Melbourne property prices soar to record levels in December quarter
Melbourne’s property prices have staged a massive comeback, not only surpassing pre-pandemic levels but skyrocketing to set new house and unit price records.
The median house price now sits at $936,073 after rising 5.3 per cent in the last three months of 2020, topping the record high of $907,600 that was set in the March quarter before COVID hit.
Unit median prices leapt by 4.4 per cent overall to a median of $569,677 — $14,000 higher than the record set in 2019, Domain’s House Price Report for the December quarter, released on Thursday, also revealed.
The results are a far cry from predictions made early last year when house prices were forecast to fall, with one scenario modelling a drop of as much as 30 per cent in Melbourne as the corona virus pandemic took hold and people were forced into lockdown.
During most of 2020, Melbourne’s property market moved online. Public auctions were banned for months and private one-on-one inspections mandated to stop the spread of the virus. The entire market was shut down from August to October as the city dealt with a second wave of COVID-19.
But Domain senior research analyst Nicola Powell said the strict lockdown was one of the reasons Melbourne’s market had fared so well at the end of the year.
“It really did have an effect on buyer activity,” Dr Powell said. “There was lots of pent-up demand captured in the December quarter.”
The boost in prices had also been helped by record low interest rates, government grants and incentives for home buyers, as well as fewer listings, which saw more competition push prices higher, she said.
Although incentives had helped to boost the market, they were not what was pushing prices up, Westpac chief economist Bill Evans said.
“It’s interest rates, not government policy,” Mr Evans said. “[Government incentives] are not causing house prices to rise.”
But Grattan Institute program director for household finances Brendan Coates said government incentives were distorting the housing market, bringing forward construction and pushing prices up.
“We know from past experience that when you give money to home purchasers a lot of it gets passed through into higher house prices,” he said.
“Whatever you make of those efforts to stimulate construction, they are not effective housing affordability measures.
He noted Reserve Bank research that found lower interest rates push house prices up.
“These concessions just add further fuel to the fire, which is why a lot of forecasters are expecting house price growth of 10 per cent to 15 per cent growth over the next couple of years.”
AMP Capital chief economist Shane Oliver said the incentives were “a distortion, but it’s a justifiable one”.
“The low interest rates mean a positive background but it was the [government] measures that made people buy,” he said.
“JobKeeper and the bank payment holiday kept people in the market – people who would have defaulted on their mortgage.
“The First Home Loan Deposit Scheme enabled first-time borrowers to get into the market a lot faster than they would have.
“Normally in a recession interest rates come down and people lose their jobs and are forced to sell their homes but that was all headed off by government incentives.
“This is yet again a missed opportunity for buyers to get a more affordable property.”
Melbourne’s best performing region was the outer east, where prices rose by a huge 9.5 per cent over the quarter to a median $822,250. Annually, prices have only gone up 2.8 per cent, illustrating the region’s return from price falls that occurred during last year.
The Mornington Peninsula jumped 8.4 per cent over the quarter — and an incredible 14.6 per cent over the year — to a median of $802,000.
The best-performing regions were where buyers sought a change to their inner-city lifestyles and looked for extra space to breathe, Dr Powell said.
“More than anywhere in Australia, Melbourne was one of the places where buyers were being swayed by the lockdown and re-evaluating their lifestyles, especially because they had more flexible work options,” she said.
Although many buyers were looking for bigger homes across Melbourne, apartments also had median prices spike, with the inner-east region seeing the biggest rise — by 8.4 per cent — to a $675,000 median.
But not every region had unit price rises, with two regions of Melbourne recording price falls. In the south-east, prices fell by 3.3 per cent the west region recorded falls of 3.2 per cent.
The slight drop in prices and low interest rates have opened up opportunities for buyers such as Erin Clout to get into the market.
Ms Clout, a first-home buyer, snapped up a two-bedroom unit in Footscray settling in October last year, just as the lockdown lifted.
“I was over the whole house-sharing thing, so I had to decide whether to rent by myself or buy a place,” Ms Clout said.
“I actually hadn’t been looking to buy at all. I had a concussion in 2019 [from playing sport] and then COVID-19 hit so I wasn’t going out spending as much and I was just staying at home and saving,” she said.
Within four months of speaking to her broker she had bought her first home.
Dr Oliver said as more Australians stayed home and didn’t spend, they had the extra capital to buy a new home.
While the record prices were not surprising given sales over the past few months, there were still some concerns hanging over the Melbourne market, he said.
First-home buyer demand had been brought forward by record low interest rates, but this could dry up in the near future. Immigration numbers were extremely low, which could also affect the market, he said.
“International students may not return until next year and that will keep rental vacancy rates very high,” Dr Oliver said.
The Reserve Bank would be keeping an eye on Australia’s level of household debt and how new lending standards, making it easier for people to get a mortgage, would play out in the property market with rates likely to rise in 2022.
“It could lead to more macro-prudential control and then eventually higher interest rates,” he said.
Ref: MELISSA HEAGNEY , SENIOR JOURNALIST (on 28 Jan 2021). Melbourne property prices soar to record levels in December quarter . Retrieved from https://www.domain.com.au/news/melbourne-property-prices-soar-to-new-record-levels-in-the-december-quarter-1020742/.