Melbourne’s Property Market Showing Resilience

By Catherine Cashmore on 8 Jul 2013
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Melbourne’s Property Market Showing Resilience

Source: eGuide travel via Flickr

June house price statistics have come in from the REIV, and they indicate a continuation of the modest increases we have been experiencing in aggregated values.

Over the 30 day period, dwelling prices rose by 1.3 per cent, which, as the REIV notes, is the highest level since April 2011. In contrast, the unit index – although not dropping – has maintained stability and sits at its highest level since May 2012 (which, according to some indices, marked the bottom of the market). As before, the biggest increase has been in the inner suburbs, with the middle and outer rings unchanged.

Whilst the news is positive for vendors, it’s important to counter it with other data which evidences weaker underlying trends that prove we have some way to go before we can hail a true market recovery.

Turnover is an important figure in real estate – more important than median price rises.  A strong sales turnover keeps the industry, along with all of its retail offshoots, ticking along. Without a good supply of buyers and sellers transacting on property, the market becomes somewhat stagnated and the resulting consequences can be felt across the broader economy.

With this in mind, the overall number of sales recorded in Victoria year-to-date remains subdued. There have been 69,300 transactions, meaning we’re tracking at roughly the same level as this time last year.  And whilst it’s not quite as dire as 2011/2012, during which annual turnover had fallen back to numbers not seen since the late 1990s, it’s still some 15 per cent below the 5 year average.

As I mentioned last week when citing the final weekend first home buyers were able to access the $7000 grant for established property, evidence now shows there has been a 19 per cent increase in the number of grants issued over May, momentum that will most likely carry forward over June after which there will be some adjustment.

First home buyers can still obtain a grant of $10,000 for new property and all are able to apply for a 40 per cent stamp duty saving; however, those who brought forward plans to purchase prior to the end of June, will no doubt reduce the number of first home buyers competing for established property as we head into July.  

It should also be noted that households are continuing to pay down debt. Old mortgages are clearing faster than new mortgages are being loaned. Over May, there was a reduction of 209 mortgages, bringing the annual net decrease to 2,180. Put simply, with less debt circulating in the system and transaction figures still low, there is a limit to how high prices can sustainably go.

It’s hard to correlate all the above data with ‘on the ground’ experience and our to-date 70+ per cent clearance figures.

For current property purchasers pitting their budgets against competing bidders who are also shopping for a reducing pool of existing inner and middle ring quality stock, the atmosphere feels anything but subdued. As I’ve mentioned previously, some of this can be put down to the typical effects auction dominated terrains exhibits, in which buyers choose to pay a bit extra to beat the compounding psychological effects of openly transparent market competition.

However, the above data should hopefully balance any temptation to throw caution to the wind as it suggests there are limitations to the current rally.  

The vacancy rate across Melbourne is 3.4 per cent; however, median rents have remained stable at $295 per week. 

For investors, it’s important to purchase property in areas where rental demand remains tight. Make sure those properties are worthy to compete against the existing homes being advertised. 

A good rule of thumb is to check the current listings online. They will provide a good benchmark of current supply in the suburb and the comparative weekly prices. Vacancy rates are subject to change and are, to some extent, affected by seasonal trends and local drivers, such as universities and new projects. As a result a 3.4 per cent vacancy rate in a number of suburbs may be a 2.4 per cent vacancy in the suburb where you purchase.

Finally, Residex have released their May 2013 data showing a 1.24 per cent increase in house prices for the month and a 1.32 per cent increase year-to-date.  

About the Author

Catherine Cashmore is a regular journalist, blogger and well-known media commentator for all things property.

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