homes to be rented in Australia in December 2020, with 4.3 per cent. 

Despite successfully eliminating community transmission of the coronavirus, Melbourne’s rental market continues to feel the lingering effects of prolonged lockdowns. 

Melbourne’s rental market continues to be weighed down by unit prices at the start of the new year. Apartment prices in the city recorded a drop of 0.6 per cent over the same period last year. Apartment rental yields fell 7.8 per cent to a five-year low of $388, with inner-city areas feeling the brunt of the decline. 

Of all the capital cities, Melbourne units have recorded the deepest fall in asking rent since pre-pandemic March, down 9.8 per cent.

According to Domain, vacancy rates in inner-city Melbourne are at new record highs of 11.8 per cent, as the city’s rental market continues to feel the effects of prolonged COVD-19 lockdowns. Melbourne’s vacancy rate has now more than doubled compared with the same time last year at 4.6 per cent in January - the highest of all the capitals. However, the vacancy rate remains below the post-lockdown December jump of 5.4 per cent.

“For the first time in five years, Melbourne is the third most affordable capital city to rent a unit, after Adelaide and Perth,” Domain said. “A marked change considering Melbourne was the third most expensive city to rent a unit back in March. Inner-city apartments have been hardest hit with rents at a seven-year low, followed by the inner east and inner south hitting a four-year low.”

This means that those who are looking to relocate to the Victorian capital city will find greater choice as the number of estimated vacant rentals rose at a staggering 157.3 per cent annually, at just 26,500 rentals. The sharpest rise in vacancies came from the inner-city regions of Melbourne City, Stonnington-East, Stonnington-West, Boorondara and Whitehorse-West.

On one hand, CoreLogic data showed apartments outperformed houses in Melbourne, proving to be an exception among capital cities. CoreLogic also noted that Melbourne’s unit rents had stabilised in January. 

Moving forward, experts believe that the recovery across rental markets will be largely supported by the improvement in the jobs market as well as overall affordability.

According to CoreLogic, part-time job numbers have now fully returned to pre-COVID levels and more businesses are looking into rolling out a return-to-work program, thus supporting the recovery of demand across inner-city rental accommodation.

Further, the lower rental rates in the inner-city areas are attracting more people back through improved rental affordability.

With the headwinds dissipating and most markets stabilising, the most significant risk to housing markets remains further outbreaks of the virus, CoreLogic said.

Hotspots 

Many economists are bullish on the years ahead for the Melbourne property market, with some expecting prices to jump by as much as 6 per cent in 2021 despite the headwinds that it faced due to extended lockdown periods and overall economic slowdown. 

Dean O’Brien, the director of O’Brien Real Estate, said that growth factors such as positive consumer sentiment, continued strong first home buyer activity, and improved economic stability are expected to renew investor interest in Melbourne’s property market in 2021. 

With this said, where should investors focus in Melbourne this year? According to Mr O’Brien, family suburbs with great access to schools, such as Berwick, Essendon, Blackburn, Glen Waverley, Bentleigh and Bundoora, will continue to be very popular in 2021.

Investors, meanwhile, will benefit from suburbs that are in close proximity to CBDs, transport links and universities, such as Footscray, Brunswick, Caulfield North and Geelong.

“The most popular growth corridors for first home buyers in 2021 will be similar to 2019 and 2020. The postcode of 3064 in the city’s outer north will continue to be the most popular followed by 3029 in the city’s outer west, along with Clyde North and Officer in the south east. New land that has opened up in Sunbury, Plumpton and East Pakenham is proving to be popular as buyers look for new digs. Regionally, across Victoria, we see great opportunities for growth in Ballarat and Geelong along with Bendigo, Wangaratta and Warragul,” Mr O’Brien concluded.