Melbourne Property Market Update

August 11, 2023

Melbourne’s property market has faced significant challenges in recent years, with the economic impact of the pandemic, consecutive interest rate rises, and tightening lending restrictions. However, there are signs that the market is returning to stability, and the outlook for the residential property market in Melbourne is positive.

Despite the impact of interest rates on market confidence, there is still strong demand for established city-fringe apartments and low-maintenance investment properties. First homebuyers have also shown high interest, particularly in the apartment space.

Last year, the property market felt the impact of expected interest rate rises. However, what wasn’t expected was the persistence of inflation and the subsequent increase in interest rates by 12 times in just over a year. This led to increased debt costs and a higher cost of living, resulting in a reduction in residential property prices by around 10% in most markets, with a 20% decrease in volume compared to the previous year.

Nevertheless, there has been a turning point in the market this year, with buyers expressing increasing demand for quality property. While interest rates play a crucial role in housing market conditions, the supply of housing is another significant factor. There is a chronic undersupply of housing across Australia, including Melbourne. As buyer demand returns and supply issues persist in the rental market, there is a strong foundation for prices and a potential return to price growth.

Economists are pointing to rising housing values, fuelled by strong auction clearance rates, positive sentiment, and home sales trending back toward the five-year average. Additionally, population growth is expected to positively impact the Melbourne housing market, with the number of international migrants and expats returning to Australia increasing. This growth could position Melbourne as Australia’s largest city by 2031, leading to further opportunities for the property market.

Despite these positive developments, the rental market has faced difficulties over the past year. Imbalances between demand and supply, driven by low levels of new development and affordability issues, have contributed to a challenging period. While vacancy rates are at historic lows and rents have been increasing, landlords are selling investment properties to reduce their personal debt. This further pressures an already difficult rental market, highlighting the importance of government intervention to ensure a greater supply of housing through increased development approvals and incentives.

Looking ahead to the next 12 months, the property market is expected to continue its upswing. The market operates in cycles, with downturns typically lasting 12 to 18 months. As Melbourne approaches the 18-month mark of this slower cycle, recent improvements suggest that inflation is being controlled, interest rates are nearing their peak, prices have stabilised, and the market has reset to a new level. With an increased level of supply anticipated heading into spring, price growth is expected to remain moderate. Additionally, the sales market is predicted to continue improving, potentially leading to a rebalance in the rental market as supply and demand factors align.

In conclusion, while the Melbourne property market has faced challenges in recent years, there are positive signs of stability and growth. The demand for certain property types remains strong, and investments in infrastructure are contributing to the market’s potential. However, attention must be given to addressing supply issues, particularly in the rental market, to ensure a more balanced and sustainable future for Melbourne’s property market.

 

 

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