The Urban Developer’s latest Melbourne housing market insights reveal that Melbourne, along with Sydney, is leading a housing downturn not seen since the 1980s.
This resource, updated periodically, will collate and examine the economic levers pushing and pulling Melbourne’s housing market.
Combining market research, rolling indices and expert market opinion, this evolving hub will act as a pulse check for those wanting to take a closer look at the movements across the market.
^Source: Corelogic - August 2022
Home prices in Melbourne are now back to where they were a year ago after further gains were shaved from the city’s median in August.
Melbourne had a milder upswing than other capitals after being locked down for 260 days, with prices rising by 17.3 per cent from the pandemic low to the market peak.
Nationally, house prices have been falling since May, led by monthly losses in Sydney and Melbourne, the country’s two largest real estate markets.
Melbourne’s quarterly declines deepened in August with property values sinking by -3.8 per cent over the three-month period—a significant contraction from the -1.8 per cent decline in the previous quarter.
The triple whammy of weaker buyer sentiment, rate hikes—with another expected in September—and rising inflation has spread to Australia’s auction market, sending listings and clearance rates lower.
Industry experts are forecasting that the official cash rate will be running at 2.6 per cent by the end of next year while financial markets are expecting the cash rate to rise substantially higher than that.
Corelogic’s home value index declined -1.6 per cent nationally in August, the largest month-on-month decline since 1983, with Melbourne dropping off a further -1.2 per cent.
The average house in Melbourne is now selling for $948,000—after puncturing the $1-million median in January—retreating by $16,000 in August while a typical unit is now selling for $608,000 after a loss of -0.7 per cent, or $6000 in value.
The difference between house and unit prices widened during the pandemic as homebuyers sought detached housing to escape the virus and the lockdowns.
The gap between house prices and unit prices narrowed by 0.6 percentage points to 57 per cent, with houses now worth $350,600 more than units. Before the interest rate rose, the gap was $363,100.
Melbourne’s current correction has a long way to go before it catches the major downturns recorded in 2017-19, when prices sank by -11.1 per cent over a 19 months period and 1989-92 when they dropped by -9.8 per cent over 21 months.
The current correction’s pace of decline six months in is the city’s fourth fastest on record.
Melbourne’s house prices are expected to drop by 10 per cent this year, Hobart by 9 per cent, Canberra by 7 per cent and nationwide by 8 per cent. Meanwhile, Adelaide is forecast to rise by 4 per cent, and 1 per cent each for Perth and Brisbane.
A forecast 10 per cent decline in Melbourne is expected to take the city back to levels roughly the same as July 2017.
By next year, house prices are expected to decline across all capital cities, led by Adelaide, Brisbane, Perth and Darwin while Melbourne is set to fall by 6 per cent.
By the end of 2024, Melbourne prices are expected to rise by 6 per cent, Brisbane by 5 per cent, Adelaide 2 per cent, Perth and Darwin 3 per cent each, while Hobart and Canberra are predicted to lift by 4 per cent each.
House values falling nearly $400 a day
House values in some parts of the country are falling by almost $1000 a day as the Reserve Bank’s war on inflation sweeps across the nation’s property market, amid warnings prices will continue to drop as long as interest rates are pushed higher.
In Melbourne, where house values fell another -1.5 per cent in August to be down -4.4 per cent over the past three months, median house value has fallen by more than $51,000 over the same period, or $415 a day.
Victoria on the cusp of approving Windfall Property Tax
Victoria’s new windfall gains tax on the valuation upside from rezoning land kicks in next year. But the coming impost is already affecting new projects in the state.
The Labor government’s budget decision to raise an estimated $40 million from the value uplift of rezoning decisions will provide only a fraction of the total $2.7 billion it is seeking as a budget repair measure. The scheme levies a tax equal to 50 per cent of the value uplift given to a piece of land by a rezoning.
Construction costs surge at the fastest rate in 20 years
The Australian Bureau of Statistics recently revealed the latest price increases for construction materials for the June quarter of 2022, further highlighting Victorian builders’ cost pressures.
In the last three years, steel products have risen by 54.2 per cent, electrical equipment by 39.4 per cent, and timber, boards and joinery by 37.8 per cent.
Head of Research
“Our expectation is that sales activity will reduce further through spring due to further rate rises.
“As rates rise, I don’t expect to see any improvement in consumer sentiment, which is a big part of transactional activity in the housing market. When consumer sentiment remains as low as this, we wouldn’t expect a turnaround in activity.”
Chief of Research and Economics
“I think the data shows that buyers are willing to put in a lower offer than before because buyer depth isn’t as great as it was, and lower offers are now being accepted by vendors.
“Spring will really test pricing and buyer depth because we’re likely to see more listings and more competition from vendors.”
“It’s going to be a spring to provide better opportunities for buyers out there and activity levels are obviously going to increase, but could be lower in comparison to other years. We’re not going to see a sudden rebound in prices because this spring will be in a downturn market.”
“Residential property price downturns in the last 25 years have mostly been mild, with prices falling less than 10 per cent, and brief, with prices quickly rebounding to new record highs as rates fell to new lows.
"Assuming the cash rate tops out around 2.6 per cent early next year then average prices are likely to fall 15-20 per cent top to bottom, of which we have so far seen 3.5 per cent, with the low likely being reached in the second half of next year after interest rates peak and start to fall back.”
“The market has now found a base of buyers who see value in the market.
“They are a combination of an increasing number of first homebuyers and an increasing number of investors, who are attracted by the surge in rents, thereby pushing up rental yields and are seeking a hedge against inflation. There’s definitely been an adjustment in seller expectation.”
ANZ recently revised its forecast and now expects Melbourne’s house prices to fall by -11 per cent throughout 2022 before falling a further -6 per cent in 2023.
CBA forecasts Melbourne’s property prices to fall by -3 per cent in 2022, before dropping by -9 per cent in 2023.
NAB is currently forecasting Melbourne’s house prices to fall by -7.7 per cent in 2022, before falling by -14.1 per cent in 2023.
Westpac is expecting Melbourne dwelling values to drop by -8 per cent in 2022, before dipping by -10 per cent in 2023.
|Week||Clearance rate||Auctions/Sold||Total sales|
|Ending 6 August 2022||56%||550 / 278||$201,467,560|
|Ending 13 August 2022||59%||558 / 292||$203,140,916|
|Ending 20 August 2022||55%||652 / 332||$226,362,50|
|Ending 27 August 2022||57%||732 / 372||$258,823,38|
^Source: Domain - August 2022
While the auction clearance rates have been relatively stable in the past few weeks, they remain below the benchmark where prices could rise again.
Auction volumes picked up in Melbourne over the last month and the proportion of homes sold hit a 12-week-high in mid-August, signalling the important spring selling season has begun.
Reservoir, Glen Waverley and Craigieburn remain Melbourne’s busiest spring auction suburbs with the three suburbs the country’s most sought after in the past few weeks.
The suburbs of Rowville and Bayswater had clearance rates over 90 per cent over the recent month while homes are selling fastest in Melbourne’s outer east, at a median of 19 days in Woori Yallock and Lilydale, while properties in Chelsea spent a median of 20 days listed.
Upmarket parts of Melbourne are now suffering six-figure falls in just three months after being some of Australia’s strongest performing markets in 2021.
Melbourne's upmarket inner-east, covering Kew and Box Hill, has seen its median house price fall by $107,500 in three months, with the 6.1 per cent quarterly decline taking the median house price down to $1.6 million.
Looking ahead, houses in Alphington, Aberfeldie and Carnegie are now showing the most potential for maintaining stable prices.
Meanwhile, Laverton North and Melbourne Airport are tipped as the suburbs where houses are least likely to hold their value.
To try and get properties moving through the market Melbourne home sellers are offering the biggest house price discounts since the city’s second Covid-19 lockdown.
The average discount, or difference between the original asking price and sale price, was 6 per cent in August for private treaty sales rising from 5 per cent at the same time last year and equal to October 2020.
The discount equated to a $62,000 price cut to Melbourne’s median house price of $948,000. Unit prices are also being discounted by an average of 6.7 per cent, which is $38,800 off Melbourne’s median unit price of $608,000.
The biggest discounts are on properties that need a renovation, or to be rebuilt, amid the rising cost of building and a lack of access to trades.
Rising interest rates and problems accessing finance quickly, with banks taking more time to approve loans, also meant buyers were less willing to make the big offers they once had.
|City||Vacancy rate||Monthly % change||Vacancies||Net change|
^Source: SQM Research - August 2022
Melbourne’s rental market continues to tighten as low supply levels cause vacancy rates to dive and rents to rise across most suburbs and property types.
Rental listings nationwide dropped by -4.5 per cent over August to 55,124–a record low, as more landlords opt to turn their investment properties to the short-term leasing market.
Rental listings in Sydney slumped by -5.7 per cent to 16,142 over the same period, to their lowest level in more than five years, while Melbourne fell by -3.6 per cent to 14,666–a three-year low.
In Melbourne, 10,400 rental properties are currently available as the shrinking pool of available rental properties and rising demand from international students and returning workers fuel a sharp drop in vacancies across the central business districts.
Tenants have been returning to the inner city to live closer to workplaces, while the supply of rental listings has reduced as landlords sell to cash in on high property prices or to avoid Victoria’s new, more stringent rental laws. The return of Airbnb has also reduced the long-term rental supply.
Domain chief of research and economics Nicola Powell said that rising rates would impact rental affordability as landlords attempt to reimburse their increased costs.
“If an investor has higher levels of costs associated with their investment property, if they’re able to pass that cost on through higher rents they will do that,” Powell said.
|Type||Rent||Monthly % change||Annual % change|
^Source: SQM Research - August 2022
Powell said it was only one of several other factors driving up rents, particularly vacancy rates as demand for rental properties rose.
Data from Domain showed widespread drops in vacancy rates since the start of the year, with the national average tightening to 1 per cent. Melbourne’s vacancy lowered to 1.6 per cent.
“Generally, when vacancy rates go below 2 per cent, it’s a landlord’s market, at around 3 per cent it’s balanced and above 3 per cent it favours tenants. What we’ve got right now is a landlord’s market across every single capital city in Australia,” she said.
Greater “household formation” was one cause, Powell said, a phenomenon that saw people move out of homes as rental costs in major cities like Melbourne dropped during the pandemic lockdown period.
She said that the lasting effects of this pattern, coupled with the return of international migrants and longer-lasting tenancies, as high prices lock people out of the property market, have compounded the effect.
Rents have risen at the fastest rate for 14 years as landlords seek to recoup costs in the face of rising interest rates and higher inflation.
Despite the increases in rents, Melbourne has replaced Adelaide as Australia’s most affordable house rental market, with the typical house renting for $567.
|Dwelling||Approved||Monthly % change|
^Source: Australian Bureau of Statistics - August 2022
The total number of dwellings approved fell 0.7 per cent in seasonally adjusted terms in June, following an 11.2 per cent rise in May, according to data released today by the Australian Bureau of Statistics.
“The decrease in the total number of dwellings approved in June was driven by a fall in approvals for private sector dwellings excluding houses, which dropped 5.7 per cent,” ABS head of construction statistics Daniel Rossi said.
"Approvals for private sector houses rose 1.2 per cent in June, following a 2.1 per cent fall in May.”
The average approval value for new houses continues to rise year on year, since passing $400,000 in April 2022.
The average approval value for a new house in June was $409,000, roughly $67,500 higher than the year before and $78,500 higher than June 2019—reflecting a year-on-year rise of 19.8 per cent for June 2022, following weaker rises of 2.6 per cent for June 2021 and 0.7 per cent for June 2020.
Across Australia, the number of dwelling approvals rose in Victoria (6.3 per cent), Western Australia (1.7 per cent), New South Wales (1.5 per cent) and Tasmania (1.0 per cent), in seasonally adjusted terms.
Dwelling approvals decreased in Queensland by -2.0 per cent while approvals for the private sector declined by -7.8 per cent, in seasonally adjusted terms.
Master Builders chief executive Paul Bidwell said that while future demand for new home construction remained strong, there was some concern amongst the industry that the situation will be short-lived.
“Building approvals for June saw an 8 per cent increase to units, although houses dropped by 8 per cent during the same period. Looking to the three-month trend, total dwellings approved were also up 3 per cent,” Bidwell said.
“However, the real concern is what happens once the work created by the shifts in migration during the pandemic and the HomeBuilder stimulus finishes.
“With cost increases to the tune of around 30 per cent over the last 12 months and no end in sight to the rising costs and shortage of materials and labour, homeowners and banks are very wary of the potential for cost blowouts during the construction phase.”
|Type||Lending ($bn)||Monthly % change|
|New loan commitments for owner-occupier housing||$5.87||-10.7%▼|
|New loan commitments for investor housing||$2.90||-5.2%▼|
^Source: Australian Bureau of Statistics - April 2022
Data released by the Australian Bureau of Statistics has recorded another fall in the value of new loan commitments for housing.
The ABS reported an 8.5 per cent fall in the value of new home loan commitments for housing, dropping to $28.4 billion in July 2022 following a fall of 4.4 per cent in June.
New owner-occupied loan commitment values fell in all states with the exception of the Northern Territory, which rose by 3.1 per cent.
Borrower refinancing of owner-occupied housing loan commitments values between lenders also fell by 1.9 per cent in July 2022, down to $12.4 billion on the back of a record high that was reached in June 2022.
The number of new loan commitments to owner-occupier first home buyers fell to its lowest number since May 2019, recording a 10.7 per cent fall in July 2022 to 8,388.
Falls were recorded in almost all states and territories, excluding NT, particularly Queensland, Victoria and NSW recorded falls of 18.8 per cent, 12.6 per cent and 11.6 per cent respectively.
ABS head of finance and wealth Katherine Keenan said the value of new owner-occupier loan commitments fell 7.0 per cent in July 2022, while new investor loan commitments fell 11.2 per cent.
“Although lending has fallen from historically high levels recently, the value of loan commitments remained significantly higher than pre-pandemic levels.
“Owner-occupier loans in July 2022 were 40 per cent higher than February 2020, while investor loans were 78 per cent higher.”
Housing Industry Association economist Tom Devitt said that the 4 per cent fall in loans for construction and new house purchases highlight the impact of the recent increases in the RBA’s cash rate.
“The rise in the cost of borrowing is compounding the impact of the rapid increase in the cost of building a new home that occurred due to the constraints on global supply chains. Declines were seen across all segments of the market, led by investors,” Devitt said.
“New home sales across Australia declined by 13.1 per cent in July, following even earlier reports from the industry of a slowing in the number of groups visiting display sites. This will see weaker sales volumes in the second half of 2022.”
|Type||Lending ($bn)||Monthly % change|
|Average loan sizes for owner-occupier dwellings||$642,375||0.8%▲|
^Source: Australian Bureau of Statistics - July 2022
The Reserve Bank of Australia is expected to raise interest rates for a fifth consecutive month in September, causing more headaches for mortgage holders.
The RBA’s board is scheduled to meet September 5 when experts predict they will once again lift the cash rate in a bid to curb Australia’s soaring inflation, which has caused prices of everyday items to skyrocket.
If Tuesday’s decision raises the rate by 0.5 percentage points, monthly repayments will jump by another $144 for the average variable borrower assuming banks pass on the full amount to customers.
A 0.5 percentage point rise will mean the average owner-occupier with a variable mortgage could be paying an interest rate of more than 5 per cent.
Westpac predicts the cash rate could increase to 3.1 per cent by Christmas, and peak at 3.35 per cent by February next year, before finally dropping in 2024.
|Region||Arrivals||Departures (quarter) 2021 departures||Net change 2021 quarter net|
^Source: Australian Bureau of Statistics - March 2021 (series paused due to Medicare data issues)
Victoria and New South Wales continue to feel the pandemic-fuelled drain losing thousands of residents in the first three months of the year as they moved to other parts of Australia, with Queensland emerging as the preferred destination.
The latest figures from the Australian Bureau of Statistics reveal Victoria suffered a net migration loss of almost 5000 people between January and March this year as departures outstripped arrivals.
Almost 19,000 people who moved to Victoria during the three-month period but 23,771 residents left.
NSW experienced the next biggest fall in interstate migration, with 30,684 departures compared to 26,221 arrivals.
There were over 100,000 people who moved interstate during the first three months of the year, with Queensland gaining the most people; 7000, while Victoria lost the most closely followed by New South Wales.
Since the start of the pandemic, a net 22,651 people have left Melbourne for other parts of Victoria.
In total, Melbourne lost a net 34,366 residents, including 3682 who have made the move to Brisbane.
In the March quarter, a net 8300 people left Greater Melbourne compared to 8500 in the final three months of 2020.
It was the second-largest quarterly drop in internal migration for Melbourne this century.