Melbourne property ‘at greater risk’ in 2021: CoreLogic

According to Eliza Owen, CoreLogic’s Head of Research Australia, housing values have been supported by a strong mix of regulatory, monetary and fiscal measures, which have induced record-low mortgage rates, the deferment of mortgage repayment for households impacted by COVID-19, support for low income households, as well as grants and concessions for owner-occupier purchases

2021 outlook

Looking ahead to next year, Ms Owen said that the inner-city Melbourne market will see greater risk, with an increase in listing stock weighing on a recovery in values.

“For example, modelled sales volumes for November estimate 4,301 transactions took place across Melbourne, compared with 8,054 new listings added to the market in the same period. This means there was around 0.5 sales for each new listing added. This is very different from conditions across other capital cities, where the November sales to new listings ratio averaged 1.2 sales for each new listing added.

“So despite Melbourne dwelling values joining a broad-based recovery trend in November, and values rising 0.7 per cent in the month, the disproportionate volume of stock to sales volumes may slow the rate recovery across the city in 2021,” she explained.

In contrast, other capital city markets might see continuous recovery in the next 12 months.

According to Ms Owen, record-low mortgage rates will likely be a significant tailwind for property values, and may place upward pressure on prices through 2021. Combined with a recovery in the economy, some earlier factors considered a major risk to housing markets have been reduced, including the end of mortgage repayment deferrals.

Property investment activity is also likely to increase across smaller capital cities such as Perth, where rent values rose a remarkable 8.2 per cent in the year to November. In Hobart, where gross rent yields are 4.6 per cent across dwellings, the investor share of mortgage finance increased from a recent low of 16.4 per cent in August 2020, to 21.8 per cent in October across Tasmania.

“Institutional interventions will continue to shape the profile of property buyers, particularly as HomeBuilder is extended at a reduced rate into Q1 2021, and regulators monitor prudential lending standards.

“At June 2020, the housing debt to income ratio was 141.2, with housing debt accounting for most of Australian household debt. This poses an ongoing risk to the Australian economy, especially where heavily indebted households may be more likely to save rather than spend during periods of uncertainty or economic hardship.

“As a result, policy makers and regulators may watch for signs of rising household debt, or a decline in prudential lending standards that could lead to higher household debt. Higher LVR lending or higher loan to income ratios could be a trigger for macro-prudential intervention in 2021.

“Overall, the housing market outlook for 2021 is positive, given highly accommodative monetary and fiscal policy, signs of an economic recovery and many first home buyer incentives remaining in place through to early next year,” Ms Owen concluded.

CoreLogic’s Best of the Best 2020 report showed that lifestyle markets in regional Australia generally outperformed capital city markets in 2020. This trend may have been exacerbated, but was not necessarily triggered, by COVID-19.

“The narrative of Australians fleeing capital cities in search of a sea-change or tree change “because of COVID” has dominated reporting on the housing market through 2020,” it read.

“The relative popularity of lifestyle markets is evident in our report, and regional Australia out-performed the combined capital cities market. With the exception of the highest median value suburbs, our Best of the Best report is dominated by high performing regional areas across the country.

“Sunshine Beach on the Sunshine Coast has seen the highest annual capital growth in houses nationally, compared with 2019 when St Kilda in Melbourne saw the highest housing growth,” Ms Owen said.

On the other hand, rental market performance has been highly disparate. Ms Owen says that COVID-19 has had a severe impact on select rental markets in Australia, with Greater Melbourne unit rents falling -7.0 per cent in the year to November 2020.

Further, inner city rental markets of Sydney, Melbourne and, to a lesser extent, Brisbane have been particularly impacted by the closure of international borders, where historically high demand from overseas migrants has been disrupted. Notably, the vast majority of overseas arrivals to Australia are initially renters.

However, there is a completely different dynamic in rental markets across Perth, Darwin, and other mining-related markets that has emerged.

“Following the long withdrawal of investor demand and several years of low new supply additions, rental markets are tightening. Across the suburb of South Headland, which holds the position of highest rental yields for units across the country, rents have increased significantly over the year following a long correction post mining-boom.

“This is also reflected in the WA capital, where Perth rent values have increased a remarkable 8.2 per cent across dwellings over the year,” Ms Owen highlighted