John McGrath – A two-speed market continues in Melbourne and regional Victoria

The property market across Australia is holding up relatively well this Spring. While interest rate rises are definitely having an impact, low stock levels are offsetting softening buyer demand.

The number of new listings coming onto the market in the capital cities is well below average for this time of year. Stock is down 25% from a year ago, and it’s about 20% below the five-year average. Sales are down 17% compared to Spring 2021, but 3.8% above the five-year average.

Overall, it seems we have a good balance between supply and demand this Spring. Sellers of the highest quality homes in desirable streets are seeing the best results under auction conditions.

This week we focus on Melbourne, where the pandemic property boom over the two years to March 31, 2022 (around the time of the peak) delivered a 22% gain to house owners – not as high as Sydney but it’s easy to understand why.

The impact of closed borders on Australia’s most popular migrant destination, coupled with the world’s longest period of lockdowns, meant Melbourne endured a tougher time than the other capital cities.

Today, the Melbourne market is softening alongside Sydney, but not retreating by as much.

The median Melbourne house price is down -7.1% in 2022 so far, compared to -10.6% in Sydney, according to CoreLogic.

Melbourne apartments prices are down -3.9% compared to -7.3% in Sydney.

All 385 of Melbourne’s suburban markets recorded a fall in house prices in the three months to October 31. Apartment prices in 88% of areas also fell.

But it’s a different story in Victorian regional areas, where continued demand from city dwellers relocating for a seachange or treechange is keeping values strong.

As discussed in our recently released McGrath Report 2023, Victoria developed a very pronounced two-speed market during the pandemic.

During the property boom, the median house price in regional Victoria rose by 50% over the two years to March 31, 2022. It was an absolutely extraordinary time for Victorian coast and country homeowners.

In 2022 so far, regional home values have stabilised. They have not yet fallen in aggregate. In fact, the regional median house price is up 0.2% and the median apartment price is up 0.5%.

Today, Melbourne is pulling out all the stops to reinvigorate its CBD in the wake of the pandemic.

Highlights include the $1.7 billion transformation of the arts precinct in Southbank, a proposed High Line-style revitalisation of the banks of the Yarra River, expected to inject $1 billion into the economy, and the completion of five new train stations as part of the Metro Tunnel project due to be completed in 2025.

Geelong, the state’s most populous regional town, has continued to benefit from a 10-year plan for revitalisation. Having begun in 2019, the plan will see the Australian and Victorian Governments, together with the City of Greater Geelong, deliver $502 million in investment to the town.

Projects either completed or underway include the redevelopment of the Geelong train station, the construction of the Queenscliff Ferry Terminal and the redevelopment of the Twelve Apostles precinct.

Historically, international buyers have been an important cohort of the property market in Melbourne. And they’re coming back. The number of foreign buyers in Victoria’s established housing market rose from 3.1% in the 2021 December quarter to 5.1% in the 2022 June quarter.

Rising interest rates are, of course, having an impact on the Melbourne market, but this should be viewed alongside a strong economy, low unemployment, and a steadily increasing flow of migrants returning to Australia.